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LOGO [g97563image001.jpg]

 

CREDIT, SECURITY, GUARANTY AND PLEDGE AGREEMENT

 

Dated as of December 2, 2005

 

among

 

IDTE ANIMATION SLATE, LLC

as Borrower,

 

THE GUARANTORS REFERRED TO HEREIN,

 

IDT ENTERTAINMENT, INC.

as Parent,

 

THE LENDERS REFERRED TO HEREIN

 

and

 

JPMORGAN CHASE BANK, NATIONAL ASSOCIATION

as Administrative Agent and as Issuing Bank

 

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J.P. MORGAN SECURITIES INC.

as Sole Bookrunner and Sole Lead Arranger

 

ROYAL BANK OF SCOTLAND PLC

as Documentation Agent

 

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TABLE OF CONTENTS

 

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PARTIES    1 INTRODUCTORY STATEMENT    1 1.    DEFINITIONS    2 2.    THE LOANS
   30      SECTION 2.1.    Loans    30      SECTION 2.2.    Making of Loans   
32      SECTION 2.3.    Notes    34      SECTION 2.4.    Interest on Notes    34
     SECTION 2.5.    Commitment Fees and Other Fees    35      SECTION 2.6.   
Optional Termination or Reduction of Commitments    35      SECTION 2.7.   
Default Interest; Alternate Rate of Interest    36      SECTION 2.8.   
Continuation and Conversion of Loans    36      SECTION 2.9.    Voluntary and
Mandatory Prepayment of Loans; Reimbursement of Lenders    38      SECTION 2.10.
   Increased Costs    42      SECTION 2.11.    Change in Legality    44     
SECTION 2.12.    Manner of Payments    44      SECTION 2.13.    Taxes    44     
SECTION 2.14.    Interest Adjustments    46      SECTION 2.15.    Letters of
Credit    47 3.    REPRESENTATIONS AND WARRANTIES OF THE CREDIT PARTIES    50  
   SECTION 3.1.    Existence and Power    50      SECTION 3.2.    Authority and
No Violation    50      SECTION 3.3.    Governmental Approval    51      SECTION
3.4.    Binding Agreements    51      SECTION 3.5.    Financial Statements    51
     SECTION 3.6.    No Material Adverse Change    52      SECTION 3.7.   
Ownership of Pledged Securities, Subsidiaries, etc.    52      SECTION 3.8.   
Copyrights, Trademarks and Other Rights    52      SECTION 3.9.    Fictitious
Names    53

 

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     SECTION 3.10.    Title to Properties    53      SECTION 3.11.    Places of
Business    53      SECTION 3.12.    Litigation    53      SECTION 3.13.   
Federal Reserve Regulations    54      SECTION 3.14.    Investment Company Act
   54      SECTION 3.15.    Taxes    54      SECTION 3.16.    Compliance with
ERISA    54      SECTION 3.17.    Agreements    55      SECTION 3.18.   
Security Interest    55      SECTION 3.19.    Environmental Liabilities    55  
   SECTION 3.20.    Pledged Securities    56      SECTION 3.21.    Compliance
with Laws    57      SECTION 3.22.    Subsidiaries    57      SECTION 3.23.   
Solvency    57      SECTION 3.24.    True and Complete Disclosure    57 4.   
CONDITIONS OF LENDING    58      SECTION 4.1.    Conditions Precedent to Initial
Loan    58      SECTION 4.2.    Conditions Precedent to the Initial Loan for
Each Qualifying Picture    62      SECTION 4.3.    Conditions Precedent to Each
Loan and Letter of Credit    63 5.    AFFIRMATIVE COVENANTS    64      SECTION
5.1.    Financial Statements, Reports and Audits    64      SECTION 5.2.   
Corporate Existence; Compliance with Laws    68      SECTION 5.3.    Maintenance
of Properties    68      SECTION 5.4.    Notice of Material Events    68     
SECTION 5.5.    Insurance    69      SECTION 5.6.    Music    70      SECTION
5.7.    Copyrights and Trademarks    70      SECTION 5.8.    Books and Records,
Examination    71      SECTION 5.9.    Third Party Audit Rights    71

 

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     SECTION 5.10.   Observance of Agreements    72      SECTION 5.11.  
Laboratories; No Removal    72      SECTION 5.12.   Taxes and Charges;
Indebtedness in Ordinary Course of Business    73      SECTION 5.13.   Liens   
73      SECTION 5.14.   Further Assurances; Security Interests    73     
SECTION 5.15.   ERISA Compliance and Reports    74      SECTION 5.16.  
Environmental Laws    74      SECTION 5.17.   Distribution Agreements, Letters
of Credit, Etc.    75      SECTION 5.18.   Location of Production Accounts    76
     SECTION 5.19.   Performance of Obligations    76      SECTION 5.20.  
Indebtedness    76      SECTION 5.21.   Subsidiaries    76      SECTION 5.22.  
Fiscal Year End    76      SECTION 5.23.   Permitted Co-Financed Pictures    76
     SECTION 5.24.   Production Covenants    78      SECTION 5.25.   Bank
Accounts    78      SECTION 5.26.   No Adverse Selection    78 6.    NEGATIVE
COVENANTS    79      SECTION 6.1.   Limitations on Indebtedness    79     
SECTION 6.2.   Limitations on Liens    80      SECTION 6.3.   Limitation on
Guaranties    81      SECTION 6.4.   Limitations on Investments    82     
SECTION 6.5.   Restricted Payments    82      SECTION 6.6.   Consolidation,
Merger or Sale of Assets, etc.    83      SECTION 6.7.   Receivables    83     
SECTION 6.8.   Sale and Leaseback    83      SECTION 6.9.   Places of Business;
Change of Name, Jurisdiction    83      SECTION 6.10.   Limitations on Capital
Expenditures    83      SECTION 6.11.   Transactions with Affiliates    84

 

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     SECTION 6.12.   Business Activities    84      SECTION 6.13.   Fiscal Year
End    84      SECTION 6.14.   Maximum Budget    84      SECTION 6.15.   Bank
Accounts    84      SECTION 6.16.   ERISA Compliance    84      SECTION 6.17.  
Hazardous Materials    85      SECTION 6.18.   Use of Proceeds of Loans    85  
   SECTION 6.19.   Swap Agreements    85      SECTION 6.20.   Subsidiaries    85
     SECTION 6.21.   Modification of Material Agreements    85      SECTION
6.22.   No Negative Pledge    86      SECTION 6.23.   No Other Material
Agreements    86 7.    EVENTS OF DEFAULT    86 8.    GRANT OF SECURITY INTEREST;
REMEDIES    89      SECTION 8.1.   Security Interests    89      SECTION 8.2.  
Use of Collateral    90      SECTION 8.3.   Collection Accounts    90     
SECTION 8.4.   Credit Parties to Hold in Trust    90      SECTION 8.5.  
Collections, etc.    90      SECTION 8.6.   Possession, Sale of Collateral, etc.
   91      SECTION 8.7.   Application of Proceeds after Event of Default    92  
   SECTION 8.8.   Power of Attorney    93      SECTION 8.9.   Financing
Statements, Direct Payments    93      SECTION 8.10.   Further Assurances    94
     SECTION 8.11.   Termination and Release    94      SECTION 8.12.   Remedies
Not Exclusive    94      SECTION 8.13.   Quiet Enjoyment    94      SECTION
8.14.   Continuation and Reinstatement    95 9.    GUARANTY OF GUARANTORS    95
     SECTION 9.1.   Guaranty    95

 

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     SECTION 9.2.   No Impairment of Guaranty, etc.    96      SECTION 9.3.  
Continuation and Reinstatement, etc.    96      SECTION 9.4.   Limitation on
Guaranteed Amount, etc.    97 10.    GUARANTY AND UNDERTAKINGS of parent    97  
   SECTION 10.1.   Guaranty and Undertakings    97      SECTION 10.2.   No
Impairment of Guaranty, etc.    100      SECTION 10.3.   Continuation and
Reinstatement, etc.    101      SECTION 10.4.   Representations and Warranties
of the Parent    101      SECTION 10.5.   Affirmative Covenants of the Parent   
104 11.    PLEDGE    106      SECTION 11.1.   Pledge    106      SECTION 11.2.  
Covenant    106      SECTION 11.3.   Registration in Nominee Name; Denominations
   106      SECTION 11.4.   Voting Rights; Dividends; etc.    106      SECTION
11.5.   Remedies Upon Default    107      SECTION 11.6.   Application of
Proceeds of Sale and Cash    108      SECTION 11.7.   Securities Act, etc.   
109      SECTION 11.8.   Continuation and Reinstatement    109      SECTION
11.9.   Termination    110 12.    CASH COLLATERAL    110      SECTION 12.1.  
Cash Collateral Accounts    110      SECTION 12.2.   Investment of Funds    110
     SECTION 12.3.   Securities Account    111      SECTION 12.4.   Grant of
Security Interest    111      SECTION 12.5.   Remedies    111 13.    THE
ADMINISTRATIVE AGENT AND THE ISSUING BANK    111      SECTION 13.1.  
Administration by the Administrative Agent    111      SECTION 13.2.   Payments
   114      SECTION 13.3.   Sharing of Setoffs and Cash Collateral    115     
SECTION 13.4.   Notice to the Lenders    115      SECTION 13.5.   Liability of
the Administrative Agent and Issuing Bank    115

 

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     SECTION 13.6.    Reimbursement and Indemnification    116      SECTION
13.7.    Rights of Administrative Agent    117      SECTION 13.8.    Independent
Investigation by Lenders    117      SECTION 13.9.    Agreement of Required
Lenders    117      SECTION 13.10.    Notice of Transfer    117      SECTION
13.11.    Successor Administrative Agent    117      SECTION 13.12.    Successor
Issuing Bank    118 14.    MISCELLANEOUS    119      SECTION 14.1.    Notices   
119      SECTION 14.2.    Survival of Agreement, Representations and Warranties,
etc.    119      SECTION 14.3.    Successors and Assigns; Syndications; Loan
Sales; Participations    120      SECTION 14.4.    Expenses; Documentary Taxes
   123      SECTION 14.5.    Indemnity    124      SECTION 14.6.    CHOICE OF
LAW    125      SECTION 14.7.    WAIVER OF JURY TRIAL    125      SECTION 14.8.
   WAIVER WITH RESPECT TO DAMAGES    125      SECTION 14.9.    No Waiver    126
     SECTION 14.10.    Amendments, etc.    126      SECTION 14.11.   
Severability    127      SECTION 14.12.    SERVICE OF PROCESS    127     
SECTION 14.13.    Headings    128      SECTION 14.14.    Execution in
Counterparts    128      SECTION 14.15.    Subordination of Intercompany
Indebtedness, Receivables and Advances    128      SECTION 14.16.    USA Patriot
Act    129      SECTION 14.17.    Entire Agreement    129      SECTION 14.18.   
Confidentiality    129

 

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Schedules

 

1    Schedule of Commitments 2    Guarantors 3    Calculation of Released Film
Values 4    Acceptable Obligors and Allowable Amounts 5    Permitted
Counterparties 3.1    List of Jurisdictions 3.2(b)    Restrictions on Transfer
of Pledged Securities 3.7(a)    Ownership of Equity Interests of the Credit
Parties 3.7(b)    Ownership of Pledged Securities other than Credit Parties
3.8(a)    Pictures 3.8(b)    Trademarks 3.8(c)    Applications and Registrations
Not in Full Force and Effect 3.9    Fictitious Names 3.11    Chief Executive
Office, Location of Collateral and Records 3.12    Litigation 3.16    ERISA
Plans 3.17    Agreements 3.18    Filing Offices for UCC-1 Financing Statements;
Registration Numbers 3.19    Environmental Liabilities 6.1    Existing
Indebtedness 6.2    Existing Liens 6.3    Existing Guaranties 6.11   
Transactions with Affiliates 6.15    Bank Accounts 6.17    Hazardous Materials
11.1    Pledged Securities

 

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Exhibits

 

A    Form of Note B    Form of Opinion of O’Melveny & Myers LLP, counsel to the
Credit Parties C-1    Form of Copyright Security Agreement C-2    Form of
Copyright Security Agreement Supplement D    Form of Laboratory Access Letter
E-1    Form of Pledgeholder Agreement (Uncompleted Pictures) E-2    Form of
Pledgeholder Agreement (Completed Pictures) F    Form of Trademark Security
Agreement G    Form of Contribution Agreement H    Form of Borrowing Certificate
I    Form of Assignment and Assumption J    Form of Instrument of Assumption and
Joinder K    Form of Notice of Assignment and Irrevocable Instructions L    Form
of Account Control Agreement M    Form of Qualifying Picture Declaration N   
Form of Liquidity Certificate O    Form of Borrowing Base Certificate

 

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CREDIT, SECURITY, GUARANTY AND PLEDGE AGREEMENT dated as of December 2, 2005 (as
amended, supplemented or otherwise modified, renewed or replaced from time to
time, the “Credit Agreement”) among (i) IDTE ANIMATION SLATE, LLC, a Delaware
limited liability company, as Borrower, (ii) the GUARANTORS referred to herein,
(iii) IDT ENTERTAINMENT, INC., a Delaware corporation, as Parent, (iv) the
LENDERS referred to herein and (v) JPMORGAN CHASE BANK, NATIONAL ASSOCIATION, a
national banking association, as agent for the Lenders and as Issuing Bank.

 

INTRODUCTORY STATEMENT

 

Terms not otherwise defined above or in this Introductory Statement are as
defined in Article 1 hereof or as defined elsewhere herein.

 

The Borrower has requested that the Lenders make available a $125,000,000 five
and a half year secured revolving credit facility (the “Facility”), of which
$95,000,000 has been committed on the date hereof and the remaining $30,000,000
of which is subject to obtaining commitments from additional Lenders. The
Facility will be used to fund (i) a portion of certain costs of the production
and distribution of animated feature length films to be produced or acquired by
the Borrower, (ii) interest on the Facility and (iii) other costs of the
Facility and certain overhead amounts.

 

To provide assurance for the repayment of the Loans and the other Obligations of
the Borrower hereunder, the Borrower will, among other things, provide or cause
to be provided to the Administrative Agent, for the benefit of itself, the
Issuing Bank and the Lenders, the following (each as more fully described
herein):

 

  (i) a security interest in the Collateral from each of the Credit Parties
pursuant to Article 8 hereof

 

  (ii) a guaranty of the Obligations by each of the Guarantors pursuant to
Article 9 hereof;

 

  (iii) a guaranty of certain matters by the Parent pursuant to Article 10
hereof; and

 

  (iv) a pledge by each of the Pledgors of the Pledged Securities owned by it
pursuant to Article 11 hereof.

 

Subject to the terms and conditions set forth herein, the Administrative Agent
is willing to act as agent for the Lenders, the Issuing Bank is willing to issue
Letters of Credit and each Lender is willing to make Loans to the Borrower and
participate in the Letters of Credit, each as provided herein, in an aggregate
amount at any one time outstanding not in excess of its Commitment hereunder.

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Accordingly, the parties hereto hereby agree as follows:

 

1. DEFINITIONS

 

For the purposes hereof unless the context otherwise requires, all Section
references herein shall be deemed to correspond with Sections herein, the
following terms shall have the meanings indicated, all accounting terms not
otherwise defined herein shall have the respective meanings accorded to them
under GAAP and all terms defined in the UCC and not otherwise defined herein
shall have the respective meanings accorded to them therein. Unless the context
otherwise requires, any of the following terms may be used in the singular or
the plural, depending on the reference:

 

“Acceptable L/C” shall mean an irrevocable letter of credit which: (i) is in
form and on terms acceptable to the Administrative Agent; (ii) is payable in
Dollars at an office of the issuing or confirming bank in New York City or Los
Angeles; and (iii) is issued or confirmed by any Person that on the date of
issuance or confirmation of the letter of credit is (a) a Lender, (b) a New York
Clearinghouse bank, (c) a commercial bank (or domestic branch of a foreign bank)
that has (or which is the principal operating Subsidiary of a holding company
which has) long term senior unsecured debt outstanding with a rating of at least
“A-” (or the equivalent of “A-”) from a nationally recognized debt rating agency
or capital and surplus in excess of $500,000,000, or (d) any other bank which
the Administrative Agent may in its discretion in good faith determine to be of
acceptable credit quality.

 

“Acceptable Obligors” shall be the Persons listed on Schedule 4 hereto and such
other Persons or Affiliated Groups that are acceptable to the Lenders in their
reasonable discretion; provided, however, that the Administrative Agent may from
time to time by written notice to the Borrower (which notice shall be
prospective only, i.e., to the extent that removing such Person or Affiliated
Group from the Acceptable Obligor list would otherwise result in a mandatory
prepayment by the Borrower, such removal shall not be given effect for purposes
of such mandatory prepayment, but such removal shall nevertheless be effective
for all other purposes under the definitive loan documentation immediately upon
the Borrower’s receipt of such notice) delete such Person or Affiliated Group as
the Administrative Agent, acting in good faith, may in its discretion deem
appropriate; and provided, further, that to the extent practicable any such
notice of deletion of any such Person of Affiliated Group shall include a
statement of the Administrative Agent of the reasons for such deletion, it being
understood that the absence of or any inadequacy in such statement shall not
render such notice of deletion invalid.

 

“Acceptable Tax Credits” shall mean the amount that a Guarantor is entitled to
or can reasonably be expected to be entitled to receive as a refund of tax with
respect to any tax credit pursuant to section 125.5 of the ITA, sections 82.1,
82.2 or 82.3 of the Income Tax Act (British Columbia) R.S.B.C. 1996, c.215, as
amended (the “BC Act”), sections 43.8 or 43.10 of the Corporations Tax Act
(Ontario) R.S.O. 1990, c.C.40, as amended (the “Ontario Act”) or the comparable
provision of law of any other Canadian Province (an “Other Provincial Act”),
which meets the following criteria:

 

  (i) the tax credit is in respect of a Qualifying Picture that has commenced
principal photography;

 

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  (ii) the Guarantor shall have delivered to the Administrative Agent the
various items for the applicable Qualifying Picture to the extent required under
Section 4.2;

 

  (iii) not more than eighteen months has elapsed since the “taxation year” (as
defined under the ITA) of the Guarantor to which such tax credit would relate;

 

  (iv) in the case of a tax credit under section 125.5 of the ITA the Guarantor
has filed an application with the Minister of Canadian Heritage in respect of
the Qualifying Picture for an Accredited Film or Video Production Certificate;

 

  (v) in the case of a tax credit under sections 82.1, 82.2 or 82.3 of the BC
Act the Guarantor has filed an application pursuant to section 87.1 of the BC
Act with the Minister of Tourism, Sport and the Arts in respect of the
Qualifying Picture for an Accreditation Certificate;

 

  (vi) in the case of a tax credit under sections 43.8 or 43.10 of the Ontario
Act, the Guarantor has filed an application in respect of the Qualifying Picture
with the Ontario Media Development Corporation (the “OMDC”) for a Certificate of
Eligibility;

 

  (vii) the amount of a refund of tax with respect to a tax credit that a
Guarantor is entitled or can reasonably be expected to be entitled to receive is
net of any tax, interest, penalty or other amount payable by a Guarantor under
the ITA, the BC Act, the Ontario Act or Other Provincial Act, as applicable, or
any other amount payable by the Guarantor to which the credit can be or has been
applied by set-off or in any other manner whatsoever by Her Majesty in Right of
Canada, Her Majesty in Right of the Province of British Columbia, Her Majesty in
Right of the Province of Ontario, any other applicable province or any
Governmental Authority thereof;

 

  (viii) the amount of the tax credit shall be reduced by the amount of the
portion, if any, which is the subject matter of any communication from the
Canada Revenue Agency, the Minister of Canadian Heritage, the Canadian
Audio-Visual Certification Office, the British Columbia Minister of Small
Business and Revenue, the British Columbia Minister of Tourism, Sport and the
Arts, the F.D.B.C. Film Development Society of British Columbia, the OMDC, the
Ontario Minister of Finance or any other relevant Governmental Authority that
questions the entitlement of the Guarantor thereto or otherwise seeks to
restrict or deny such entitlement;

 

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  (ix) the Administrative Agent (for the benefit of itself, the Issuing Bank and
the Lenders) has a first priority perfected security interest in the tax credit
and notice of such security interest in accordance with any applicable
requirements of the ITA, the BC Act, the Ontario Act, or Other Provincial Act,
as applicable, has been delivered to the Canada Customs and Revenue Agency and
any other relevant Governmental Authority; and

 

  (x) in the case of any tax credit under any Other Provincial Act, such other
actions or requirements as the Administrative Agent or its counsel may require;

 

provided, however, that (x) to the extent that circumstances arise or occur that
would cause the actual tax credit to be less than the amount that would be
determined based on any estimated amounts as set forth on any applications for
any certificate described in clauses (iv), (v) and (vi) of this definition, or
on any such certificate or a comparable certificate in case of a credit under
any Other Provincial Act, as applicable, the Acceptable Tax Credit shall be
reduced to reflect the revised estimate and (y) an Acceptable Tax Credit shall
cease to be an Acceptable Tax Credit (A) if the Guarantor has not filed its
return of income and all other certificates, forms and documents required under
the applicable legislation to be filed together therewith in order to claim such
tax credit within 6 months from the end of the “taxation year” referred to in
clause (iii) of this definition, or (B) if the relevant Governmental Authority
has (i) denied the Guarantor’s application of the applicable certificate set
forth in clauses (iv), (v) and (vi) of this definition, (ii) not issued the
applicable certificate within fifteen months following the Guarantor’s
application thereof or (iii) revoked or notified the Guarantor of their
intention to revoke such certificate.

 

“Account Control Agreement” shall mean an account control agreement
substantially in the form of Exhibit L hereto or such other account control
agreement in form and substance satisfactory to the Administrative Agent.

 

“Additional Distribution Agreement” shall mean (i) any and all agreements
entered into by a Credit Party, pursuant to which such Credit Party has sold,
leased, licensed or assigned distribution rights or other exploitation rights to
any Picture to an Acceptable Obligor, and (ii) any and all agreements hereafter
entered into by a Credit Party pursuant to which such Credit Party sells,
leases, licenses or assigns distribution rights or other exploitation rights to
a Picture to an Acceptable Obligor; in each case, other than a Main Distribution
Agreement.

 

“Administrative Agent” shall mean JPMorgan Chase Bank, N.A., in its capacity as
agent for the Lenders hereunder, or such successor Administrative Agent as may
be appointed pursuant to Section 13.11 hereof.

 

“Affiliate” shall mean any Person, which, directly or indirectly, is in control
of, is controlled by, or is under common control with, another Person. For
purposes of this definition, a Person shall be deemed to be “controlled by”
another Person if such latter Person possesses, directly or indirectly, power
either to direct or cause the direction of the management and policies of such
controlled Person whether by contract or otherwise.

 

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“Affiliated Group” shall mean a group of Persons, each of which is an Affiliate
(other than by reason of having common directors or officers) of some other
Person in the group.

 

“Aggregate Released Film Value” shall be as defined in Schedule 3 hereto.

 

“Allowable Amount” shall mean, with respect to any Acceptable Obligor, such
amount as may be specified on Schedule 4 hereto as the maximum aggregate
exposure for such Acceptable Obligor; provided, however, that (i) the
Administrative Agent may from time to time by written notice to the Borrower
(which notice shall be prospective only, i.e., to the extent that reducing such
Allowable Amount for any Acceptable Obligor would otherwise result in a
mandatory prepayment by the Borrower such reduction shall not be given effect
for purposes of such mandatory prepayment, but such reduction shall nevertheless
be effective for all other purposes under the definitive loan documentation
immediately upon the Borrower’s receipt of such notice), decrease such amount as
the Administrative Agent, acting in good faith, may in its discretion deem
appropriate, or (ii) the Lenders may, by written notice to the Borrower,
increase such amount as they may in their discretion deem appropriate.

 

“Alternate Base Rate” shall mean, for any day, a rate per annum (rounded
upwards, if necessary, to the next  1/16 of 1%) equal to the greater of (a) the
Prime Rate in effect on such day, (b) the Base CD Rate in effect on such day
plus 1% and (c) the Federal Funds Effective Rate in effect for such day plus
 1/2 of 1%. For purposes hereof, “Prime Rate” shall mean the rate of interest
per annum publicly announced from time to time by the Administrative Agent as
its prime rate in effect at its principal office in New York City. “Base CD
Rate” shall mean the sum of (a) the product of (i) the Three-Month Secondary CD
Rate and (ii) Statutory Reserves and (b) the Assessment Rate. “Three-Month
Secondary CD Rate” shall mean, for any day, the secondary market rate for
three-month certificates of deposit reported as being in effect on such day (or,
if such day is not a Business Day, the next preceding Business Day) by the Board
through the public information telephone line of the Federal Reserve Bank of New
York (which rate will, under current practices of the Board, be published in
Federal Reserve Statistical Release H.15(519) during the week following such
day), or, if such rate shall not be so reported on such day or such next
preceding Business Day, the average of the secondary market quotations for
three-month certificates of deposit of major money center banks in New York City
received at approximately 10:00 a.m., New York City time, on such day (or, if
such day shall not be a Business Day, on the next preceding Business Day) by the
Administrative Agent from three New York City negotiable certificate of deposit
dealers of recognized standing selected by it. “Statutory Reserves” shall mean a
fraction (expressed as a decimal), the numerator of which is the number one and
the denominator of which is the number one minus the aggregate of the maximum
reserve percentages (including any marginal, special, emergency or supplemental
reserves) expressed as a decimal established by the Board and any other banking
authority to which the Administrative Agent is subject for new negotiable
non-personal time deposits in Dollars of over $100,000 with maturities
approximately equal to three months. Statutory Reserves shall be adjusted
automatically on and as of the effective date of any change in any reserve
percentage. “Federal Funds Effective Rate” shall mean, for any day, the weighted
average (rounded upwards, if necessary to the next 1/100 of 1%) of the rates on
overnight Federal funds transactions with members of the Federal Reserve System
arranged by Federal funds brokers, as published on the next succeeding Business
Day by the Federal Reserve Bank of New York, or, if such rate is not so
published for any day which is a Business Day, the average

 

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(rounded upwards, if necessary to the next 1/100 of 1%) of the quotations for
the day of such transactions received by the Administrative Agent from three
Federal funds brokers of recognized standing selected by it. If for any reason
the Administrative Agent shall have determined (which determination shall be
conclusive absent manifest error) that it is unable to ascertain the Federal
Funds Effective Rate for any reason, including the inability or failure of the
Administrative Agent to obtain sufficient quotations in accordance with the
terms hereof, the Alternate Base Rate shall be determined without regard to
clause (b) of the first sentence of this definition until the circumstances
giving rise to such inability no longer exist. Any change in the Alternate Base
Rate due to a change in the Prime Rate or the Federal Funds Effective Rate shall
be effective on the effective date of such change in the Prime Rate or the
Federal Funds Effective Rate, respectively.

 

“Alternate Base Rate Loan” shall mean a Loan based on the Alternate Base Rate in
accordance with the provisions of Article 2 hereof.

 

“Applicable Law” shall mean all provisions of statutes, rules, regulations and
orders of the United States of America, any state thereof or municipality
therein or of any foreign governmental body or of any regulatory agency
applicable to the Person in question, and all orders and decrees of all courts
and arbitrators in proceedings or actions in which the Person in question is a
party.

 

“Applicable Margin” shall mean (i) in the case of Alternate Base Rate Loans,
1.50% per annum and (ii) in the case of LIBOR Loans, 2.50% per annum.

 

“Approved Completion Bond” shall mean with respect to any Qualifying Picture, a
completion bond, in form and substance satisfactory to the Administrative Agent,
issued by an Approved Completion Guarantor, which bond (i) names the
Administrative Agent (for the benefit of itself, the Issuing Bank and the
Lenders) as a beneficiary thereof to the extent of the applicable Credit Party’s
financial interest in such Qualifying Picture, and (ii) guarantees, subject to
standard terms and conditions, due and timely delivery of such Qualifying
Picture no later than the Commitment Termination Date, or else payment to the
Administrative Agent (on behalf of itself, the Issuing Bank and the Lenders) of
an amount at least equal to the portion of the negative costs of such Qualifying
Picture actually spent or provided for.

 

“Approved Completion Guarantor” shall mean a financially sound and reputable
completion guarantor approved by the Required Lenders. The Required Lenders
hereby pre-approve as a completion guarantor each of (i) Fireman’s Fund
Insurance Company, acting through its agent, International Film Guarantors, L.P.
(the general partner of which is International Film Guarantors, Inc.) and
(ii) Film Finances, Inc. (“FFI”); provided, however, that with respect to FFI,
any such pre-approval is conditioned upon the receipt and approval by the
Administrative Agent of (x) FFI’s current insurance support package for each
12-month period commencing in April of each year and (y) a Lloyd’s of London
“cut through” endorsement providing a right to make claims directly against
underwriters having credit quality acceptable to the Required Lenders; provided,
further, that each of such pre-approvals may be revoked by the Administrative
Agent if deemed appropriate in its reasonable discretion, or if so instructed by
the Required Lenders, at any time upon 30 days prior written notice to the
Borrower, provided, that no such revocation shall be effective with respect to a
Qualifying Picture if the notice of

 

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revocation has been received by the Borrower after the execution of an Approved
Completion Bond or commitment therefor, which in the case of a commitment shall
have been issued no earlier than 30 days prior to commencement of production of
such Qualifying Picture.

 

“Arranger” shall mean J.P. Morgan Securities Inc., in its capacity as sole lead
arranger and sole bookrunner in connection with the Facility.

 

“Assessment Rate” shall mean, for any day, the annual assessment rate in effect
on such day that is payable by a member of the Bank Insurance Fund classified as
“well-capitalized” and within supervisory subgroup “B” (or a comparable
successor risk classification) within the meaning of 12 C.F.R. Part 327 (or any
successor provision) to the Federal Deposit Insurance Corporation for insurance
by such Corporation of time deposits made in dollars at the offices of such
member in the United States; provided that if, as a result of any change in any
law, rule or regulation, it is no longer possible to determine the Assessment
Rate as aforesaid, then the Assessment Rate shall be such annual rate as shall
be determined by the Administrative Agent to be representative of the cost of
such insurance to the Lenders.

 

“Assignment and Assumption” shall mean an agreement substantially in the form of
Exhibit I hereto, executed by the assignor, assignee and other parties as
contemplated thereby.

 

“Authorized Officer” shall mean with respect to any Person, its Chairman, Chief
Executive Officer, President, Chief Financial Officer or Chief Operating
Officer.

 

“Bankruptcy Code” shall mean the Bankruptcy Reform Act of 1978, as heretofore
and hereafter amended, as codified at 11 U.S.C. § 101 et seq.

 

“Board” shall mean the Board of Governors of the Federal Reserve System of the
United States of America.

 

“Borrower” shall mean IDTE Animation Slate, LLC, a Delaware limited liability
company.

 

“Borrowing” shall mean a group of Loans of a single Type and as to which a
single Interest Period is in effect on a single day.

 

“Borrowing Base” shall mean an amount equal to the sum of (without double
counting for any receivables or prior collections):

 

  (i) 100% of Eligible Receivables secured by an Acceptable L/C, plus

 

  (ii) 100% of Eligible Receivables from Major Domestic Account Debtors (other
than amounts payable under a Main Distribution Agreement), plus

 

  (iii) 90% of Eligible Receivables from Major Foreign Account Debtors, plus

 

  (iv) 90% of Eligible Receivables from other Acceptable Obligors which have
already advanced 10% of the gross amount payable by the Acceptable Obligor with
regard to the relevant receivable, plus

 

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  (v) 80% of Eligible Receivables from other Acceptable Obligors which have not
yet advanced at least 10% of the gross amount of the respective receivable, plus

 

  (vi) 50% of Other Receivables from obligors which are not Acceptable Obligors
and are not included in clauses (i) through (v) above; provided, that the
Borrowing Base credit at any time pursuant to this clause shall not exceed
$5,000,000 in the aggregate for all such receivables or $300,000 for any
obligor, plus

 

  (vii) Canadian Subsidy Loan Value, provided, however, that the aggregate
amount of the Canadian Subsidy Loan Value that may be included in the Borrowing
Base at any time for all Qualifying Pictures may not exceed $15 million in the
aggregate, plus

 

  (viii) the Aggregate Released Film Value for Qualifying Pictures which have
been out in general theatrical release in the United States at least eight weeks
as determined in accordance with Schedule 3 hereto, (without double counting for
any receivables for which any value if otherwise included in the Borrowing Base)
plus

 

  (ix) 100% of the amount of cash and Cash Equivalents on deposit in the Cash
Collateral Account;

 

provided, however, that until a Qualifying Picture has been Completed, the
amount which may be included in the Borrowing Base pursuant to clauses
(i) through (vii) inclusive, may not exceed the excess of (x) the Strike Price
of the relevant Approved Completion Bond over (y) the amounts advanced pursuant
to clause (i) of Section 2.1(a).

 

“Borrowing Certificate” shall mean a borrowing certificate, substantially in the
form of Exhibit H hereto, to be delivered by the Borrower to the Administrative
Agent in connection with each Borrowing.

 

“Business Day” shall mean any day other than a Saturday, Sunday or other day on
which banks are required or permitted to close in either the State of New York
or the State of California; provided, however, that when used in connection with
a LIBOR Loan, the term “Business Day” shall also exclude any day on which banks
are not open for dealings in Dollar deposits on the London Interbank Market.

 

“Business Plan” shall mean a business plan for the Credit Parties in form and
substance reasonably acceptable to the Administrative Agent.

 

“Canadian Subsidy Loan Value” shall mean 100% of the Acceptable Tax Credits.

 

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“Capital Expenditures” shall mean, with respect to any Person for any period,
the aggregate of all expenditures (whether paid in cash or accrued as a
liability) by such Person during that period which, in accordance with GAAP, are
or should be included in “additions to property, plant or equipment” or similar
items included in cash flows (including Capital Leases). For purposes of this
definition, the purchase price of equipment that is purchased simultaneously
with the trade-in of existing equipment or with insurance proceeds shall be
included in Capital Expenditures only to the extent of the gross amount of such
purchase price less the credit granted by the seller of such equipment for the
equipment being traded in at such time, or the amount of such proceeds, as the
case may be.

 

“Capital Lease”, as applied to any Person, shall mean any lease of any property
(whether real, personal or mixed) by that Person as lessee which, in accordance
with GAAP, is or should be accounted for as a capital lease on the balance sheet
of that Person.

 

“Cash Budget” shall mean all actual direct out-of-pocket costs incurred by
Borrower (or its Affiliates) in connection with the development and production
or acquisition of that Qualifying Picture (but not including interest),
including fees to Approved Completion Guarantors for the purchase of Completion
Bonds with respect to such Qualifying Picture (“Bond Fee”), development costs
and a 10% contingency (or such lesser amount if and as required by the Approved
Completion Guarantor issuing such Completion Bond; the “Contingency” herein).
The Cash Budget may include (i) a portion of the upfront fees and costs paid by
the Borrower with regard to the Facility in an amount not to exceed $200,000 for
any Qualifying Picture (and provided that the aggregate amount included in the
Cash Budgets for all Qualifying Pictures shall not exceed the total amount of
all such upfront fees and costs) and (ii) a 12- 1/2% overhead fee. In the case
of an acquired Qualifying Film, the Cash Budget shall be the cash acquisition
cost.

 

“Cash Collateral Account” shall have the meaning given to such term in
Section 12.1 hereof.

 

“Cash Equivalents” means: (a) direct obligations of, or obligations the
principal of and interest on which are unconditionally guaranteed by, the United
States of America (or by any agency thereof to the extent such obligations are
backed by the full faith and credit of the United States of America), in each
case maturing within one year from the date of acquisition thereof;
(b) investments in commercial paper maturing within 270 days from the date of
acquisition thereof and having, at such date of acquisition, the highest credit
rating obtainable from S&P or from Moody’s; (c) investments in certificates of
deposit, banker’s acceptances and time deposits maturing within 180 days from
the date of acquisition thereof issued or guaranteed by or placed with, and
money market deposit accounts issued or offered by, any domestic office of any
commercial bank organized under the laws of the United States of America or any
State thereof which has a combined capital and surplus and undivided profits of
not less than $500,000,000 or that it is a Lender; (d) fully collateralized
repurchase agreements with a term of not more than 30 days for securities
described in clause (a) above and entered into with a financial institution
satisfying the criteria described in clause (c) above; (e) money market funds
that (i) comply with the criteria set forth in Securities and Exchange
Commission Rule 2a-7 under the Investment Company Act of 1940, (ii) are rated
AAA by S&P or Aaa by Moody’s, and (iii) have portfolio assets of at least
$5,000,000,000; (f) money market instruments that price at

 

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par in short-term auction (so called “auction market securities”), are offered
by Merrill Lynch and are rated AAA by S&P or Aaa by Moody’s; and (g) direct
obligations of any State of the United States of America (or by any subdivision
thereof to the extent such obligations are backed by the full faith and credit
of such State), in each case, (i) maturing within one year from the date of
acquisition thereof, and (ii) rated AAA by S&P or Aaa by Moody’s.

 

“Change in Control” shall mean (a) IDT shall cease to own at least 50.1% of the
voting Equity Interests of the Parent or cease to have voting control of the
board of directors of the Parent, or (b) the Parent shall cease to own at least
50.1% of the Equity Interests of the Borrower or cease to have voting control of
the board of directors of the Borrower, or (c) the Borrower shall cease to own
100% of the Equity Interests of any of its Subsidiaries or cease to have voting
control of the board of directors of any Subsidiary (except in the case of
Subsidiaries jointly owned with a Co-Financier to produce a Permitted
Co-Financed Picture).

 

“Change in Law” shall mean (a) the adoption of any law, rule or regulation after
the date of this Agreement, (b) any change in any law, rule or regulation or in
the interpretation or application thereof by any Governmental Authority after
the date of this Agreement or (c) compliance by any Lender or the Issuing Bank
(or, for purposes of Section 2.10(b) by any lending office of such Lender or by
such Lender’s or the Issuing Bank’s holding company, if any) with any request,
guideline or directive (whether or not having the force of law) of any
Governmental Authority made or issued after the date of this Agreement.

 

“Change in Management” shall mean that either (a) all of Steve Brown, Sam
Abraham and Morris Berger shall for any reason no longer be an active manager
the Parent or (b) all of Janet Healy, Neil Braun or John Hyde shall for any
reason no longer be an active manager of the Qualifying Pictures; and in either
case the Parent or the Borrower, as applicable, shall not have retained
replacements therefor acceptable to the Administrative Agent on terms acceptable
to the Administrative Agent, within 120 days of the date of such event.

 

“Closing Date” shall mean the date on which the conditions precedent set forth
in Section 4.1 hereof have been satisfied or waived.

 

“Code” shall mean the Internal Revenue Code of 1986 and the rules and
regulations issued thereunder, as now and hereafter in effect, as codified at 26
U.S.C. § 1 et seq. or any successor provision thereto.

 

“Co-Financier” shall mean (i) any Permitted Counterparty, (ii) any other Person
whose financing obligations under the relevant Co-Financing Agreement are
secured by an Acceptable L/C or (iii) any other Person approved by Required
Lenders, that, together with a Credit Party, co-finances a Permitted Co-Financed
Picture in accordance with the terms hereof.

 

“Co-Financing Agreement” shall mean the agreement between a Credit Party and a
Co-Financier relating to the co-financing arrangements in respect of a Permitted
Co-Financed Picture in form and substance satisfactory to the Administrative
Agent, as the same may be amended, supplemented or otherwise modified, renewed
or replaced from time to time in accordance with the terms hereof.

 

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“Co-Financing Intercreditor Agreement” shall mean, in respect of a Permitted
Co-Financed Picture, an intercreditor agreement among the Administrative Agent,
the applicable Approved Completion Guarantor, the applicable Credit Party, and
the applicable Co-Financier, in form and substance satisfactory to the
Administrative Agent in all respects (as the same may be amended, supplemented
or otherwise modified, renewed or replaced from time to time in accordance with
the terms hereof and thereof) and governing, among other things, the terms of
the applicable co-financing arrangements and the remittance by the
Administrative Agent to such Co-Financier of a portion of the proceeds of the
applicable Permitted Co-Financed Picture. Such intercreditor agreement shall,
among other things, (i) provide for control by the Administrative Agent in the
event of a liquidation of any common collateral, and (other than with respect to
any territory or media over which such Co-Financier has a priority claim)
provide the Administrative Agent with control of remedies against distributors
and licensees of the Permitted Co-Financed Picture and the right to deduct the
costs of enforcement of such remedies from the gross receipts realized prior to
making distributions of the Co-Financier’s share of such gross receipts to the
Co-Financier, (ii) prohibit such Co-Financier from interfering with the rights
of the distributors and licensees of the Permitted Co-Financed Picture (other
than with respect to any territories or media over which such Co-Financier has a
priority claim), (iii) permit the Co-Financier to pursue remedies only against
the applicable Credit Parties (and only for money damages), and not the
Permitted Co-Financed Picture or the proceeds therefrom and (iv) recovery of at
least 20% of any theatrical distribution expenses of such Permitted Co-Financed
Picture shall be subordinated as provided in Section 5.23.

 

“Collateral” shall mean with respect to each Credit Party, all of such Credit
Party’s right, title and interest in and to all personal property, tangible and
intangible, wherever located or situated and whether now owned, presently
existing or hereafter acquired or created, including, but not limited to, all
goods, accounts, instruments, intercompany obligations, contract rights,
partnership and joint venture interests, documents, chattel paper, general
intangibles, goodwill, equipment, machinery, inventory, investment property,
copyrights, trademarks, trade names, insurance proceeds, cash, deposit accounts,
letter of credit rights, the Pledged Securities, and other securities, all
amounts on deposit in the Cash Collateral Account, all securities in the
Securities Account, and any proceeds of any thereof, products of any thereof or
income from any thereof, further including but not limited to, all of such
Credit Party’s right, title and interest in and to each and every item and type
of Picture, the scenario, screenplay or script upon which a Picture is based,
all of the properties thereof, tangible and intangible, and all domestic and
foreign copyrights and all other rights therein and thereto, of every kind and
character, whether now in existence or hereafter to be made or produced, and
whether or not in possession of such Credit Party, including with respect to
each and every Picture and without limiting the foregoing language, each and all
of the following particular rights and properties (in each case to the extent
they are now owned or hereafter created or acquired by such Credit Party):

 

  (i) all scenarios, screenplays and/or scripts at every stage thereof;

 

  (ii)

all common law and/or statutory copyright and other rights in all literary and
other properties (hereinafter called “said literary properties”) which form the
basis of such Picture and/or which are or will be incorporated into such
Picture, all component parts of such Picture consisting of said literary
properties, all motion picture rights in and to the story, all

 

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treatments of said story and said literary properties, together with all
preliminary and final screenplays used and to be used in connection with such
Picture, and all other literary material upon which such Picture is based or
from which it is adapted;

 

  (iii) all rights for all media in and to all music and musical compositions
used and to be used in such Picture, if any, including, each without limitation,
all rights to record, re-record, produce, reproduce or synchronize all of said
music and musical compositions, including, without limitation, reuse fees,
royalties and all other amounts payable with respect to said music and musical
compositions;

 

  (iv) all tangible personal property relating to such Picture, including,
without limitation, all exposed film, developed film, positives, negatives,
prints, positive prints, answer prints, magnetic tapes and other digital or
electronic storage media, special effects, preparing materials (including
interpositives, duplicate negatives, internegatives, color reversals,
intermediates, lavenders, fine grain master prints and matrices, and all other
forms of pre-print elements), sound tracks, cutouts, trims and any and all other
physical properties of every kind and nature relating to such Picture whether in
completed form or in some state of completion, and all masters, duplicates,
drafts, versions, variations and copies of each thereof, in all formats whether
on film, videotape, disk or otherwise and all music sheets and promotional
materials relating to such Picture (collectively, the “Physical Materials”);

 

  (v) all collateral, allied, subsidiary and merchandising rights appurtenant or
related to such Picture including, without limitation, the following rights: all
rights to produce remakes, sequels or prequels to such Picture based upon such
Picture, said literary properties or the theme of such Picture and/or the text
or any part of said literary properties; all rights throughout the world to
broadcast, transmit and/or reproduce by means of television (including
commercially sponsored, sustaining and subscription or “pay” television) or by
any process analogous thereto, now known or hereafter devised, such Picture or
any remake, sequel or prequel to the Picture; all rights to produce primarily
for television or similar use, a motion picture or series of motion pictures, by
use of film or any other recording device or medium now known or hereafter
devised, based upon such Picture, said literary properties or any part thereof,
including, without limitation, based upon any script, scenario or the like used
in such Picture; all merchandising rights including, without limitation, all
rights to use, exploit and license others to use and exploit any and all
commercial tie-ups of any kind arising out of or connected with said literary
properties, such Picture, the title or titles of such Picture, the characters of
such Picture and/or said literary properties and/or the names or characteristics
of said characters and including further, without limitation, any and all
commercial exploitation in connection with or related to such Picture, any
remake, sequel or prequel thereof and/or said literary properties;

 

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  (vi) all statutory copyrights, domestic and foreign, obtained or to be
obtained on such Picture, together with any and all copyrights obtained or to be
obtained in connection with such Picture or any underlying or component elements
of such Picture, including, in each case without limitation, all copyrights on
the property described in subparagraphs (i) through (v) inclusive, of this
definition, together with the right to copyright (and all rights to renew or
extend such copyrights, if applicable) and the right to sue in the name of any
of the Credit Parties for past, present and future infringements of copyright;

 

  (vii) all insurance policies and completion bonds connected with such Picture
and all proceeds which may be derived therefrom;

 

  (viii) all rights to distribute, sell, rent, license the exhibition of and
otherwise exploit and turn to account such Picture, the Physical Materials, the
motion picture rights in and to the story and/or other literary material upon
which such Picture is based or from which it is adapted, and the music and
musical compositions used or to be used in such Picture;

 

  (ix) any and all sums, proceeds, money, products, profits or increases,
including money profits or increases (as those terms are used in the UCC or
otherwise) or other property obtained or to be obtained from the distribution,
exhibition, sale or other uses or dispositions of such Picture or any part of
such Picture, including, without limitation, all sums, proceeds, profits,
products and increases, whether in money or otherwise, from the sale, rental or
licensing of such Picture and/or any of the elements of such Picture including,
without limitation, from collateral, allied, subsidiary and merchandising
rights, and further including, without limitation, all monies held in any
Collection Account;

 

  (x) the dramatic, nondramatic, stage, television, radio and publishing rights,
title and interest in and to such Picture, and the right to obtain copyrights
and renewals of copyrights therein, if applicable;

 

  (xi) the name or title of such Picture and all rights of such Credit Party to
the use thereof, including, without limitation, rights protected pursuant to
trademark, service mark, unfair competition and/or any other applicable
statutes, common law, or other rule or principle of law;

 

  (xii) any and all contract rights and/or chattel paper which may arise in
connection with such Picture;

 

  (xiii)

all accounts and/or other rights to payment which such Credit Party presently
owns or which may arise in favor of such Credit Party in the future, including,
without limitation, any refund or rebate in connection

 

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with a completion bond or otherwise, all accounts and/or rights to payment due
from Persons in connection with the distribution of such Picture, or from the
exploitation of any and all of the collateral, allied, subsidiary, merchandising
and other rights in connection with such Picture;

 

  (xiv) any and all “general intangibles” (as that term is defined in the UCC)
not elsewhere included in this definition, including, without limitation, any
and all general intangibles consisting of any right to payment which may arise
in connection with the distribution or exploitation of any of the rights set out
herein, and any and all general intangible rights in favor of such Credit Party
for services or other performances by any third parties, including actors,
writers, directors, individual producers and/or any and all other performing or
nonperforming artists in any way connected with such Picture, any and all
general intangible rights in favor of such Credit Party relating to licenses of
sound or other equipment, or licenses for any photograph or photographic or
other processes, and any and all general intangibles related to the distribution
or exploitation of such Picture including general intangibles related to or
which grow out of the exhibition of such Picture and the exploitation of any and
all other rights in such Picture set out in this definition;

 

  (xv) any and all goods including, without limitation, “inventory” (as that
term is defined in the UCC) which may arise in connection with the creation,
production or delivery of such Picture and which goods pursuant to any
production or distribution agreement or otherwise are owned by such Credit
Party;

 

  (xvi) all and each of the rights, regardless of denomination, which arise in
connection with the acquisition, creation, production, completion of production,
delivery, distribution, or other exploitation of such Picture, including,
without limitation, any and all rights in favor of such Credit Party, the
ownership or control of which are or may become necessary or desirable, in the
reasonable opinion of the Administrative Agent, in order to complete production
of such Picture in the event that the Administrative Agent exercises any rights
it may have to take over and complete production of such Picture;

 

  (xvii) any and all documents issued by any pledgeholder or bailee with respect
to such Picture or any Physical Materials (whether or not in completed form)
with respect thereto;

 

  (xviii) any and all Production Accounts or other bank accounts established by
such Credit Party with respect to such Picture;

 

  (xix) any and all rights of such Credit Party under any Distribution
Agreements relating to such Picture;

 

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  (xx) any and all rights of such Credit Party under contracts relating to the
production or acquisition of such Picture or otherwise, including, but not
limited to, all such contracts which have been delivered to the Administrative
Agent pursuant to this Credit Agreement; and

 

  (xxi) any and all patents, patent rights, software, proprietary processes or
other rights with respect to the creation or production of computer animated
films.

 

For the avoidance of doubt, the Collateral will not include any claim to amounts
payable to Affiliates of the Borrower for goods or services rendered in
connection with the production of a Qualifying Picture to the extent included in
the Cash Budget for such Qualifying Picture.

 

“Collection Account” shall have the meaning given to such term in Section 8.3(a)
hereof.

 

“Commencement of Production” shall mean, with respect to a Picture, commencement
of key animation with respect to such Picture.

 

“Commitment” shall mean the commitment of each Lender to make Loans to the
Borrower and participate in Letters of Credit up to an aggregate amount not in
excess of the amount set forth (i) opposite its name under the column entitled
“Commitment” in the Schedule of Commitments, or (ii) in any applicable
Assignment and Assumption(s) to which it may be a party, as the case may be, as
such amount may be reduced from time to time in accordance with the terms of
this Credit Agreement.

 

“Commitment Fees” shall have the meaning given to such term in Section 2.5(a)
hereof.

 

“Commitment Termination Date” shall mean (i) May 17, 2011, or (ii) such earlier
date on which the Commitments shall terminate in accordance with Section 2.6 or
Article 7 hereof.

 

“Completed” and “Completion” shall mean with respect to any Picture, that
sufficient elements have been delivered by a Credit Party to, and accepted,
deemed or determined to be accepted and/or exploited by a Main Distributor to
permit such Main Distributor to exhibit such Picture theatrically.

 

“Consolidated Subsidiaries” shall mean all Subsidiaries of a Person which are
required or permitted to be consolidated with such Person for financial
reporting purposes in accordance with GAAP.

 

“Consolidated Net Worth” shall mean, as at any date of determination, with
respect to any Person and its Consolidated Subsidiaries, the consolidated
capital, surplus and retained earnings of such Person and such Subsidiaries, all
as determined in accordance with GAAP.

 

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“Contribution Agreement” shall mean the contribution agreement substantially in
the form of Exhibit G hereto, as the same may be amended, supplemented or
otherwise modified, renewed or replaced from time to time.

 

“Controlled Foreign Subsidiary” shall mean a Subsidiary that is a “controlled
foreign corporation” as defined in Section 957(a) of the Code or any successor
provision thereto.

 

“Copyright Security Agreement” shall mean a Copyright Security Agreement,
substantially in the form of Exhibit C-1 hereto, as the same may be amended,
supplemented or otherwise modified, renewed or replaced from time to time by
delivery of a Copyright Security Agreement Supplement or otherwise.

 

“Copyright Security Agreement Supplement” shall mean a Copyright Security
Agreement Supplement substantially in the form of Exhibit C-2 hereto.

 

“Credit Parties” shall mean the Borrower and each of the Guarantors.

 

“Default” shall mean any event, act or condition which with notice or lapse of
time, or both, would constitute an Event of Default.

 

“Disposition” means any transaction, or series of related transactions, pursuant
to which any Credit Party or any of its Subsidiaries sells, assigns, transfers
or otherwise disposes of any Qualifying Picture or any other material or
materially revenue-generating property or assets (whether now owned or hereafter
acquired) to any Person (other than a Credit Party or any Affiliate of any
Credit Party), in each case, whether or not the consideration therefor consists
of cash, securities or other assets owned by the acquiring Person, excluding any
sales or licenses in the ordinary course of business on ordinary business terms.

 

“Distribution Agreements” shall mean the Main Distribution Agreements and the
Additional Distribution Agreements.

 

“Dollars” and “$” shall mean lawful money of the United States of America.

 

“Eligible Assignee” shall mean (i) a commercial bank organized under the laws of
the United States of America, or any State thereof, and having total assets in
excess of $1,000,000,000, (ii) a savings and loan association or savings bank
organized under the laws of the United States of America, or any State thereof,
and having a net worth of at least $100,000,000, calculated in accordance with
GAAP, (iii) a commercial bank organized under the laws of any other country
which is a member of the Organization for Economic Cooperation and Development
(“OECD”), or a political subdivision of any such country, and having total
assets in excess of $1,000,000,000; provided, that such bank is acting through a
branch, subsidiary or agency located in the country in which it is organized or
another country which is also a member of the OECD, (iv) the central bank of any
country which is a member of the OECD, (v) a financial institution, insurance
company or fund which regularly engages in making, purchasing or otherwise
investing in commercial loans and having total assets in excess of
$1,000,000,000, or (vi) any other Person agreed to by the Borrower and the
Administrative Agent.

 

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“Eligible Receivables” shall mean, at any date at which the amount thereof is to
be determined, an amount equal to the sum of the following (discounted to
present value, in the case of amounts which are not due and payable within 12
months following the date of determination, on a quarterly basis by a rate of
interest equal to the interest rate in effect on the LIBOR Loans on the date of
the computation) of (a) all net amounts which pursuant to a binding agreement
are contractually obligated to be paid to a Credit Party either unconditionally
or subject only to normal delivery requirements, and which are reasonably
expected by the Borrower to be payable and collected from Acceptable Obligors
(other than pursuant to a Main Distribution Agreement) minus (b) the sum,
without double counting, of the following items (based on the Borrower’s then
best estimates): royalties, residuals, commissions, participations and other
payments to third parties, collection/distribution expenses and commissions,
fulfillment costs, taxes (including foreign withholding, remittance and similar
taxes) chargeable in respect of such accounts receivable, and any other
projected expenses of a Credit Party arising in connection with such amounts.
Eligible Receivables shall not include amounts:

 

  (i) which are in the aggregate due from a single Acceptable Obligor in excess
of the Allowable Amount with respect to such Acceptable Obligor or, in the case
of an Affiliated Group, in the aggregate due from the relevant Acceptable
Obligors with respect to that Affiliated Group (but in each case only to the
extent of such excess);

 

  (ii) which in the reasonable discretion of the Administrative Agent, are
subject to material conditions precedent to payment (including a material
performance obligation or a material executory aspect on the part of the
Borrower or any other party or obligations contingent upon future events not
within the Borrower’s direct control, but excluding the condition that the
Qualifying Picture be theatrically released by the Main Distributor so long as
the Main Distributor commits in the applicable Main Distribution Agreement to
release the relevant Qualifying Picture theatrically), other than delivery; or
with respect to which the Borrower is in default under the agreement giving rise
to such receivable;

 

  (iii) which are domestic theatrical receivables;

 

  (iv) which are to be paid in a currency other than United States Dollars;

 

  (v) to the extent included in the Borrower’s estimated bad debts;

 

  (vi) which are due from any obligor which has 10% or more of the total
receivable amount from such obligor 90 or more days past due (exclusive of
amounts that are being disputed or contested in good faith);

 

  (vii) for which there is bona fide request for a material credit, adjustment,
compromise, offset, counterclaim or dispute; provided, however, that only the
amount in question shall be excluded from such receivable;

 

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  (viii) which are attributable to a Qualifying Picture or right in which the
Borrower cannot warrant sufficient title to the underlying rights to justify
such receivable;

 

  (ix) in which the Administrative Agent (for the benefit of itself, the Issuing
Bank and the Lenders) does not have a first priority perfected security interest
under the Uniform Commercial Code and applicable copyright law;

 

  (x) which are determined by the Administrative Agent in its reasonable
discretion, acting in good faith, upon written notice from the Administrative
Agent to the Borrower and effective ten days subsequent to the Borrower’s
receipt of such notice, to be unacceptable (it being understood that certain
unacceptable receivables may be made acceptable and may be included in the
Borrowing Base if secured by an Acceptable L/C);

 

  (xi) which relate to a Qualifying Picture as to which the Administrative Agent
has not received a fully executed Laboratory Access Letter or a Pledgeholder
Agreement for each laboratory holding Physical Materials;

 

  (xii) which will be subject to repayment to the extent not earned by
performance; or

 

  (xiii) which correspond to any residuals, participations or sales commissions
in respect of a Qualifying Picture;

 

  (xiv) which do not become due and payable prior to the scheduled Maturity
Date.

 

provided, however, that if the Administrative Agent notifies the Borrower that
the Administrative Agent has determined that a Person or Affiliated Group is to
be deleted as an Acceptable Obligor, no additional Eligible Receivables from
such Person or Affiliated Group may be included in the Borrowing Base subsequent
to such notice unless supported by an Acceptable L/C or the Administrative Agent
thereafter determines that such Person or Affiliated Group is an Acceptable
Obligor; and provided, further, that if the Administrative Agent notifies the
Borrower that the Administrative Agent has determined that the Allowable Amount
with respect to an Acceptable Obligor is to be decreased, no additional Eligible
Receivables from such Acceptable Obligor may be included in the Borrowing Base
if such inclusion would result in the aggregate amount of Eligible Receivables
from such Acceptable Obligor exceeding the Allowable Amount after giving effect
to such reduction unless the Administrative Agent thereafter determines that the
Allowable Amount may be increased.

 

“Environmental Laws” shall mean any and all federal, state, local or municipal
laws, rules, orders, regulations, statutes, ordinances, codes, decrees or
requirements of any Governmental Authority regulating, relating to, or imposing
liability or standards of conduct concerning, any Hazardous Material or
environmental protection or health and safety, as now or at any time hereafter
in effect, including without limitation, the Clean Water Act also known as

 

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the Federal Water Pollution Control Act (“FWPCA”), 33 U.S.C. § 1251 et seq., the
Clean Air Act (“CAA”), 42 U.S.C. §§ 7401 et seq., the Federal Insecticide,
Fungicide and Rodenticide Act (“FIFRA”), 7 U.S.C. §§ 136 et seq., the Surface
Mining Control and Reclamation Act (“SMCRA”), 30 U.S.C. §§ 1201 et seq., the
Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”),
42 U.S.C. § 9601 et seq., the Superfund Amendments and Reauthorization Act of
1986 (“SARA”), Public Law 99-499, 100 Stat. 1613, the Emergency Planning and
Community Right to Know Act (“ECPCRKA”), 42 U.S.C. § 11001 et seq., the Resource
Conservation and Recovery Act (“RCRA”), 42 U.S.C. § 6901 et seq., the
Occupational Safety and Health Act as amended (“OSHA”), 29 U.S.C. § 655 and §
657, together, in each case, with any amendment thereto, and the regulations
adopted and the publications promulgated thereunder and all substitutions
thereof.

 

“Equity Interests” shall mean shares of the capital stock, partnership
interests, membership interests in a limited liability company, beneficial
interests in a trust or other equity interests in any Person or any warrants,
options or other rights to acquire such interests.

 

“ERISA” shall mean the Employee Retirement Income Security Act of 1974, as
heretofore and hereafter amended, as codified at 29 U.S.C. § 1001 et seq. and
the regulations promulgated thereunder.

 

“ERISA Affiliate” shall mean each Person (as defined in Section 3(9) of ERISA)
which is treated as a single employer with any Credit Party under
Section 414(b), (c), (m) or (o) of the Code.

 

“Event of Default” shall have the meaning given to such term in Article 7
hereof.

 

“Excluded Taxes” shall mean, with respect to the Administrative Agent, any
Lender, the Issuing Bank or any other recipient of any payment to be made by or
on account of any obligation of the Borrower hereunder, (a) income or franchise
taxes imposed on (or measured by) its net income by the United States of
America, or by the jurisdiction under the laws of which such recipient is
organized or in which its principal office is located or, in the case of any
Lender, in which its applicable lending office is located, (b) any branch
profits taxes imposed by the United States of America or any similar tax imposed
by any other jurisdiction in which the Borrower is located and (c) any
withholding tax (in the case of a Foreign Lender) or backup withholding tax (in
the case of any other Lender) that is imposed on amounts payable to such Lender
at the time such Lender becomes a party to this Agreement (or designates a new
lending office) or is attributable to such Lender’s failure to comply with
Section 2.13(e) or Section 2.13(f), except to the extent that such Lender (or
its assignor, if any) was entitled, at the time of designation of a new lending
office (or assignment), to receive additional amounts from the Borrower with
respect to such withholding tax pursuant to Section 2.13(a).

 

“Facility” shall have the meaning given to such term in the Preamble hereto.

 

“Fee Letter” shall mean that certain letter agreement dated as of September 22,
2005 between the Borrower on the one hand, and the Administrative Agent and the
Arranger on the other hand, relating to the payment of certain fees by the
Borrower.

 

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“Foreign Lender” shall mean any Lender that is not a United States person,
within the meaning of Section 7701(a)(30) of the Code.

 

“Fundamental Documents” shall mean, this Credit Agreement, the Notes, the
Pledgeholder Agreements, the Laboratory Access Letters, the Copyright Security
Agreement, the Copyright Security Agreement Supplements, the Trademark Security
Agreement, the Notices of Assignment and Irrevocable Instruction, the
Contribution Agreement, the Instruments of Assumption and Joinder, any Approved
Completion Bond, any Interparty Agreement, any Co-Financing Intercreditor
Agreement, any Co-Financing Agreement, and other agreements entered into in
connection with Permitted Co-Financed Pictures, any Acceptable L/C deposited
with the Administrative Agent hereunder, UCC financing statements and any other
ancillary documentation which is required to be or is otherwise executed by any
Credit Party and delivered to the Administrative Agent in connection with this
Credit Agreement or any of the documents listed above.

 

“GAAP” shall mean generally accepted accounting principles in the United States
of America in effect from time to time consistently applied (except for
accounting changes in response to FASB releases, or other authoritative
pronouncements).

 

“Governmental Authority” shall mean any federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
or any court, in each case whether of the United States of America or any
foreign jurisdiction.

 

“Guarantors” shall mean all the entities listed on Schedule 2 hereto and all
other direct and indirect Subsidiaries of the Borrower, whether now existing or
hereafter acquired or created.

 

“Guaranty” shall mean, as to any Person, any direct or indirect obligation of
such Person guaranteeing or intended to guarantee any Indebtedness, Capital
Lease, dividend or other monetary obligation (“primary obligation”) of any other
Person (the “primary obligor”) in any manner, whether directly or indirectly,
including, without limitation, any obligation of such Person, whether or not
contingent, (a) to purchase any such primary obligation or any property
constituting direct or indirect security therefor, (b) to advance or supply
funds (i) for the purchase or payment of any such primary obligation, or (ii) to
maintain working capital or equity capital of the primary obligor or otherwise
to maintain the net worth or solvency of the primary obligor, or (c) to purchase
property, securities or services, in each case, primarily for the purpose of
assuring the performance by the primary obligor of any such primary obligation;
provided, however, that the term Guaranty shall not include endorsements for
collection or collections for deposit, in either case in the ordinary course of
business. The amount of any Guaranty shall be deemed to be an amount equal to
(x) the stated or determinable amount of the primary obligation in respect of
which such Guaranty is made (or, if the amount of such primary obligation is not
stated or determinable, the maximum reasonably anticipated liability in respect
thereof (assuming such Person is required to perform thereunder)), or (y) the
stated maximum liability under such Guaranty, whichever is less.

 

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“Hazardous Materials” shall mean any flammable materials, explosives,
radioactive materials, hazardous materials, hazardous wastes, hazardous or toxic
substances or similar materials defined in any Environmental Law.

 

“IDT” shall mean IDT Corporation, a Delaware corporation.

 

“Indebtedness” shall mean (without double counting), at any time and with
respect to any Person, (i) indebtedness of such Person for borrowed money
(whether by loan or the issuance and sale of debt securities) or for the
deferred purchase price of property or services purchased (other than amounts
constituting trade payables (payable within 120 days or such longer terms as may
be customary in the industry) or other amounts due for the rental of space in
connection with the production of a Picture or Pictures, in each case arising in
the ordinary course of business); (ii) obligations of such Person in respect of
letters of credit, acceptance facilities, or drafts or similar instruments
issued or accepted by banks and other financial institutions for the account of
such Person; (iii) obligations of such Person under Capital Leases and any
financing lease involving substantially the same economic effect; (iv) deferred
payment obligations of such Person resulting from the adjudication or settlement
of any litigation to the extent not already reflected as a current liability on
the balance sheet of such Person; and (v) indebtedness of others of the type
described in clauses (i), (ii), (iii) and (iv) hereof which such Person has
(a) directly or indirectly assumed or guaranteed in connection with a Guaranty,
or (b) secured by a Lien on the assets of such Person, whether or not such
Person has assumed such indebtedness; provided, that Indebtedness shall not
include any non-refundable advance made to a Credit Party by a third party
distributor in connection with the production, distribution or sale of any
Picture.

 

“Indemnified Taxes” shall mean Taxes other than Excluded Taxes.

 

“Initial Date” shall mean (i) in the case of the Administrative Agent, the date
hereof, (ii) in the case of each Lender which is an original party to this
Credit Agreement, the date hereof and (iii) in the case of any other Lender, the
effective date of the Assignment and Assumption pursuant to which it became a
Lender.

 

“Initial Projections” shall mean the projections provided by the Borrower for
inclusion in the materials used by the Arranger in syndicating the Facility to
the Lenders.

 

“Instrument of Assumption and Joinder” shall mean an Instrument of Assumption
and Joinder substantially in the form of Exhibit J hereto.

 

“Interest Deficit” shall have the meaning given to such term in Section 2.14
hereof.

 

“Interest Payment Date” shall mean (i) as to any LIBOR Loan having an Interest
Period of one, two or three months, the last day of such Interest Period,
(ii) as to any LIBOR Loan having an Interest Period of more than three months,
the last day of such Interest Period and, in addition, each date during such
Interest Period that would be the last day of an Interest Period commencing on
the same day as the first day of such Interest Period but having a duration of
three months or an integral multiple thereof, and (iii) with respect to
Alternate Base Rate Loans, the last day of each March, June, September and
December (commencing the last Business Day of December, 2005).

 

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“Interest Period” shall mean as to any LIBOR Loan, the period commencing on the
date of such Loan or the last day of the preceding Interest Period and ending on
the numerically corresponding day (or if there is no corresponding day, the last
day) in the calendar month that is one, two, three, six or, if available from
all Lenders, nine or twelve months thereafter as the Borrower may elect;
provided, however, that (i) if any Interest Period would end on a day which
shall not be a Business Day, such Interest Period 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 Interest Period shall end on the
next preceding Business Day, (ii) no Interest Period may be selected which would
end later than the Commitment Termination Date, and (iii) no Interest Period of
nine or twelve months may be selected unless available and consented to by all
Lenders in their sole discretion.

 

“Interparty Agreement” shall mean, with respect to a Qualifying Picture, an
interparty agreement among (i) the Administrative Agent, (ii) a Credit Party,
(iii) (if applicable) the Main Distributor or Acceptable Obligor and (iv) an
Approved Completion Guarantor, which agreement (x) is necessary in the
reasonable judgment of the Administrative Agent to allocate the risks of
Completion and delivery of such Qualifying Picture and (y) shall be in form and
substance satisfactory to the Administrative Agent, as the same may be amended,
supplemented or otherwise modified, renewed or replaced from time to time.

 

“Investment” shall mean any stock, evidence of indebtedness or other securities
of any Person, any loan, advance, contribution of capital, extension of credit
or commitment therefor (including, without limitation, the Guaranty of loans
made to others, but excluding current trade and customer accounts receivable
arising in the ordinary course of business and payable in accordance with
customary trading terms in the ordinary course of business), any purchase of
(i) any security of another Person, or (ii) any business or undertaking of any
Person or any commitment to make any such purchase, or any other investment.

 

“Issuing Bank” shall mean JPMorgan Chase Bank, N.A., in its capacity as the
issuer of Letters of Credit hereunder, and its successors in such capacity as
provided in Section 13.12. The Issuing Bank may, in its discretion, arrange for
one or more Letters of Credit to be issued by Affiliates of the Issuing Bank, in
which case the term “Issuing Bank” shall include any such Affiliate with respect
to Letters of Credit issued by such Affiliate.

 

“ITA” shall mean the Canadian Income Tax Act [R.S.C. 1985, c. 1 (5th Supp.)] as
amended from time to time.

 

“JPMorgan Clearing Account” shall mean the account of the Administrative Agent
(for the benefit of itself, the Issuing Bank and the Lenders) maintained at the
office of JPMorgan Chase Bank, N.A., Loan and Agency Services Group, 1111
Fannin, 10th Floor, Houston, Texas 77002, designated as the “IDTE Animation
Slate, LLC-JPMC Clearing Account”, Account No. 304 630 632.

 

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“Laboratory” shall mean any laboratory reasonably acceptable to the
Administrative Agent which is located in the United States of America, United
Kingdom or Canada and is a party to a Pledgeholder Agreement or a Laboratory
Access Letter.

 

“Laboratory Access Letter” shall mean a letter agreement among (i) a Laboratory
holding any elements (including data backups of work in progress) of any Picture
to which any Credit Party has the right of access, (ii) such Credit Party and
(iii) the Administrative Agent, substantially in the form of Exhibit D hereto or
a form otherwise reasonably acceptable to the Administrative Agent.

 

“L/C Exposure” shall mean, at any time, the amount expressed in Dollars of the
aggregate face amount of all drafts which may then or thereafter be presented by
beneficiaries under all Letters of Credit then outstanding plus (without
duplication) the face amount of all drafts which have been presented or accepted
under all Letters of Credit but have not yet been paid or have been paid but not
reimbursed.

 

“L/C Sublimit” shall mean $50,000,000.

 

“Lender” and “Lenders” shall mean the financial institutions whose names appear
at the foot hereof and any assignee of a Lender pursuant to Section 14.3 hereof,
and their respective successors.

 

“Lending Office” shall mean, with respect to any of the Lenders, the branch or
branches (or affiliate or affiliates) from which such Lender’s LIBOR Loans or
Alternate Base Rate Loans, as the case may be, are made or maintained and for
the account of which all payments of principal of, and interest on, such
Lender’s LIBOR Loans or Alternate Base Rate Loans are made, as notified to the
Administrative Agent from time to time.

 

“Letter of Credit” shall mean a letter of credit issued by the Issuing Bank
pursuant to Section 2.15 hereof.

 

“LIBOR” shall mean, with respect to the Interest Period for a LIBOR Loan, an
interest rate per annum equal to the quotient (rounded upwards to the next 1/100
of 1%) of (A) the average of the rates at which Dollar deposits approximately
equal in principal amount to the Administrative Agent’s portion of such LIBOR
Loan and for a maturity equal to the applicable Interest Period are offered to
the Lending Office of the Administrative Agent in immediately available funds in
the London Interbank Market for Eurodollars at approximately 11:00 a.m., London
time, two Business Days prior to the commencement of such Interest Period
divided by (B) one minus the applicable statutory reserve requirements of the
Administrative Agent, expressed as a decimal (including without duplication or
limitation, basic, supplemental, marginal and emergency reserves), from time to
time in effect under Regulation D or similar regulations of the Board. It is
agreed that for purposes of this definition, LIBOR Loans made hereunder shall be
deemed to constitute Eurocurrency Liabilities as defined in Regulation D and to
be subject to the reserve requirements of Regulation D.

 

“LIBOR Loan” shall mean a Loan based on LIBOR in accordance with the provisions
of Article 2 hereof.

 

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“Lien” shall mean any mortgage, copyright mortgage, pledge, security interest,
encumbrance, lien or charge of any kind whatsoever (including, without
limitation, any conditional sale or other title retention agreement, any
agreement to grant a security interest at a future date, any lease in the nature
of security, and the filing of, or agreement to give, any financing statement
under the Uniform Commercial Code of any jurisdiction); provided, however, that
this term shall not include contractual encumbrances which do not afford
security of the type described in this definition.

 

“Liquidity Certificate” shall mean a certificate substantially in the form of
Exhibit N hereto, executed by an Authorized Officer of the Borrower.

 

“Loans” shall mean the loans made hereunder in accordance with the provisions of
Section 2.1(a) hereof.

 

“Main Distributor” shall mean Twentieth Century Fox Film Corporation or, subject
to the right of the Agent to withdraw approval for agreements not yet signed,
Buena Vista Pictures Distribution, a Division of ABC, Inc., DreamWorks,
Universal, Warner, Paramount and Sony Pictures (including its affiliates
Columbia and Tri-Star).

 

“Main Distribution Intercreditor Agreement” shall mean an intercreditor
agreement between a Main Distributor and the Administrative Agent in form and
substance satisfactory to the Administrative Agent.

 

“Main Distribution Agreement” shall mean the Distribution & Other Rights
Acquisition Agreement dated as of June 24, 2004, between Twentieth Century Fox,
a division of Twentieth Century Fox Film Corporation and Parent (as assigned to
Borrower) (the “Fox Agreement”) or one or more other distribution agreements
with another Main Distributor which is at least as favorable to the Borrower and
the Lenders in all material respects as the Fox Agreement and which is in form
and substance reasonably acceptable to the Agent and for which the territory is
at least the domestic territory.

 

“Major Domestic Account Debtor” shall mean any Acceptable Obligor denoted as
such on Schedule 4 hereto.

 

“Major Foreign Account Debtor” shall mean any Acceptable Obligor denoted as such
on Schedule 4 hereto.

 

“Margin Stock” shall be as defined in Regulation U of the Board.

 

“Material Adverse Effect” shall mean any change or effect that (a) has a
materially adverse effect on the business, assets, properties, operations or
financial condition of the Credit Parties (taken as a whole) or the Parent
(other than general economic conditions and events or circumstances which are
generally applicable to the industries in which the Parent or the Credit Parties
operate and which have not adversely and materially affected the Credit Parties,
taken as a whole, or the Parent), (b) materially impairs the legal right, power
or authority of any Credit Party to perform its respective obligations under the
Fundamental Documents to which it is a party or (c) materially impairs the
validity or enforceability of, or materially impairs the rights, remedies or
benefits available to the Administrative Agent for the benefit of itself, the

 

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Issuing Bank and the Lenders under, the Fundamental Documents; provided,
however, that an event or condition shall not cause a “Material Adverse Event”
under clause (c) above if such event or condition was caused solely by the
Administrative Agent, the Issuing Bank or any Lender.

 

“Maturity Date” shall mean the earlier of (i) May 17, 2011, and (ii) such other
date as the Loans shall be due and payable in accordance with Article 7 hereof.

 

“Moody’s” means Moody’s Investors Service, Inc.

 

“Multiemployer Plan” shall mean a plan described in Section 4001(a)(3) of ERISA.

 

“Note” or “Notes” shall have the meaning given to such term in Section 2.3
hereof.

 

“Notice of Assignment and Irrevocable Instructions” shall mean a Notice of
Assignment and Irrevocable Instructions substantially in the form of Exhibit K
hereto or in such other form as shall be acceptable to the Administrative Agent,
including, without limitation, the inclusion of such notice and instructions in
a Distribution Agreement.

 

“Obligations” shall mean the obligation of the Borrower to make due and punctual
payment of (i) principal of and interest on the Loans, reimbursement obligations
in respect of Letters of Credit, the Commitment Fees, costs and attorneys’ fees
and all other monetary obligations of the Borrower to the Administrative Agent,
the Issuing Bank or any Lender under this Credit Agreement, the Notes, any other
Fundamental Document or any fee letter in respect of the Facility, (ii) all
amounts payable by the Borrower to any Lender under any Swap Agreement;
provided, that the Administrative Agent shall have received written notice
thereof within ten (10) Business Days after execution of such Swap Agreement and
(iii) amounts payable to JPMorgan Chase Bank, N.A. in connection with any bank
account maintained by the Borrower or any other Credit Party at JPMorgan Chase
Bank, N.A. or any other banking services provided to the Borrower or any other
Credit Party by JPMorgan Chase Bank, N.A.

 

“Other Receivables” shall mean those receivables that meet all of the
requirements of an “Eligible Receivable” other than that the obligor be an
Acceptable Obligor.

 

“Other Taxes” shall mean any and all present or future stamp or documentary
taxes or any other excise or property taxes, charges or similar levies arising
from any payment made hereunder or from the execution, delivery or enforcement
of, or otherwise with respect to, this Agreement.

 

“Parent” shall mean IDT Entertainment, Inc., a Delaware corporation.

 

“P&A Reserve Amount” shall mean, with respect to any Picture, the amount that
may be borrowed under the Facility for the use described in Section 2.1(a)(v)
with respect to exhibiting such Picture on at least 500 screens.

 

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“PBGC” shall mean the Pension Benefit Guaranty Corporation or any successor
thereto.

 

“Percentage” shall mean with respect to any Lender, the percentage of the Total
Commitment represented by such Lender’s Commitment.

 

“Permitted Co-Financed Picture” shall mean any Picture for which a portion of
the Unfinanced Production Costs shall be co-financed by a Permitted Counterparty
(i) by cash-flowing such portion during the production period thereof, (ii) by
paying such portion upon Completion and delivery of such Picture or (iii) in a
manner otherwise acceptable to the Administrative Agent, which co-production
shall, in any case, satisfy the conditions set forth in Section 5.23.

 

“Permitted Counterparty” shall mean (i) any Person (or a majority-owned
Subsidiary of a Person, provided, that such Subsidiary’s obligations with
respect to any relevant co-financed Qualifying Picture shall have been
guaranteed by such Person in a manner satisfactory to the Administrative Agent)
listed on Schedule 5, as such Schedule 5 may be amended from time to time by
written notice from the Administrative Agent or the Required Lenders to the
Borrower; and (ii) any other Person acceptable (with respect to such Person’s
identity and creditworthiness) to the Required Lenders; provided that, in either
case, from and after the execution by such Person and a Credit Party of final
co-financing documentation with respect to such Qualifying Picture, the status
of such Person as a Permitted Counterparty may not be revoked with respect to
such Qualifying Picture.

 

“Permitted Encumbrances” shall mean Liens permitted under Section 6.2 hereof.

 

“Person” shall mean any natural person, corporation, division of a corporation,
limited liability company, partnership, trust, joint venture, association,
company, estate, unincorporated organization or government or any agency or
political subdivision thereof.

 

“Physical Materials” shall have the meaning given to such term in paragraph
(iv) of the definition of “Collateral” herein.

 

“Picture” shall mean any motion picture, film or video tape or any episode
thereof produced for theatrical release, whether recorded on film, videotape,
cassette, cartridge, disc or on or by any other means, method, process or device
whether now known or hereafter developed, with respect to which a Credit Party
(i) is the copyright owner, or (ii) has or acquires an Equity Interest in the
copyright owner or licensee or (iii) is a licensee or otherwise has or obtains
distribution rights. The term “Picture” shall include, without limitation, the
scenario, screenplay or script upon which such Picture is based, all of the
properties thereof, tangible and intangible, and whether now in existence or
hereafter to be made or produced, whether or not in possession of a Credit
Party, and all rights of any Credit Party therein and thereto, of every kind and
character.

 

“Plan” shall mean an employee benefit plan within the meaning of Section 3(3) of
ERISA, other than a Multiemployer Plan, maintained or contributed to by any
Credit Party, or any ERISA Affiliate, or any other plan covered by Title IV of
ERISA that covers employees of the Credit Parties.

 

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“Pledged Collateral” shall mean the Pledged Securities and any proceeds (as
defined in Section 9-102(64) of the UCC) including cash proceeds (as defined in
Section 9-102(9) of the UCC) of the Pledged Securities.

 

“Pledged Securities” shall mean (i) all of the issued and outstanding capital
stock, partnership interests, membership interests, beneficial interests or
other Equity Interests of or in the Borrower and each of its Subsidiaries that
is not a Controlled Foreign Subsidiary, and (ii) shares representing 66% (or
such lesser amount as is actually owned by such Credit Party) of the issued and
outstanding capital stock of each Subsidiary of the Borrower that is a
Controlled Foreign Subsidiary (in each case, whether now formed or formed
hereafter).

 

“Pledgeholder Agreement” shall mean a laboratory pledgeholder agreement among a
Credit Party (or Credit Parties), the Administrative Agent, certain distributors
(as applicable) and one or more Laboratories, substantially in the form of
Exhibit E-1 or Exhibit E-2 hereto, or in such other form and with such
additional parties as shall be reasonably acceptable to the Administrative
Agent.

 

“Pledgors” shall mean the Parent and those Credit Parties that own any of the
Pledged Securities.

 

“Pro Rata Share” shall mean with respect to any Obligation or other amount, each
Lender’s pro rata share of such Obligation or other amount determined in
accordance with such Lender’s Percentage.

 

“Production Account(s)” shall mean individually or collectively, as the context
so requires, each demand deposit account(s) established by a Credit Party at a
commercial bank located in the United States of America or otherwise acceptable
to the Administrative Agent, for the sole purpose of paying the production or
acquisition costs of a particular Picture.

 

“Production Cost Reserve Amount” shall mean, for any Qualifying Picture, the
difference of (a) the Strike Price payable under the relevant Approved
Completion Bond minus (b) the Unfinanced Production Costs for such Qualifying
Picture.

 

“Production Costs” shall mean for each Qualifying Picture: (i) prior to issuance
of an Approved Completion Bond for such Picture, the Cash Budget, (ii) on and
after the issuance of an Approved Completion Bond, but prior to Completion, the
greater of the Cash Budget and the actual cost-to-complete for such Picture and
(iii) upon Completion of such Picture, the actual negative cost of such Picture.

 

“Qualifying Picture” shall mean a Picture produced or acquired (or to be
produced or acquired) by a Credit Party (including Permitted Co-Financed
Pictures) that the Borrower has demonstrated to the Administrative Agent’s
reasonable satisfaction meets the following criteria: (i) that the Picture meets
or will meet when completed the criteria required by the applicable Main
Distribution Agreement; (ii) that the Cash Budget of the picture will be
financed from the Loans under the Facility plus advances from the Parent (which
may be in the form of equity contributions to the Borrower, retained cash of the
Borrower or loans which are subordinated as provided in Section 14.15) or a
Co-Financier; (iii) that it owns the worldwide distribution rights for the
Picture (other than distribution rights in geographical territories sold to a
Co-Financier) in

 

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perpetuity or has the right to acquire such rights in perpetuity pursuant to an
option as part of a sale and leaseback or other tax structured transaction
(except in the case of “Space Chimps” for which the Borrower must own worldwide
distribution rights for the Picture for a period of not less than 15 years);
(iv) that the Picture will have a minimum domestic theatrical release on 500
screens for one week each; and (v) that the Picture satisfies or will satisfy
when completed the following criteria: (a) it is computer generated animation
(other than incidental live-action sequences), (b) it is in color, (c) it is in
English, (d) it has a running time of 85-110 minutes, including main and end
titles, (e) it qualifies for an MPAA rating not more restrictive than “PG” and
(f) it is in 35mm with an aspect ratio suitable for first-class theatrical
distribution and (vi) that the Picture is scheduled to be Completed by the fifth
anniversary of the Closing Date.

 

“Qualifying Picture Declaration” shall mean, with respect to a Qualifying
Picture produced by or on behalf of a Credit Party, a declaration substantially
in the form of Exhibit M hereto to be executed and delivered by the Borrower to
the Administrative Agent in accordance with Section 4.2(b) hereof.

 

“Quiet Enjoyment” shall be as defined in Section 8.13 hereof.

 

“Regulation D” shall mean Regulation D of the Board as from time to time in
effect and all official rulings and interpretations thereunder or thereof.

 

“Reportable Event” shall mean any reportable event as defined in Section 4043(c)
of ERISA, other than a reportable event as to which provision for 30-day notice
to the PBGC has been waived under applicable regulations.

 

“Required Lenders” shall mean Lenders holding at least 51% of the Total
Commitment.

 

“Reserved Commitment Amount” shall mean, with respect to any Qualifying Picture
for which an initial advance of Loans has occurred, at any time, (a) the sum of
the Production Cost Reserve Amount and the P&A Reserve Amount for such
Qualifying Picture less (b) the Loans advanced with respect to such Qualifying
Picture.

 

“Restricted Payment” shall mean (i) any distribution, cash dividend or other
direct or indirect payment on account of shares of any Equity Interest in any
Credit Party, (ii) any redemption or other acquisition, re-acquisition or
retirement by a Credit Party of any Equity Interests in any Credit Party or any
Affiliate thereof, now or hereafter outstanding, (iii) any payment made by any
Credit Party to retire, or obtain the surrender of, any outstanding warrants,
puts or options or other rights to purchase or otherwise acquire any Equity
Interest in any Credit Party or any Affiliate thereof, now or hereafter
outstanding, (iv) any payment by a Credit Party of principal of, premium, if
any, or interest on, or any redemption, purchase, retirement, defeasance,
sinking fund or similar payment with respect to, any Subordinated Debt, (v) any
payment of any kind to or for the benefit of an Affiliate of a Credit Party and
(vi) any payment under any Synthetic Purchase Agreement.

 

“S&P” means Standard & Poor’s.

 

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“Schedule of Commitments” shall mean the schedule of Commitments of the Lenders
set forth on Schedule 1 hereto.

 

“Securities Account” shall mean the securities account of Borrower at Merrill,
Lynch, Pierce, Fenner & Smith Incorporated, account number 83607001.

 

“Strike Price” shall mean, with respect to any Approved Completion Bond, the
maximum amount that is payable under such Approved Completion Bond in the event
the relevant Picture is abandoned (without deduction for any Production Costs
expended prior to such abandonment).

 

“Subordinated Debt” shall mean all Indebtedness of any of the Credit Parties
that is subordinated to the Obligations pursuant to written agreements,
containing interest rates, payment terms, maturities, amortization schedules,
covenants, defaults, remedies, subordination provisions and other material terms
in form and substance reasonably satisfactory to the Required Lenders.

 

“Subsidiary” shall mean with respect to any Person, any corporation,
association, joint venture, partnership or other business entity (whether now
existing or hereafter organized) of which at least a majority of the voting
stock or other ownership interests having ordinary voting power for the election
of directors (or the equivalent) is, at the time as of which any determination
is being made, owned or controlled by such Person or one or more subsidiaries of
such Person or by such Person and one or more subsidiaries of such Person.

 

“Swap Agreement” means any agreement with respect to any swap, forward, future
or derivative transaction or option or similar agreement involving, or settled
by reference to, one or more rates, currencies, commodities, equity or debt
instruments or securities, or economic, financial or pricing indices or measures
of economic, financial or pricing risk or value or any similar transaction or
any combination of these transactions; provided, that no phantom stock or
similar plan providing for payments only on account of services provided by
current or former directors, officers, employees or consultants of any Credit
Party shall be a Swap Agreement.

 

“Synthetic Purchase Agreement” means any Swap Agreement or similar agreement or
combination of agreements pursuant to which any Credit Party is or may become
obligated to make (i) any payment in connection with a purchase by any third
party from a Person other than a Credit Party of any Equity Interest in any
Credit Party or any Subordinated Debt, or (ii) any payment (other than on
account of a permitted purchase by it of any Equity Interest in any Credit Party
or any Subordinated Debt) the amount of which is determined by reference to the
price or value at any time of any Equity Interest in any Credit Party or any
Subordinated Debt; provided, that no phantom stock or similar plan providing for
payments only on account of services provided by current or former directors,
officers, employees or consultants of a Credit Party or its Subsidiaries shall
be a Synthetic Purchase Agreement.

 

“Taxes” shall mean any and all present or future taxes, levies, imposts, duties,
deductions, charges or withholdings imposed by any Governmental Authority.

 

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“Total Commitments” shall mean, at any time, the aggregate amount of the
Commitments then in effect of all of the Lenders, as such aggregate amount shall
be adjusted upwards or downwards from time to time in accordance with the terms
of this Credit Agreement (including, without limitation, pursuant to Section 2.6
hereof).

 

“Trademark Security Agreement” shall mean the Trademark Security Agreement
substantially in the form of Exhibit F hereto to be executed by the Borrower and
the Guarantors, as such agreement may be amended, supplemented or otherwise
modified, renewed or replaced from time to time.

 

“Type”, when used in reference to any Loan or Borrowing, refers to whether the
rate of interest on such Loan, or on the Loans comprising such Borrowing, is
determined by reference to the Alternate Base Rate or to LIBOR.

 

“UCC” shall mean the Uniform Commercial Code as in effect in the State of New
York on the date of execution of this Credit Agreement (as such Uniform
Commercial Code is amended from time to time).

 

“Uncompleted” shall mean, with respect to a Qualifying Picture, such Picture is
not Completed.

 

“Unfinanced Production Costs” shall mean, with respect to a Qualifying Picture,
the portion of the Production Costs of such Qualifying Picture that are not
eligible for an advance of the Facility.

 

“USA Patriot Act” shall mean the USA Patriot Act (Title III of Pub. L. 107-56
(signed into law October 26, 2001)).

 

2. THE LOANS

 

SECTION 2.1. Loans.

 

(a) Each Lender, severally and not jointly, agrees, upon the terms and subject
to the conditions hereof, to make loans to the Borrower on any Business Day from
the Closing Date through the Commitment Termination Date in an amount equal to
its Pro Rata Share of the following costs incurred by the Borrower (either
directly or through a special-purpose Subsidiary established for the purpose of
producing a particular Qualifying Picture):

 

  (i)

with respect to each Qualifying Picture, to fund 25% of the lesser of (A) the
Cash Budget and (B) the final negative cost (in each case only to the extent
covered by an Approved Completion Bond), provided, that for purposes of this
clause (i), until such time as the Qualifying Picture shall be Completed, the
Cash Budget and the negative cost shall be deemed reduced by (x) the 12-1/2%
overhead fee referred to in the definition of “Cash Budget” (unless such fee is
included in the amount covered by a Completion Bond for such Qualifying
Picture), (y) any Canadian Subsidy Loan Value of such Qualifying Picture, and
(z) any other net benefits of any tax credits, subsidies, rebates and other
revenue received by or

 

30

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credited to Borrower directly relating to such Qualifying Picture (including
without limitation, film production tax incentives such as Canada’s PSLP Program
or labor-based tax credit, United Kingdom sale-leaseback transactions, Australia
10BA financing, and other government or local subsidies); and provided, further,
that (1) for purposes of this clause (i) the Cash Budget and negative cost shall
be permanently reduced by the amount of any net insurance recoveries received by
or credited to Borrower directly relating to such Qualifying Picture and (2) for
any Qualifying Picture having projected foreign pre-sales includable in its
Borrowing Base in excess of 50% of its Cash Budget, the amount that may be
loaned pursuant to this clause (i) shall be reduced by 50% of such excess;

 

  (ii) to fund the negative cost of each Qualifying Picture in an amount equal
to the components of the Borrowing Base computed pursuant to clauses (i) through
(vi) of the definition thereof to the extent payable no later than 180 days
after delivery of that Qualifying Picture to the relevant Acceptable Obligor and
subject to the limitation on the amounts that may be borrowed prior to
Completion set forth in the definition “Borrowing Base”;

 

  (iii) to pay items of negative cost for each Qualifying Picture in an amount
not in excess of the Canadian Subsidy Loan Value with respect thereto (not to
exceed $15,000,000 in the aggregate for all Qualifying Pictures);

 

  (iv) to pay currently interest that accrues on the Loans made under clauses
(i) through (iii) for each Qualifying Picture through the Completion of such
Qualifying Picture;

 

  (v) for each Qualifying Picture, to fund 80% (but no more than $40 million per
Qualifying Picture) of the worldwide theatrical distribution expenses under the
related Main Distribution Agreement for such Qualifying Picture, provided that
such Loans are made concurrently and on a pro rata basis with the 20% not funded
by the Facility; and

 

  (vi) to the extent the Borrowing Base exceeds loans outstanding or to be made
pursuant to clause (ii) and (iii) above, for the payment of the portion of
negative cost, distribution expenses, the 12-1/2% overhead fee permitted herein
(upon Completion of the relevant Qualifying Picture, or during production
thereof if included within the Strike Price of the applicable Approved
Completion Bond) and fees, expenses and interest under the Facility not financed
as provided above and for other amounts payable under the Facility;

 

provided, however, that for purposes of determining the amount available to be
borrowed pursuant to clauses (i) through (vi) above, any Letter of Credit issued
to secure any amount described in any such clause shall be deemed to have been

 

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loaned under such clause; and provided, further, that in the case of a Permitted
Co-Financed Picture, the maximum amount that the Lenders shall be required to
fund under any of clause (i) thorough (vi) above shall be adjusted to reflect
the percentage of the total corresponding amount for such Permitted Co-Financed
Picture for which the Borrower is primarily responsible (for example, if the
Borrower is primarily responsible for 60% of the negative cost of a Permitted
Co-Financed Picture, the Lenders would not be required to fund, under clause
(i), more than 60% of 25% of the lesser of the amounts specified in clauses
(i)(A) and (i)(B)).

 

The Lenders have agreed to consider, but have not committed to permit,
additional advances of Loans to the extent of Borrowing Base, subsequent to the
Completion, delivery and required release of six Qualifying Pictures, to fund
general overhead (beyond the overhead fee permitted to be included within the
Cash Budget for a Qualifying Picture in accordance with the terms hereof) and
development, working capital and other general corporate purposes. If such
additional advances are agreed, this Credit Agreement will be amended to reflect
any required changes, including a requirement to prepay any such Loans to the
extent the Borrowing Base is exceeded.

 

(b) Subject to Section 2.2, the Loans shall be made at such times as the
Borrower shall request.

 

(c) Subject to the terms and conditions of this Credit Agreement, the Borrower
may borrow, repay and re-borrow amounts constituting the Total Commitments.

 

(d) Notwithstanding anything to the contrary above, a Lender shall not be
obligated to make any additional Loans if, as a result thereof, the aggregate
principal amount of all Loans then outstanding plus the then current L/C
Exposure, exceeds the Total Commitments then in effect.

 

(e) Notwithstanding anything to the contrary above, a Lender shall not be
obligated to make any additional Loans with respect to a Qualifying Picture if,
as a result thereof, the aggregate principal amount of all Loans then
outstanding plus the then current L/C Exposure plus the sum of the Reserved
Commitment Amounts for all other Qualifying Pictures with respect to which a
Borrower has incurred hereunder, exceeds the Total Commitments then in effect.

 

SECTION 2.2. Making of Loans.

 

(a) Each Loan shall be an Alternate Base Rate Loan or a LIBOR Loan, as the
Borrower may request, subject to and in accordance with this Section 2.2.

 

(b) The Borrower hereby requests that, subject to the satisfaction of all
applicable conditions hereof, the Lenders make the Loans on the Closing Date in
the principal amount set forth on the initial Borrowing Certificate.

 

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(c) The Borrower shall give the Administrative Agent at least three Business
Days’ prior written, facsimile or telephonic (promptly confirmed in writing)
notice of each Borrowing which is to consist of LIBOR Loans, and at least one
Business Day’s prior written, facsimile or telephonic (promptly confirmed in
writing) notice of each Borrowing which is to consist of Alternate Base Rate
Loans. Each such notice in order to be effective must be received by the
Administrative Agent not later than 2:00 p.m., New York City time, on the day
required and shall specify the date (which shall be a Business Day) on which
such Borrowing is to be made and the aggregate principal amount of the requested
Borrowings. Each such notice shall be irrevocable and shall specify whether the
Borrowing then being requested is to consist of Alternate Base Rate Loans or
LIBOR Loans and in the case of LIBOR Loans, the Interest Period or Interest
Periods with respect thereto. If no election of an Interest Period is specified
in such notice in the case of a Borrowing consisting of LIBOR Loans, such notice
shall be deemed to be a request for an Interest Period of one month. If no
election is made as to the type of Loan, such notice shall be deemed a request
for a Borrowing consisting of Alternate Base Rate Loans. No Borrowing shall
consist of LIBOR Loans if after giving effect thereto an aggregate of more than
six (or, to the extent the Administrative Agent has determined that each Lender
can accommodate a greater number, a greater number not to exceed 12) separate
LIBOR Loans would be outstanding hereunder with respect to each Lender
(determined in accordance with Section 2.8(c) hereof).

 

(d) The Administrative Agent shall promptly notify each Lender of its
proportionate share of each Borrowing under this Section 2.2, the date of such
Borrowing, the Type of Loans being requested and the Interest Period or Interest
Periods applicable thereto. On the borrowing date specified in such notice, each
Lender shall make its share of the Borrowing available at the offices of
JPMorgan Chase Bank, N.A., Loan and Agency Services Group, 1111 Fannin, 10th
Floor, Houston, Texas 77002, Attention: Pearl Esparza, for credit to the
JPMorgan Clearing Account no later than 1:00 p.m. New York City time in Federal
or other immediately available funds. Upon receipt of the funds to be made
available by the Lenders to fund any Borrowing hereunder, the Administrative
Agent shall disburse such funds by depositing the requested amounts into an
account maintained with the Administrative Agent by the Borrower.

 

(e) Each Lender may at its option fulfill its obligation to make LIBOR Loans by
causing a foreign branch or affiliate to fund such LIBOR Loans; provided, that
any exercise of such option shall not affect the obligation of the Borrower to
repay Loans in accordance with the terms hereof or increase the costs to the
Borrower payable hereunder in respect of LIBOR Loans. Subject to the other
provisions of this Section 2.2, Loans of more than one Type may be outstanding
at the same time.

 

(f) Each Loan requested hereunder on any date shall be made by each Lender in
accordance with its respective Percentage.

 

(g) On the date requested by the Borrower for the funding of each Loan, the
Administrative Agent shall be authorized (but not obligated) to advance, for the
account of each of the Lenders, the amount of the Loan to be made by it in
accordance with its Percentage hereunder. Each of the Lenders hereby authorizes
and requests the Administrative Agent to advance for its account, pursuant to
the terms hereof, the amount of the Loan to be made by it, and each of the
Lenders agrees forthwith to reimburse the Administrative Agent in immediately

 

33

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available funds for the amount so advanced on its behalf by the Administrative
Agent. If any such reimbursement is not made in immediately available funds on
the same day on which the Administrative Agent shall have made any such amount
available on behalf of any Lender, such Lender shall pay interest to the
Administrative Agent equal to the Administrative Agent’s cost of obtaining
overnight funds in the New York Federal Funds Market for the three Business Days
following the time when the Lender fails to make the required reimbursement, and
thereafter at a rate per annum equal to the Alternate Base Rate plus the
Applicable Margin for Alternate Base Rate Loans. If and to the extent that any
such reimbursement shall not have been made by any such Lender to the
Administrative Agent, the Borrower agrees to repay to the Administrative Agent
forthwith on demand a corresponding amount with interest thereon for each day
from the date such amount is made available to the Borrower until the date such
amount is repaid to the Administrative Agent at the Alternate Base Rate plus the
Applicable Margin for Alternate Base Rate Loans.

 

(h) The amount of any Borrowing of new funds shall be in an aggregate principal
amount of $250,000 (or such lesser amount as shall equal the available but
unused portion of the Commitments or the amount of any Borrowing required to
fund drawings under a Letter of Credit) or such greater amount which is an
integral multiple of $100,000.

 

(i) Notwithstanding the provisions of clause (c) above and/or the absence of a
request from the Borrower that the Lenders make a Loan, the Required Lenders may
direct the Lenders to make Loans if an Event of Default shall have occurred and
be continuing, with respect to any Picture being produced by a Credit Party and
pay the proceeds thereof directly to Persons providing services in connection
with the production, delivery and distribution of such Picture so as to ensure
Completion of such Picture and/or the collection of accounts receivable.

 

(j) The Borrower shall not be permitted to make Borrowings hereunder more than
once per week.

 

SECTION 2.3. Notes.

 

(a) The Loans made by each Lender hereunder shall be evidenced by a single
revolving credit promissory note substantially in the form of Exhibit A hereto
(each a “Note” and collectively the “Notes”) in the face amount of each such
Lender’s Commitment, payable to the order of each such Lender, duly executed by
the Borrower and dated as of the Closing Date.

 

(b) Each of the Notes shall bear interest on the outstanding principal balance
thereof as set forth in Section 2.4 hereof. Each Lender and the Administrative
Agent on its behalf is hereby authorized by the Borrower, but not obligated, to
enter the amount of each 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 Notes; provided, however, that the failure of any Lender or
the Administrative Agent to set forth such Loans, principal payments or other
information shall not in any manner affect the obligations of the Borrower to
repay such Loans.

 

SECTION 2.4. Interest on Notes.

 

(a) In the case of a LIBOR Loan, interest shall be payable at a rate per annum
(computed on the basis of the actual number of days elapsed over a year of 360
days) equal to

 

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LIBOR plus the Applicable Margin. Interest shall be payable on each LIBOR Loan
on each applicable Interest Payment Date, on the Maturity Date and on the date
of a conversion of such LIBOR Loan to an Alternate Base Rate Loan. The
Administrative Agent shall determine the applicable LIBOR for each Interest
Period as soon as practicable on the date when such determination is to be made
in respect of such Interest Period and shall notify the Borrower and the Lenders
of the applicable interest rate so determined. Such determination shall be
conclusive absent manifest error.

 

(b) In the case of an Alternate Base Rate Loan, interest shall be payable at a
rate per annum (computed on the basis of the actual number of days elapsed over
a year of 360 days for Base CD Rate and Federal Funds Effective Rate loans, and
over a year of 365/366 days for Prime Rate loans) equal to the Alternate Base
Rate plus the Applicable Margin. Interest shall be payable in arrears on each
Alternate Base Rate Loan on each applicable Interest Payment Date and on the
Maturity Date.

 

(c) Anything in this Credit Agreement or the Notes to the contrary
notwithstanding, the interest rate on the Loans or with respect to any drawing
under a Letter of Credit shall in no event be in excess of the maximum permitted
by Applicable Law.

 

SECTION 2.5. Commitment Fees and Other Fees.

 

(a) The Borrower agrees to pay to the Administrative Agent for the account of
each Lender on the last Business Day of each March, June, September and December
in each year (commencing on the last Business Day of December, 2005) prior to
the Commitment Termination Date and on the Commitment Termination Date, an
aggregate fee (the “Commitment Fees”) of 0.5 of 1% per annum, computed on the
basis of the actual number of days elapsed during the preceding period or
quarter over a year of 360 days, on the average daily amount by which such
Lender’s Commitment, as such Commitment may be reduced in accordance with the
provisions of this Credit Agreement, exceeds the sum of the principal balance of
such Lender’s outstanding Loans plus such Lender’s Pro Rata Share of all L/C
Exposure during the preceding period or quarter.

 

(b) The Commitment Fees shall commence to accrue from the Closing Date.

 

(c) The Borrower agrees to pay to the Administrative Agent on the Closing Date,
as fees any and all other fees that are then due and payable pursuant hereto or
pursuant to the Fee Letter.

 

SECTION 2.6. Optional Termination or Reduction of Commitments.

 

(a) Upon at least three Business Days’ prior written, facsimile or telephonic
notice (provided, that such telephonic notice is immediately followed by written
or facsimile confirmation) to the Administrative Agent, the Borrower may at any
time in whole permanently terminate, or from time to time in part permanently
reduce, the aggregate Commitments. In the case of a partial reduction, each such
reduction of the aggregate Commitments shall be in a minimum aggregate principal
amount of $500,000 or an integral multiple thereof; provided, however, that the
Commitments may not be reduced by more than the amount of the then unused
Commitments and may not be reduced to an amount less than the aggregate
principal amount of

 

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the Loans outstanding plus the then current L/C Exposure and the Reserved
Commitment Amount. Any partial reduction of the Commitments shall be made among
the Lenders in accordance with their respective Percentages.

 

(b) Simultaneously with each such termination or reduction of the Commitments,
the Borrower shall pay to the Administrative Agent for the benefit of each
Lender all accrued and unpaid Commitment Fees on the amount of the Commitments
so terminated or reduced through the date of such termination or reduction.

 

SECTION 2.7. Default Interest; Alternate Rate of Interest.

 

(a) If the Borrower shall default in the payment when due of the principal of,
or interest on any Loan becoming due hereunder, whether at stated maturity, by
acceleration or otherwise, or the payment of any other amount becoming due
hereunder after written notification from the Administrative Agent to the
Borrower of such amount, the Borrower shall on demand in writing from time to
time pay interest, to the extent permitted by Applicable Law, on all Loans and
other overdue amounts outstanding from the due date thereof up to the date of
actual payment of such defaulted amount (after as well as before judgment)
(i) for the remainder of the then current Interest Period for each LIBOR Loan,
at 2% in excess of the rate then in effect for each such LIBOR Loan, and
(ii) for all periods subsequent to the then current Interest Period for each
LIBOR Loan, for all Alternate Base Rate Loans and for all other overdue amounts
hereunder, at 2% in excess of the rate then in effect for Alternate Base Rate
Loans.

 

(b) In the event, and on each occasion, that on the day two Business Days prior
to the commencement of any Interest Period for a LIBOR Loan, (i) the
Administrative Agent shall have received notice from any Lender of such Lender’s
determination (which determination, absent manifest error, shall be conclusive)
that Dollar deposits in the amount of the principal amount of such LIBOR Loan
are not generally available in the London Interbank Market or that the rate at
which such Dollar deposits are being offered will not adequately and fairly
reflect the cost to such Lender of making or maintaining the principal amount of
such LIBOR Loan during such Interest Period, or (ii) the Administrative Agent
shall have determined that reasonable means do not exist for ascertaining the
applicable LIBOR, the Administrative Agent shall, as soon as practicable
thereafter, give written or facsimile notice of such determination to the
Borrower and the Lenders, and any request by the Borrower for a LIBOR Loan (or
conversion to or continuation as a LIBOR Loan pursuant to Section 2.8 hereof),
made after receipt of such notice and until the circumstances giving rise to
such notice no longer exist, shall be deemed to be a request for an Alternate
Base Rate Loan; provided, however, that in the circumstances described in clause
(i) above such deemed request shall only apply to the affected Lender’s portion
thereof. After such notice shall have been given and until the circumstances
giving rise to such notice no longer exist, each request (or portion thereof, as
the case may be) for a LIBOR Loan, to the extent such request relates to such
affected Lender’s portion shall be deemed to be a request for an Alternate Base
Rate Loan.

 

SECTION 2.8. Continuation and Conversion of Loans. The Borrower shall have the
right, at any time, (i) to convert any LIBOR Loan or portion thereof to an
Alternate Base Rate Loan or to continue such LIBOR Loan or a portion thereof for
a successive Interest Period,

 

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or (ii) to convert any Alternate Base Rate Loan or a portion thereof to a LIBOR
Loan, subject to the following:

 

(a) the Borrower shall give the Administrative Agent prior written, facsimile or
telephonic (promptly confirmed in writing) notice of each continuation or
conversion hereunder of at least three Business Days for continuation as or
conversion to a LIBOR Loan; such notice shall be irrevocable and to be
effective, must be received by the Administrative Agent on the day required not
later than 2:00 p.m., New York City time;

 

(b) unless the Required Lenders otherwise consent, no Event of Default or
Default shall have occurred and be continuing at the time of any conversion to a
LIBOR Loan or continuation of any such LIBOR Loan into a subsequent Interest
Period;

 

(c) no Alternate Base Rate Loan may be converted to a LIBOR Loan and no LIBOR
Loan may be continued as a LIBOR Loan if, after such conversion or continuance,
and after giving effect to any concurrent prepayment of Loans, an aggregate of
more than six separate LIBOR Loans (or, to the extent the Administrative Agent
has determined that each Lender can accommodate a greater number, a greater
number not to exceed 12) would be outstanding hereunder with respect to each
Lender (for purposes of determining the number of such Loans outstanding, Loans
with different Interest Periods shall be counted as different Loans even if made
on the same date);

 

(d) if fewer than all Loans at the time outstanding shall be continued or
converted, such continuation or conversion shall be made pro rata among the
Lenders in accordance with the respective Percentage of the principal amount of
such Loans held by the Lenders immediately prior to such continuation or
conversion;

 

(e) the aggregate principal amount of Loans continued as or converted to LIBOR
Loans as part of the same Borrowing shall be $250,000 or such greater amount
which is an integral multiple of $100,000;

 

(f) accrued interest on the LIBOR Loans (or portion thereof) being continued
shall be paid by the Borrower at the time of continuation;

 

(g) the Interest Period with respect to a new LIBOR Loan effected by a
continuation or conversion shall commence on the date of such continuation or
conversion;

 

(h) if a LIBOR Loan is converted to another type of Loan prior to the last day
of the Interest Period with respect thereto, the amounts required by
Section 2.9(b) shall be paid upon such conversion;

 

(i) each request for a continuation as or conversion to a LIBOR Loan which fails
to state an applicable Interest Period shall be deemed to be a request for an
Interest Period of one month; and

 

(j) in the event that the Borrower shall not give notice to continue or convert
any LIBOR Loan as provided above, such Loan (unless repaid) shall automatically
be converted to an Alternate Base Rate Loan at the expiration of the then
current Interest Period.

 

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The Administrative Agent shall, after it receives notice from the Borrower,
promptly give the Lenders notice of any continuation or conversion.

 

SECTION 2.9. Voluntary and Mandatory Prepayment of Loans; Reimbursement of
Lenders.

 

(a) Subject to the terms of paragraph (b) of this Section 2.9, the Borrower
shall have the right at its option at any time and from time to time to prepay
without premium or penalty (i) any Alternate Base Rate Loan, in whole or in
part, upon at least one Business Day’s prior written, telephonic (promptly
confirmed in writing) or facsimile notice to the Administrative Agent, in the
principal amount of $250,000 or such greater amount which is an integral
multiple of $100,000 if prepaid in part, or the remaining balance of such Loan
if prepaid in full, and (ii) any LIBOR Loan, in whole or in part, upon at least
three Business Days’ prior written, telephonic (promptly confirmed in writing)
or facsimile notice, in the principal amount of $250,000 or such greater amount
which is an integral multiple of $100,000 if prepaid in part, or the remaining
balance of such Loan if prepaid in full. Each notice of prepayment shall specify
the prepayment date, each Loan to be prepaid and the principal amount thereof,
shall be irrevocable and shall commit the Borrower to prepay such Loan in the
amount and on the date stated therein. All prepayments under this Section 2.9(a)
shall be accompanied by accrued but unpaid interest on the principal amount
being prepaid to (but not including) the date of prepayment.

 

(b) The Borrower shall reimburse each Lender on demand for any loss (excluding
the loss of the Applicable Margin) incurred or to be incurred by any such Lender
in the reemployment of the funds released (i) by any prepayment (for any reason)
of any LIBOR Loan if such Loan is repaid prior to the last day of the Interest
Period for such Loan, or (ii) in the event that after the Borrower delivers a
notice of borrowing under Section 2.2(c) or Section 2.8(a) in respect of LIBOR
Loans, such Loan is not made, converted to or continued as a LIBOR Loan on the
first day of the Interest Period specified in such notice of borrowing for any
reason other than (A) a suspension or limitation under Section 2.7(b) of the
right of the Borrower to select a LIBOR Loan, (B) a breach by any such Lender of
its obligation to fund such borrowing when it is otherwise required to do so
hereunder, or (C) a repayment resulting from a conversion required by a Lender
pursuant to Section 2.11(a). Such loss shall be the amount as reasonably
determined by such Lender as the excess, if any, of (I) the amount of interest
which would have accrued to such Lender on the amount so paid or not borrowed,
continued or converted at a rate of interest equal to the interest rate
applicable to such Loan pursuant to Section 2.4, for the period from the date of
such payment or failure to borrow, continue or convert to the last day (x) in
the case of a payment prior to the last day of the Interest Period for such
Loan, of the then current Interest Period for such Loan, or (y) in the case of
such failure to borrow, continue or convert, of the Interest Period for such
Loan which would have commenced on the date of such failure to borrow, continue
or convert, over (II) the amount realized or to be realized by such Lender in
reemploying the funds not advanced or the funds received in prepayment or
realized from the Loan not so continued or converted during the period referred
to above. Each Lender shall deliver to the Borrower from time to time one or
more certificates setting forth the amount of such loss (and in reasonable
detail the manner of computation thereof) as determined by such Lender, which
certificates shall be conclusive absent manifest error. The Borrower shall pay
such Lender the amounts shown on such certificate within thirty days of the
Borrower’s receipt of such certificate.

 

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(c) In the event the Borrower fails to prepay any Loan on the date specified in
any prepayment notice delivered pursuant to Section 2.9(a), the Borrower shall
pay to the Administrative Agent for the account of the applicable Lender any
amounts required to compensate such Lender for any actual loss incurred by such
Lender as a result of such failure to prepay, including, without limitation, any
loss, cost or expenses incurred by reason of the acquisition of deposits or
other funds by such Lender to fulfill deposit obligations incurred in
anticipation of such prepayment. Each Lender shall deliver to the Borrower and
the Administrative Agent from time to time one or more certificates setting
forth the amount of such loss (and in reasonable detail the manner of
computation thereof) as determined by such Lender, which certificates shall be
conclusive absent manifest error. The Borrower shall pay such Lender the amounts
shown on such certificate within ten Business Days of the Borrower’s receipt of
such certificate.

 

(d) The Obligations shall be paid in full on the Maturity Date.

 

(e) If at any time the sum of the Loans outstanding plus the then current L/C
Exposure plus the Reserved Commitment Amount exceeds the Total Commitments, the
Borrower shall within five Business Days prepay the Loans outstanding in an
amount necessary to eliminate such excess. If at any time the Loans outstanding
under any of the subsections of Section 2.1(a) exceed the amount that is
permitted to be outstanding pursuant to any of the limitations in such
subsections, the Borrower shall within five Business Days prepay the relevant
Loans in an amount necessary to eliminate such excess.

 

(f) So long as an Event of Default has not occurred and is not continuing, all
proceeds (other than payment of Eligible Receivables applied as provided in
Section 2.9(h)(ii)) of a Qualifying Picture payable to the Borrower (which, for
the avoidance of doubt, shall not include any residuals, participations or sales
commissions payable by the Borrower to third parties that are not Affiliates of
Parent (for the avoidance of doubt, Vanguard Animation LLC and its affiliates
that are not Affiliates of Parent shall not be deemed Affiliates of the Parent
based on the existing 20% equity interest and related voting rights held by
Parent in Vanguard Animation LLC), which amounts shall be paid by the Borrower
prior to application of this Section 2.9(f)) shall be applied as follows:

 

  (i) first, amounts representing insurance recoveries, in accordance with the
Interparty Agreement with the Approved Completion Guarantor for such Qualifying
Picture;

 

  (ii) second, net proceeds of tax benefit or similar transactions, to repay
Loans described in Section 2.1(a)(iii) for such Qualifying Picture, then, to the
extent funded for Production Costs by the Borrower or Parent from funds other
than proceeds of Loans, to refund to the Parent or to the Borrower any amount
that it was unable to borrow pursuant to clause (B)(z) of Section 2.1(a)(i) as a
result of the effective decrease in the negative cost of the Qualifying Picture;

 

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  (iii) third, at the request of the Borrower, released to the Borrower to pay
to the Main Distributor or the Parent properly invoiced home video distribution
expenses to the extent incurred by the Main Distributor or the Parent as part of
the Main Distributor’s home video marketing plan (without duplicating costs
incurred by the Main Distributor) and not financed by the Facility;

 

  (iv) fourth, to repay on a pro rata and pari passu basis (x) Loans outstanding
for such Qualifying Picture which were made to fund theatrical distribution
expenses for that Qualifying Picture and (y) Co-Financiers up to the amount of
financing provided for theatrical distribution expenses in respect of such
Qualifying Picture (subject to the requirement that at least 20% of 100% of all
such expenses, including amounts under (iii) above, remain subordinated to
repayment of loans under the Facility for such Qualifying Picture as provided
herein);

 

  (v) fifth, to repay Loans outstanding under the Facility for such Qualifying
Picture which were made to fund negative costs for such Qualifying Picture and
Loans that were made prior to Completion to fund interest on Loans made to pay
items of negative cost and, if the negative cost of such Qualifying Picture was
co-financed, to make payments to the Co-Financier (at a priority not greater
than pro rata and pari passu with repayment of Loans under this clause (v));

 

  (vi) sixth, to the Parent (or Co-Financier, as applicable) to reimburse the
Parent (or Co-Financier) for the amount that the Parent (or Co-Financier)
advanced (without any interest thereon) to pay for the unfinanced portion of
theatrical distribution expenses (not to exceed 20% of 100% of all such
expenses) of such Qualifying Picture under the Main Distribution Agreement to
the extent such amount was previously advanced by the Parent or Co-Financier;

 

  (vii) seventh, to repay other outstanding Loans (theatrical distribution
expense Loans first) in the amount available before the Approved Completion
Guarantor is entitled to the payments contemplated by clause (viii) below;

 

  (viii) eighth, to reimburse the Approved Completion Guarantor as provided in
the relevant Interparty Agreement;

 

  (ix) ninth, the balance to repaying principal, interest and other Obligations
under the Facility;

 

  (x) tenth, if the Commitments have not yet terminated, the balance, if any,
will be deposited in the Cash Collateral Account to the extent necessary to fund
the $15 million reserve contemplated by the definition of “Aggregate Film Value
for all Qualifying Pictures”; and

 

  (xi) eleventh, the balance, if any, to the Borrower.

 

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(g) If an Event of Default has occurred and is continuing, all proceeds of a
Qualifying Picture shall be applied as follows:

 

  (i) first, in accordance with Co-Financing Intercreditor Agreements and
Interparty Agreements concluded by the Administrative Agent with respect to such
Qualifying Picture; and

 

  (ii) second, to satisfy the Obligations, in such order as the Administrative
Agent may determine.

 

(h) The Borrower shall prepay the Obligations in an amount equal to (i) 100% of
the net cash proceeds from Dispositions and (ii) until the Loans advanced with
respect to a Qualifying Picture under Section 2.1(a)(ii) and (vi) have been
repaid in full, 100% of the net cash proceeds of Eligible Receivables of such
Qualifying Picture (other than amounts required to be paid to an Approved
Completion Guarantor pursuant to the relevant Interparty Agreement and any
residuals, participations or sales commissions payable by the Borrower to third
parties that are not Affiliates of Parent (for the avoidance of doubt, Vanguard
Animation LLC and its affiliates that are not Affiliates of Parent shall not be
deemed Affiliates of the Parent based on the existing 20% equity interest and
related voting rights held by Parent in Vanguard Animation LLC), which amounts
shall be paid by the Borrower prior to application of this Section 2.9(h)).

 

(i) Simultaneously with each termination and/or optional reduction of the
Commitments pursuant to Section 2.6, the Borrower shall pay to the
Administrative Agent for the benefit of the Lenders an amount equal to the
excess of (i) the sum of aggregate outstanding principal amount of the Loans
plus the L/C Exposure over (ii) the reduced Commitments.

 

(j) Unless otherwise designated in writing by the Borrower, all prepayments
shall be applied to the applicable principal payment set forth in this
Section 2.9, first to that amount of such applicable principal payment then
maintained as Alternate Base Rate Loans by the Borrower, and then, to that
amount of such applicable principal payment maintained as LIBOR Loans by the
Borrower in order of the scheduled expiry of Interest Periods with respect
thereto.

 

(k) All prepayments shall be accompanied by accrued but unpaid interest on the
principal amount being prepaid to but not including the date of prepayment.

 

(l) If on any day on which the Loans would otherwise be required to be prepaid
but for the operation of this Section 2.9(l) (each a “Prepayment Date”), the
amount of such required prepayment exceeds the then outstanding aggregate
principal amount of the Loans that constitute Alternate Base Rate Loans, and no
Default or Event of Default is then continuing, then on such Prepayment Date the
Borrower may, at its option, deposit Dollars into the Cash Collateral Account in
an amount equal to such excess. If the Borrower makes such deposit then (i) only
the outstanding Alternate Base Rate Loans shall be required to be prepaid on
such Prepayment Date and (ii) on the last day of each Interest Period with
respect to any LIBOR Loan in effect after such Prepayment Date, the
Administrative Agent is irrevocably authorized and directed to apply funds from
the Cash Collateral Account, if any, (and liquidate investments held in such
cash collateral account as necessary) to prepay LIBOR Loans for which the
Interest Period is then ending until the aggregate of such prepayments equals
the prepayment which would have been required on such Prepayment Date but for
the operation of this Section 2.9(j).

 

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(m) Except as otherwise specifically provided in this Article 2, should any
payment or prepayment of principal of or interest on the Notes or any other
amount due hereunder, become due and payable on a day other than a Business Day,
the due date of such payment or prepayment shall be extended to the next
succeeding Business Day and, in the case of a payment or prepayment of
principal, interest shall be payable thereon at the rate herein specified during
such extension.

 

SECTION 2.10. Increased Costs.

 

  (a) If any Change in Law shall:

 

  (i) impose, modify or deem applicable any reserve, special deposit or similar
requirement against assets of, deposits with or for the account of, or credit
extended by, any Lender (except any such reserve requirement reflected in the
LIBOR) or the Issuing Bank; or

 

  (ii) impose on any Lender or the Issuing Bank or the London Interbank Market
any other condition affecting this Agreement or LIBOR Loans made by such Lender
or any Letter of Credit or participation therein;

 

and the result of any of the foregoing shall be to increase the cost to such
Lender of making or maintaining any LIBOR Loan (or of maintaining its obligation
to make any such Loan) or to increase the cost to such Lender or the Issuing
Bank of participating in, issuing or maintaining any Letter of Credit or to
reduce the amount of any sum received or receivable by such Lender or the
Issuing Bank hereunder (whether of principal, interest or otherwise), then the
Borrower will pay to such Lender or the Issuing Bank, as the case may be, such
additional amount or amounts as will compensate such Lender or the Issuing Bank,
as the case may be, for such additional costs incurred or reduction suffered;
provided, however, that the Borrower shall not be obligated to pay such
compensation to any Lender or the Issuing Bank, as applicable, on account of any
Change in Law affecting or altering the Excluded Taxes referenced in clauses
(a) and (b) in the definition thereof.

 

(b) If any Lender or the Issuing Bank determines that any Change in Law
regarding capital requirements has or would have the effect of reducing the rate
of return on such Lender’s or the Issuing Bank’s capital or on the capital of
such Lender’s or the Issuing Bank’s holding company, if any, as a consequence of
this Agreement or the Loans made by, or participations in Letters of Credit held
by, such Lender, or the Letters of Credit issued by the Issuing Bank, to a level
below that which such Lender or the Issuing Bank or such Lender’s or the Issuing
Bank’s holding company could have achieved but for such Change in Law (taking
into consideration such Lender’s or the Issuing Bank’s policies and the policies
of such Lender’s or the Issuing Bank’s holding company with respect to capital
adequacy), then from time to time the Borrower will pay to such Lender or the
Issuing Bank, as the case may be, such additional amount or amounts as will
compensate such Lender or the Issuing Bank or such Lender’s or the Issuing
Bank’s holding company for any such reduction suffered.

 

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(c) A certificate of a Lender or the Issuing Bank setting forth in reasonable
detail the amount or amounts necessary to compensate such Lender or the Issuing
Bank or its holding company, as the case may be, the changes as a result of
which such amounts are due and the manner of computing such amounts, as
specified in paragraph (a) or (b) of this Section shall be delivered to the
Borrower and shall be conclusive absent manifest error. The Borrower shall pay
such Lender or the Issuing Bank, as the case may be, the amount shown as due on
any such certificate within 10 Business Days after receipt thereof.
Notwithstanding any other provision of this Section 2.10, neither the Issuing
Bank nor any Lender shall demand or be entitled to compensation for any
increased cost or reduction referred to in paragraph (a) or (b) of this Section
if it shall not be the general policy or practice of the Issuing Bank or such
Lender to demand such compensation in similar circumstances.

 

(d) Failure or delay on the part of any Lender or the Issuing Bank to demand
compensation pursuant to this Section shall not constitute a waiver of such
Lender’s or the Issuing Bank’s right to demand such compensation; provided that
the Borrower shall not be required to compensate a Lender or the Issuing Bank
pursuant to this Section for any increased costs or reductions incurred more
than 270 days prior to the date that such Lender or the Issuing Bank, as the
case may be, notifies the Borrower of the Change in Law giving rise to such
increased costs or reductions and of such Lender’s or the Issuing Bank’s
intention to claim compensation therefor; provided further that, if the Change
in Law giving rise to such increased costs or reductions is retroactive, then
the 270-day period referred to above shall be extended to include the period of
retroactive effect thereof.

 

(e) The Issuing Bank and each Lender agrees that with reasonable promptness
after it becomes aware of the occurrence of an event or the existence of a
condition that (i) would cause it to incur any increased cost hereunder or
render it unable to perform its agreements hereunder for the reasons
specifically set forth in Section 2.2(d), Section 2.7(b), this Section 2.10 or
Section 2.11 or (ii) would require the Borrower to pay an increased amount under
Section 2.7(b), this Section 2.10 or Section 2.13, it will use reasonable
efforts to notify the Borrower of such event or condition and, to the extent not
inconsistent with the Issuing Bank’s or such Lender’s internal policies, will
use its reasonable efforts to make, fund or maintain the affected Loans of such
Lender, or if applicable, to issue, make, maintain or participate in Letters of
Credit as required under Section 2.15, through another Lending Office of the
Issuing Bank or such Lender if as a result thereof the additional monies which
would otherwise be required to be paid or the reduction of amounts receivable by
the Issuing Bank or such Lender thereunder in respect of such Loans or Letters
of Credit or participations therein would be materially reduced, or such
inability to perform would cease to exist, or the increased costs which would
otherwise be required to be paid in respect of such Loans or Letters of Credit
or participations therein pursuant to Section 2.2(d), Section 2.7(b), this
Section 2.10 or Section 2.13 would be materially reduced or taxes or other
amounts otherwise payable under Section 2.7(b), this Section 2.10 or
Section 2.13 would be materially reduced, and if, as determined by the Issuing
Bank or such Lender, in its discretion, the making, funding or maintaining of
such Loans, or the issuance, making, maintaining or participation in such
Letters of Credit, through such other Lending Office would not otherwise
materially adversely affect such Loans or Letters of Credit, or the Issuing Bank
or such Lender. Notwithstanding the foregoing, a failure on the part of any
Lender to provide notice or take any other action pursuant to this
Section 2.10(e) shall not affect the Borrower’s obligation to make any payments
or deductions required by this Article 2.

 

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SECTION 2.11. Change in Legality.

 

(a) Notwithstanding anything to the contrary contained elsewhere in this Credit
Agreement, if any change after the date hereof in Applicable Law, guideline or
order, or in the interpretation thereof by any Governmental Authority charged
with the administration thereof, shall make it unlawful for any Lender to make
or maintain any LIBOR Loan or to give effect to its obligations as contemplated
hereby with respect to a LIBOR Loan, then, by written notice to the Borrower and
the Administrative Agent, such Lender may (i) declare that LIBOR Loans will not
thereafter be made by such Lender hereunder for as long as such condition may be
continuing, and/or (ii) require that, subject to Section 2.9(b), all outstanding
LIBOR Loans made by it be converted to Alternate Base Rate Loans, whereupon all
of such LIBOR Loans shall automatically be converted to Alternate Base Rate
Loans, as of the effective date of such notice as provided in paragraph
(b) below. Such Lender’s pro rata portion of any subsequent LIBOR Loan shall,
instead, be an Alternate Base Rate Loan unless such declaration is subsequently
withdrawn.

 

(b) A notice to the Borrower by any Lender pursuant to paragraph (a) above shall
be effective for purposes of clause (ii) thereof, if lawful, on the last day of
the current Interest Period for each outstanding LIBOR Loan; and in all other
cases, on the date of receipt of such notice by the Borrower.

 

SECTION 2.12. Manner of Payments. All payments of principal and interest by the
Borrower in respect of any Loans to it shall be pro rata among the Lenders
holding such Loans in accordance with the then outstanding principal amounts of
such Loans held by them and all Borrowings of any Loans by the Borrower
hereunder shall be made pro rata among the Lenders in accordance with their
Commitments. All payments by the Borrower hereunder and under the Notes shall be
made in Dollars in Federal or other immediately available funds at the office of
JPMorgan Chase Bank, N.A., Loan and Agency Services Group, 1111 Fannin, 10th
Floor, Houston, Texas 77002, Attention: Pearl Esparza, for credit to the
JPMorgan Clearing Account no later than 2:00 p.m., New York City time, on the
date on which such payment shall be due. Interest in respect of any Loan
hereunder shall accrue from and including the date of such Loan to but excluding
the date on which such Loan is paid or converted to a Loan of a different Type.

 

SECTION 2.13. Taxes.

 

(a) Any and all payments by or on account of any obligation of the Borrower
hereunder shall be made free and clear of and without deduction for any
Indemnified Taxes or Other Taxes; provided that if the Borrower shall be
required to deduct any Indemnified Taxes or Other Taxes from such payments, then
(i) the sum payable shall be increased as necessary so that after making all
required deductions (including deductions applicable to additional sums payable
under this Section) the Administrative Agent, Lender or Issuing Bank (as the
case may be) receives an amount equal to the sum it would have received had no
such deductions been made, (ii) the Borrower shall make such deductions and
(iii) the Borrower shall pay the full amount deducted to the relevant
Governmental Authority in accordance with Applicable Law.

 

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(b) In addition, the Borrower shall pay any Other Taxes to the relevant
Governmental Authority in accordance with Applicable Law.

 

(c) The Borrower shall indemnify the Administrative Agent, each Lender and the
Issuing Bank, within 10 Business Days after written demand therefor, for the
full amount of any Indemnified Taxes or Other Taxes paid by the Administrative
Agent, such Lender or the Issuing Bank, as the case may be, on or with respect
to any payment by or on account of any obligation of the Borrower hereunder
(including Indemnified Taxes or Other Taxes imposed or asserted on or
attributable to amounts payable under this Section) and any penalties, interest
and reasonable expenses arising therefrom or with respect thereto, whether or
not such Indemnified Taxes or Other Taxes were correctly or legally imposed or
asserted by the relevant Governmental Authority. A certificate as to the amount
of such payment or liability delivered to the Borrower by a Lender or the
Issuing Bank, or by the Administrative Agent on its own behalf or on behalf of a
Lender or the Issuing Bank, shall be conclusive absent manifest error.

 

(d) As soon as practicable after any payment of Indemnified Taxes or Other Taxes
by the Borrower to a Governmental Authority, the Borrower shall deliver to the
Administrative Agent the original or a certified copy of a receipt issued by
such Governmental Authority evidencing such payment, a copy of the return
reporting such payment or other evidence of such payment reasonably satisfactory
to the Administrative Agent.

 

(e) Any Foreign Lender that is entitled to an exemption from or reduction of
withholding tax under the law of the jurisdiction in which the Borrower is
located, or any treaty to which such jurisdiction is a party, with respect to
payments under this Agreement shall deliver to the Borrower (with a copy to the
Administrative Agent), on or prior to the Initial Date with respect to such
Lender (and from time to time thereafter at the time or times prescribed by
Applicable Law or upon the request of the Borrower or the Administrative Agent),
such properly completed and duly executed documentation prescribed by Applicable
Law or reasonably requested by the Borrower as will permit such payments to be
made without withholding or at a reduced rate of withholding.

 

(f) Any Lender that is not a Foreign Lender and has not otherwise established to
the reasonable satisfaction of the Borrower and the Administrative Agent that it
is an exempt recipient (as defined in section 6049(b)(4) of the Code and the
regulations thereunder) shall deliver to the Borrower (with a copy to the
Administrative Agent) on or prior to the Initial Date with respect to such
Lender (and from time to time thereafter as prescribed by Applicable Law or upon
the request of the Borrower or the Administrative Agent), a duly executed and
properly completed copy of Internal Revenue Service Form W-9 (or applicable
successor form).

 

(g) If the Administrative Agent, Issuing Bank or a Lender determines, in its
sole discretion, that it has received a refund of or any credit for any Taxes or
Other Taxes as to which it has been indemnified by the Borrower or with respect
to which the Borrower have paid additional amounts pursuant to this
Section 2.13, it shall pay over such refund or credit to the Borrower (but only
to the extent of indemnity payments made, or additional amounts paid, by the
Borrower under this Section 2.13 with respect to the Taxes or Other Taxes giving
rise to such refund or credit), net of all out-of-pocket expenses of the
Administrative Agent, Issuing Bank or such Lender and without interest (other
than any interest paid by the relevant Governmental

 

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Authority with respect to such refund or credit); provided, that the Borrower,
upon the request of the Administrative Agent, Issuing Bank or such Lender,
agrees to repay the amount paid over to the Borrower (plus any penalties,
interest or other charges imposed by the relevant Governmental Authority) to the
Administrative Agent, Issuing Bank or such Lender in the event the
Administrative Agent, Issuing Bank or such Lender is required to repay such
refund or credit to such Governmental Authority. This Section shall not be
construed to require the Administrative Agent, Issuing Bank or any Lender to
make available its tax returns (or any other information relating to its taxes
which it deems confidential) to the Borrower or any other Person.

 

(h) Each Lender agrees that after it becomes aware of the occurrence of an event
that would cause the Borrower to pay any amount pursuant to clause (a) of this
Section 2.13, it will use reasonable efforts to notify the Borrower of such
event and, to the extent not inconsistent with such Lender’s internal policies,
will use its reasonable efforts to make, fund or maintain the affected Loans of
such Lender or, if applicable, to participate in Letters of Credit issued by the
Issuing Bank through another Lending Office of such Lender or the Issuing Bank
if as a result thereof the additional amounts which would otherwise be required
to be paid by reason of Section 2.13(a) in respect of such Loans, Letters of
Credit or participations therein would be materially reduced, and if, as
determined by such Lender or the Issuing Bank, in its discretion, the making,
funding or maintaining of such Loans or Letters of Credit or participations
therein through such other Lending Office would not otherwise adversely affect
such Loans or Letters of Credit or participations therein or such Lender of the
Issuing Bank. Notwithstanding the foregoing, a failure on the part of any Lender
to provide notice pursuant to this Section 2.13(h) shall not affect the
Borrower’s obligation to make any payments or deductions required by
Section 2.13(a).

 

SECTION 2.14. Interest Adjustments.

 

(a) If the provisions of this Credit Agreement or any Note would at any time
require payment by the Borrower to a Lender of any amount of interest in excess
of the maximum amount then permitted by the law applicable to any Loan, the
interest payments to that Lender shall be reduced to the extent necessary so
that such Lender shall not receive interest in excess of such maximum amount.
If, as a result of the foregoing, a Lender shall receive interest payments
hereunder or under a Note in an amount less than the amount otherwise provided
hereunder, such deficit (hereinafter called the “Interest Deficit”) will, to the
fullest extent permitted by Applicable Law, cumulate and will be carried forward
(without interest) until the termination of this Credit Agreement. Interest
otherwise payable to a Lender hereunder and under a Note for any subsequent
period shall be increased by the maximum amount of the Interest Deficit that may
be so added without causing such Lender to receive interest in excess of the
maximum amount then permitted by the law applicable to the Loans.

 

(b) The amount of any Interest Deficit relating to a particular Loan and Note
shall be treated as a prepayment penalty and shall, to the fullest extent
permitted by Applicable Law, be paid in full at the time of any optional
prepayment by the Borrower to the Lenders of all the Loans at that time
outstanding pursuant to Section 2.9(a) hereof. The amount of any Interest
Deficit relating to a particular Loan and Note at the time of any complete
payment of the Loans at that time outstanding (other than an optional prepayment
thereof pursuant to Section 2.9(a) hereof) shall be canceled and not paid.

 

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SECTION 2.15. Letters of Credit.

 

(a) Subject to the terms and conditions hereof and of Applicable Law, the
Issuing Bank agrees to issue Letters of Credit payable in Dollars from time to
time after the Closing Date and prior to the Commitment Termination Date upon
the request of the Borrower, but only for the purposes of securing amounts that
could be borrowed pursuant to Section 2.1(a) on the date of issuance of the
Letter of Credit; provided, however, that (A) the Borrower shall not request
that any Letter of Credit be issued if, after giving effect thereto, (i) the
then current L/C Exposure would exceed the L/C Sublimit or (ii) the sum of the
then current L/C Exposure, plus the aggregate principal amount of the Loans then
outstanding, would exceed the Total Commitments, and (B) in no event shall the
Issuing Bank issue any Letter of Credit having an expiration date (x) later than
five Business Days prior to the Commitment Termination Date or pursuant to which
drafts drawn thereunder would be payable later than five Business Days prior to
the Commitment Termination Date or (y) more than one year after its issuance (or
extension).

 

(b) Immediately upon the issuance of each Letter of Credit, each Lender shall be
deemed to, and hereby agrees to, have irrevocably purchased from the Issuing
Bank a participation in such Letter of Credit in accordance with such Lender’s
Percentage.

 

(c) Each Letter of Credit may, at the option of the Issuing Bank, provide that
the Issuing Bank may (but shall not be required to) pay all or any part of the
maximum amount which may at any time be available for drawing thereunder to the
beneficiary thereof upon the occurrence and continuation of an Event of Default
and the acceleration of the maturity of the Loans, provided that, if payment is
not then due to the beneficiary, the Issuing Bank may deposit the funds in
question in a segregated account with the Issuing Bank to secure payment to the
beneficiary and any funds so deposited shall be paid to the beneficiary of the
Letter of Credit if conditions to such payment are satisfied or returned to the
Issuing Bank (or, (x) if all Obligations shall have been paid in full in cash,
to the Borrower or (y) if the Lenders shall have reimbursed the Issuing Bank for
such amounts pursuant to the terms hereof, to the Lenders) if no payment to the
beneficiary has been made and the final date available for drawings under the
Letter of Credit has passed. Each payment or deposit of funds by the Issuing
Bank as provided in this paragraph shall be treated for all purposes of this
Credit Agreement as a drawing duly honored by the Issuing Bank under the related
Letter of Credit.

 

(d) Whenever the Borrower desires the issuance of a Letter of Credit, it shall
deliver to the Issuing Bank and the Administrative Agent a written notice no
later than 2:00 p.m., New York City time, at least three Business Days prior to
the proposed date of issuance. Such notice shall specify (i) the proposed date
of issuance (which shall be a Business Day), (ii) the face amount of the Letter
of Credit, (iii) the expiration date of the Letter of Credit and (iv) the name
and address of the beneficiary. Such notice shall be accompanied by a brief
description of the underlying transaction and upon request of the Issuing Bank,
the Borrower shall provide additional details regarding the underlying
transaction. Concurrently with the giving of written notice of a request for the
issuance of a Letter of Credit, the Borrower shall specify a precise description
of the documents and the verbatim text of any certificate to be presented by the
beneficiary of such Letter of Credit which, if presented by such beneficiary
prior to the expiration date of the Letter of Credit, would require the Issuing
Bank to make payment under the Letter of Credit; provided, however, that the
Issuing Bank, in its reasonable discretion, may

 

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require customary changes in any such documents and certificates. Promptly after
receipt of such notice, the Administrative Agent shall notify each Lender of the
issuance and the amount of each such Lender’s respective participation therein.
At the Borrower’s request, the Issuing Bank shall provide the Borrower with a
copy of the form of Letter of Credit to be issued for the Borrower’s review and
approval prior to issuance.

 

(e) The payment of drafts under any Letter of Credit shall be made in accordance
with the terms of such Letter of Credit and the Uniform Customs and Practice for
documentary Credits of the International Chamber of Commerce No. 500, as adopted
or amended from time to time. The Issuing Bank shall be entitled to honor any
drafts and accept any documents presented to it by the beneficiary of such
Letter of Credit in accordance with the terms of such Letter of Credit and
believed by the Issuing Bank in good faith to be genuine. The Issuing Bank shall
not have any duty to inquire as to the accuracy or authenticity of any draft or
other drawing documents which may be presented to it, but shall be responsible
only to determine in accordance with customary commercial practices that the
documents which are required to be presented before payment or acceptance of a
draft under any Letter of Credit have been delivered and that they comply on
their face with the requirements of that Letter of Credit.

 

(f) If the Issuing Bank shall make payment on any draft presented under a Letter
of Credit (regardless of whether a Default or Event of Default or acceleration
has occurred), the Issuing Bank shall give notice of such payment to the Lenders
and each Lender hereby authorizes and requests the Issuing Bank to advance for
its account pursuant to the terms hereof its share of such payment based upon
its participation in the Letter of Credit and agrees promptly to reimburse the
Issuing Bank in immediately available funds for the Dollar equivalent of the
amount so advanced on its behalf. If such reimbursement is not made by any
Lender in immediately available funds on the same day on which the Issuing Bank
shall have made payment on any such draft, such Lender shall pay interest
thereof to the Issuing Bank at a rate per annum equal to the Issuing Bank’s cost
of obtaining overnight funds in the New York Federal Funds Market. In the case
of any draft presented under a Letter of Credit which is required to be paid at
any time on or before the Commitment Termination Date, such payment of the
unreimbursed draft shall constitute an Alternate Base Rate Loan hereunder and
interest shall accrue from the date the Issuing Bank makes payment of a draft
under the Letter of Credit.

 

(g) Subject to provisions of Section 2.15(e), the Borrower is absolutely,
unconditionally and irrevocably obligated to reimburse all amounts drawn under
each Letter of Credit. If any draft is presented under a Letter of Credit,
payment of which is required to be made after the Commitment Termination Date or
when there is insufficient availability under the Facility, then the Borrower
will, upon demand by the Issuing Bank, pay to the Issuing Bank, in immediately
available funds, the full amount of such draft (or in the case of insufficient
availability, the amount of such deficiency). If such payment is not made by the
Borrower and the Issuing Bank shall make payment on any draft presented under a
Letter of Credit, the Issuing Bank shall give notice of such payment to the
Lenders and each Lender hereby authorizes and requests the Issuing Bank to
advance for its account pursuant to the terms thereof its share of such payment
based upon its participation in the Letter of Credit and agrees promptly to
reimburse the Issuing Bank in immediately available funds for the Dollar
equivalent of the amount so advanced on its behalf. If such reimbursement is not
made by any Lender in immediately available funds on the same day on which the
Issuing Bank shall have made

 

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payment on any such draft, such Lender shall pay interest thereon to the Issuing
Bank at a rate per annum equal to the Issuing Bank’s cost of obtaining overnight
funds in the New York Federal Funds Market. Such payment shall constitute an
Alternate Base Rate Loan hereunder and interest shall accrue from the date the
Issuing Bank makes payment of a draft under the Letter of Credit at the rate
specified in Section 2.4.

 

(h) (i) The Borrower agrees to pay the following amount to the Issuing Bank with
respect to Letters of Credit issued by it hereunder:

 

A. with respect to the issuance, amendment, transfer or any other transaction
related to each Letter of Credit and each drawing made thereunder, documentary
and processing charges in accordance with the Issuing Bank’s standard schedule
for such charges in effect at the time of such issuance, amendment, transfer or
drawing, as the case may be; and

 

B. a fronting fee payable to the Issuing Bank for the period from and including
the date of issuance of such Letter of Credit to but excluding the Maturity
Date, computed at a rate equal to 1/4 of 1% per annum of the daily average L/C
Exposure, such fee to be due and payable in arrears on and through the last
Business Day of each calendar quarter, prior to the Maturity Date, on the
Maturity Date and on the expiration of the last outstanding Letter of Credit.

 

  (ii) The Borrower agrees to pay to the Administrative Agent for distribution
to each Lender in respect of its L/C Exposure, such Lender’s Pro Rata Share of a
commission calculated at a rate per annum equal to the Applicable Margin for
LIBOR Loans (calculated in the same manner as interest) of the undrawn portion
of the L/C Exposure. Such commission shall be payable in arrears on and through
the last Business Day of each calendar quarter prior to the Maturity Date, on
the Maturity Date and on the expiration of the last outstanding Letter of
Credit.

 

  (iii) Promptly upon receipt by the Issuing Bank or the Administrative Agent,
as applicable, of any amount described in clause (ii) of this Section 2.15(h),
or any amount described in Section 2.15(h) previously reimbursed to the Issuing
Bank by the Lenders, the Issuing Bank shall distribute to each Lender its Pro
Rata Share of such amount. Amounts payable under clauses (i)(A) and (i)(B) of
this Section 2.15(h) shall be paid directly to the Issuing Bank and shall be for
its exclusive use.

 

(i) If at any time when an Event of Default shall have occurred and be
continuing, any Letters of Credit shall remain outstanding, then the Required
Lenders or the Issuing Bank may, at their or its option, require the Borrower to
deliver to the Issuing Bank cash or Cash Equivalents in an amount equal to the
full amount of the L/C Exposure or to furnish other security acceptable to the
Issuing Bank. Any amounts so delivered pursuant to the preceding sentence shall
be applied to reimburse the Issuing Bank for the amount of any drawings honored
under Letters of Credit; provided, however, that if no Default or Event of

 

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Default is then continuing at the time of any such delivery of Cash Equivalents
or any such furnishing of other security, the Issuing Bank shall return all of
such collateral relating to such deposit to the Borrower upon request.

 

3. REPRESENTATIONS AND WARRANTIES OF THE CREDIT PARTIES

 

In order to induce the Administrative Agent, the Issuing Bank and the Lenders to
enter into this Credit Agreement and to issue the Letters of Credit, participate
in such Letters of Credit and make the Loans provided for herein, as applicable,
the Credit Parties, jointly and severally, make the following representations
and warranties to, and agreements with, the Administrative Agent, the Issuing
Bank and the Lenders, all of which shall survive the execution and delivery of
this Credit Agreement, the issuance of the Notes, the making of the Loans and
the issuance of the Letters of Credit.

 

SECTION 3.1. Existence and Power.

 

(a) Each Credit Party is a corporation, limited liability company or limited
partnership (w) duly incorporated or otherwise organized, (x) validly existing,
(y) in jurisdictions in which it is applicable, in good standing under the laws
of its jurisdiction of organization and (z) where applicable, in good standing
as a foreign entity in all jurisdictions where (i) the nature of its properties
or business so requires, or (ii) the failure to be so qualified or be in good
standing could, individually or in the aggregate, be expected to have a Material
Adverse Effect. A list of such jurisdictions as of the date hereof is attached
hereto as Schedule 3.1.

 

(b) Each Credit Party has the power and authority (i) to own its respective
properties and carry on its respective business as now being conducted and as
intended to be conducted, (ii) to execute, deliver and perform, as applicable,
its obligations under the Fundamental Documents and any other documents
contemplated thereby to which it is or will be a party, and (iii) to grant to
the Administrative Agent, for the benefit of the Administrative Agent, the
Issuing Bank and the Lenders, a security interest in the Collateral as
contemplated by Article 8 hereof and in the Pledged Securities as contemplated
by Article 11 hereof; and (iv) in the case of the Guarantors, to guaranty the
Obligations as contemplated by Article 9 hereof.

 

SECTION 3.2. Authority and No Violation.

 

(a) The execution, delivery and performance of this Credit Agreement and the
other Fundamental Documents to which it is a party by each Credit Party, the
grant to the Administrative Agent for the benefit of the Administrative Agent,
the Issuing Bank and the Lenders of the security interest in the Collateral and
the Pledged Securities as contemplated herein and by the other Fundamental
Documents by each Credit Party and, in the case of the Borrower, the Borrowings
hereunder and the execution, delivery and performance of the Notes and, in the
case of each Guarantor, the guaranty of the Obligations as contemplated in
Article 9 hereof, (i) have been duly authorized by all necessary corporate
action (or similar action) on the part of each Credit Party, (ii) will not
constitute a violation of any provision of Applicable Law in any material
respect or any order of any Governmental Authority applicable to such Credit
Party, or any of its properties or assets in any material respect, (iii) will
not violate any provision of the Certificate of Incorporation, By–Laws,
operating agreement, partnership agreement or any

 

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other organizational document of such Credit Party, (iv) will not violate any
provision of any Distribution Agreement, indenture, agreement, bond, note or
other similar instrument to which such Credit Party is a party or by which such
Credit Party or any of its properties or assets are bound, other than where any
such violation could not, either individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect (v) will not be in conflict with,
result in a breach of, or constitute (with due notice or lapse of time or both)
a default under, or create any right to terminate, any such Distribution
Agreement, indenture, agreement, bond, note or other similar instrument, other
than where any such violation could not, either individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect, and
(vi) will not result in the creation or imposition of any Lien, charge or
encumbrance of any nature whatsoever upon any of the properties or assets of any
of such Credit Parties other than pursuant to this Credit Agreement or the other
Fundamental Documents.

 

(b) Other than the restrictions listed on Schedule 3.2(b), there are no
restrictions on the transfer of any of the Pledged Securities other than as a
result of this Credit Agreement or applicable securities laws and the
regulations promulgated thereunder.

 

SECTION 3.3. Governmental Approval. All authorizations, approvals, registrations
or filings from or with any Governmental Authority (other than UCC financing
statements, the Copyright Security Agreement and the Trademark Security
Agreement which will be delivered to the Administrative Agent on or prior to the
Closing Date, in form suitable for recording or filing with the appropriate
filing office) required for the consummation of the execution, delivery and
performance by any Credit Party of this Credit Agreement and the other
Fundamental Documents to which it is a party, and the execution and delivery by
the Borrower of the Notes, have been duly obtained or made or duly applied for,
and are in full force and effect, except those which, if not obtained, could
not, either individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect , and if any further authorizations, approvals,
registrations or filings should hereafter become necessary, the Credit Parties
shall obtain or make all such authorizations, approvals, registrations or
filings.

 

SECTION 3.4. Binding Agreements. This Credit Agreement and the other Fundamental
Documents when executed, will constitute the legal, valid and binding
obligations of each Credit Party that is a party thereto, enforceable against
each Credit Party in accordance with their respective terms, subject, as to the
enforcement of remedies, to applicable bankruptcy, insolvency, reorganization,
moratorium and similar laws affecting creditors’ rights generally and to general
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law).

 

SECTION 3.5. Financial Statements. The unaudited pro forma combined balance
sheet of the Credit Parties delivered pursuant to Section 4.1(t), has been
prepared in accordance with GAAP in effect as of such date consistently applied,
except as otherwise indicated in the notes to such financial statements and
subject to changes resulting from year-end and audit adjustments. All of such
financial statements (x) are true and correct in all material respects,
(y) fairly present in all material respects the financial position or the
results of operations of the Credit Parties on a consolidated basis at the dates
or for the periods indicated, subject to year-end and audit adjustments and
(z) reflect all known liabilities, contingent or otherwise, that GAAP require,
as of such dates, to be shown or reserved against.

 

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SECTION 3.6. No Material Adverse Change. There has been no material adverse
change with respect to the business, operations, performance, assets, properties
or financial condition of the Credit Parties, taken as a whole, from July 31,
2005.

 

SECTION 3.7. Ownership of Pledged Securities, Subsidiaries, etc.

 

(a) Annexed hereto as Schedule 3.7(a) is a correct and complete list as of the
date hereof, of each Credit Party showing, as to each, (i) its name, (ii) the
jurisdiction in which it was incorporated or organized and (iii) its authorized
capitalization, the number of Equity Interests outstanding and the ownership of
its Equity Interests.

 

(b) Except as set forth on Schedule 3.7(b), no Credit Party owns any voting
stock, Equity Interest or other beneficial interest, either directly or
indirectly, in any Person other than another Credit Party or an entity formed
under the laws of a jurisdiction located outside of the United States of America
with respect to which an investment therein is permitted under the terms of
Section 6.4 hereof.

 

SECTION 3.8. Copyrights, Trademarks and Other Rights.

 

(a) On the date hereof, the Pictures listed on Schedule 3.8(a) hereto comprise
all of the Pictures in which any Credit Party has any right, title or interest
(either directly, through a joint venture or partnership or otherwise). Except
as set forth on Schedule 3.8(c), the copyright registration number (when issued)
and the character of the interests held by the relevant Credit Party (i.e.,
whether owned by, optioned by, or assigned to, such person, etc.) for such
Pictures are set forth across from the description of such Picture, the Credit
Party holding such interests has duly recorded or cause to be duly recorded (or,
on the Closing Date, will duly record or cause to be duly recorded) its
interests in the United States Copyright Office and has delivered (or, on the
Closing Date, will deliver) copies of all such recordations to the
Administrative Agent. Schedule 3.8(a) also identifies the location of the best
available Physical Materials related to each Picture owned by any Credit Party.
To the best of each Credit Party’s knowledge, all such Pictures and all
component parts thereof do not and will not violate or infringe upon any
copyright, right of privacy, trademark, patent, trade name, performing right or
any literary, dramatic, musical, artistic, personal, private, several, care,
contract, property or copyright right or any other right of any Person or
contain any libelous or slanderous material. Except as set forth in Schedule
3.12, there is no claim, suit, action or proceeding pending or, to the best of
each Credit Party’s knowledge, threatened against any Credit Party or any other
Person that involves a claim of infringement of any copyright with respect to
any Picture listed on Schedule 3.8(a), and no Credit Party has any knowledge of
any existing infringement by any other Person of any copyright held by any
Credit Party with respect to any Picture listed on Schedule 3.8(a) which, in
each case, either individually or in the aggregate, could reasonably be expected
to have a Material Adverse Effect.

 

(b) Schedule 3.8(b) hereto (i) lists all the trademarks registered by any Credit
Party on the date hereof (or to be registered on the Closing Date) and
identifies the Credit Party which registered (or which will register) each such
trademark, (ii) specifies as to each, the jurisdictions in which such trademark
has been issued or registered (or, if applicable, in which an application for
such issuance or registration has been or will be filed), including the
respective

 

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registration or application numbers and applicable dates of registration or
application, and (iii) specifies as to each, as applicable, material licenses,
sublicenses and other material agreements as of the date hereof (other than any
Distribution Agreements), to which any Credit Party is a party and/or pursuant
to which any Person is authorized to use such trademark. Each trademark set
forth on Schedule 3.8(b) that is registered in the name of a Credit Party will
be included on Schedule A to the Trademark Security Agreement to be delivered to
the Administrative Agent on or prior to the Closing Date pursuant to
Section 4.1(f).

 

(c) Except as set forth on Schedule 3.8(c), all applications and registrations
for all copyrights, trademarks, service marks, trade names and service names in
which any Credit Party has (or, as of the Closing Date, will have) any right,
title or interest are (or, as of the Closing Date, will be) valid and in full
force and effect (other than trademarks, service marks, trade names and service
names that in the aggregate are not material) and are not (and, as of the
Closing Date, will not be) subject to the payment of any taxes or maintenance
fees or the taking of any other actions by any Credit Party to maintain their
validity or effectiveness.

 

SECTION 3.9. Fictitious Names. Except as disclosed on Schedule 3.9, no Credit
Party has done business, is doing business or intends to do business other than
under its full corporate name, including, without limitation, under any trade
name or other doing business name.

 

SECTION 3.10. Title to Properties. As of the Closing Date, the Credit Parties
will have good title to each of the properties and assets reflected on the most
recent financial statements delivered pursuant to Section 5.1(a) hereof and all
such properties and assets are free and clear of Liens, except Permitted
Encumbrances.

 

SECTION 3.11. Places of Business. The chief executive office of each Credit
Party is, on the date hereof, as set forth on Schedule 3.11 hereto. All of the
places where each Credit Party keeps (or intends to keep) the records concerning
the Collateral on the date hereof or regularly keeps (or intends to keep) any
goods included in the Collateral on the date hereof are also listed on
Schedule 3.11 hereto.

 

SECTION 3.12. Litigation. Schedule 3.12 sets forth a list as of the Closing Date
of all actions, suits or other proceedings at law or in equity by or before any
arbitrator, arbitration panel or Governmental Authority, and to the best of each
Credit Party’s knowledge, any investigation by any Governmental Authority of the
affairs of, or threatened action, suit or other proceeding against or affecting,
any Credit Party or any of their respective properties or rights. Except as set
forth in Schedule 3.12, there are no actions, suits or other proceedings at law
or in equity by or before any arbitrator, arbitration panel or Governmental
Authority (including, but not limited to, matters relating to environmental
liability) or, to the best of each Credit Party’s knowledge, any investigation
by any Governmental Authority of the affairs of, or threatened action, suit or
other proceeding against or affecting, any Credit Party or of any of their
respective properties or rights which either (A) if adversely determined, could
reasonably be expected to have a Material Adverse Effect, or (B) relate to this
Credit Agreement, any other Fundamental Documents or any of the transactions
contemplated hereby. No Credit Party is in default with respect to any order,
writ, injunction, decree, rule or regulation of any Governmental Authority
binding upon such Person.

 

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SECTION 3.13. Federal Reserve Regulations. None of the Credit Parties is engaged
principally or as one of its important activities, in the business of extending
credit for the purpose of purchasing or carrying any Margin Stock. No part of
the proceeds of the Loans will be used, directly or indirectly, whether
immediately, incidentally or ultimately (i) to purchase or carry any Margin
Stock or to extend credit to others for the purpose of purchasing or carrying
any Margin Stock, or (ii) for any other purpose, in each case, violative of or
inconsistent with any of the provisions of any regulation of the Board,
including, without limitation, Regulations T, U and X thereto.

 

SECTION 3.14. Investment Company Act. None of the Credit Parties is, or will
during the term of this Credit Agreement be, (i) an “investment company”, within
the meaning of the Investment Company Act of 1940, as amended, or (ii) subject
to regulation under the Public Utility Holding Company Act of 1935, the Federal
Power Act or any foreign, federal or local statute or any other Applicable Law
of the United States of America or any other jurisdiction, in each case limiting
its ability to incur indebtedness for money borrowed as contemplated hereby or
by any other Fundamental Document.

 

SECTION 3.15. Taxes. Each Credit Party (and IDT and Parent to the extent a
Credit Party is consolidated or included in a tax return of IDT or Parent) has
filed or caused to be filed all material federal, state, local and foreign tax
returns which are required to be filed with any Governmental Authority after
giving effect to applicable extensions, and has paid or has caused to be paid
all material taxes as shown on said returns or on any assessment received by it
in writing, to the extent that such taxes have become due, except as permitted
by Section 5.12 hereof. No Credit Party knows of any material additional
assessments or any basis therefor. The Credit Parties believe that the charges,
accruals and reserves on its books in respect of taxes or other governmental
charges are accurate and adequate.

 

SECTION 3.16. Compliance with ERISA. Each of the Credit Parties’ Plans, all of
which are listed on Schedule 3.16, and each of which has been maintained and
operated in all material respects in accordance with all Applicable Laws,
including ERISA and the Code, and each Plan intended to qualify under section
401(a) of the Code satisfies the requirements of this Section 3.16 in all
material respects. No Reportable Event has occurred in the last five years as to
any Plan, and the present value of all benefits under all Plans subject to Title
IV of ERISA (based on those assumptions used to fund such Plans) did not, in the
aggregate, as of the last annual valuation date applicable thereto, exceed the
actuarial value of the assets of such Plans allocable to such benefits by more
than $100,000. No material liability has been, and no circumstances exist
pursuant to which any material liability is reasonably likely to be, imposed
upon any Credit Party or ERISA Affiliate (i) under sections 4971 through 4980E
of the Code, sections 502(i) or 502(l) of ERISA, or Title IV of ERISA with
respect to any Plan or Multiemployer Plan, or with respect to any plan
heretofore maintained by any Credit Party or ERISA Affiliate, or any entity that
heretofore was an ERISA Affiliate, (ii) for the failure to fulfill any
obligation to contribute to any Multiemployer Plan, or (iii) with respect to any
Plan that provides post-retirement welfare coverage (other than as required
pursuant to Section 4980B of the Code). Neither any Credit Party nor any ERISA
Affiliate has received any notification that any Multiemployer Plan is in
reorganization or has been terminated within the meaning of Title IV of ERISA,
and no Multiemployer Plan is reasonably expected to be in reorganization or to
be terminated.

 

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SECTION 3.17. Agreements.

 

(a) No Credit Party is in default in the performance, observance or fulfillment
of any of the material obligations, covenants or conditions contained in any
material agreement or instrument (including, without limitation, any
Distribution Agreement) to which it is a party.

 

(b) Schedule 3.17 is a true and complete listing as of the date hereof of
(i) all credit agreements, indentures, and other agreements related to any
indebtedness for borrowed money of any Credit Party, other than the Fundamental
Documents, (ii) all joint venture agreements to which any Credit Party is a
party, (iii) all material Distribution Agreements to which any Credit Party is a
party, (iv) all agreements or other arrangements pursuant to which any Credit
Party has granted a Lien to any Person, and (v) all other contractual
arrangements entered into by any Credit Party or by which any Credit Party is
bound which arrangements are material to any Credit Party, including but not
limited to, Guaranties and material employment agreements. The Credit Parties
have delivered or made available to the Administrative Agent a true and complete
copy of each agreement (or, if not yet executed, the most recent draft)
described on Schedule 3.17, including all exhibits and schedules. For purposes
of this Section 3.17, a Distribution Agreement or other contract, agreement or
arrangement shall be deemed “material” if any Credit Party reasonably expects
that any Credit Party would, pursuant to the terms thereof, (A) recognize future
revenues in excess of $2,500,000, (B) incur liabilities or obligations in excess
of $2,500,000, or (C) likely suffer damages or losses in excess of $2,500,000 by
reason of the breach or termination thereof.

 

SECTION 3.18. Security Interest. This Credit Agreement and the other Fundamental
Documents, when executed and delivered and, upon the making of the initial Loan
hereunder, will create and grant to the Administrative Agent for the benefit of
the Administrative Agent, the Issuing Bank and the Lenders (upon (i) the filing
of the appropriate UCC-1 financing statements with the filing offices listed on
Schedule 3.18, (ii) the filing of the Copyright Security Agreement with the U.S.
Copyright Office, (iii) the filing of the Trademark Security Agreement with the
U.S. Patent and Trademark Office, and (iv) the delivery of the Pledged
Securities with (in the case of Pledged Securities comprising capital stock)
appropriate stock powers to the Administrative Agent and the Administrative
Agent has taken possession or control of such Pledged Securities) valid and
first priority perfected security interests in the Collateral (subject only to
Permitted Encumbrances) including in the Pledged Securities. The Parent and each
Credit Party’s taxpayer identification number and organizational identification
number is listed on Schedule 3.18 hereto.

 

SECTION 3.19. Environmental Liabilities.

 

(a) Except as set forth in Schedule 3.19, no Credit Party has used, stored,
treated, transported, manufactured, refined, handled, produced or disposed of
any Hazardous Materials on, under, at, from or in any way affecting, any of its
properties or assets owned or leased by a Credit Party, in any manner which at
the time of the action in question materially violated any Environmental Law
governing the use, storage, treatment, transportation, manufacture, refinement,
handling, production or disposal of Hazardous Materials and to the best of each
Credit Party’s knowledge, no prior owner of such property or asset or any
tenant, subtenant, prior tenant or prior subtenant thereof has used Hazardous
Materials on or affecting

 

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such property or asset, or otherwise, in any manner which at the time of the
action in question materially violated any Environmental Law governing the use,
storage, treatment, transportation, manufacture, refinement, handling,
production or disposal of Hazardous Materials.

 

(b) To the best of each Credit Party’s knowledge (i) no Credit Party has any
obligations or liabilities, known or unknown, matured or not matured, absolute
or contingent, assessed or unassessed, which could reasonably be expected to
have a Material Adverse Effect, and (ii) no claims have been made against any of
the Credit Parties in the past five years and no presently outstanding citations
or notices have been issued against any of the Credit Parties, which could
reasonably be expected to have a Material Adverse Effect which in either case
have been or are imposed by reason of or based upon any provision of any
Environmental Law, including, without limitation, any such obligations or
liabilities relating to or arising out of or attributable, in whole or in part,
to the manufacture, processing, distribution, use, treatment, storage, disposal,
transportation or handling of any Hazardous Materials by any Credit Party, or
any of its employees, agents, representatives or predecessors in interest in
connection with or in any way arising from or relating to any of the Credit
Parties or any of their respective owned or leased properties, or relating to or
arising from or attributable, in whole or in part, to the manufacture,
processing, distribution, use, treatment, storage, disposal, transportation or
handling of any such substance, by any other Person at or on or under any of the
real properties owned or used by any of the Credit Parties or any other location
where such could have a Material Adverse Effect.

 

SECTION 3.20. Pledged Securities.

 

(a) All of the Pledged Securities are duly authorized, validly issued, fully
paid and non-assessable, and are owned and held by the Pledgors (as applicable),
free and clear of any Liens, other than those created pursuant to this Credit
Agreement and other Permitted Encumbrances and there are no restrictions on the
transfer of the Pledged Securities other than as a result of this Credit
Agreement or applicable securities laws and the regulations promulgated
thereunder. The Pledged Securities are owned by the Persons specified on
Schedules 3.7(a) and (b).

 

(b) Except as set forth on Schedules 3.7(a) and (b), there are no outstanding
rights, warrants, options, conversion or similar rights currently outstanding
with respect to, and no agreements to purchase or otherwise acquire, any shares
of the capital stock or other Equity Interests of any issuer of any of the
Pledged Securities; and there are no securities or obligations of any kind
convertible into any shares of the capital stock or other Equity Interests of
any issuer of any of the Pledged Securities.

 

(c) Article 11 of this Credit Agreement creates in favor of the Administrative
Agent (on behalf of the Administrative Agent, the Issuing Bank and the Lenders)
a valid, binding and enforceable security interest in, and Lien upon, all right,
title and interest of the Pledgors in the Pledged Securities and constitutes a
fully perfected first and prior security interest and Lien upon all right, title
and interest of the Pledgors in such Pledged Securities (provided, that the
definitive instruments (if any) representing all Pledged Securities shall have
been delivered to the Administrative Agent (and the Administrative Agent has
taken possession or control of such Pledged Securities) together (in the case of
Pledged Securities comprising capital stock) with appropriate undated stock
powers endorsed or executed in blank by the appropriate Pledgor as required
under Section 11.1 hereof.

 

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SECTION 3.21. Compliance with Laws. No Credit Party is in violation of any
Applicable Law except for such violations in the aggregate which could not
reasonably be expected to have a Material Adverse Effect. The Borrowings
hereunder, the intended use of the proceeds of the Loans as described in the
preamble hereto and as contemplated by Section 2.1(a) hereof and any other
transactions contemplated hereby will not violate any Applicable Law.

 

SECTION 3.22. Subsidiaries. No Credit Party has a direct or indirect Subsidiary
other than as listed on Schedule 3.7(b).

 

SECTION 3.23. Solvency. No Credit Party has entered or is entering into the
arrangements contemplated hereby and by the other Fundamental Documents, or
intends to make any transfer or incur any obligations hereunder or thereunder,
with actual intent to hinder, delay or defraud either present or future
creditors. On and as of the Closing Date, on a pro forma basis after giving
effect to all Indebtedness (including the Loans) (i) each Credit Party expects
the cash available to such Credit Party, after taking into account all other
anticipated uses of the cash of such Credit Party (including the payments on or
in respect of debt referred to in clause (iii) of this Section 3.23), will be
sufficient to satisfy all final judgments for money damages which have been
docketed against such Credit Party or which may be rendered against such Credit
Party in any action in which such Credit Party is a defendant (taking into
account the reasonably anticipated maximum amount of any such judgment and the
earliest time at which such judgment might be entered); (ii) the sum of the
present fair saleable value of the assets of each Credit Party will exceed the
probable liability of such Credit Party on its debts (including its Guaranties
after giving effect to the Contribution Agreement); (iii) no Credit Party will
have incurred or intends to, or believes that it will, incur debts beyond its
ability to pay such debts as such debts mature (taking into account the timing
and amounts of cash to be received by such Credit Party from any source, and of
amounts to be payable on or in respect of debts of such Credit Party and the
amounts referred to in clause (ii)); and (iv) each Credit Party believes it will
have sufficient capital with which to conduct its present and proposed business
and the property of such Credit Party does not constitute unreasonably small
capital with which to conduct its present or proposed business. For purposes of
this Section 3.23, “debt” means any liability or a claim, and “claim” means any
(y) right to payment whether or not such right is reduced to judgment,
liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed,
undisputed, legal, equitable, secured or unsecured, or (z) right to an equitable
remedy for breach of performance if such breach gives rise to a payment, whether
or not such right is reduced to judgment, liquidated, unliquidated, fixed,
contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured
or unsecured.

 

SECTION 3.24. True and Complete Disclosure. Neither this Agreement nor any other
Fundamental Document nor any material agreement, document, certificate or
statement other than the Initial Projections) furnished to the Administrative
Agent and the Lenders by or on behalf of any Credit Party in connection with the
transactions contemplated hereby, at the time it was furnished contained any
untrue statement of a material fact or omitted to state a material fact, under
the circumstances under which it was made, necessary in order to make the
statements contained herein or therein not misleading (considered in the context
of all other

 

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information provided to the Lenders). The Initial Projections, unless otherwise
disclosed, were prepared in good faith based upon reasonable assumptions. At the
date hereof, there is no fact known to any Credit Party (other than general
industry conditions) which materially and adversely affects, or in the future
may reasonably be expected to materially and adversely affect the business,
properties, assets, operations or financial condition of the Credit Parties,
taken as a whole.

 

4. CONDITIONS OF LENDING

 

SECTION 4.1. Conditions Precedent to Initial Loan. The obligation of each Lender
to make its initial Loan and participate in the initial Letter of Credit, and
the obligation of the Issuing Bank to issue the initial Letter of Credit, is
subject to the satisfaction in full of the following conditions precedent:

 

(a) Corporate Documents. The Administrative Agent shall have received, with
copies for each of the Lenders:

 

  (i) a copy of the certificate of formation, articles or certificate of
incorporation or certificate of limited partnership (or equivalent document) of
the Parent and each Credit Party, certified on a recent date by the Secretary of
State or other relevant office of such Person’s jurisdiction of incorporation or
organization, as the case may be, which certificate lists (if available) the
charter documents on file in the office of such Secretary of State;

 

  (ii) from each jurisdiction in which it is available, a certificate of the
Secretary of State of such jurisdiction of organization, dated as of a recent
date as to the good standing of, and payment of taxes by, the Parent and each
Credit Party;

 

  (iii) from each jurisdiction in which it is available, a certificate dated as
of a recent date as to the good standing of the Parent and each Credit Party
issued by the Secretary of State or other relevant office of each jurisdiction
in which such Credit Party is qualified as a foreign organization as listed in
Schedule 3.1 hereto;

 

  (iv)

a certificate of the Secretary, Assistant Secretary or other appropriate officer
acceptable to the Administrative Agent, of the Parent and each Credit Party,
dated the Closing Date and certifying (A) that attached thereto is a true and
complete copy of the by-laws, articles of organization, partnership agreement
(or equivalent document) of such party as in effect on the date of such
certification; (B) that attached thereto is a true and complete copy of the
resolutions adopted by the Board of Directors (or equivalent body) of such party
authorizing the execution, delivery and performance in accordance with their
respective terms of the Fundamental Documents executed by the Parent or such
Credit Party, as applicable, and any other documents required or contemplated
hereunder or thereunder,

 

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the grant of the security interests in the Collateral, and in the case of the
Borrower, the borrowings hereunder, and that such resolutions have not been
amended, rescinded or supplemented and are currently in effect; (C) that the
certificate of formation, articles, certificate of incorporation or certificate
of limited partnership (or equivalent document) of such party has not been
amended since the date of the last amendment thereto indicated on the
certificates of the Secretary of State or other appropriate office furnished
pursuant to clause (i) above; and (D) as to the incumbency and specimen
signature of each officer of such party executing any Fundamental Document (such
certificate to contain a certification by another officer of such party as to
the incumbency and signature of the officer signing the certificate referred to
in this clause (iv)); and

 

  (v) such additional supporting documents as the Administrative Agent or its
counsel may reasonably request.

 

(b) Credit Agreement; Notes. The Administrative Agent shall have received
(i) executed counterparts of this Credit Agreement, which, when taken together,
bear the signatures of the Administrative Agent, the Issuing Bank, all of the
Credit Parties and all of the Lenders, and (ii) the Notes executed by the
Borrower.

 

(c) Opinion of Counsel. The Administrative Agent shall have received the written
opinion of O’Melveny & Myers LLP, counsel to the Credit Parties, dated the
Closing Date and addressed to the Administrative Agent, the Issuing Bank and the
Lenders which opinion shall be substantially in the form attached hereto as
Exhibit B, in form and substance reasonably satisfactory to the Administrative
Agent and to Morgan, Lewis & Bockius LLP, counsel to the Administrative Agent.

 

(d) No Material Adverse Change. No material adverse change shall have occurred
with respect to the business, operations, performance, assets, properties, or
financial condition of the Credit Parties, taken as a whole, or the Parent from
July 31, 2005 (other than general economic conditions and events or
circumstances which are generally applicable to the industries in which the
Parent or the Credit Parties operate and which have not adversely and materially
affected the Credit Parties, taken as a whole, or the Parent), except for
changes heretofore disclosed to and accepted by the Lenders.

 

(e) Insurance. The Credit Parties shall have furnished the Administrative Agent
with (i) a summary of all existing insurance coverage, (ii) evidence acceptable
to the Administrative Agent that the insurance policies required by Section 5.5
have been obtained and are in full force and effect, and (iii) certificates of
insurance with respect to all existing insurance coverage which certificates
shall name JPMorgan Chase Bank, N.A., as Administrative Agent, as the
certificate holder and shall evidence the Credit Parties’ compliance with
Section 5.5(e) with respect to all insurance coverage existing as of the Closing
Date.

 

(f) Security and Other Documentation. The Administrative Agent shall have
received fully executed copies of: (i) Pledgeholder Agreements for each Picture
for which a Credit Party has control over any physical elements thereof as
listed on Schedule 3.8(a) hereto

 

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after giving effect to the transactions contemplated hereby (other than such
Pictures which are not, individually or in the aggregate, material); (ii) a
Copyright Security Agreement listing each Picture in which any Credit Party has
a copyrightable interest (as listed on Schedule 3.8(a) hereto after giving
effect to the transactions contemplated hereby) executed by each such Credit
Party; (iii) a Trademark Security Agreement for each trademark in which any
Credit Party has any interest (as listed on Schedule 3.8(b) hereto) executed by
each such Credit Party; (iv) Laboratory Access Letters for each Picture where
any Credit Party has access rights to any physical elements of such Picture
(after giving effect to the transactions contemplated hereby) (other than such
Pictures which are not, individually or in the aggregate, material);
(v) appropriate UCC-1 financing statements and Forms 395 relating to the
Collateral; and (vi) the Pledged Securities with (in the case of Pledged
Securities comprising capital stock) appropriate undated stock powers executed
in blank.

 

(g) Security Interests in Copyrights and other Collateral. The Administrative
Agent shall have received evidence reasonably satisfactory to it that each
Credit Party has sufficient right, title and interest in and to the Collateral
and other assets which it purports to own (including appropriate licenses under
copyright), as set forth in the documents and other materials presented to the
Lenders, to enable such Credit Party to perform the Distribution Agreements to
which such Credit Party is a party and as to each Credit Party, to grant to the
Administrative Agent for the benefit of the Administrative Agent, the Issuing
Bank and the Lenders the security interests contemplated by the Fundamental
Documents, and that all financing statements, copyright filings and other
filings under Applicable Law necessary to provide the Administrative Agent for
the benefit of itself, the Issuing Bank and the Lenders with a first priority
perfected security interest in the Pledged Securities and Collateral (subject in
the case of the Collateral, to Permitted Encumbrances) have been filed or
delivered to the Administrative Agent in satisfactory form for filing.

 

(h) Payment of Fees. All fees and expenses then due and payable by the Parent or
any Credit Party to the Administrative Agent and/or the Lenders in connection
with the transactions contemplated hereby, or as required by the Fee Letter in
respect of the Facility, shall have been paid.

 

(i) Notices of Assignment and Irrevocable Instructions. The Administrative Agent
shall have received with respect to each account receivable of a Credit Party, a
Notice of Assignment and Irrevocable Instructions executed by the appropriate
Credit Party.

 

(j) Chain of Title. The Administrative Agent shall have received (i) copies of
all agreements, instruments of transfer or other instruments (in recordable
form) (including, without limitation, the rights agreements) necessary to
establish, to the reasonable satisfaction of the Administrative Agent, (x) the
applicable Credit Party’s ownership of sufficient rights in each Picture
identified by the Administrative Agent in its reasonable discretion, to enable
such Credit Party to produce and/or distribute such Picture and, in the case of
the Credit Parties, to grant to the Administrative Agent for the benefit of the
Lenders the security interests therein which are contemplated by this Credit
Agreement, and (y) the interest of such Credit Party in each Picture identified
by the Administrative Agent in its reasonable discretion or (ii) a legal opinion
regarding such matters from counsel, and in form and substance, reasonably
satisfactory to the Administrative Agent; provided, that no Credit Party shall
be required to deliver chain of title documentation establishing such Person’s
ownership interest or an opinion regarding such interest in those Pictures which
are not material as “material” is defined in Section 3.17 hereof.

 

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(k) Litigation. Except as disclosed in Schedule 3.12, no litigation, inquiry,
injunction or restraining order shall be pending, entered or threatened which
involves this Credit Agreement or which could reasonably be expected to have a
Material Adverse Effect.

 

(l) Searches. The Administrative Agent shall have received UCC, copyright office
and other searches satisfactory to it indicating that no other filings,
encumbrances or transfers (other than in connection with Permitted Encumbrances)
with regard to the Collateral are of record in any jurisdiction in which it
shall be necessary or desirable for the Administrative Agent to make a UCC
filing in order to provide the Administrative Agent (for the benefit of the
Administrative Agent, the Issuing Bank and the Lenders) with a perfected
security interest in the Collateral.

 

(m) ERISA. The Administrative Agent shall have received copies of all Plans of
each Credit Party subject to Title IV of ERISA that are in existence on the
Closing Date, and descriptions of those that are committed to on the Closing
Date.

 

(n) Contribution Agreement. The Administrative Agent shall have received a fully
executed Contribution Agreement duly executed by each of the Credit Parties.

 

(o) Material Agreements. The Administrative Agent shall have received a copy,
certified by the Borrower, of all (and at least one) Main Distribution
Agreements, a Main Distributor Intercreditor Agreement with respect thereto and
each other agreement listed on Schedule 3.17 requested by it.

 

(p) Account Control Agreement. The Administrative Agent shall have received
fully executed Account Control Agreements for each account of a Credit Party
existing at a bank other than the Administrative Agent as of the Closing Date
duly executed by such Credit Party and such bank.

 

(q) Required Consents and Approvals. The Administrative Agent shall be satisfied
that all required consents and approvals have been obtained with respect to the
transactions contemplated hereby from all Governmental Authorities with
jurisdiction over the business and activities of the Parent, any Credit Party
and from any other entity whose consent or approval the Administrative Agent in
its reasonable discretion deems necessary to the transactions contemplated
hereby.

 

(r) Federal Reserve Regulations. The Administrative Agent shall be satisfied
that the provisions of Regulations T, U and X of the Board will not be violated
by the transactions contemplated hereby.

 

(s) Compliance with Laws. The Administrative Agent shall be satisfied that the
transactions contemplated hereby will not (i) violate any provision of
Applicable Law, or any order of any court or other agency of the United States
of America or any state thereof applicable to any of the Credit Parties or any
of their respective properties or assets or (ii) conflict with, or result in a
default, breach or right of termination or acceleration under, any material
agreement to which any Credit Party is a party, other than such as could not
reasonably be expected to result in a Material Adverse Effect.

 

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(t) Financial Statements. The Lenders shall have received (i) the unaudited
consolidated balance sheet of the Parent and its Consolidated Subsidiaries for
the fiscal year ended July 31, 2005, together with the related statements of
income (ii) an unaudited pro forma balance sheet of the Credit Parties as of
October 31, 2005.

 

(u) USA Patriot Act. The Administrative Agent shall have received any
information required and requested by the Administrative Agent, the Issuing Bank
or any Lender under or in connection with the USA Patriot Act.

 

(v) Required Liquidity. The Borrower shall have cash, Cash Equivalents or
marketable securities satisfactory to the Administrative Agent on deposit in the
Securities Account in an amount of at least $20,000,000.

 

(w) Approval of Counsel to the Administrative Agent. All legal matters incident
to this Credit Agreement and the other transactions contemplated hereby shall be
reasonably satisfactory to Morgan, Lewis & Bockius LLP, counsel to the
Administrative Agent.

 

(x) Other Documents. The Administrative Agent shall have received such other
documentation as the Administrative Agent may reasonably request.

 

SECTION 4.2. Conditions Precedent to the Initial Loan for Each Qualifying
Picture. The issuance of the initial Loan for each Qualifying Picture by each
Lender hereunder is subject to the following conditions precedent being
satisfied no later than five (5) Business Days before the date of the request
for such Loan:

 

(a) Funding of Production Costs. The Administrative Agent shall have received
evidence satisfactory to it, including but not limited to the Liquidity
Certificate, that the Borrower shall have secured commitments from the Parent
or, in the case of a Permitted Co-Financed Picture, a Co-Financier in accordance
with the terms hereof to fund the amount of Production Costs for such Qualifying
Picture equal to the Unfinanced Production Costs.

 

(b) Qualifying Picture Declaration. The Administrative Agent shall have received
a Qualifying Picture Declaration in respect of such Qualifying Picture, duly
executed by an Authorized Officer on behalf of the Borrower. Upon the execution
of the Qualifying Picture Declaration, the Administrative Agent shall be
entitled to establish the Production Cost Reserve Amount for such Qualifying
Picture.

 

(c) Permitted Co-Financings. If such Qualifying Picture is a Permitted
Co-Financed Picture, the Administrative Agent shall have received full executed
copies of the applicable Co-Financing Agreement, a Co-Financing Intercreditor
Agreement and any and all documents reasonably requested by the Administrative
Agent to evidence compliance by the Credit Parties with Section 5.23 with
respect thereto.

 

(d) Qualifying Picture Documents. The Administrative Agent shall have received
(i) a copy of the Cash Budget for such Qualifying Picture, (ii) a list of all
agreements

 

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executed in connection with such Qualifying Picture that provide for deferments
or participations, along with copies of such agreements as the Administrative
Agent may reasonably request, (iii) certificates or binders of insurance for
such Qualifying Picture together with an endorsement naming the Administrative
Agent as an “additional insured” or “loss payee”, as applicable, (iv) chain of
title documentation that complies with the terms of Section 4.1(j) hereof,
(v) Copyright Security Agreement Supplements, substantially in the form of
Exhibit C-2, and Pledgeholder Agreements, substantially in the form of Exhibit
E-1 or Exhibit E-2 (as applicable) for such Qualifying Picture, and (vi) an
Approved Completion Bond from an Approved Completion Guarantor.

 

(e) Liquidity Certificate. The Administrative Agent shall have received a
Liquidity Certificate, dated as of the date of such Loan, duly executed by an
Authorized Officer on behalf of the Parent.

 

(f) Production Covenants. The Borrower shall have complied with each of the
covenants set forth in Section 5.24 with respect to each Qualifying Picture.

 

(g) No Main Distributor Adverse Event. No event shall have occurred and be
continuing that has a materially adverse effect on the ability of the Main
Distributor of such Qualifying Picture to perform under its Main Distribution
Agreement, including, without limitation if (i) any Main Distributor shall
generally not pay its debts as they become due or shall admit in writing its
inability to pay its debts, or shall make a general assignment for the benefit
of creditors; or shall commence any case, proceeding or other action seeking to
have an order for relief entered on its behalf as a debtor or to adjudicate it a
bankrupt or insolvent or seeking reorganization, arrangement, adjustment,
liquidation, dissolution or composition of it or its debts under any law
relating to bankruptcy, insolvency, reorganization or relief of debtors or
seeking appointment of a receiver, trustee, custodian or other similar official
for it or for all or any substantial part of its property or shall file an
answer or other pleading in any such case, proceeding or other action admitting
the material allegations of any petition, complaint or similar pleading filed
against it or consenting to the relief sought therein; or it shall take any
action to authorize, or in contemplation of, any of the foregoing; (ii) any
involuntary case, proceeding or other action against such Main Distributor shall
be commenced seeking to have an order for relief entered against it as debtor or
to adjudicate it a bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment, liquidation, dissolution or composition of it or its
debts under any law relating to bankruptcy, insolvency, reorganization or relief
of debtors, or seeking appointment of a receiver, trustee, custodian or other
similar official for it or for all or any substantial part of its property, and
such case, proceeding or other action (x) results in the entry of any order for
relief against it, or (y) shall remain undismissed for a period of sixty
(60) days; (iii) such Main Distributor shall cease, or shall announce that it
intends to cease, to engage in the business of domestic theatrical film and home
video distribution as a major component of its business; (iv) it shall repudiate
or suspend performance under its Main Distribution Agreement or its Main
Distributor Intercreditor Agreement; or (v) it its legal right, power or
authority to perform its obligations under the Main Distribution Agreement shall
cease or be materially impaired.

 

SECTION 4.3. Conditions Precedent to Each Loan and Letter of Credit. The
obligations of the Issuing Bank to issue each Letter of Credit and of the
Lenders to make each of

 

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the Loans and participate in each Letter of Credit (including the initial Loan
and initial Letter of Credit) are subject to the following conditions precedent:

 

(a) Notice. The Administrative Agent shall have received a notice with respect
to such Borrowing or the Issuing Bank shall have received a notice with respect
to such Letter of Credit as required by Article 2 hereof.

 

(b) Borrowing Certificate. In the case of a Borrowing, the Administrative Agent
shall have received a Borrowing Certificate with respect to such Borrowing, duly
executed by an Authorized Officer of the Borrower.

 

(c) Representations and Warranties. The representations and warranties set forth
in Article 3 hereof (as updated from time to time by any amendment of the
Schedules attached to this Credit Agreement in accordance with
Section 5.1(a)(xi) hereof) and in the other Fundamental Documents shall be true
and correct in all material respects on and as of the date of each Borrowing and
the date of issuance of each Letter of Credit (except to the extent that such
representations and warranties expressly relate to an earlier date, in which
case such representations and warranties shall be true and correct as of such
earlier date) with the same effect as if made on and as of such date.

 

(d) No Default or Event of Default. On the date of each Borrowing and the date
of issuance of each Letter of Credit, no Default or Event of Default shall have
occurred and be continuing, nor shall any such event occur by reason of the
making of such Loan or the issuance of such Letter of Credit.

 

(e) No Material Adverse Change. No event or events shall have occurred (since
the date of the annual audited financial statements which were most recently
delivered pursuant to Sections 3.5 or 5.1) which have had a Material Adverse
Effect or a material adverse change with respect to the business, operations,
performance, assets, properties or financial condition of the Borrower or the
Parent and their respective Consolidated Subsidiaries, taken as a whole (other
than general economic conditions and events or circumstances which are generally
applicable to the industries in which the Parent or the Credit Parties operate
and which have not adversely and materially affected the Credit Parties, taken
as a whole, or the Parent).

 

Each request for a Borrowing or a Letter of Credit shall be deemed to be a
representation and warranty by the Borrower on the date of such Borrowing or the
date of issuance of such Letter of Credit, as applicable, as to the matters
specified in paragraphs (c), (d) and (e) of this Section 4.3.

 

5. AFFIRMATIVE COVENANTS

 

From the date hereof and for so long as the Commitments shall be in effect, any
amount shall remain outstanding under any Note, any Letter of Credit shall
remain outstanding or any other Obligation shall remain unpaid or unsatisfied,
each of the Credit Parties agrees that, unless the Required Lenders shall
otherwise consent in writing, it will, and will cause each of its Subsidiaries
and each other Credit Party to:

 

SECTION 5.1. Financial Statements, Reports and Audits. (a) Furnish or cause to
be furnished to the Administrative Agent and each of the Lenders:

 

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  (i) Within one hundred twenty (120) days after the end of each fiscal year of
the Parent commencing with the fiscal year ending July 31, 2006, the audited
combined balance sheet of the Credit Parties as at the end of, and the related
combined statements of income, stockholders’ equity and cash flows for, such
fiscal year, and commencing with the fiscal year ending July 31, 2007, the
corresponding figures as at the end of, and for, the preceding fiscal year,
accompanied by an unqualified report and opinion of Ernst & Young LLP or such
other independent public accountants of nationally recognized standing as shall
be retained by the Parent and be reasonably satisfactory to the Required
Lenders, which report and opinion shall be prepared in accordance with generally
accepted auditing standards relating to reporting and which report and opinion
shall contain no material exceptions or qualifications except for qualifications
relating to accounting changes (with which such independent public accountants
concur) in response to FASB releases or other authoritative pronouncements,
together with a certificate signed by an Authorized Officer of the Borrower, to
the effect that such financial statements fairly present in all material
respects the financial position of the Credit Parties as at the dates indicated
and the results of their operations for the periods indicated in conformity with
GAAP;

 

  (ii) Within sixty (60) days after the end of each of the first three fiscal
quarters of each of fiscal year of the Borrower, commencing with the fiscal
quarter ending October 31, 2005, the unaudited combined balance sheet of the
Credit Parties and the related unaudited combined statements of income,
stockholders’ equity and cash flows for, such fiscal quarter, and for the
portion of the fiscal year through the end of such fiscal quarter and,
commencing with the fiscal quarter ending January 31, 2006, the corresponding
figures, all as at the end of such quarter, and for the corresponding period, in
the preceding fiscal year, together with a certificate signed by an Authorized
Officer of the Borrower (and in the case of the fiscal quarter ending
October 31, 2005, an Authorized Officer of the Parent), to the effect that such
financial statements, while not examined by independent public accountants,
reflect, in the opinion of the Borrower or the Parent, as applicable, all
adjustments necessary to present fairly in all material respects the financial
position of the Credit Parties as at the end of the fiscal quarter and the
results of operations for the fiscal quarter then ended in conformity with GAAP,
subject to normal year-end audit adjustments and the absence of footnotes;

 

  (iii) Simultaneously with the delivery of the statements referred to in
paragraphs (a)(i) and (a)(ii) of this Section 5.1, combined statements of
receivables aging, bad debt experience, returns and concentrations of account
debtors of the Credit Parties in form satisfactory to the Administrative Agent;

 

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  (iv) Within three Business Days of receipt from the Main Distributor, and in
any event at least Quarterly (or more frequently if required by the
Administrative Agent to determine a current Borrowing Base), statements of the
then current film ultimates (together with the customary calculations thereof)
of all Pictures financed hereunder;

 

  (v) Simultaneously with the delivery of the statements referred to in
paragraphs (a)(i) and (a)(ii) of this Section 5.1 (or more frequently if
required by the Administrative Agent to determine a current Borrowing Base), a
Borrowing Base certificate in substantially the form of Exhibit O hereto,
showing the current Borrowing Base, Eligible Receivables and Released Film Value
for each Qualifying Picture with respect to which Loans have been advanced
hereunder;

 

  (vi) Simultaneously with delivery of financial statements required under
Section 5.1(a)(i) above, a copy of the annual Business Plan for the Borrower and
the Credit Parties, which shall include projections for the ensuing five years,
the first two years of such projections being on a quarterly basis;

 

  (vii) From time to time, copies of information prepared by a Credit Party or
received regarding prospective productions and tentative and final negative
costs of Pictures financed hereunder;

 

  (viii) Upon reasonable request, deliver all regular periodic financial reports
prepared by or for the Parent or the Borrower with respect to each Picture
financed or intended to be financed hereunder from the beginning of
preproduction for such Picture until such Picture is completed; such reports
shall include the Borrower’s cost basis in the Picture, the estimated cost to
complete each such Picture, and the anticipated delivery and release dates for
each such Picture;

 

  (ix)

Simultaneously with the delivery of the statements referred to in paragraphs
(a)(i) and (a)(ii) of this Section 5.1, a certificate of an Authorized Officer
of the Borrower or Parent, as applicable, in form and substance reasonably
satisfactory to the Administrative Agent (A) stating whether or not such
Authorized Officer has knowledge, after due inquiry, of any condition or event
which would constitute an Event of Default or Default and, if so, specifying
each such condition or event, the nature thereof and any action taken or
proposed to be taken with respect thereto, (B) demonstrating in reasonable
detail compliance with the provisions of Sections 6.10 and 6.14 and the
permitted uses under Section 2.1(a) and including supporting schedules,
(C) certifying that all filings required under Section 5.7 hereof have been made
and listing each such filing that has been made since the date of the last
certificate delivered in accordance with this Section 5.1(a)(ix), (D) stating
whether any change in GAAP or in the application thereof has occurred since the
date of the most recent

 

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audited financial statements delivered to the Administrative Agent hereunder
(but until the delivery of any audited financial statements hereunder, since the
date of the unaudited financial statements referred to in Section 3.5) and, if
any such change has occurred, specifying the effect of such change on the
financial statements accompanying such certificate, (E) identifying all
Subsidiaries existing on the date of such certificate and indicating, for each
such Subsidiary, whether such Subsidiary was formed or acquired since the end of
the previous fiscal quarter, (F) identifying any changes of the type described
in Section 6.9 that have not been previously reported by a Credit Party, and
(G) identifying any events which give rise to an obligation by the Borrower
hereunder to prepay all or any portion of the Loans or cash collateralize any
Letters of Credit that have occurred since the end of the previous fiscal
quarter and setting forth a reasonably detailed calculation of the amount of
such prepayment obligation or cash collateralization;

 

  (x) Within 10 Business Days of receipt thereof by a Credit Party, copies of
all management letters issued to such Person by its auditors;

 

  (xi) Promptly upon their becoming available, copies of (i) all registration
statements, proxy statements, notices and reports any Credit Party shall file
with any securities exchange or with the Securities and Exchange Commission or
any successor agency, if any, and (ii) all reports, financial statements, press
releases and other information which any Credit Party shall release, send or
make available to its common stockholders generally;

 

  (xii) From time to time such information as may be required to keep current
each of the Schedules attached to this Credit Agreement; provided, that none of
the Schedules hereto may be amended without the prior written consent of the
Administrative Agent in its sole discretion except for Schedules 3.1, 3.7(a),
3.7(b), 3.8(a), 3.8(b), 3.11 and 3.18;

 

  (xiii) Simultaneously with delivery of financial statements required under
Sections 5.1(a)(i) and (ii) above, a brief report by management outlining the
financial condition and results of operations of the Credit Parties, in a form
reasonably acceptable to the Administrative Agent in its sole discretion;

 

  (xiv) Promptly upon request therefor, any information required by the
Administrative Agent, the Issuing Bank or any Lender under or in connection with
the USA Patriot Act;

 

  (xv) From time to time such additional information regarding the financial
condition or business of any Credit Party, any Picture, any Distribution
Agreement or the Collateral, as the Administrative Agent or any Lender acting
through the Administrative Agent may reasonably request;

 

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(b) Permit the Agent or its designees to spot audit the Credit Parties’ and the
Parent’s internal records (limited with regard to the Parent, if an Event of
Default has not occurred and is continuing, to once a year) and provide the
Administrative Agent or its designee with notice of, and access to the results
of, all audits conducted by or for the Borrower or any of its affiliates,
third-party licensees, Co-Financiers, partners and joint venturers or, if an
Event of Default is has occurred and is continuing, to conduct any such audit as
requested by the Administrative Agent.

 

SECTION 5.2. Corporate Existence; Compliance with Laws. Do or cause to be done
all things necessary (i) to preserve, renew and keep in full force and effect
its legal existence, rights, licenses, permits and franchises and (ii) to comply
with all applicable statutes, regulations and orders of, and all applicable
restrictions imposed by, any Governmental Authority, except (a) as otherwise
permitted under Section 6.6 or (b) in the case of clause (ii) only, where the
failure to do so could not reasonably be expected to result in a Material
Adverse Effect.

 

SECTION 5.3. Maintenance of Properties. (a) Keep its tangible properties which
are material to its business in good repair, working order and condition
(ordinary wear and tear excepted) and, from time to time (i) make (or cause to
be made) all necessary and proper repairs, renewals, replacements, additions and
improvements thereto, and (ii) comply at all times with the provisions of all
material leases and other material agreements to which it is a party so as to
prevent any loss or forfeiture thereof or thereunder unless compliance therewith
is being currently contested in good faith by appropriate proceedings and
appropriate reserves have been established in accordance with GAAP; provided,
however, that nothing in this Section 5.3 shall prevent any Credit Party from
discontinuing the use, operation or maintenance of such properties or disposing
of them subject to the prior written consent of the Administrative Agent (which
consent shall not be unreasonably withheld) if (x) such discontinuance or
disposal is, in the reasonable judgment of the governing body of such Credit
Party, desirable in the conduct of the business, and (y) such discontinuance or
disposal could not reasonably be expected to result in a Material Adverse
Effect.

 

(b) Cause a backup copy of all work in progress on each Picture to be created
not less often than once per day and cause a backup copy of all work in progress
on each Picture to be stored offsite at a Laboratory with which there is a fully
executed Laboratory Access Letter at least once in each seven-day period.

 

SECTION 5.4. Notice of Material Events.

 

(a) Promptly upon any Authorized Officer of any Credit Party obtaining knowledge
of (i) any Default or Event of Default, (ii) any material adverse change in the
financial condition or operations of any Credit Party, (iii) any action or event
which could reasonably be expected to materially and adversely affect the
performance of the Credit Parties’ obligations under this Credit Agreement or
any other Fundamental Document, the repayment of the Notes or the security
interests granted to the Administrative Agent for the benefit of the
Administrative Agent, the Issuing Bank or the Lenders under this Credit
Agreement or any other Fundamental Document, (iv) any other event which could
reasonably be expected to result in a Material Adverse Effect, (v) the opening
of any office of any Credit Party or the change of the

 

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executive office or the principal place of business of any Credit Party or of
the location of any Credit Party’s books and records with respect to the
Collateral, (vi) any change in the name or jurisdiction of organization of any
Credit Party, (vii) any other event which could reasonably be expected to
materially and adversely impact upon the amount or collection of accounts
receivable of the Credit Parties or otherwise materially decrease the value of
the Collateral or the Pledged Securities, (viii) any proposed material amendment
to any agreements that are part of the Collateral, or (ix) any Person giving any
notice to any Credit Party or taking any other action to enforce remedies with
respect to a claimed default or event or condition of the type referred to in
paragraph (g) or (h) of Article 7, such Credit Party shall promptly give written
notice thereof to the Administrative Agent specifying the nature and period of
existence of any such condition or event, or specifying the notice given or
action taken by such Person and the nature of such claimed Event of Default or
condition and what action any Credit Party has taken, is taking and proposes to
take with respect thereto.

 

(b) Promptly upon any Authorized Officer of any Credit Party obtaining knowledge
of (i) the institution of, or threat of, any action, suit, proceeding,
investigation or arbitration by any Governmental Authority or other Person
against or affecting any material portion any Credit Party’s assets or any
Picture, (ii) the institution of, or threat of, any action, suit, proceeding,
investigation or arbitration by any Governmental Authority or other Person
against or affecting any Credit Party or any of their respective properties or
rights which, if adversely determined, could be reasonably expected to result in
a Material Adverse Effect, or (iii) any material development in any such action,
suit, proceeding, investigation or arbitration (whether or not previously
disclosed to the Lenders) which, if decided adversely, could reasonably be
expected to result in a Material Adverse Effect, such Credit Party shall
promptly give written notice thereof to the Administrative Agent and provide
such other information as may be available to it to enable the Lenders to
evaluate such matters; and, in addition to the requirements set forth in clauses
(i), (ii) and (iii) of this subsection (b), such Credit Party upon request shall
promptly give notice of the status of any action, suit, proceeding,
investigation or arbitration covered by a report delivered to the Lenders
pursuant to clause (i), (ii) or (iii) above to the Lenders and provide such
other information as may be reasonably requested and available to it to enable
the Lenders to evaluate such matters.

 

SECTION 5.5. Insurance.

 

(a) Keep its assets which are of an insurable character insured (to the extent
and for the time periods consistent with customary industry standards) by
financially sound and reputable insurers against loss or damage by fire,
explosion, theft or other hazards which are included under extended coverage in
amounts not less than the insurable value of the property insured or such lesser
amounts, and with such self-insured retention or deductible levels, as are
consistent with normal industry standards, including, without limitation,
business interruption and “extra expense” coverage sufficient to cover the cost
of reproducing any production work resulting from the loss of computer graphic
animation work in progress if a casualty were to occur immediate prior to a
regularly scheduled off-site data backup.

 

(b) Maintain with financially sound and reputable insurers, insurance against
other hazards and risks and liability to Persons and property to the extent and
in the manner consistent with customary standards.

 

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(c) Maintain, or cause to be maintained, in effect during the period from the
commencement of production of each Picture produced by any Credit Party or from
the date of acquisition of each Picture acquired by any Credit Party, through
the third anniversary of the date on which such Picture is Completed and as
otherwise required by applicable contracts, a so-called “Errors and Omissions”
policy covering all such Pictures, and cause such Errors and Omissions policy to
provide coverage to the extent and in such manner as is customary for Pictures
of like type but, at minimum, to the extent and in such manner as is required
under all applicable contracts relating thereto.

 

(d) In the case of the Credit Parties, cause all such above-described insurance
(excluding worker’s compensation insurance) to: (i) provide for the benefit of
the Lenders that 30 days’ prior written notice of cancellation, termination,
non-renewal or lapse or material change of coverage shall be given to the
Administrative Agent; (ii) name the Administrative Agent for the benefit of the
Administrative Agent, the Issuing Bank and the Lenders as a loss payee (except
for “Errors and Omissions” insurance and other third party liability insurance);
provided, however, that production insurance recoveries received prior to
Completion or abandonment of a Picture may be utilized to finance the production
of such a Picture, and; provided, further, that so long as no Event of Default
has occurred or is continuing, property insurance proceeds may be used to repair
damage in respect of which such proceeds were received; and (iii) to the extent
that none of the Administrative Agent, the Issuing Bank and the Lenders shall be
liable for premiums or calls, name the Administrative Agent (for the benefit of
the Administrative Agent, the Issuing Bank and the Lenders) as additional
insureds including, without limitation, under any “Errors and Omissions” policy.

 

(e) Render to the Administrative Agent upon the request of the Administrative
Agent a broker’s report in form and substance reasonably satisfactory to the
Administrative Agent as to all such insurance coverage including such detail as
the Administrative Agent may reasonably request.

 

SECTION 5.6. Music. With respect to any Picture produced by a Credit Party, when
a Picture has been scored, if requested by the Administrative Agent, deliver to
the Administrative Agent within a reasonable period of time after such request
(a) written evidence of the music synchronization rights, if any, obtained from
the composer or the licensor of the music, and (b) copies of all music cue
sheets with respect to such Picture.

 

SECTION 5.7. Copyrights and Trademarks.

 

(a) Within thirty (30) days after the initial release or broadcast of each
Picture, to the extent any Credit Party is or becomes the copyright proprietor
thereof or otherwise acquires a copyrightable interest therein, or any Credit
Party acquires any trademark, service mark, trade name or service name, take any
and all actions necessary to register the copyright for such Picture or such
trademark, service mark, trade name or service name, in the name of such Credit
Party subject, in the case of the Credit Parties, to a Lien in favor of the
Administrative Agent for the benefit of itself, the Issuing Bank and the Lenders
pursuant to the Copyright Security Agreement and the Trademark Security
Agreement) in conformity with the laws of the United States of America and such
other jurisdictions as the Administrative Agent may reasonably specify, and
promptly deliver to the Administrative Agent (x) written evidence of the

 

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registration of any and all such copyrights for inclusion in the Collateral
under this Credit Agreement, and (y) a Copyright Security Agreement Supplement
or a Trademark Security Agreement relating to such item or such trademark,
service mark, trade name or service name, executed by such Credit Party.

 

(b) Obtain instruments of transfer or other documents evidencing the interest of
any Credit Party with respect to the copyright relating to Pictures in which
such Credit Party owns a copyrightable interest and any trademark, service mark,
trade name or service name which such Credit Party acquires, and promptly
record, or cause to be recorded, if such interest may be registered with the
United States Copyright Office, the United States Trademark Office or such other
jurisdictions, such instruments of transfer on the United States Copyright
Register or the United States Trademark Register and such other jurisdictions as
the Administrative Agent may reasonably specify.

 

SECTION 5.8. Books and Records, Examination.

 

(a) Maintain or cause to be maintained at all times true and complete books and
records of its financial operations and provide the Administrative Agent and its
representatives (and after the occurrence and during the continuance of an Event
of Default and with reasonable coordination, the Lenders and their
representatives) access to such books and records and to any of its properties
or assets upon reasonable notice and during regular business hours (and, unless
an Event of Default shall have occurred and be continuing, with no more
frequency than is reasonable) in order that the Administrative Agent (and the
Lenders, if applicable) may make such audits and examinations and make abstracts
from such books, accounts, records and other papers pertaining to the Collateral
and upon notification to the Credit Parties, permit the Administrative Agent or
its representatives (and after the occurrence and during the continuance of an
Event of Default and with reasonable coordination, the Lenders and their
representatives) to discuss the affairs, finances and accounts with, and be
advised as to the same by, officers and independent accountants, all as the
Administrative Agent (or the Lenders, if applicable) may deem appropriate for
the purpose of verifying the accuracy of the each report delivered by any Credit
Party to the Administrative Agent and/or the Lenders pursuant to this Credit
Agreement or for otherwise ascertaining compliance with this Credit Agreement or
any other Fundamental Document.

 

(b) If, at any time when an Event of Default has not occurred and is continuing,
the Administrative Agent wishes to confirm with account debtors and other payors
the amounts and terms of any or all receivables, the Administrative Agent will
so notify the Credit Parties. The Administrative Agent agrees to have such
confirmation made through the Credit Parties’ auditors. If for any reason such
auditors fail to proceed with the confirmations, the Administrative Agent may
proceed to make such confirmations directly with account debtors and other
payors after prior written notice to the Borrower. Each of the Credit Parties
hereby agrees that, upon the occurrence and during the continuance of an Event
of Default, the Administrative Agent shall be entitled to confirm directly with
account debtors and other payors, the amounts and terms of all accounts
receivable.

 

SECTION 5.9. Third Party Audit Rights. Promptly notify the Administrative Agent
of, and at all times allow the Administrative Agent access to the results of,
all audits

 

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conducted by any Credit Party of any third party licensee, partnership or joint
venture under any agreement with respect to any Picture included in the
Collateral. The Credit Parties will exercise their audit rights with respect to
any such third party licensees, partnerships and joint ventures upon the
reasonable request of the Administrative Agent to the extent that the Credit
Parties shall have the right to conduct such audits. After an Event of Default
has occurred and is continuing, the Administrative Agent shall have the right to
exercise directly or through any Credit Party, such Credit Party’s right to
audit any obligor under an agreement with respect to any Picture included in the
Collateral.

 

SECTION 5.10. Observance of Agreements. Duly observe and perform all material
terms and conditions of all material agreements with respect to the exploitation
of Pictures and diligently protect and enforce the rights of the Credit Parties
under all such agreements in a manner consistent with prudent business judgment
and subject to the terms and conditions of such agreements as from time to time
in effect.

 

SECTION 5.11. Laboratories; No Removal.

 

(a) To the extent any Credit Party has control over, or rights to receive, any
of the Physical Materials relating to any Picture, deliver or cause to be
delivered to a Laboratory or Laboratories all negative and preprint material,
master tapes and all sound track materials with respect to each such Picture
and, in the case of the Credit Parties, deliver to the Administrative Agent a
fully executed Pledgeholder Agreement with respect to such materials. To the
extent that any Credit Party has only rights of access to preprint material or
master tapes and has not created duplicate materials sufficient to exploit its
rights and has not stored such duplicate materials at a Laboratory that has
delivered a Pledgeholder Agreement to the Administrative Agent, then the
applicable Credit Party will deliver to the Administrative Agent a fully
executed Laboratory Access Letter covering such materials. Prior to requesting
any such Laboratory to deliver any negative or other preprint or sound track
material or master tapes to another Laboratory, such Credit Party shall provide
the Administrative Agent with a Pledgeholder Agreement or Laboratory Access
Letter, as appropriate, executed by such other Laboratory and all other parties
to such Pledgeholder Agreement (including the Administrative Agent). Each Credit
Party hereby agrees not to deliver or remove or cause the delivery or removal of
the original negative and film or sound materials or master tapes with respect
to any Picture owned by any Credit Party or in which any Credit Party has an
interest to a location outside the United States of America, Canada or the
United Kingdom.

 

(b) During production of any Picture produced by any Credit Party, such Credit
Party shall promptly deliver (or cause to be delivered) the daily rushes for
such Picture to the appropriate Laboratory as soon as reasonably practicable
and, in any event, no less frequently than weekly.

 

(c) With respect to Pictures Completed after the Closing Date, promptly after
Completion, deliver to the Administrative Agent and the Laboratories which are
signatories to Pledgeholder Agreements a revised schedule of Pictures on deposit
with such Laboratories to the extent applicable.

 

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SECTION 5.12. Taxes and Charges; Indebtedness in Ordinary Course of Business.
Duly pay and discharge, or cause to be paid and discharged, before the same
shall become in arrears (after giving effect to applicable extensions), all
material taxes, assessments, levies and other governmental charges, imposed upon
any Credit Party or its properties, sales and activities, or any part thereof,
or upon the income or profits therefrom, as well as all claims for labor,
materials, or supplies which if unpaid might by law become a Lien (other than a
Permitted Encumbrance) upon any property of any Credit Party except for any such
amounts which if unpaid, individually or in the aggregate could not reasonably
be expected to have a Material Adverse Effect; provided, however, that any such
tax, assessment, levy or charge need not be paid if the validity or amount
thereof shall currently be contested in good faith by appropriate proceedings
and if such Credit Party shall have set aside on its books reasonable reserves
(the presentation of which is segregated to the extent required by GAAP)
adequate with respect thereto if reserves shall be deemed necessary; and
provided, further, that such Credit Party will pay all such taxes, assessments,
levies or other governmental charges forthwith upon the commencement of
proceedings to foreclose any Lien which may have attached as security therefor
or post a bond or other security therefor. Each Credit Party will promptly pay
when due, or in conformance with customary trade terms, all other indebtedness
incident to its operations.

 

SECTION 5.13. Liens. Defend the Collateral (including, without limitation, the
Pledged Securities) against any and all Liens howsoever arising, other than
Permitted Encumbrances, and in any event defend against any attempted
foreclosure.

 

SECTION 5.14. Further Assurances; Security Interests.

 

(a) Upon the reasonable request of the Administrative Agent, duly execute and
deliver, or cause to be duly executed and delivered, at the cost and expense of
the Credit Parties, such further instruments as may be necessary or desirable in
the reasonable judgment of the Administrative Agent to carry out the provisions
and purposes of this Credit Agreement and the other Fundamental Documents.

 

(b) Upon the reasonable request of the Administrative Agent, promptly execute
and deliver or cause to be executed and delivered, at the cost and expense of
the Credit Parties, such further instruments as may be appropriate in the
reasonable judgment of the Administrative Agent, to provide the Administrative
Agent for the benefit of the Administrative Agent, the Issuing Bank and the
Lenders a first perfected Lien in the Collateral (subject to Permitted
Encumbrances) and any and all documents (including, without limitation, the
execution, amendment or supplementation of any financing statement and
continuation statement or other statement) for filing under the provisions of
the UCC and the rules and regulations thereunder, or any other Applicable Law,
and perform or cause to be performed such other ministerial acts which are
reasonably necessary or advisable, from time to time, in order to grant and
maintain in favor of the Administrative Agent for the benefit of itself, the
Issuing Bank and the Lenders the security interest in the Collateral
contemplated hereunder and under the other Fundamental Documents, subject only
to Permitted Encumbrances.

 

(c) Promptly undertake to deliver or cause to be delivered to the Administrative
Agent, the Issuing Bank and the Lenders from time to time such other
documentation, consents, authorizations and approvals in form and substance
reasonably

 

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satisfactory to the Administrative Agent, as the Administrative Agent shall deem
reasonably necessary or advisable to perfect or maintain the Liens of the
Administrative Agent for the benefit of itself, the Issuing Bank and the
Lenders.

 

SECTION 5.15. ERISA Compliance and Reports. Furnish to the Administrative Agent
(a) as soon as possible, and in any event within thirty (30) days after any
executive officer of a Credit Party has knowledge that (i) any Reportable Event
with respect to any Plan has occurred, a statement of an executive officer of
the Credit Party, setting forth on behalf of such Credit Party details as to
such Reportable Event and the action which it proposes to take with respect
thereto, together with a copy of the notice, if any, required to be filed of
such Reportable Event given to the PBGC, or (ii) an accumulated funding
deficiency has been incurred or an application has been made to the Secretary of
the Treasury for a waiver or modification of the minimum funding standard or an
extension of any amortization period under Section 412 of the Code with respect
to a Plan, a Plan or Multiemployer Plan has been or is proposed to be
terminated, reorganized, partitioned or declared insolvent under Title IV of
ERISA, proceedings have been instituted to terminate a Plan, a proceeding has
been instituted pursuant to Section 515 of ERISA to collect a delinquent
contribution to a Multiemployer Plan, or any such Credit Party or ERISA
Affiliate will incur any material liability (including any contingent or
secondary liability) to or on account of the termination of or withdrawal from a
Plan or Multiemployer Plan under Sections 4062, 4063, 4201 or 4204 of ERISA, a
statement of an executive officer of the Credit Party, setting forth details as
to such event and the action the applicable Credit Party proposes to take with
respect thereto, (b) promptly upon reasonable request of the Administrative
Agent, copies of each annual and other report with respect to each Plan subject
to Title IV of ERISA and (c) promptly after receipt thereof, a copy of any
notice any Credit Party or ERISA Affiliate may receive from the PBGC relating to
the PBGC’s intention to terminate any Plan or to appoint a trustee to administer
any Plan.

 

SECTION 5.16. Environmental Laws.

 

(a) Promptly notify the Administrative Agent upon an Authorized Officer of any
Credit Party becoming aware of any violation or potential violation or
non-compliance with, or liability or potential liability under any Environmental
Laws which, when taken together with all other pending violations could
reasonably be expected to have a Material Adverse Effect, and promptly furnish
to the Administrative Agent all notices of any nature which any Credit Party may
receive from any Governmental Authority or other Person with respect to any
violation, or potential violation or non-compliance with, or liability or
potential liability under any Environmental Laws which, in any case or when
taken together with all such other notices, could reasonably be expected to have
a Material Adverse Effect.

 

(b) Comply with and use reasonable efforts to ensure compliance by all tenants
and subtenants with all Environmental Laws, and obtain and comply in all
respects with and maintain and use best efforts to ensure that all tenants and
subtenants obtain and comply in all respects with and maintain any and all
licenses, approvals, registrations or permits required by Environmental Laws,
except where failure to do so could not have a Material Adverse Effect.

 

(c) Conduct and complete all investigations, studies, sampling and testing, and
all remedial, removal and other actions required under all Environmental Laws
and promptly

 

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comply in all material respects with all lawful orders and directives of all
Governmental Authorities, except where failure to do so could not have a
Material Adverse Effect. Any order or directive whose lawfulness is being
contested in good faith by appropriate proceedings shall be considered a lawful
order or directive when such proceedings, including any judicial review of such
proceedings, have been finally concluded by the issuance of a final
non-appealable order; provided, however, that the appropriate Credit Party shall
have set aside on its books reasonable reserves (the presentation of which is
segregated to the extent required by GAAP) adequate with respect thereto if
reserves shall be deemed necessary.

 

(d) Defend, indemnify and hold harmless the Administrative Agent, the Issuing
Bank and the Lenders, and their respective employees, agents, officers and
directors, from and against any claims, demands, penalties, fines, liabilities,
settlements, damages, costs and expenses of whatever kind or nature, known or
unknown, contingent or otherwise, arising out of, or in any way related to the
violation of or non-compliance by any Credit Party with any Environmental Laws,
or any orders, requirements or demands of Governmental Authorities related
thereto, including, without limitation, reasonable attorney and consultant fees,
investigation and laboratory fees, court costs and litigation expenses, but
excluding therefrom all claims, demands, penalties, fines, liabilities,
settlements, damages, costs and expenses arising out of or resulting from
(i) the gross negligence or willful acts or willful misconduct of any
indemnified party, (ii) any claims, demand, penalties, fines, liabilities,
settlements, damages, costs and expenses against an indemnified party by any
Credit Party in which (but only to the extent that) such Credit Party is the
prevailing party or (iii) any acts or omissions of any indemnified party
occurring after any indemnified party is in possession of, or controls the
operation of, any property or asset.

 

SECTION 5.17. Distribution Agreements, Letters of Credit, Etc.

 

(a) Promptly upon receipt thereof, deliver to the Administrative Agent to be
held as part of the Collateral, the original of all letters of credit (including
any amendments thereto) which are received by a Credit Party (whether pursuant
to a Distribution Agreement or otherwise) after the date hereof.

 

(b) Furnish to the Administrative Agent, concurrently with the delivery of each
quarterly compliance certificate, (i) a list in the form of Schedule 3.17 hereto
of all material Distribution Agreements executed during the preceding quarter
and all material amendments to existing Distribution Agreements which amendments
were executed during the preceding quarter, and (ii) copies of all Notices of
Assignment and Irrevocable Instructions (as required by Section 8.3 hereof)
executed during the preceding quarter.

 

(c) From time to time (i) furnish to the Administrative Agent such information
and reports regarding the Distribution Agreements as the Administrative Agent
may reasonably request, and (ii) upon the occurrence and during the continuation
of an Event of Default and the reasonable request of the Administrative Agent,
make to the other parties to a Distribution Agreement to which any Credit Party
is a party such demands and requests for information and reports or for action
as such Credit Party is entitled to make under each such Distribution Agreement.

 

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(d) Take all action on its part to be performed necessary to effect timely
payments under all letters of credit, including, without limitation, timely
preparation, acquisition and presentation of all documents, drafts or other
instruments required to effect payment thereunder.

 

SECTION 5.18. Location of Production Accounts. Promptly inform the
Administrative Agent of the location of the Production Account for each Picture
produced by a Credit Party.

 

SECTION 5.19. Performance of Obligations. Duly observe and perform all material
terms and conditions of all production services agreements with respect to a
Picture to which a Credit Party is a party, the Distribution Agreements, all
agreements that are included in the chain of title for a Picture to which a
Credit Party is a party and all other material agreements with respect to the
production, development and/or exploitation of a Picture to which a Credit Party
is a party and diligently protect and enforce the rights of any Credit Party
under all such agreements in a manner consistent with prudent business judgment.

 

SECTION 5.20. Indebtedness. Furnish to the Administrative Agent copies of all
material debt instruments or other evidence of Indebtedness incurred by any
Credit Party.

 

SECTION 5.21. Subsidiaries. Prior to commencement of operations of any new
Subsidiary of a Credit Party, the Credit Parties shall cause such new Subsidiary
to deliver to the Administrative Agent: (x) with respect to each such Subsidiary
that is not a Controlled Foreign Subsidiary, (i) an Instrument of Assumption and
Joinder duly executed by such Subsidiary, (ii) an appropriate UCC-1 financing
statement for such Subsidiary, (iii) to the extent that 100% of the Equity
Interests of such Subsidiary have not previously been pledged to the
Administrative Agent (for the benefit of the Issuing Bank and the Lenders), an
executed pledge agreement and the certificates representing 100% of the Equity
Interests of such Subsidiary together (in the case of Pledged Securities
comprising capital stock) with undated stock powers executed in blank, as
applicable, or any comparable documents for non-corporate entities, and
(iv) organizational documents to the extent set forth in Section 4.1 hereof; and
(y) with respect to each such Subsidiary that is a Controlled Foreign
Subsidiary, (i) to the extent that 66% of the Equity Interests of such
Subsidiary have not previously been pledged to the Administrative Agent (for the
benefit of the Issuing Bank and the Lenders), an executed pledge agreement and
the certificates representing 66% of the Equity Interests of such Subsidiary
together (in the case of Pledged Securities comprising capital stock) with
undated stock powers executed in blank, as applicable, or any comparable
documents for non-corporate entities and (ii) organizational documents to the
extent set forth in Section 4.1 hereof.

 

SECTION 5.22. Fiscal Year End. For any Credit Party with a fiscal year end of
other than July 31, within 30 days after the Closing Date change its fiscal year
end to July 31 in each year.

 

SECTION 5.23. Permitted Co-Financed Pictures. The Credit Parties may produce or
acquire Permitted Co-Financed Pictures; provided that the Borrower shall first
have provided evidence satisfactory to the Administrative Agent that the
following terms and conditions have been satisfied:

 

(a) such Picture satisfies all of the criteria for a Qualifying Picture (to the
extent the same can be ascertained at such time);

 

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(b) the production of such Picture is controlled by a Credit Party, subject to
the Permitted Counterparty’s customary approval rights with respect to the
script, selection of the elements for such Picture, amendments to the Budget
therefor, etc.;

 

(c) a Credit Party controls any distribution rights relating to such Qualifying
Picture;

 

(d) any Lien retained by the Permitted Counterparty in any rights relating to
such Picture shall be subordinated to the Lien of the Administrative Agent (for
the benefit of itself, any Issuing Bank and the Lenders) and shall be limited in
scope to protect such Permitted Counterparty’s contribution to the Production
Costs of such Picture;

 

(e) the Permitted Counterparty shall not have a right to enforce any claim
against any portion of the copyright or otherwise in relation to the Picture or
the receivables related thereto, independent of the remedies to be pursued by
the Administrative Agent on behalf of the Lenders and the Permitted
Counterparty, it being understood that a Co-Financing Intercreditor Agreement
between the Permitted Counterparty and the Administrative Agent will prohibit
any action by the Permitted Counterparty (including the exercise of any Liens)
which would interfere with the distribution of the Picture pursuant and the
collection of amounts payable thereunder, will provide the Administrative Agent
with the control of remedies against licensees of the Picture and the right to
deduct the costs of enforcement of such remedies from the amounts payable
realized before making distribution of the Permitted Counterparty’s share of
such amounts payable to the Permitted Counterparty, will allow the Permitted
Counterparty to pursue remedies only against the applicable Credit Parties (and
only for money damages) and will provide that at least 20% of any theatrical
distribution expenses shall be subordinated to repayment of any Loans used for
such Qualifying Picture;

 

(f) upon the request of the Administrative Agent and consistent with the terms
of Section 4.2 hereof, the applicable Credit Party shall provide to the
Administrative Agent copies of chain of title documentation, security
documentation, Laboratory Access Letters or Pledgeholder Agreements (as
applicable), Notices of Assignment, Account Control Agreements and any other
documentation reasonably necessary in the Administrative Agent’s discretion to
perfect its security interest in such Permitted Co-Financed Picture; and

 

(g) deliver to the Administrative Agent (A) promptly upon the request of the
Administrative Agent but not later than forty-five (45) days after such request,
tentative statements of the Production Cost for any Completed Co-Financed
Picture, (B) promptly upon availability but no later than ninety (90) days after
each Co-Financed Picture is Completed, a tentative final statement negative cost
for such Picture and a reconciliation settling out the actual Production Costs
in relation thereto and (C) promptly upon the request of the Administrative
Agent but not later than one hundred eighty (180) days after each Co-Financed
Picture is Completed, an audited final statement negative cost for such Picture
and a reconciliation settling out the actual Production Costs in relation
thereto.

 

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SECTION 5.24. Production Covenants.

 

(a) Prior to Commencement of Production of any Picture (including any Permitted
Co-Financed Pictures), satisfy the following with respect to such Picture:

 

  (i) Production Cost Reserve. In each Borrowing Certificate relating to a
Qualifying Picture for which the Borrower intends to borrow Loans hereunder, the
Borrower shall reserve the Production Cost Reserve Amount for such Qualifying
Picture from the Total Commitment. From time to time thereafter, upon a
determination by the Borrower that the amount actually intended to be borrowed
to fund the then applicable financed portion of Production Costs for such
Qualifying Picture is more or less than the Production Cost Reserve Amount
initially included in the Qualifying Picture Declaration, the Borrower shall
give written notice thereof to the Administrative Agent. To the extent any such
notice (given after commencement of post-production work) indicates an amount by
which the Production Cost Reserve Amount exceeds the then applicable financed
portion of the cost to Complete such Qualifying Picture (after taking into
account Unfinanced Production Costs funded by the Borrower), the Administrative
Agent may decrease the Production Cost Reserve Amount for that Qualifying
Picture by an amount equal to such excess; provided, the Administrative Agent is
reasonably satisfied with the calculations set forth in such notice or the final
results thereof; and

 

  (ii) Approved Completion Bond. The Administrative Agent shall have received an
Approved Completion Bond from an Approved Completion Guarantor.

 

(b) Use its best efforts to cause each Qualifying Picture to be Completed no
later than the required delivery and acceptance date (if any) under the Main
Distribution Agreement or the relevant Qualifying Picture Declaration. This
Section 5.24 shall not apply to a Qualifying Picture which has been actually or
constructively abandoned and for which all Loans in connection with such
abandoned Qualifying Picture have been repaid (or fully collateralized).

 

SECTION 5.25. Bank Accounts. To the extent practicable, maintain all of its bank
accounts (other than Production Accounts) with one or more of the Lenders or as
otherwise approved by the Administrative Agent, and provide written notice to
the Agent of any such bank account opened after the Closing Date.

 

SECTION 5.26. No Adverse Selection. All animated theatrical feature films to be
produced or acquired directly or indirectly by Borrower or the Parent or any of
their subsidiaries which qualify as Qualifying Pictures will be financed under
the Facility, subject to availability under the Facility. The foregoing will not
prevent the Parent from producing or acquiring animated theatrical feature films
which qualify as Qualifying Pictures through an entity other than the Borrower
or one of its subsidiaries if, after presentation to the Administrative Agent,
the Lenders do not approve the licensee under the Main Distribution Agreement
for such film or the terms of such agreement.

 

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6. NEGATIVE COVENANTS

 

From the date hereof and for so long as the Commitments shall be in effect, any
amount shall remain outstanding under any Note, any Letter of Credit shall
remain outstanding or any other Obligation shall remain unpaid or unsatisfied,
each of the Credit Parties agrees that, unless the Required Lenders shall
otherwise consent in writing, it will not and will not allow any of its
Subsidiaries or any other Credit Party to:

 

SECTION 6.1. Limitations on Indebtedness. Incur, create, assume or suffer to
exist any preferred stock or Indebtedness or permit any partnership or joint
venture in which any Credit Party is a general partner to incur, create, assume
or suffer to exist any Indebtedness other than:

 

(a) the Indebtedness represented by the Notes and the other Obligations, to the
extent of the permitted uses in Section 2.1(a);

 

(b) Guaranties permitted pursuant to Section 6.3 hereof;

 

(c) unsecured liabilities for acquisition of rights or Pictures and trade
payables incurred in the ordinary course of business and payable on normal trade
terms and not otherwise prohibited hereunder;

 

(d) liabilities relating to net or gross profit participations and other
contingent compensation, including royalties, deferments and guild residuals
with respect to the production, distribution, acquisition or other exploitation
of Pictures;

 

(e) Indebtedness in respect of inter-company advances constituting Investments
permitted under Section 6.4(c);

 

(f) existing Indebtedness listed on Schedule 6.1 hereto, and any extensions and
renewals thereof which are approved by the Administrative Agent;

 

(g) intercompany loans payable by a Credit Party to IDT or any of its Affiliates
for certain corporate allocations on behalf of such Credit Party in the ordinary
course of business, provided that the expenditure by IDT or its Affiliate on
behalf of such Credit Party would be permitted to be incurred directly by such
Credit Party hereunder and under the other Fundamental Documents;

 

(h) Indebtedness arising in connection with transactions contemplated by
Section 6.8;

 

(i) to the extent the same may constitute Indebtedness hereunder, amounts
payable to an Approved Completion Guarantor from the proceeds of a Qualifying
Picture to recoup its contribution to the Production Cost of such Qualifying
Picture and other amounts that may be recouped by such Approved Completion
Guarantor with regard to such Qualifying Picture;

 

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(j) Subordinated Debt in an amount not to exceed $25,000,000 on such terms and
conditions (which shall include, but not be limited to, no current cash payments
of interest and no exercise of remedies without the Administrative Agent’s
consent) as are approved in advance in writing in the Required Lenders’ sole
discretion;

 

(k) Indebtedness to Affiliates of Credit Parties for (i) services in connection
with the production of a Qualifying Picture, to the extent such payment is
included in the Cash Budget for such Qualifying Picture, and (ii) payments for
corporate overhead services to the extent actually required and used by parties
(not to exceed in the aggregate the 12-1/2% overhead fee for each Qualifying
Picture permitted under Section 6.5(b)); and

 

(l) other Indebtedness not to exceed $500,000.

 

SECTION 6.2. Limitations on Liens. Incur, create, assume or suffer to exist any
Lien on any of its revenue stream, property or assets, whether now owned or
hereafter acquired, except:

 

(a) the Liens of the Administrative Agent (for the benefit of the Administrative
Agent, the Issuing Bank and the Lenders) under this Credit Agreement, the other
Fundamental Documents and any other document contemplated hereby or thereby;

 

(b) existing Liens listed on Schedule 6.2 hereof;

 

(c) purchase money Liens in connection with Capital Expenditures permitted
pursuant to Section 6.10 hereof granted to the vendor or Person financing the
acquisition of property, plant or equipment if: (w) the Lien is limited to the
particular assets acquired; (x) the Indebtedness secured by the Lien does not
exceed the acquisition cost of the particular assets acquired; and (y) such
transaction does not otherwise violate this Credit Agreement;

 

(d) Liens pursuant to written security agreements in favor of guilds which are
required pursuant to collective bargaining agreements on terms reasonably
satisfactory to the Administrative Agent;

 

(e) deposits under worker’s compensation, unemployment insurance and social
security and similar laws or to secure statutory obligations or surety, appeal,
performance or other similar bonds (other than completion bonds) or to secure
performance as lessee under leases of real or personal property and other
obligations of a like nature, in each case incurred in the ordinary course of
business;

 

(f) Liens customarily granted or incurred in the ordinary course of business
with regard to goods provided or services rendered by laboratories and
production houses, record warehouses, common carriers, landlords, warehousemen,
mechanics and suppliers of materials and equipment;

 

(g) Liens arising out of attachments, judgments or awards as to which an appeal
or other appropriate proceedings for contest or review are timely commenced (and
as to which foreclosure and other enforcement proceedings shall not have been
commenced (unless fully bonded or otherwise effectively stayed)) and as to which
appropriate reserves have been established in accordance with GAAP;

 

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(h) Liens for taxes, assessments or other governmental charges or levies the
validity or amount of which is not yet due or is currently being contested in
good faith by appropriate proceedings pursuant to the terms of Section 5.12
hereof;

 

(i) possessory Liens (other than those of Laboratories and production houses)
which (i) occur in the ordinary course of business, (ii) secure normal trade
debt which is not yet due and payable and (iii) do not secure Indebtedness;

 

(j) Liens arising by virtue of any statutory or common law provision relating to
banker’s Liens, rights of setoff or similar rights with respect to deposit
accounts;

 

(k) easements, rights of way, restrictions, minor defects or irregularities in
title and other similar encumbrances on real property which do not in the
reasonable opinion of the Administrative Agent materially detract from the value
of the property subject thereto, interfere with ordinary conduct of business of
any Credit Party or have a Material Adverse Effect;

 

(l) Liens in favor of licensees to secure their right to enjoy their licensed
rights pursuant to Distribution Agreements entered into in the ordinary course
of business on terms reasonably satisfactory to the Administrative Agent;

 

(m) Liens in favor of a Co-Financier of a Picture, provided that such Liens
shall only secure the Co-Financier’s pro-rata share of any proceeds of the
Picture and shall be subject to the applicable Co-Financing Intercreditor
Agreement;

 

(n) Liens to secure transactions permitted under Section 6.8; and

 

(o) Liens in favor of completion guarantors in connection with Pictures to
secure the rights of such completion guarantors to recoup their contributions to
negative cost of such Pictures, provided that such Liens are in form and
substance reasonably satisfactory to the Administrative Agent.

 

SECTION 6.3. Limitation on Guaranties. Incur, create, assume or suffer to exist
any Guaranty (including any obligation as a general partner of a partnership or
as a joint venturer of a joint venture in respect of Indebtedness of such
partnership or joint venture), either directly or indirectly, except:

 

(a) performance guarantees in the ordinary course of business under guild
agreements, or to suppliers, talent, licensees or laboratories which are
providing services in connection with the production, acquisition, distribution
or exploitation of any Picture by or for a Credit Party;

 

(b) the endorsement of negotiable instruments for deposit or collection in the
ordinary course of business;

 

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(c) the Guaranties made by the Guarantors pursuant to Article 9 hereof;

 

(d) existing Guaranties listed on Schedule 6.3 hereto and any extensions and
renewals thereof acceptable to the Administrative Agent;

 

(e) any Guaranty by the Borrower of the obligations of any of its Subsidiaries;

 

(f) customary Guaranties in connection with participations and deferments;

 

(g) Guaranties related to items of expense properly included in the Production
Cost of a Qualifying Picture; and

 

(h) Guaranties of obligations that the Borrower or a Guarantor could have
incurred directly as a primary obligor without violating the terms of any
Fundamental Documents.

 

SECTION 6.4. Limitations on Investments. Create, make or incur any Investment
after the date hereof, except:

 

(a) the purchase of Cash Equivalents;

 

(b) Guaranties permitted under Section 6.3 to the extent constituting
Investments;

 

(c) Investments by a Credit Party in any Subsidiary of such Credit Party;

 

(d) Investments constituting intercompany Indebtedness permitted under
Section 6.1(g);

 

(e) Investments (including debt obligations) received in connection with the
bankruptcy or reorganization of suppliers, customers or other debtors or in
settlement of delinquent obligations arising in the ordinary course of business;

 

(f) Investments in connection with Pictures, in anticipation of or in connection
with the development or exploitation of Pictures that are intended by the
Borrower to be Qualifying Pictures; and

 

(g) other Investments approved by the Required Lenders.

 

SECTION 6.5. Restricted Payments. Pay or declare or enter into any agreement to
pay or otherwise become obligated to make any Restricted Payment, other than:

 

(a) dividends or distributions payable solely in additional shares of Equity
Interests of a Credit Party;

 

(b) dividends or distributions of the 12-1/2% overhead fee for a Qualifying
Picture, upon Completion of the relevant Qualifying Picture or during production
thereof if such fee is included in the amount covered by an Approved Completion
Bond for such Qualifying Picture;

 

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(c) payments to the Borrower;

 

(d) payments as part of customary tax sharing arrangements;

 

(e) payments to Affiliates of Credit Parties, at prices not to exceed bona fide
arm’s-length prices, for (i) services in connection with the production of a
Qualifying Picture, to the extent such payment is included in the Cash Budget
for such Qualifying Picture, and (ii) payments for corporate overhead services
to the extent actually required and used by the Credit Parties; and

 

(f) to the extent permitted under Section 14.15 hereof, payments with respect to
intercompany Indebtedness, intercompany receivables or intercompany advances
constituting Investments permitted under Section 6.4 hereof.

 

SECTION 6.6. Consolidation, Merger or Sale of Assets, etc. Whether in one
transaction or a series of transactions, wind up, liquidate or dissolve its
affairs, or enter into any transaction of merger or consolidation, or sell or
otherwise dispose of all or substantially all of its property, stock, Equity
Interests or assets or agree to do or suffer any of the foregoing, except that
any Credit Party may merge with and into, or transfer assets to, another Credit
Party (including without limitation any Person which becomes a Guarantor
immediately upon the completion of such merger or transfer; provided, that at
the time of such merger or transfer and after giving effect thereto no Default
or Event of Default shall have occurred and be continuing).

 

SECTION 6.7. Receivables. Sell, discount or otherwise dispose of notes, accounts
receivable or other obligations owing to any Credit Party except for the purpose
of collection of accounts receivable that are not included in determining the
Borrowing Base in the ordinary course of business.

 

SECTION 6.8. Sale and Leaseback. Enter into any arrangement with any Person or
Persons, whereby in contemporaneous transactions any Credit Party sells
essentially all of its right, title and interest in a Picture and acquires or
licenses the right to distribute or exploit such Picture in media and markets
accounting for substantially all the value of such Picture, unless such
arrangement does not impair the collateral position of the Administrative Agent,
the Issuing Bank and the Lenders and is evidenced by documentation reasonably
acceptable to the Administrative Agent.

 

SECTION 6.9. Places of Business; Change of Name, Jurisdiction. Change the
location of its chief executive office or principal place of business or any of
the locations where it keeps any material portion of the Collateral or its books
and records with respect to the Collateral or change its name or jurisdiction of
organization without in each case (i) giving the Administrative Agent ten
(10) Business Days’ prior written notice of such change, and (ii) filing any
additional Uniform Commercial Code financing statements, and such other
documents reasonably requested by the Administrative Agent to maintain
perfection of the security interest of the Administrative Agent for the benefit
of the Administrative Agent, the Issuing Bank and the Lenders, in the
Collateral.

 

SECTION 6.10. Limitations on Capital Expenditures. Make, or incur any obligation
to make, Capital Expenditures other than (i) amounts included in the budgeted

 

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negative cost of Qualifying Pictures or Pictures that are intended by the
Borrower to become Qualifying Pictures, (ii) amounts paid for the acquisition of
a Qualifying Picture, (iii) capitalized development expenses, (iv) an amount for
furniture and fixtures for any fiscal year not in excess of $500,000 in the
aggregate and (v) amounts funded by the Parent through equity investments or
intercompany loans.

 

SECTION 6.11. Transactions with Affiliates. Enter into any transaction with any
of its Affiliates unless such transaction (i) occurs in the ordinary course of
business on an arm’s-length basis (including, without limitation, transactions
in which Affiliates of the Credit Parties will provide production services in
respect of the production of Qualifying Pictures at on arm’s-length terms),
(ii) is approved by the Administrative Agent (which such approval shall not be
unreasonably withheld) or (iii) is described on Schedule 6.11 hereto.

 

SECTION 6.12. Business Activities. Engage in any business activities other than
activities relating to the development, production, financing, exploitation and
worldwide distribution of computer-generated animated theatrical motion pictures
and derivative productions, including the licensing of allied and ancillary
rights (e.g., video, internet, live performances, book publishing,
merchandising, interactive television and direct to video spin-offs, video games
and other means).

 

SECTION 6.13. Fiscal Year End. Change its fiscal year end to other than
July 31st, in each year.

 

SECTION 6.14. Maximum Budget. Produce any Qualifying Picture financed hereunder
having a Cash Budget less than $20,000,000 or more than $50,000,000; provided
that, of the first six Qualifying Pictures financed under the Facility, one may
have a Cash Budget of less than $20,000,000 (but not less than $10,000,000) and
one may have a Cash Budget of greater than $50,000,000 (but not greater than
$75,000,000), and provided further that the average amount of the Cash Budget
(or negative cost in the case of completed Pictures) for the first six
Qualifying Pictures financed under the Facility shall not exceed $35,000,000.

 

SECTION 6.15. Bank Accounts. After the date hereof, open or maintain any bank
account other than (a) accounts maintained at the Administrative Agent,
(b) accounts maintained at a Lender or other financial institutions approved by
the Administrative Agent (not to be unreasonably withheld) and listed on
Schedule 6.15 hereof, or (c) a Production Account, as to which the
Administrative Agent shall have received notice, in the case of the Credit
Parties, for which an Account Control Agreement has been delivered to the
Administrative Agent.

 

SECTION 6.16. ERISA Compliance. Engage in a “prohibited transaction”, as defined
in Section 406 of ERISA or Section 4975 of the Code, with respect to any Plan or
Multiemployer Plan or knowingly consent to any other “party in interest” or any
“disqualified person”, as such terms are defined in Section 3(14) of ERISA and
Section 4975(e)(2) of the Code, respectively, engaging in any “prohibited
transaction”, with respect to any Plan or Multiemployer Plan; or permit any Plan
to incur any “accumulated funding deficiency”, as defined in Section 302 of
ERISA or Section 412 of the Code, unless such incurrence shall have been waived
in advance by the Internal Revenue Service; or terminate any Plan in a manner
which could result in the imposition of a Lien on any property of any Credit
Party pursuant to

 

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Section 4068 of ERISA; or breach or knowingly permit any employee or officer or
any trustee or administrator of any Plan to breach any fiduciary responsibility
imposed under Title I of ERISA with respect to any Plan; engage in any
transaction which would result in the incurrence of a liability under
Section 4069 of ERISA; or fail to make contributions to a Plan or Multiemployer
Plan which could result in the imposition of a Lien on any property of any
Credit Party pursuant to Section 302(f) of ERISA or Section 412(n) of the Code,
if the occurrence of any of the foregoing events (alone or in the aggregate)
would result in a liability which would be reasonably likely to result in a
Material Adverse Effect.

 

SECTION 6.17. Hazardous Materials. Except as set forth in Schedule 6.17, cause
or permit any of its properties or assets to be used to generate, manufacture,
refine, transport, treat, store, handle, dispose, transfer, produce or process
Hazardous Materials, except in compliance in all material respects with all
applicable Environmental Laws, nor release, discharge, dispose of or permit or
suffer any release or disposal as a result of any intentional act or omission on
its part of Hazardous Materials onto any such property or asset in violation of
any Environmental Law, in each case, except where the same could not reasonably
be expected to result in a Material Adverse Effect.

 

SECTION 6.18. Use of Proceeds of Loans. Use the proceeds of Loans hereunder
other than for the purposes set forth in Section 2.1(a) hereof.

 

SECTION 6.19. Swap Agreements. Enter into any Swap Agreement, except Swap
Agreements entered into in order to effectively cap, collar or exchange interest
rates (from fixed to floating rates, from one floating rate to another floating
rate or otherwise) with respect to any interest-bearing liability or investment
of a Credit Party.

 

SECTION 6.20. Subsidiaries. Acquire or create any new direct or indirect
Subsidiary; provided, however, that a Credit Party may incorporate additional
Subsidiaries if (w) any such Subsidiary that is organized under the laws of a
jurisdiction outside the United States is created for the limited purpose of
acting as a production service company, (x) each such Subsidiary that is not a
Controlled Foreign Subsidiary executes an Instrument of Assumption and Joinder
whereby such Subsidiary becomes a Credit Party hereunder, (y) the certificates
representing 100% of the Equity Interests of each such Subsidiary that is not a
Controlled Foreign Subsidiary become part of the Pledged Securities hereunder
and are delivered to the Administrative Agent together (in the case of Pledged
Securities comprising capital stock) with appropriate stock powers for each such
certificate executed in blank, and (z) the certificates representing 66% of the
Equity Interests of each such Subsidiary that is a Controlled Foreign Subsidiary
become part of the Pledged Securities hereunder and are delivered to the
Administrative Agent together (in the case of Pledged Securities comprising
capital stock) with appropriate stock powers for each certificate executed in
blank.

 

SECTION 6.21. Modification of Material Agreements. Effect or permit to occur
(a) any modification to any Main Distribution Agreement or Additional
Distribution Agreement that would increase the conditions to, delay the time of
or decrease amounts of payments to be made to the Credit Parties thereunder or
would provide any additional right which might adversely affect the Borrower’s
ability to pay the Obligations, unless the Administrative Agent shall have
consented to such modification, (b) any modification of any Distribution
Agreement if

 

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such modification is material, unless the Required Lenders shall have consented
to such modification, (c) the termination of any Distribution Agreement unless
the Required Lenders have approved the distributor under and the terms of a
substitute agreement, or (d) any modification of any other material agreement,
including without limitations those material agreements listed on Schedule 3.17,
without the prior consent of the Required Lenders if such modification would
reasonably be expected to result in a Material Adverse Effect. For the purposes
of this Section 6.21, any other agreement shall be deemed “material” if the
Credit Parties reasonably expect that any Credit Party would, pursuant to the
terms thereof, (A) recognize future revenues in excess of $2,500,000, (B) incur
liabilities or obligations in excess of $2,500,000, or (C) likely suffer damages
or losses in excess of $2,500,000 by reason of the breach or termination
thereof. The Borrower will not consent to the assignment by the other party to
any Distribution Agreement of any rights, obligations or interests thereunder,
except to the extent necessary to permit a licensee of the Borrower’s to
sub-distribute a Picture.

 

SECTION 6.22. No Negative Pledge. Enter into any agreement (i) prohibiting the
creation or assumption of any Lien in favor of the Administrative Agent (for the
benefit of itself, the Issuing Bank and the Lenders) or any Person(s)
refinancing the Facility upon the properties or assets of any Credit Party,
whether now owned or hereafter acquired, or (ii) requiring an obligation to be
secured as a result of any Lien being granted to the Administrative Agent (for
the benefit of itself, the Issuing Bank and the Lenders), except this Agreement
and the other Fundamental Documents; provided, however, that this provision
shall not apply to any agreement executed pursuant to Section 6.2(e) hereof to
the extent of such assets.

 

SECTION 6.23. No Other Material Agreements. Enter any material agreement with
respect to the licensing or exploitation of a Picture other than Main
Distribution Agreements and Additional Distribution Agreement.

 

7. EVENTS OF DEFAULT

 

In the case of the happening and during the continuance of any of the following
events (herein called “Events of Default”):

 

(a) any representation or warranty made by the Parent or a Credit Party in this
Credit Agreement or any other Fundamental Document to which it is a party or any
statement or representation made by the Parent or a Credit Party in any report,
financial statement, certificate or other document furnished to the
Administrative Agent, the Issuing Bank or any Lender pursuant to this Credit
Agreement or any other Fundamental Document, shall prove to have been false or
misleading in any material respect when made or delivered;

 

(b) default shall be made in the payment of principal of the Notes as and when
due and payable, whether by reason of maturity, mandatory prepayment,
acceleration or otherwise;

 

(c) default shall be made in the payment of interest on the Notes, Commitment
Fees or other monetary Obligations, when and as the same shall become due and
payable, whether at the due date thereof or at a date fixed for prepayment
thereof or by acceleration thereof or otherwise and such default shall continue
unremedied for three Business Days;

 

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(d) default shall be made in the due observance or performance of any covenant,
condition or agreement contained in Section 5.1(a) (other than paragraph
(vi) thereof), Section 5.4 or Article 6 of this Credit Agreement;

 

(e) default shall be made by the Parent or any Credit Party in the due
observance or performance of any other covenant, condition or agreement to be
observed or performed pursuant to the terms of this Credit Agreement or any
other Fundamental Document, and such default shall continue unremedied for
thirty (30) days after the Parent or the applicable Credit Party (as applicable)
receives written notice or obtains knowledge of such occurrence;

 

(f) default shall be made with respect to any payment of any Indebtedness of any
Credit Party (excluding Indebtedness pursuant to Section 6.1(g)) or the Parent
in excess of $250,000 in the aggregate (other than the Obligations) when due, or
in the performance of any other obligation incurred in connection with any such
Indebtedness if the effect of such non-payment default is to accelerate the
maturity of such Indebtedness or to permit the holder thereof to cause such
Indebtedness to become due prior to its stated maturity and such default shall
not be remedied, cured, waived or consented to within the period of grace with
respect thereto;

 

(g) IDT, the Parent, or any Credit Party shall generally not pay its debts as
they become due or shall admit in writing its inability to pay its debts, or
shall make a general assignment for the benefit of creditors; or IDT, the
Parent, or any Credit Party shall commence any case, proceeding or other action
seeking to have an order for relief entered on its behalf as a debtor or to
adjudicate it a bankrupt or insolvent or seeking reorganization, arrangement,
adjustment, liquidation, dissolution or composition of it or its debts under any
law relating to bankruptcy, insolvency, reorganization or relief of debtors or
seeking appointment of a receiver, trustee, custodian or other similar official
for it or for all or any substantial part of its property or shall file an
answer or other pleading in any such case, proceeding or other action admitting
the material allegations of any petition, complaint or similar pleading filed
against it or consenting to the relief sought therein; or IDT, the Parent, or
any Credit Party shall take any action to authorize, or in contemplation of, any
of the foregoing;

 

(h) any involuntary case, proceeding or other action against IDT, the Parent, or
any Credit Party shall be commenced seeking to have an order for relief entered
against it as debtor or to adjudicate it a bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment, liquidation, dissolution or composition
of it or its debts under any law relating to bankruptcy, insolvency,
reorganization or relief of debtors, or seeking appointment of a receiver,
trustee, custodian or other similar official for it or for all or any
substantial part of its property, and such case, proceeding or other action
(i) results in the entry of any order for relief against it, or (ii) shall
remain undismissed for a period of sixty (60) days;

 

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(i) final judgment(s) for the payment of money in excess of $250,000 in the
aggregate shall be rendered against any Credit Party or the Parent, as
applicable, and within thirty (30) days from the entry of such judgment shall
not have been discharged or stayed pending appeal or shall not have been
discharged or bonded in full within thirty (30) days from the entry of a final
order of affirmance on appeal;

 

(j) (i) failure by any Credit Party or ERISA Affiliate to make any contributions
required to be made to a Plan subject to Title IV of ERISA or Multiemployer
Plan, (ii) any accumulated funding deficiency (within the meaning of Section
4971 of the Code) in excess of $100,000 in the aggregate shall exist with
respect to any Plan (whether or not waived), (iii) the present value of all
benefits under all Plans subject to Title IV of ERISA (based on those
assumptions used to fund such Plans) exceeds, in the aggregate, as of the last
annual valuation date applicable thereto, the actuarial value of the assets of
such Plans allocable to such benefits, by an amount in excess of $1,000,000,
(iv) any Credit Party or ERISA Affiliate shall have been notified by the sponsor
of a Multiemployer Plan that it has incurred withdrawal liability to such
Multiemployer Plan, or that a Multiemployer Plan is in reorganization or is
being terminated, (iv) a Reportable Event with respect to a Plan shall have
occurred, (vi) the withdrawal by any Credit Party or ERISA Affiliate from a Plan
during a plan year in which it was a substantial employer (within the meaning of
section 4001(a)(2) or 4062(e) of ERISA), (vii) the termination of a Plan, or the
filing of a notice of intent to terminate a Plan under section 4041(c) of ERISA,
(viii) the institution of proceedings to terminate, or the appointment of a
trustee with respect to, a Plan by the PBGC, (ix) any other event or condition
which could constitute grounds under section 4042(a) of ERISA for the
termination of, or the appointment of a trustee to administer, any Plan, or (x)
the imposition of a Lien pursuant to section 412 of the Code or section 302 of
ERISA as to any Credit Party or ERISA Affiliate; provided that with respect to
items (iv) through (x), only if such event or condition would be reasonably
likely to result in liability to any Credit Party in excess of $1,000,000;

 

(k) this Credit Agreement, the Copyright Security Agreement, any Copyright
Security Agreement Supplement, any Trademark Security Agreement, any
Pledgeholder Agreement or any Account Control Agreement (each a “Security
Document”) shall, for any reason, with respect to Collateral in excess of
$100,000, not be or shall cease to be in full force and effect or shall be
declared null and void or any of the Security Documents shall not give or shall
cease to give the Administrative Agent the Liens, rights, powers and privileges
purported to be created thereby in favor of the Administrative Agent for the
benefit of the Administrative Agent, the Issuing Bank and the Lenders, superior
to and prior to the rights of all third Persons and subject to no other Liens
(other than Permitted Encumbrances), or the validity or enforceability of the
Guaranties under Article 9 hereof or the Liens granted, to be granted, or
purported to be granted, by any of the Security Documents shall be contested by
any Credit Party or any of their respective Affiliates;

 

(l) a Change in Management shall occur;

 

(m) a Change in Control shall occur;

 

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(n) (i) an “Event of Default” (as defined in any Main Distribution Agreement) or
an anticipatory breach, rejection or termination of such agreement for any
reason by either of the Borrower (or other Credit Party, as applicable) or a
Main Distributor shall occur or (ii) default shall be made by either the
Borrower (or other Credit Party, as applicable) or the Co-Financier under any
material document executed in connection with a Permitted Co-Financing, to the
extent that Borrower does not have sufficient availability hereunder and/or
liquidity to finance the Co-Financier’s share of the Production Costs for the
related Qualifying Picture and in the case of a default by the Borrower, such
default is not cured or otherwise waived within the applicable cure periods
provided in such agreement;

 

(o) any Approved Completion Guarantor shall have disaffirmed its obligations
under its respective Approved Completion Bond and a replacement Approved
Completion Bond containing substantially the same terms and conditions to
payment shall not have been executed within ten (10) days; or

 

(p) any Approved Completion Bond is void or voidable and a replacement Approved
Completion Bond containing substantially the same terms and conditions to
payment shall not have been executed within ten (10) days.

 

then, in every such event and at any time thereafter during the continuance of
such event, the Administrative Agent may, or if directed by the Required
Lenders, shall, take any or all of the following actions, at the same or
different times: (x) terminate forthwith the Commitments, and/or (y) declare the
principal of and the interest on the Loans and the Notes and all other amounts
payable hereunder or thereunder to be forthwith due and payable, whereupon the
same shall become and be forthwith due and payable, without presentment, demand,
protest, notice of acceleration or other notice of any kind, all of which are
hereby expressly waived, anything in this Credit Agreement or in the Notes to
the contrary notwithstanding. If an Event of Default specified in paragraph (g)
or (h) above shall have occurred, the Commitments shall automatically terminate
and the principal of, and interest on, the Loans and the Notes and all other
amounts payable hereunder and thereunder shall automatically become due and
payable without presentment, demand, protest, or other notice of any kind, all
of which are hereby expressly waived, anything in this Credit Agreement or the
Notes to the contrary notwithstanding. Such remedies shall be in addition to any
other remedy available to the Administrative Agent or the Lenders pursuant to
Applicable Law or otherwise.

 

8. GRANT OF SECURITY INTEREST; REMEDIES

 

SECTION 8.1. Security Interests. The Borrower, as security for the due and
punctual payment of the Obligations (including interest accruing on and after
the filing of any petition in bankruptcy or of reorganization of the Borrower
whether or not post filing interest is allowed in such proceeding), and each of
the Guarantors, as security for its obligations under Article 9 hereof, hereby
mortgage, pledge, assign, transfer, set over, convey and deliver to the
Administrative Agent (for the benefit of the Administrative Agent, the Issuing
Bank and the Lenders) and grant to the Administrative Agent (for the benefit of
the Administrative Agent, the Issuing Bank and the Lenders) a first priority
security interest in the Collateral (subject to Permitted Encumbrances).

 

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SECTION 8.2. Use of Collateral. So long as no Event of Default shall have
occurred and be continuing, and subject to the various provisions of this Credit
Agreement and the other Fundamental Documents, a Credit Party may use its
Collateral (including amounts held in the Collection Accounts and the Securities
Account) in any lawful manner except as otherwise provided hereunder or
thereunder.

 

SECTION 8.3. Collection Accounts.

 

(a) The Credit Parties will maintain or establish one or more collection bank
accounts (each, a “Collection Account”) maintained at the office of the
Administrative Agent, and will direct, by Notice of Assignment and Irrevocable
Instructions, all Persons who become licensees, buyers or account debtors under
receivables with respect to any Picture included in the Collateral to make
payments under or in connection with the license agreements, sales agreements or
receivables directly to the Collection Account. Unless a separate Cash
Collateral Account is established, the initial Collection Account established
and maintained by the Administrative Agent may also serve as the Cash Collateral
Account; provided, that such Collection Account is in the name of the
Administrative Agent (for the benefit of itself, the Issuing Bank and the
Lenders) and is under the sole dominion and control of the Administrative Agent.

 

(b) The Credit Parties will execute such documentation as may be required by the
Administrative Agent in order to effectuate the provisions of this Section 8.3
and Article 12, including an agreement with respect to the establishment and
administration of the Collection Account and the Cash Collateral Account, and
shall pay the fees of the Administrative Agent in connection with such accounts.

 

(c) In the event a Credit Party receives payment from any Person or proceeds
under a letter of credit or otherwise, which payment should have been remitted
directly to the Collection Account, such Credit Party shall promptly remit such
payment or proceeds to the appropriate Collection Account to be applied in
accordance with the terms of this Credit Agreement.

 

SECTION 8.4. Credit Parties to Hold in Trust. Upon the occurrence and during the
continuance of an Event of Default, each of the Credit Parties will, upon
receipt by it of any revenue, income, profits or other sums in which a security
interest is granted by this Article 8, payable pursuant to any agreement or
otherwise, or of any check, draft, note, trade acceptance or other instrument
evidencing an obligation to pay any such sum, hold the sum or instrument in
trust for the Administrative Agent (for the benefit of itself, the Issuing Bank
and the Lenders), segregate such sum or instrument from their own assets and
forthwith, without any notice, demand or other action whatsoever (all notices,
demands, or other actions on the part of the Administrative Agent, the Issuing
Bank or the Lenders being expressly waived), endorse, transfer and deliver any
such sums or instruments or both, to the Administrative Agent to be applied to
the repayment of the Obligations in accordance with the provisions of Section
8.7 hereof.

 

SECTION 8.5. Collections, etc. Upon the occurrence and during the continuance of
an Event of Default, the Administrative Agent may, in its sole discretion, in
its name (on

 

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behalf of the Administrative Agent, the Issuing Bank and the Lenders) or in the
name of any Credit Party or otherwise, demand, sue for, collect or receive any
money or property at any time payable or receivable on account of or in exchange
for, or make any compromise or settlement deemed desirable with respect to, any
of the Collateral, but shall be under no obligation to do so, or the
Administrative Agent may extend the time of payment, arrange for payment in
installments, or otherwise modify the terms of, or release, any of the
Collateral, without thereby incurring responsibility to, or discharging or
otherwise affecting any liability of, any Credit Party. The Administrative Agent
will not be required to take any steps to preserve any rights against prior
parties to the Collateral. If any Credit Party fails to make any payment or take
any action required hereunder, the Administrative Agent may make such payments
and take all such actions as the Administrative Agent reasonably deems necessary
to protect the Administrative Agent’s (on behalf of the Administrative Agent,
the Issuing Bank and the Lenders) security interests in the Collateral and/or
the value thereof, and the Administrative Agent is hereby authorized (without
limiting the general nature of the authority hereinabove conferred) to pay,
purchase, contest or compromise any Liens that in the judgment of the
Administrative Agent appear to be equal to, prior to or superior to the security
interests of the Administrative Agent (on behalf of the Administrative Agent,
the Issuing Bank and the Lenders) in the Collateral (other than Permitted
Encumbrances) and any Liens not expressly permitted by this Credit Agreement.

 

SECTION 8.6. Possession, Sale of Collateral, etc. Upon the occurrence and during
the continuance of an Event of Default, the Administrative Agent, the Issuing
Bank and the Lenders may enter upon the premises of any Credit Party or wherever
the Collateral may be, and take possession of the Collateral, and may demand and
receive such possession from any Person who has possession thereof, and the
Administrative Agent, the Issuing Bank and the Lenders may take such measures as
they deem necessary or proper for the care or protection thereof, including the
right to remove all or any portion of the Collateral, and with or without taking
such possession may sell or cause to be sold, whenever the Administrative Agent,
the Issuing Bank and the Lenders shall decide, in one or more sales or parcels,
at such prices as the Administrative Agent, the Issuing Bank and the Lenders may
deem appropriate, and for cash or on credit or for future delivery, without
assumption of any credit risk, all or any portion of the Collateral, at any
broker’s board or at public or private sale, without demand of performance but
with 10 days’ prior written notice to the Credit Parties of the time and place
of any such public sale or sales (which notice the Credit Parties hereby agree
is reasonable) and with such other notices as may be required by Applicable Law
and cannot be waived, and none of the Administrative Agent, the Issuing Bank and
the Lenders shall have any liability should the proceeds resulting from a
private sale be less than the proceeds realizable from a public sale, and the
Administrative Agent, on behalf of itself, the Issuing Bank the Lenders or any
other Person may be the purchaser of all or any portion of the Collateral so
sold and thereafter hold the same absolutely, free (to the fullest extent
permitted by Applicable Law) from any claim or right of whatever kind, including
any equity of redemption, of any Credit Party, any such demand, notice, claim,
right or equity being hereby expressly waived and released. At any sale or sales
made pursuant to this Article 8, the Administrative Agent, on behalf of itself,
the Issuing Bank and the Lenders may bid for or purchase, free (to the fullest
extent permitted by Applicable Law) from any claim or right of whatever kind,
including any equity of redemption, of any Credit Party, any such demand,
notice, claim, right or equity being hereby expressly waived and released, any
part of or all of the Collateral offered for sale, and may make any payment on
account thereof by using any claim for moneys then due and payable to the
Administrative

 

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Agent, the Issuing Bank and Lenders by any Credit Party hereunder as a credit
against the purchase price. The Administrative Agent, on behalf of itself, the
Issuing Bank and the Lenders shall in any such sale make no representations or
warranties with respect to the Collateral or any part thereof, and none of the
Administrative Agent, the Issuing Bank and the Lenders shall be chargeable with
any of the obligations or liabilities of any Credit Party. Each Credit Party
hereby agrees (i) that it will indemnify and hold the Administrative Agent, the
Issuing Bank and the Lenders harmless from and against any and all claims with
respect to the Collateral asserted before the taking of actual possession or
control of the relevant Collateral by the Administrative Agent pursuant to this
Article 8, or arising out of any act of, or omission to act on the part of, any
Person (other than the Administrative Agent, the Issuing Bank or Lenders) prior
to such taking of actual possession or control by the Administrative Agent
(whether asserted before or after such taking of possession or control), or
arising out of any act on the part of any Credit Party or its Affiliates or
agents before or after the commencement of such actual possession or control by
the Administrative Agent, but excluding therefrom all claims with respect to the
Collateral resulting from (x) the gross negligence or willful misconduct of any
of the Administrative Agent, the Issuing Bank or the Lenders or (y) any claims
with respect to the Collateral asserted against an indemnified party by a Credit
Party in which such Credit Party is the prevailing party; and (ii) none of the
Administrative Agent, the Issuing Bank and the Lenders shall have any liability
or obligation to any Credit Party arising out of any such claim except for acts
of willful misconduct or gross negligence. Subject only to the lawful rights of
third parties, any laboratory which has possession of any of the Collateral is
hereby constituted and appointed by the Credit Parties as pledgeholder for the
Administrative Agent, on behalf of itself, the Issuing Bank and the Lenders and,
upon the occurrence and during the continuation of an Event of Default, each
such pledgeholder is hereby authorized (to the fullest extent permitted by
Applicable Law) to sell all or any portion of the Collateral upon the order and
direction of the Administrative Agent, and each Credit Party hereby waives any
and all claims, for damages or otherwise, for any action taken by such
pledgeholder in accordance with the terms of the UCC not otherwise waived
hereunder. In any action hereunder, the Administrative Agent shall be entitled
if permitted by Applicable Law to the appointment of a receiver without notice,
to take possession of all or any portion of the Collateral and to exercise such
powers as the court shall confer upon the receiver. Notwithstanding the
foregoing, upon the occurrence and during the continuation of an Event of
Default, the Administrative Agent, the Issuing Bank and the Lenders shall be
entitled to apply, without prior notice to any of the Credit Parties, any cash
or cash items constituting Collateral in the possession of the Administrative
Agent, the Issuing Bank and the Lenders to payment of the Obligations.

 

SECTION 8.7. Application of Proceeds after Event of Default. Upon the occurrence
and during the continuance of an Event of Default, the balances in the JPMorgan
Clearing Account, the Collection Account(s), the Cash Collateral Account(s) or
in any other account of any Credit Party with a Lender, all other income on the
Collateral, and all proceeds from any sale of the Collateral pursuant hereto
shall be applied first toward payment of the reasonable out-of-pocket costs and
expenses paid or incurred by the Administrative Agent in enforcing this Credit
Agreement, in realizing on or protecting any Collateral and in enforcing or
collecting any Obligations or any Guaranty thereof, including, without
limitation, court costs and the reasonable attorney’s fees and reasonable
out-of-pocket expenses incurred by the Administrative Agent, and then to the
payment in full of the Obligations in accordance with Section 13.2 hereof;
provided, however, that, the Administrative Agent may in its discretion

 

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apply funds comprising the Collateral to pay the cost (i) of completing any
Picture owned in whole or in part by any Credit Party in any stage of
production, and (ii) of making delivery to the distributors of such Picture. Any
amounts remaining after such payment in full shall be remitted to the
appropriate Credit Party or as a court of competent jurisdiction may otherwise
direct.

 

SECTION 8.8. Power of Attorney. Upon the occurrence and during the continuance
of an Event of Default which is not waived in writing by the Required Lenders,
(a) each Credit Party does hereby irrevocably make, constitute and appoint the
Administrative Agent or any of its officers or designees its true and lawful
attorney–in–fact with full power in the name of the Administrative Agent, such
other Person or such Credit Party to receive, open and dispose of all mail
addressed to any Credit Party, and to endorse any notes, checks, drafts, money
orders or other evidences of payment relating to the Collateral that may come
into the possession of the Administrative Agent with full power and right to
cause the mail of such Persons to be transferred to the Administrative Agent’s
own offices or otherwise, and to do any and all other acts necessary or proper
to carry out the intent of this Credit Agreement and the grant of the security
interests hereunder and under the Fundamental Documents, and each Credit Party
hereby ratifies and confirms all that the Administrative Agent or its
substitutes shall properly do by virtue hereof; and (b) each Credit Party does
hereby further irrevocably make, constitute and appoint the Administrative Agent
or any of its officers or designees its true and lawful attorney–in–fact in the
name of the Administrative Agent or any Credit Party (i) to enforce all of such
Credit Party’s rights under and pursuant to all agreements with respect to the
Collateral, all for the sole benefit of the Administrative Agent for the benefit
of the Administrative Agent, the Issuing Bank and the Lenders as contemplated
hereby and under the other Fundamental Documents and to enter into such other
agreements as may be necessary or appropriate in the judgment of the
Administrative Agent to complete the production, distribution or exploitation of
any Picture which is included in the Collateral, (ii) to enter into and perform
such agreements as may be necessary in order to carry out the terms, covenants
and conditions of the Fundamental Documents that are required to be observed or
performed by such Credit Party, (iii) to execute such other and further
mortgages, pledges and assignments of the Collateral, and related instruments or
agreements, as the Administrative Agent may reasonably require for the purpose
of perfecting, protecting, maintaining or enforcing the security interests
granted to the Administrative Agent for the benefit of the Administrative Agent,
the Issuing Bank and the Lenders hereunder and under the other Fundamental
Documents, and (iv) to do any and all other things necessary or proper to carry
out the intention of this Credit Agreement and the grant of the security
interests hereunder and under the other Fundamental Documents. Each of the
Credit Parties hereby ratifies and confirms in advance all that the
Administrative Agent as such attorney–in–fact or its substitutes shall properly
do by virtue of this power of attorney.

 

SECTION 8.9. Financing Statements, Direct Payments. Each Credit Party hereby
authorizes the Administrative Agent to file UCC financing statements and any
amendments thereto or continuations thereof, any Copyright Security Agreement,
any Copyright Security Agreement Supplement, any Trademark Security Agreement
and any other appropriate security documents or instruments and to give any
notices necessary or desirable to perfect the Lien of the Administrative Agent
for the benefit of itself, the Issuing Bank and the Lenders in the Collateral,
in all cases without the signature of any Credit Party or to execute such items
as attorney–in–fact for any Credit Party; provided, that the Administrative
Agent shall provide copies of any such documents or instruments to the Borrower.
Each Credit Party further

 

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authorizes the Administrative Agent to notify, at the time that any Event of
Default shall have occurred and be continuing, any account debtors that all sums
payable to such Credit Party relating to the Collateral shall be paid directly
to the Administrative Agent.

 

SECTION 8.10. Further Assurances. Upon the request of the Administrative Agent,
each Credit Party hereby agrees to duly and promptly execute and deliver, or
cause to be duly executed and delivered, at the cost and expense of the Credit
Parties, such further instruments as may be necessary or proper, in the
reasonable judgment of the Administrative Agent, to carry out the provisions and
purposes of this Article 8 or to perfect and preserve the Liens of the
Administrative Agent (for the benefit of itself, the Issuing Bank and the
Lenders) hereunder and under the Fundamental Documents in the Collateral or any
portion thereof.

 

SECTION 8.11. Termination and Release. The security interests granted under this
Article 8 shall terminate when all the Obligations have been fully and
indefeasibly paid and performed and the Commitments shall have terminated. Upon
request by the Credit Parties (and at the sole expense of the Credit Parties)
after such termination, the Administrative Agent will promptly take all
reasonable action and do all things reasonably necessary, including executing
UCC termination statements, Pledgeholder Agreement terminations, termination
letters to account debtors and copyright and trademark releases, to terminate
the security interest granted to it (for the benefit of the Administrative
Agent, the Issuing Bank and the Lenders) hereunder.

 

SECTION 8.12. Remedies Not Exclusive. The remedies conferred upon or reserved to
the Administrative Agent in this Article 8 are intended to be in addition to,
and not in limitation of, any other remedy or remedies available to the
Administrative Agent. Without limiting the generality of the foregoing, the
Administrative Agent, the Issuing Bank and the Lenders shall have all rights and
remedies of a secured creditor under Article 9 of the UCC and under any other
Applicable Law.

 

SECTION 8.13. Quiet Enjoyment. The Administrative Agent, the Issuing Bank and
the Lenders acknowledge and agree that their security interest hereunder is
subject to the rights of Quiet Enjoyment (as defined below) of parties (which
are not Affiliates of any Credit Party) to Distribution Agreements, whether
existing on the date hereof or hereafter executed. For the purpose hereof,
“Quiet Enjoyment” shall mean in connection with the rights of a licensee (which
is not an Affiliate of any Credit Party) under a Distribution Agreement, the
Administrative Agent, the Issuing Bank and the Lenders’ agreement that their
rights under this Credit Agreement and the other Fundamental Documents and in
the Collateral are subject to the rights of such licensee to distribute, exhibit
and/or to exploit the Picture licensed to them under such Distribution
Agreement, and to receive prints or tapes and other delivery items or have
access to preprint material or master tapes and other items to which they are
entitled in connection therewith and that even if the Lenders shall become the
owner of the Collateral in case of an Event of Default, the Lenders’ ownership
rights shall be subject to the rights of said parties under such agreement;
provided, however, that such licensee shall not be in default under the relevant
Distribution Agreement. The Administrative Agent agrees that, upon the
reasonable request of a Credit Party, it will provide written confirmation (in
form reasonably acceptable to the Administrative Agent) of such rights of Quiet
Enjoyment to licensees under the Distribution Agreements. None of the foregoing
constitutes an agreement by the Administrative Agent, the Issuing Bank or the
Lenders to the granting of any security interest to any Person under any
Distribution Agreement.

 

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SECTION 8.14. Continuation and Reinstatement. Each Credit Party further agrees
that the security interest granted hereunder shall continue to be effective or
be reinstated, as the case may be, if at any time payment or any part thereof of
any Obligation is rescinded or must otherwise be restored by the Administrative
Agent, the Issuing Bank or the Lenders upon the bankruptcy or reorganization of
any Credit Party or otherwise.

 

9. GUARANTY OF GUARANTORS

 

SECTION 9.1. Guaranty.

 

(a) Each Guarantor unconditionally and irrevocably guarantees to the
Administrative Agent, the Issuing Bank and the Lenders the due and punctual
payment by, and performance of, the Obligations (including interest accruing on
and after the filing of any petition in bankruptcy or of reorganization of the
obligor whether or not post filing interest is allowed in such proceeding). Each
Guarantor further agrees that the Obligations may be increased, extended or
renewed, in whole or in part, without notice or further assent from it (except
as may be otherwise required herein), and it will remain bound upon this
Guaranty notwithstanding any extension or renewal of any Obligation.

 

(b) Each Guarantor waives presentation to, demand for payment from and protest
to, as the case may be, any Credit Party or any other guarantor of any of the
Obligations, and also waives notice of protest for nonpayment, notice of
acceleration and notice of intent to accelerate. The obligations of each
Guarantor hereunder shall not be affected by (i) the failure of the
Administrative Agent, the Issuing Bank or the Lenders to assert any claim or
demand or to enforce any right or remedy against the Borrower, the Parent or any
Guarantor or any other guarantor under the provisions of this Credit Agreement
or any other agreement or otherwise; (ii) any extension or renewal of any
provision hereof or thereof; (iii) the failure of the Administrative Agent, the
Issuing Bank or the Lenders to obtain the consent of the Parent and the
Guarantor with respect to any rescission, waiver, compromise, acceleration,
amendment or modification of any of the terms or provisions of this Credit
Agreement, the Notes or of any other agreement; (iv) the release, exchange,
waiver or foreclosure of any security held by the Administrative Agent for the
Obligations or any of them; (v) the failure of the Administrative Agent, the
Issuing Bank or the Lenders to exercise any right or remedy against the Parent,
any other Guarantor or any other guarantor of the Obligations; or (vi) the
release or substitution of the Parent, any Guarantor or any other guarantor of
the Obligations. Without limiting the generality of the foregoing or any other
provision hereof (including, without limitation, Section 14.6 hereof, it being
the specific intent of the parties that the choice of law provision in Section
14.6 is to apply to this Credit Agreement), to the extent permitted by
Applicable Law, each Guarantor hereby expressly waives any and all benefits
which might otherwise be available to it under California Civil Code Sections
2799, 2809, 2810, 2815, 2819, 2820, 2821, 2822, 2838, 2839, 2845, 2848, 2849,
2850, 2899 and 3433.

 

(c) Each Guarantor further agrees that this Guaranty constitutes a guaranty of
performance and of payment when due and not just of collection, and waives any
right to require

 

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that any resort be had by the Administrative Agent, the Issuing Bank or any
Lender to any security held for payment of the Obligations or to any balance of
any deposit, account or credit on the books of the Administrative Agent, the
Issuing Bank or any Lender in favor of the Borrower, the Parent or any
Guarantor, or to any other Person.

 

(d) Each Guarantor hereby expressly assumes all responsibilities to remain
informed of the financial condition of the Borrower, the Parent, the Guarantors
and any other guarantors of the Obligations and any circumstances affecting the
Collateral or the Pledged Securities or the ability of the Borrower to perform
under this Credit Agreement.

 

(e) Each Guarantor’s obligations under the Guaranty shall not be affected by the
genuineness, validity, regularity or enforceability of the Obligations, the
Notes or any other instrument evidencing any Obligations, or by the existence,
validity, enforceability, perfection, or extent of any collateral therefor or by
any other circumstance relating to the Obligations which might otherwise
constitute a defense to this Guaranty. The Administrative Agent, the Issuing
Bank and the Lenders make no representation or warranty with respect to any such
circumstances and have no duty or responsibility whatsoever to the Parent or any
Guarantor in respect to the management and maintenance of the Obligations or any
collateral security for the Obligations.

 

SECTION 9.2. No Impairment of Guaranty, etc. The obligations of each Guarantor
hereunder shall not be subject to any reduction, limitation, impairment or
termination for any reason (except payment and performance in full of the
Obligations), including, without limitation, any claim of waiver, release,
surrender, alteration or compromise, and shall not be subject to any defense or
set–off, counterclaim, recoupment or termination whatsoever by reason of the
invalidity, illegality or unenforceability of the Obligations or otherwise.
Without limiting the generality of the foregoing, the obligations of the Parent
and each Guarantor hereunder shall not be discharged or impaired or otherwise
affected by the failure of the Administrative Agent, the Issuing Bank or any
Lender to assert any claim or demand or to enforce any remedy under this Credit
Agreement or any other agreement, by any waiver or modification of any provision
hereof or thereof, by any default, failure or delay, willful or otherwise, in
the performance of the Obligations, or by any other act or thing or omission or
delay to do any other act or thing which may or might in any manner or to any
extent vary the risk of such Guarantor or would otherwise operate as a discharge
of such Guarantor as a matter of law, unless and until the Obligations are paid
in full and the Commitments have terminated.

 

SECTION 9.3. Continuation and Reinstatement, etc.

 

(a) Each Guarantor further agrees that its guaranty hereunder shall continue to
be effective or be reinstated, as the case may be, if at any time payment, or
any part thereof, of any Obligation is rescinded or must otherwise be restored
by the Administrative Agent, the Issuing Bank or the Lenders upon the bankruptcy
or reorganization of the Borrower, the Parent or a Guarantor, or otherwise. In
furtherance of the provisions of this Article 9, and not in limitation of any
other right which the Administrative Agent, the Issuing Bank or the Lenders may
have at law or in equity against the Borrower, the Parent, a Guarantor or any
other Person by virtue hereof, upon failure of the Borrower to pay any
Obligation when and as the same shall become due, whether at maturity, by
acceleration, after notice or otherwise, each Guarantor

 

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hereby promises to and will, upon receipt of written demand by the
Administrative Agent on behalf of itself and/or the Issuing Bank and/or the
Lenders, forthwith pay or cause to be paid to the Administrative Agent for the
benefit of itself, the Issuing Bank and/or the Lenders (as applicable) in cash
an amount equal to the unpaid amount of such unpaid Obligations with interest
thereon from the due date at a rate of interest equal to the rate specified in
Section 2.7(a) hereof, and thereupon the Administrative Agent shall assign such
Obligation, together with all security interests, if any, then held by the
Administrative Agent in respect of such Obligation, to the Guarantor or
Guarantors making such payment; such assignment to be subordinate and junior to
the rights of the Administrative Agent on behalf of itself, the Issuing Bank and
the Lenders with regard to amounts payable by the Borrower in connection with
the remaining unpaid Obligations and to be pro tanto to the extent to which the
Obligation in question was discharged by the Parent, the Guarantor or Guarantors
making such payments.

 

(b) All rights of each Guarantor against the Borrower, arising as a result of
the payment by such Guarantor of any sums to the Administrative Agent for the
benefit of the Administrative Agent, and/or the Issuing Bank and/or the Lenders
or directly to the Lenders hereunder by way of right of subrogation or
otherwise, shall in all respects be subordinated and junior in right of payment
to, and shall not be exercised by such Guarantor until and unless, the prior
final payment in full of all the Obligations. If any amount shall be paid to
such Guarantor for the account of the Borrower, such amount shall be held in
trust for the benefit of the Administrative Agent, segregated from such
Guarantor’s own assets, and shall forthwith be paid to the Administrative Agent
on behalf of the Administrative Agent and/or the Issuing Bank and/or the Lenders
to be credited and applied to the Obligations, whether matured or unmatured.

 

SECTION 9.4. Limitation on Guaranteed Amount, etc. Notwithstanding any other
provision of this Article 9, the amount guaranteed by each Guarantor hereunder
shall be limited to the extent, if any, required so that its obligations under
this Article 9 shall not be subject to avoidance under Section 548 of the
Bankruptcy Code or to being set aside or annulled under any Applicable Law
relating to fraud on creditors. In determining the limitations, if any, on the
amount of any Guarantor’s obligations hereunder pursuant to the preceding
sentence, it is the intention of the parties hereto that any rights of
subrogation or contribution which the Parent or such Guarantor may have under
this Article 9, any other agreement or Applicable Law shall be taken into
account.

 

10. GUARANTY AND UNDERTAKINGS OF PARENT

 

SECTION 10.1. Guaranty and Undertakings.

 

(a) The Parent hereby unconditionally and irrevocably guarantees to the
Administrative Agent, the Issuing Bank and the Lenders the payment of the
following Obligations:

 

  (i) the payment of all outstanding Obligations when due, provided, that the
guaranty in this Section 10.1(a)(i) shall be released at such time as the
undertaking in Section 10.1(b)(i) below is fulfilled in its entirety in
accordance with its terms.

 

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  (ii) the payment of interest and commitment fees under the Facility through
the scheduled Maturity Date;

 

  (iii) the repayment of the principal amount of any Loans for a Qualifying
Picture up to the Canadian Loan Subsidy Value, if any, for such Qualifying
Picture to the extent of any shortfall in the amount of tax credits actually
received;

 

  (iv) repayment of any Loans made to finance theatrical distribution expenses
prior to Completion and delivery of the relevant Qualifying Picture, unless such
amounts are included in the Strike Price of the Approved Completion Bond for
such Qualifying Picture and only until Completion and delivery of such
Qualifying Picture; and

 

  (v) reimbursement of all Obligations in respect of letters of credit issued
under the Facility to fund distribution expenses prior to completion and
delivery of the relevant Qualifying Picture, unless such amounts are included in
the Strike Price of the Approved Completion Bond for such Qualifying Picture and
only until Completion and delivery of such Qualifying Picture;

 

(the Obligations guaranteed above are referred to as the “Parent Guaranteed
Obligations” and together with the undertakings in Section 10.1(b) are referred
to as the “Parent Obligations”).

 

(b) The Parent unconditionally and irrevocably undertakes and agrees for the
benefit of the Administrative Agent, the Issuing Bank and the Lenders, as
follows:

 

  (i) The Parent shall cause the Borrower to finance a minimum of six Qualifying
Pictures under the Facility, each of which six Qualifying Pictures shall be (x)
completed and delivered to the licensee under one or more Main Distribution
Agreement by the fifth anniversary of the Closing Date and (y) released
theatrically under such Main Distribution Agreement (with a 500 screen minimum
distribution pattern or such greater distribution pattern as is required by each
relevant Main Distribution Agreement) no later than 12 months after delivery of
such Qualifying Picture.

 

  (ii) With regard to each Qualifying Picture, the Parent shall fund (either as
equity investments, intercompany loans or if requested by the Administrative
Agent after an Event of Default, by payment directly to the Administrative
Agent) (x) the portion of the negative cost equal to the amount by which the
Strike Price under the relevant Approved Completion Bond exceeds the amount
financeable under the Facility, as and when needed by the Credit Parties on a
pro rata basis with the Loans under the Facility for the production of such
Qualifying Picture, and (y) as needed, any cost overruns not required to be
funded by the Approved Completion Guarantor.

 

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  (iii) With regard to each Qualifying Picture, the Parent shall fund (either as
equity investments, intercompany loans or if requested by the Administrative
Agent after an Event of Default, by payment directly to the Administrative
Agent), the amount necessary to fund the print and advertising expense
commitment under the Main Distribution Agreements in excess of the P&A Reserve
Amount, as and when needed by the Credit Parties on a pro rata basis with the
Loans under the Facility for such purpose.

 

  (iv) The Parent shall cause the Credit Parties to perform and observe the
representations, warranties and covenants in Articles 2, 3, 4, 5 and 6 and to
the extent of any breach thereof, shall provide funds to the Credit Parties to
cure such breach or repay the Loans advanced with respect to such Qualifying
Pictures as are necessary to cure such breach. Without limiting the generality
of the foregoing, if (x) any Picture against which Loans have been advanced
hereunder shall cease to be a Qualifying Picture or shall be determined not to
be a Qualifying Picture, the Parent shall cause the Credit Parties to repay all
Loans with respect to such Picture and (y) if any Loans are advanced pursuant to
a subsection of Section 2.1(a) and thereafter the Loans outstanding under such
subsection shall exceed any the maximum amount permitted under any limitation in
such subsection, the Parent shall cause the Credit Parties to repay the Loans
with respect to such excess.

 

(c) The Parent agrees that the Parent Guaranteed Obligations may be increased,
extended or renewed, in whole or in part, without notice or further assent from
it (except as may be otherwise required herein), and it will remain bound upon
this Guaranty notwithstanding any extension or renewal of any Parent Obligation.

 

(d) The Parent waives presentation to, demand for payment from and protest to,
as the case may be, any Credit Party or any other guarantor of any of the Parent
Obligations, and also waives notice of protest for nonpayment, notice of
acceleration and notice of intent to accelerate. The obligations of the Parent
hereunder shall not be affected by (i) the failure of the Administrative Agent,
the Issuing Bank or the Lenders to assert any claim or demand or to enforce any
right or remedy against the Borrower, any Guarantor or any other guarantor under
the provisions of this Credit Agreement or any other agreement or otherwise;
(ii) any extension or renewal of any provision hereof or thereof; (iii) the
failure of the Administrative Agent, the Issuing Bank or the Lenders to obtain
the consent of the Parent with respect to any rescission, waiver, compromise,
acceleration, amendment or modification of any of the terms or provisions of
this Credit Agreement, the Notes or of any other agreement; (iv) the release,
exchange, waiver or foreclosure of any security held by the Administrative Agent
for the Parent Obligations or any of them; (v) the failure of the Administrative
Agent, the Issuing Bank or the Lenders to exercise any right or remedy against
any Guarantor or any other guarantor of Parent Obligations; or (vi) the release
or substitution of any Guarantor or any other guarantor of the Parent
Obligations.

 

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Without limiting the generality of the foregoing or any other provision hereof
(including, without limitation, Section 14.6 hereof, it being the specific
intent of the parties that the choice of law provision in Section 14.6 is to
apply to this Credit Agreement), to the extent permitted by Applicable Law,
Parent hereby expressly waives any and all benefits which might otherwise be
available to it under California Civil Code Sections 2799, 2809, 2810, 2815,
2819, 2820, 2821, 2822, 2838, 2839, 2845, 2848, 2849, 2850, 2899 and 3433.

 

(e) The Parent further agrees that this guaranty and undertaking constitutes a
guaranty of performance and of payment when due and not just of collection, and
waives any right to require that any resort be had by the Administrative Agent,
the Issuing Bank or any Lender to any security held for payment of the Parent
Obligations or to any balance of any deposit, account or credit on the books of
the Administrative Agent, the Issuing Bank or any Lender in favor of the
Borrower, the Parent or any Guarantor, or to any other Person.

 

(f) The Parent hereby expressly assumes all responsibilities to remain informed
of the financial condition of the Borrower, the Guarantors and any other
guarantors of the Parent Obligations and any circumstances affecting the
Collateral or the Pledged Securities or the ability of the Borrower to perform
under this Credit Agreement.

 

(g) The Parent obligations under the guaranty shall not be affected by the
genuineness, validity, regularity or enforceability of the Parent Obligations,
the Notes or any other instrument evidencing any Parent Obligations, or by the
existence, validity, enforceability, perfection, or extent of any collateral
therefor or by any other circumstance relating to the Parent Obligations which
might otherwise constitute a defense to this Guaranty. The Administrative Agent,
the Issuing Bank and the Lenders make no representation or warranty with respect
to any such circumstances and have no duty or responsibility whatsoever to the
Parent in respect to the management and maintenance of the Parent Obligations or
any collateral security for the Parent Obligations.

 

SECTION 10.2. No Impairment of Guaranty, etc. The obligations of the Parent
hereunder shall not be subject to any reduction, limitation, impairment or
termination for any reason (except payment and performance in full of the Parent
Obligations), including, without limitation, any claim of waiver, release,
surrender, alteration or compromise, and shall not be subject to any defense or
set–off, counterclaim, recoupment or termination whatsoever by reason of the
invalidity, illegality or unenforceability of the Parent Obligations or
otherwise. Without limiting the generality of the foregoing, the obligations of
the Parent shall not be discharged or impaired or otherwise affected by the
failure of the Administrative Agent, the Issuing Bank or any Lender to assert
any claim or demand or to enforce any remedy under this Credit Agreement or any
other agreement, by any waiver or modification of any provision hereof or
thereof, by any default, failure or delay, willful or otherwise, in the
performance of the Parent Obligations, or by any other act or thing or omission
or delay to do any other act or thing which may or might in any manner or to any
extent vary the risk of the Parent or would otherwise operate as a discharge of
the Parent as a matter of law, unless and until the Parent Obligations are paid
in full and the Commitments have terminated.

 

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SECTION 10.3. Continuation and Reinstatement, etc.

 

(a) The Parent further agrees that its guaranty hereunder shall continue to be
effective or be reinstated, as the case may be, if at any time payment, or any
part thereof, of any Parent Obligation is rescinded or must otherwise be
restored by the Administrative Agent, the Issuing Bank or the Lenders upon the
bankruptcy or reorganization of the Borrower, or a Guarantor, or otherwise. In
furtherance of the provisions of this Article 10, and not in limitation of any
other right which the Administrative Agent, the Issuing Bank or the Lenders may
have at law or in equity against the Borrower, the Parent, a Guarantor or any
other Person by virtue hereof, upon failure of the Borrower to pay any Parent
Obligation when and as the same shall become due, whether at maturity, by
acceleration, after notice or otherwise, the Parent hereby promises to and will,
upon receipt of written demand by the Administrative Agent on behalf of itself
and/or the Issuing Bank and/or the Lenders, forthwith pay or cause to be paid to
the Administrative Agent for the benefit of itself, the Issuing Bank and/or the
Lenders (as applicable) in cash an amount equal to the lesser of (i) the unpaid
amount of such unpaid Obligations and (ii) the unpaid amount of the Parent
Obligations, in either case with interest thereon from the due date at a rate of
interest equal to the rate specified in Section 2.7(a) hereof, and thereupon the
Administrative Agent shall assign such Obligation, together with all security
interests, if any, then held by the Administrative Agent in respect of such
Obligation, to the Parent making such payment; such assignment to be subordinate
and junior to the rights of the Administrative Agent on behalf of itself, the
Issuing Bank and the Lenders with regard to amounts payable by the Borrower in
connection with the remaining unpaid Obligations and to be pro tanto to the
extent to which the Obligation in question was discharged by the Parent, the
Guarantor or Guarantors making such payments.

 

(b) All rights of the Parent against the Borrower, arising as a result of the
payment by the Parent of any sums to the Administrative Agent for the benefit of
the Administrative Agent, and/or the Issuing Bank and/or the Lenders or directly
to the Lenders hereunder by way of right of subrogation or otherwise, shall in
all respects be subordinated and junior in right of payment to, and shall not be
exercised by the Parent until and unless, the prior final payment in full of all
the Obligations. If any amount shall be paid to the Parent for the account of
the Borrower, such amount shall be held in trust for the benefit of the
Administrative Agent, segregated from the Parent’s own assets, and shall
forthwith be paid to the Administrative Agent on behalf of the Administrative
Agent and/or the Issuing Bank and/or the Lenders to be credited and applied to
the Obligations, whether matured or unmatured.

 

SECTION 10.4. Representations and Warranties of the Parent.

 

(a) Existence and Power.

 

(i) The Parent is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization and is in good
standing as a foreign entity in all jurisdictions where (x) the nature of its
properties or business so requires, or (y) the failure to be so qualified or be
in good standing, individually or in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect (a list of such jurisdictions as
of the date hereof is attached hereto as Schedule 3.1).

 

(ii) The Parent has the power and authority (x) to own its respective properties
and carry on its respective business as now being conducted or as intended to be

 

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conducted, (y) to execute, deliver and perform, as applicable, its obligations
under the Fundamental Documents and any other documents contemplated thereby to
which it is or will be a party, and (z) to grant to the Administrative Agent,
for the benefit of the Administrative Agent, the Issuing Bank and the Lenders, a
security interest in the Pledged Securities as contemplated by Article 11
hereof; and, to guaranty the Obligations as contemplated this Article 10.

 

(b) Authority and No Violation.

 

(i) The execution, delivery and performance of this Credit Agreement and the
other Fundamental Documents to which it is a party, by the Parent, the grant to
the Administrative Agent for the benefit of the Administrative Agent, the
Issuing Bank and the Lenders of the security interest in the Pledged Securities
as contemplated herein and by the other Fundamental Documents and the guaranty
of the Obligations as contemplated in this Article 10, (u) have been duly
authorized by all necessary corporate action on the part of the Parent, (v) will
not constitute a violation of any provision of Applicable Law in any material
respect or any order of any Governmental Authority applicable to the Parent, or
any of its properties or assets in any material respect, (w) will not violate
any provision of the Certificate of Incorporation, By–Laws, operating agreement
or any other organizational document of the Parent, (x) will not violate any
provision of any Distribution Agreement, indenture, agreement, bond, note or
other similar instrument to which the Parent or by which the Parent or any of
its properties or assets are bound, other than where any such violation could
not, individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect, (y) will not be in conflict with, result in a breach of, or
constitute (with due notice or lapse of time or both) a default under, or create
any right to terminate, any such Distribution Agreement, indenture, agreement,
bond, note or other similar instrument, other than where any such violation
could not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect and (z) will not result in the creation or imposition of
any Lien, charge or encumbrance of any nature whatsoever upon any of the
properties or assets of any of the Parent other than pursuant to this Credit
Agreement or the other Fundamental Documents.

 

(ii) Other than the restrictions listed on Schedule 3.2(b), there are no
restrictions on the transfer of any of the Pledged Securities other than as a
result of this Credit Agreement or applicable securities laws and the
regulations promulgated thereunder.

 

(c) Financial Statements. The unaudited consolidated balance sheet of the Parent
and its Consolidated Subsidiaries for the fiscal year ended July 31, 2005,
together with the related statements of income, have been prepared in accordance
with GAAP in effect as of such date consistently applied, except as otherwise
indicated in the notes to such financial statements and subject to changes
resulting from year-end and audit adjustments. All of such financial statements
(x) are true and correct in all material respects, (y) fairly present the
financial position or the results of operations of the Parent and its
Consolidated Subsidiaries or the Credit Parties, as applicable, on a
consolidated basis at the dates or for the periods indicated, subject to
year-end and audit adjustments, and (z) reflect all known liabilities,
contingent or otherwise, that GAAP require, as of such dates, to be shown or
reserved against.

 

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(d) No Material Adverse Change. There has been no material adverse change with
respect to the business, operations, performance, assets, properties or
financial condition of the Parent taken as a whole from July 31, 2005.

 

(e) Ownership of Pledged Securities. The Parent directly owns all of the voting
stock and other Equity Interests, if any, of the Borrower; and the Borrower
directly owns all of the voting stock and other Equity Interests, if any, of its
Subsidiaries.

 

(f) Litigation. Schedule 3.12 sets forth a list as of the Closing Date of all
actions, suits or other proceedings at law or in equity by or before any
arbitrator, arbitration panel or Governmental Authority, and to the Parent’s
knowledge, any investigation by any Governmental Authority of the affairs of, or
threatened action, suit or other proceeding against or affecting, the Parent or
any of its respective properties or rights. Except as set forth in Schedule
3.12, there are no actions, suits or other proceedings at law or in equity by or
before any arbitrator, arbitration panel or Governmental Authority (including,
but not limited to, matters relating to environmental liability) or, to the best
of the Parent’s knowledge, any investigation by any Governmental Authority of
the affairs of, or threatened action, suit or other proceeding against or
affecting, the Parent or of any of its respective properties or rights which
either (A) if adversely determined, could reasonably be expected to have a
Material Adverse Effect, or (B) relate to this Credit Agreement, any other
Fundamental Documents or any of the transactions contemplated hereby. The Parent
is not in default with respect to any order, writ, injunction, decree, rule or
regulation of any Governmental Authority binding upon such Person.

 

(g) Security Interest. This Credit Agreement and the other Fundamental
Documents, when executed and delivered and, upon the making of the initial Loan
hereunder, will create and grant to the Administrative Agent for the benefit of
the Administrative Agent, the Issuing Bank and the Lenders (upon the delivery of
the Pledged Securities and (in the case of Pledged Securities comprising capital
stock) the appropriate stock powers to the Administrative Agent) valid and first
priority perfected security interests in the Pledged Securities. The Parent’s
taxpayer identification number and organizational identification number is
listed on Schedule 3.18 hereto.

 

(h) Disclosure. Neither this Agreement nor any other Fundamental Document nor
any material agreement, document, certificate or statement (other than the
Initial Projections) furnished to the Administrative Agent and the Lenders by or
on behalf of the Parent in connection with the transactions contemplated hereby,
at the time it was furnished contained any untrue statement of a material fact
or omitted to state a material fact, under the circumstances under which it was
made, necessary in order to make the statements contained herein or therein not
misleading (considered in the context of all other information provided to the
Lenders). The Initial Projections, unless otherwise disclosed, were prepared in
good faith based upon reasonable assumptions. At the date hereof, there is no
fact known to the Parent (other than general industry conditions) which
materially and adversely affects, or in the future may reasonably be expected to
materially and adversely affect the business, properties, assets, operations or
financial condition of the Parent, taken as a whole.

 

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SECTION 10.5. Affirmative Covenants of the Parent.

 

From the date hereof and for so long as the Commitments shall be in effect, any
amount shall remain outstanding under any Note, any Letter of Credit shall
remain outstanding or any other Obligation shall remain unpaid or unsatisfied,
the Parent agrees that, unless the Required Lenders shall otherwise consent in
writing, it will:

 

(a) Financial Statement. Furnish or cause to be furnished to the Administrative
Agent and each of the Lenders:

 

(i) Within one hundred twenty (120) days after the end of each fiscal year of
the Parent commencing with the fiscal year ending July 31, 2006, the audited
consolidated balance sheet of Parent and its Consolidated Subsidiaries, as at
the end of, and the related consolidated statements of income, stockholders’
equity and cash flows for, such year, and, commencing with the fiscal year
ending July 31, 2007, the corresponding figures as at the end of, and for, the
preceding fiscal year, accompanied by an unqualified report and opinion of Ernst
& Young LLP or such other independent public accountant of nationally recognized
standing as shall be retained by Parent and be reasonably satisfactory to the
Required Lenders, which report and opinion shall be prepared in accordance with
generally accepted auditing standards relating to reporting and which report and
opinion shall contain no material exceptions or qualifications except for
qualifications relating to accounting changes (with which such independent
public accountants concur) in response to FASB releases or other authoritative
pronouncements, together with a certificate signed by an Authorized Officer of
the Parent, to the effect that such financial statements fairly present the
financial position of the Parent and its Consolidated Subsidiaries as at the
dates indicated and the results of its operations for the periods indicated in
conformity with GAAP;

 

(ii) Within sixty (60) days after the end of each of the first three fiscal
quarters of each of fiscal year of the Parent, the unaudited consolidated
balance sheets of Parent and its Consolidated Subsidiaries, in each case as at
the end of, and the related unaudited consolidated statements of income,
stockholders’ equity and cash flow for, such quarter, and for the portion of the
fiscal year through the end of such quarter, and the corresponding figures as at
the end of such quarter, and for the corresponding period, in the preceding
fiscal year, together with a certificate signed by an Authorized Officer of the
Parent, to the effect that such financial statements, while not examined by
independent public accountants, reflect, in the opinion of Parent, all
adjustments necessary to present fairly in all material respects the financial
position of the Parent and its Consolidated Subsidiaries as at the end of the
fiscal quarter and the results of operations for the fiscal quarter then ended
in conformity with GAAP, subject to normal year-end audit adjustments and the
absence of footnotes;

 

(iii) Within 10 Business Days of receipt thereof by the Parent, copies of all
management letters issued to the Parent or any Credit Party by its auditors;

 

(iv) Promptly upon their becoming available, copies of (x) all registration
statements, proxy statements, notices and reports which Parent shall file with
any

 

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securities exchange or with the Securities and Exchange Commission or any
successor agency, and (y) all reports, financial statements, press releases and
other information which the Parent shall release, send or make available to its
common stockholders generally;

 

(v) Simultaneously with delivery of financial statements required under Sections
10.5(a)(i) and (ii) above, a brief report by management outlining the financial
condition and results of operations of the Parent, in a form reasonably
acceptable to the Administrative Agent in its sole discretion

 

(vi) Promptly upon request therefor, any information required by the
Administrative Agent, the Issuing Bank or any Lender under or in connection with
the USA Patriot Act; and

 

(vii) From time to time such additional information regarding the financial
condition or business of the Parent, or any Credit Party, as the Administrative
Agent or any Lender acting through the Administrative Agent may reasonably
request.

 

(b) Corporate Existence; Compliance with Laws. Do or cause to be done all things
necessary (i) to preserve, renew and keep in full force and effect its legal
existence, rights, licenses, permits and franchises and (ii) to comply with all
applicable statutes, regulations and orders of, and all applicable restrictions
imposed by, any Governmental Authority.

 

(c) Liens. Defend the Pledged Securities of the Parent against any and all Liens
howsoever arising, other than Permitted Encumbrances, and in any event defend
against any attempted foreclosure.

 

(d) Litigation. Promptly inform Administrative Agent of all actions, suits or
other proceedings at law or in equity by or before any arbitrator, arbitration
panel or Governmental Authority and any investigation by any Governmental
Authority of the affairs of, or threatened action, suit or other proceeding
against or affecting, the Parent or any of its respective properties or rights.

 

(e) Consolidated Net Worth. Maintain a Consolidated Net Worth of the Parent and
its Consolidated Subsidiaries of at least $125,000,000.

 

(f) Liquidity. Maintain adequate sources of funds (which may be in the form of
unrestricted balances of cash and Cash Equivalents, marketable securities,
borrowing availability under loan agreements, and reasonably projected receipts
during the relevant time periods from accounts receivable) available for the
uses contemplated herein and not dedicated to other purposes, in an amount equal
to all of its projected remaining fundings of the aggregate cash requirements
(to the extent not projected to be financed by the Facility or payable by a
Permitted Co-Financier) with respect to the production and distribution of each
Qualifying Picture for which an advance of Loans has occurred or a Letter of
Credit has been issued.

 

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11. PLEDGE

 

SECTION 11.1. Pledge. Each Pledgor, as security for the due and punctual payment
of the Obligations (including interest accruing on and after the filing of any
petition in bankruptcy or of reorganization of the Borrower whether or not post
filing interest is allowed in such proceeding) in the case of the Borrower, and
as security for its obligations hereunder in the case of a Pledgor other than
the Borrower, hereby pledges, hypothecates, assigns, transfers, sets over and
delivers unto the Administrative Agent for the benefit of itself, the Issuing
Bank and the Lenders, a security interest in all Pledged Collateral now owned or
hereafter acquired by it. On the Closing Date, the Pledgors shall deliver to the
Administrative Agent the definitive instruments (if any) representing all
Pledged Securities, accompanied by undated stock powers (in the case of Pledged
Securities comprising capital stock), duly endorsed or executed in blank by the
appropriate Pledgor, and such other instruments or documents as the
Administrative Agent or its counsel shall reasonably request. The initial
Pledged Securities are listed on Schedule 11.1. The Administrative Agent shall
have the right to update Schedule 11.1 to reflect any additions to the Pledged
Securities after the Closing Date (provided, that its failure to do so shall not
invalidate any pledge of Pledged Securities).

 

SECTION 11.2. Covenant. Each Pledgor covenants that as the owner of Equity
Interests in each of its respective Subsidiaries it will not take any action to
allow any additional shares of common stock, preferred stock or other Equity
Interests of any of its respective Subsidiaries or any securities convertible or
exchangeable into common or preferred stock or other Equity Interests of such
Subsidiaries to be issued, or grant any options or warrants, unless all of such
securities (or, in the case of a Subsidiary that is a Controlled Foreign
Subsidiary, 66% of such securities) are pledged to the Administrative Agent (for
the benefit of itself, the Issuing Bank and the Lenders) as security for the
Obligations and, if applicable, such Pledgor’s obligations under Article 9
hereof.

 

SECTION 11.3. Registration in Nominee Name; Denominations. The Administrative
Agent shall have the right (in its sole and absolute discretion) to hold the
certificates representing any Pledged Securities (a) in its own name (on behalf
of the Administrative Agent, the Issuing Bank and the Lenders) or in the name of
its nominee, or (b) in the name of the appropriate Pledgor, endorsed or assigned
in blank or in favor of the Administrative Agent. The Administrative Agent shall
have the right to exchange the certificates representing any of the Pledged
Securities for certificates of smaller or larger denominations for any purpose
consistent with this Credit Agreement.

 

SECTION 11.4. Voting Rights; Dividends; etc.

 

(a) The appropriate Pledgor shall be entitled to exercise any and all voting
and/or consensual rights and powers accruing to an owner of the Pledged
Securities being pledged by it hereunder or any part thereof for any purpose not
inconsistent with the terms hereof, at all times, except as expressly provided
in paragraph (c) below.

 

(b) All dividends or distributions of any kind whatsoever (other than cash
dividends or cash distributions paid while no Event of Default is continuing)
received by a Pledgor, whether resulting from a subdivision, combination, or
reclassification of the outstanding

 

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capital stock or Equity Interests of the issuer or received in exchange for
Pledged Securities or any part thereof or as a result of any merger,
consolidation, acquisition, or other exchange of assets to which the issuer may
be a party, or otherwise, shall be and become part of the Pledged Securities
pledged hereunder and shall immediately be delivered to the Administrative Agent
to be held subject to the terms hereof. All dividends and distributions which
are received contrary to the provisions of this subsection (b) shall be received
in trust for the benefit of the Administrative Agent, the Issuing Bank and the
Lenders, segregated from such Pledgor’s own assets, and shall be delivered to
the Administrative Agent.

 

(c) Upon the occurrence and during the continuance of an Event of Default and
notice from the Administrative Agent of the transfer of such rights to the
Administrative Agent, all rights of such Pledgor (i) to exercise the voting
and/or consensual rights and powers which it is entitled to exercise pursuant to
this Section, and (ii) to receive and retain cash dividends and cash
distributions shall cease, and all such rights shall thereupon become vested in
the Administrative Agent, which shall have the sole and exclusive right and
authority to exercise such voting and/or consensual rights and receive such cash
dividends and cash distributions until such time as such Event of Default has
been cured or waived.

 

(d) So long as no Event of Default shall have occurred and be continuing, any
cash dividends or cash distributions received by a Credit Party in accordance
with the terms hereof may be used for any purpose permitted hereunder.

 

SECTION 11.5. Remedies Upon Default. If an Event of Default shall have occurred
and be continuing, the Administrative Agent, on behalf of itself, the Issuing
Bank and the Lenders, may sell the Pledged Securities, or any part thereof, at
public or private sale or at any broker’s board or on any securities exchange,
for cash, upon credit or for future delivery as the Administrative Agent shall
deem appropriate subject to the terms hereof or as otherwise provided in the
UCC. The Administrative Agent shall be authorized at any such sale (if it deems
it advisable to do so) to restrict to the full extent permitted by Applicable
Law the prospective bidders or purchasers to Persons who will represent and
agree that they are purchasing the Pledged Securities for their own account for
investment and not with a view to the distribution or sale thereof, and upon
consummation of any such sale, the Administrative Agent shall have the right to
assign, transfer, and deliver to the purchaser or purchasers thereof the Pledged
Securities so sold. Each such purchaser at any such sale shall hold the property
sold absolutely, free from any claim or right on the part of any Pledgor. The
Administrative Agent shall give the Pledgors ten (10) days’ prior written notice
of any such public or private sale, or sale at any broker’s board or on any such
securities exchange, or of any other disposition of the Pledged Securities. Such
notice, in the case of public sale, shall state the time and place for such sale
and, in the case of sale at a broker’s board or on a securities exchange, shall
state the board or exchange at which such sale is to be made and the day on
which the Pledged Securities, or portion thereof, will first be offered for sale
at such board or exchange. Any such public sale shall be held at such time or
times within ordinary business hours and at such place or places as the
Administrative Agent may fix and shall state in the notice of such sale. At any
such sale, the Pledged Securities, or portion thereof, to be sold may be sold in
one lot as an entirety or in separate parcels, as the Administrative Agent may
(in its sole and absolute discretion) determine. The Administrative Agent shall
not be obligated to make any sale of the Pledged Securities if it shall
determine not to do so, regardless of the fact that notice of sale of the
Pledged Securities may have been given.

 

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The Administrative Agent may, without notice or publication, adjourn any public
or private sale or cause the same to be adjourned from time to time by
announcement at the time and place fixed for sale, and such sale may, without
further notice, be made at the time and place to which the same was so
adjourned. In case the sale of all or any part of the Pledged Securities is made
on credit or for future delivery, the Pledged Securities so sold shall be
retained by the Administrative Agent until the sale price is paid by the
purchaser or purchasers thereof, but the Administrative Agent shall not incur
any liability in case any such purchaser or purchasers shall fail to take up and
pay for the Pledged Securities so sold and, in case of any such failure, such
Pledged Securities may be sold again upon like notice. At any sale or sales made
pursuant to this Section 11.5, the Administrative Agent (on behalf of itself,
and/or the Issuing Bank and/or the Lenders) may bid for or purchase, free from
any claim or right of whatever kind, including any equity of redemption, of the
Pledgors, any such demand, notice, claim, right or equity being hereby expressly
waived and released, any or all of the Pledged Securities offered for sale, and
may make any payment on the account thereof by using any claim for moneys then
due and payable to the Administrative Agent or any consenting Lender by any
Credit Party as a credit against the purchase price; and the Administrative
Agent, upon compliance with the terms of sale, may hold, retain and dispose of
the Pledged Securities without further accountability therefor to any Pledgor or
any third party (other than the Lenders). The Administrative Agent shall in any
such sale make no representations or warranties with respect to the Pledged
Securities or any part thereof, and shall not be chargeable with any of the
obligations or liabilities of the Pledgors with respect thereto. Each Pledgor
hereby agrees (i) it will indemnify and hold the Administrative Agent, the
Issuing Bank and the Lenders harmless from and against any and all claims with
respect to the Pledged Securities asserted before the taking of actual
possession or control of the Pledged Securities by the Administrative Agent
pursuant to this Credit Agreement, or arising out of any act of, or omission to
act on the part of, any Person prior to such taking of actual possession or
control by the Administrative Agent (whether asserted before or after such
taking of possession or control), or arising out of any act on the part of any
Pledgor, its agents or Affiliates before or after the commencement of such
actual possession or control by the Administrative Agent but excluding therefrom
all claims with respect to the Pledged Securities resulting from (x) the gross
negligence or willful misconduct of any of the Administrative Agent. the Issuing
Bank or the Lenders, or (y) any claims with respect to the Pledged Securities
asserted against an indemnified party by a Credit Party in which such Credit
Party is the prevailing party, and the Administrative Agent, the Issuing Bank
and the Lenders shall have no liability or obligation arising out of any such
claim except for acts of willful misconduct or gross negligence. As an
alternative to exercising the power of sale herein conferred upon it, the
Administrative Agent may proceed by a suit or suits at law or in equity to
foreclose upon the Collateral and Pledged Securities under this Credit Agreement
and to sell the Pledged Securities, or any portion thereof, pursuant to a
judgment or decree of a court or courts having competent jurisdiction.

 

SECTION 11.6. Application of Proceeds of Sale and Cash. The proceeds of sale of
the Pledged Securities sold pursuant to Section 11.5 hereof shall be applied by
the Administrative Agent on behalf of itself, the Issuing Bank and the Lenders
as follows:

 

  (i)

to the payment of all out-of-pocket costs and expenses paid or incurred by the
Administrative Agent in connection with such sale, including, without
limitation, all court costs and the fees and expenses of counsel for the

 

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Administrative Agent in connection therewith, and the payment of all
out-of-pocket costs and expenses paid or incurred by the Administrative Agent in
enforcing this Credit Agreement, in realizing or protecting any Collateral and
in enforcing or collecting any Obligations or any guaranty thereof, including,
without limitation, court costs and the attorney’s fees and expenses incurred by
the Administrative Agent in connection therewith; and

 

  (ii) to the payment in full of the Obligations in accordance with Section 13.2
hereof;

 

provided, however, that the Administrative Agent may in its discretion apply
funds comprising the proceeds of sale of the Pledged Securities to pay the cost
(i) of completing any Picture owned in whole or in part by any Credit Party in
any stage of production, and (ii) of making delivery to the distributors of such
Picture. Any amounts remaining after such payment in full shall be remitted to
the appropriate Pledgor, or as a court of competent jurisdiction may otherwise
direct.

 

SECTION 11.7. Securities Act, etc. In view of the position of each Pledgor in
relation to the Pledged Securities pledged by it, or because of other present or
future circumstances, a question may arise under the Securities Act of 1933, as
amended, as now or hereafter in effect, or any similar statute hereafter enacted
analogous in purpose or effect (such Act and any such similar statute as from
time to time in effect being hereinafter called the “Federal Securities Laws”),
with respect to any disposition of the Pledged Securities permitted hereunder.
Each Pledgor understands that compliance with the Federal Securities Laws may
very strictly limit the course of conduct of the Administrative Agent if the
Administrative Agent were to attempt to dispose of all or any part of the
Pledged Securities, and may also limit the extent to which or the manner in
which any subsequent transferee of any Pledged Securities may dispose of the
same. Similarly, there may be other legal restrictions or limitations affecting
the Administrative Agent in any attempt to dispose of all or any part of the
Pledged Securities under applicable Blue Sky or other state securities laws, or
similar laws analogous in purpose or effect. Under Applicable Law, in the
absence of an agreement to the contrary, the Administrative Agent may perhaps be
held to have certain general duties and obligations to a Pledgor to make some
effort towards obtaining a fair price even though the Obligations may be
discharged or reduced by the proceeds of a sale at a lesser price. Each Pledgor
waives to the fullest extent permitted by Applicable Law any such general duty
or obligation to it, and the Pledgors and/or the Credit Parties will not attempt
to hold the Administrative Agent responsible for selling all or any part of the
Pledged Securities at an inadequate price, even if the Administrative Agent
shall accept the first offer received or does not approach more than one
possible purchaser. Without limiting the generality of the foregoing, the
provisions of this Section 11.7 would apply if, for example, the Administrative
Agent were to place all or any part of the Pledged Securities for private
placement by an investment banking firm, or if such investment banking firm
purchased all or any part of the Pledged Securities for its own account, or if
the Administrative Agent placed all or any part of the Pledged Securities
privately with a purchaser or purchasers.

 

SECTION 11.8. Continuation and Reinstatement. Each Pledgor further agrees that
its pledge hereunder shall continue to be effective or be reinstated, as the
case may be, if at any time payment, or any part thereof, of any Obligation is
rescinded or must otherwise be restored by the Administrative Agent or the
Lenders upon the bankruptcy or reorganization of any Pledgor or otherwise.

 

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SECTION 11.9. Termination. The pledge referenced herein shall terminate when all
of the Obligations shall have been fully paid and performed and the Commitments
shall have terminated, at which time the Administrative Agent shall promptly
assign and deliver to the appropriate Pledgor, or to such Person or Persons as
such Pledgor shall designate, against receipt, such of the Pledged Securities
(if any) as shall not have been sold or otherwise applied by the Administrative
Agent pursuant to the terms hereof and shall still be held by it hereunder,
together with appropriate instruments of reassignment and release. Any such
reassignment shall be free and clear of all Liens, arising by, under or through
the Administrative Agent but shall otherwise be without recourse upon or
warranty by the Administrative Agent and at the expense of the Pledgors.

 

12. CASH COLLATERAL

 

SECTION 12.1. Cash Collateral Accounts. On or prior to the Closing Date, there
shall be established with the Administrative Agent a collateral account or
accounts in the name of the Administrative Agent (the “Cash Collateral
Account”), into which the appropriate Credit Parties shall from time to time
deposit amounts pursuant to the express provisions of this Credit Agreement
requiring or permitting such deposits. Except to the extent otherwise provided
in this Article 12, the Cash Collateral Accounts shall be under the sole
dominion and control of the Administrative Agent; provided, that so long as no
Default or Event of Default shall have occurred and be continuing, the
Administrative Agent shall release the amount deposited into the Cash Collateral
Account (which amount, at the election of the Administrative Agent may be held
in a separate sub-account or a separate Cash Collateral Account) pursuant to
Section 4.1(v) for the payment by Borrower of Unfinanced Production Costs as and
when needed.

 

SECTION 12.2. Investment of Funds.

 

(a) The Administrative Agent is hereby authorized and directed to invest and
reinvest the funds from time to time transferred or deposited into the Cash
Collateral Account, so long as no Event of Default has occurred and is
continuing, on the instructions of the Borrower (provided, that any such
instructions given orally shall be confirmed promptly in writing) or, if the
Borrower shall fail to give such instructions upon delivery of any such funds,
in the sole discretion of the Administrative Agent, provided that in no event
may the Borrower give instructions to the Administrative Agent to, or may the
Administrative Agent in its discretion, invest or reinvest funds in the Cash
Collateral Account in other than Cash Equivalents.

 

(b) Any net income or gain on the investment of funds from time to time held in
the Cash Collateral Account, shall be promptly reinvested by the Administrative
Agent as a part of the Cash Collateral Account; and any net loss on any such
investment shall be charged against the Cash Collateral Account.

 

(c) None of the Administrative Agent, the Issuing Bank or the Lenders shall be a
trustee for any Credit Party, or shall have any obligations or responsibilities,
or shall be liable for anything done or not done, in connection with the Cash
Collateral Account except for

 

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any acts of gross negligence or willful misconduct, except as expressly provided
herein and except that the Administrative Agent shall have the obligations of a
secured party under the UCC. The Administrative Agent, the Issuing Bank and the
Lenders shall not have any obligation or responsibility and shall not be liable
in any way for any investment decision made in accordance with this Section 12.2
or for any decrease in the value of the investments held in the Cash Collateral
Account except for any acts of gross negligence or willful misconduct.

 

SECTION 12.3. Securities Account. In addition to the Cash Collateral Accounts,
Borrower shall have the right to maintain the Securities Account. The Borrower
shall deliver on the Closing Date and keep in effect for so long as securities
or funds remain on deposit in the Securities Account an account control
agreement in form reasonably satisfactory to the Administrative Agent. At any
time that an Event of Default shall have occurred and be continuing hereunder,
the Administrative Agent may take such action as is permitted under such account
control agreement to revoke the right of the Borrower to trade or withdraw
securities in the Securities Account and may cause such securities to be
converted to cash and transferred to a Cash Collateral Account.

 

SECTION 12.4. Grant of Security Interest. For value received and to induce the
Issuing Bank to issue the Letters of Credit and the Lenders to participate in
such Letters of Credit and make Loans to the Borrower as provided for in this
Credit Agreement, as security for the payment of all of the Obligations, each of
the Credit Parties hereby assigns to the Administrative Agent (for the benefit
of itself, the Issuing Bank and the Lenders) and grants to the Administrative
Agent (for the benefit of itself, the Issuing Bank and the Lenders), a first and
prior Lien upon all of such Credit Party’s rights in and to the Cash Collateral
Account and the Securities Account, all cash, documents, instruments and
securities from time to time held therein, and all rights pertaining to
investments of funds in the Cash Collateral Account and the Securities Account
and all products and proceeds of any of the foregoing. All cash, documents,
instruments and securities from time to time on deposit in the Cash Collateral
Account and the Securities Account, and all rights pertaining to investments of
funds in the Cash Collateral Account and the Securities Account shall
immediately and without any need for any further action on the part of any of
the Credit Parties, any Lender, the Issuing Bank or the Administrative Agent,
become subject to the Lien set forth in this Section 12.3, be deemed Collateral
for all purposes hereof and be subject to the provisions of this Credit
Agreement.

 

SECTION 12.5. Remedies. At any time during the continuation of an Event of
Default, the Administrative Agent may sell any documents, instruments and
securities held in the Cash Collateral Account and may immediately apply the
proceeds thereof and any other cash held in the Cash Collateral Account in
accordance with Section 8.7.

 

13. THE ADMINISTRATIVE AGENT AND THE ISSUING BANK

 

SECTION 13.1. Administration by the Administrative Agent.

 

(a) The general administration of the Fundamental Documents and any other
documents contemplated by this Credit Agreement or any other Fundamental
Document shall be by the Administrative Agent or its designees. Except as
otherwise expressly provided herein, each of the Lenders hereby irrevocably
authorizes the Administrative Agent, at its discretion, to

 

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take or refrain from taking such actions as agent on its behalf and to exercise
or refrain from exercising such powers under the Fundamental Documents, the
Notes and any other documents contemplated by this Credit Agreement or any other
Fundamental Document as are expressly delegated by the terms hereof or thereof,
as appropriate, together with all powers reasonably incidental thereto. The
Administrative Agent shall have no duties or responsibilities except as set
forth in the Fundamental Documents.

 

(b) The Lenders and, where applicable, the Issuing bank hereby authorize the
Administrative Agent (in its sole discretion):

 

  (i) in connection with the sale or other disposition of any asset included in
the Collateral or the Equity Interests of any Guarantor, to the extent
undertaken in accordance with the terms of this Credit Agreement, to release a
Lien granted to it (for the benefit of the Administrative Agent, the Issuing
Bank and the Lenders) on such asset or capital stock and/or to release such
Guarantor from its obligations hereunder;

 

  (ii) to determine that the cost to the Borrower or another Credit Party is
disproportionate to the benefit to be realized by the Administrative Agent, the
Issuing Bank and the Lenders by perfecting a Lien in a given asset or group of
assets included in the Collateral and that the Borrower or other Credit Party
should not be required to perfect such Lien in favor of the Administrative Agent
(for the benefit of itself, the Issuing Bank and the Lenders);

 

  (iii) to appoint subagents to be the holder of record of a Lien to be granted
to the Administrative Agent (for the benefit of the Administrative Agent, the
Issuing Bank and the Lenders);

 

  (iv) to confirm in writing the right of Quiet Enjoyment of licensees pursuant
to the terms of Section 8.13;

 

  (v) in connection with a Picture being produced by a Credit Party, the
principal photography of which is being done outside the United States of
America, to approve arrangements with such Credit Party as shall be satisfactory
to the Administrative Agent with respect to the temporary storage of the
original negative film, the original sound track materials or other Physical
Materials of such Picture in a production laboratory located outside the United
States of America;

 

  (vi) to enter into and perform its obligations under the other Fundamental
Documents;

 

  (vii)

to enter into intercreditor and/or subordination agreements on terms acceptable
to the Administrative Agent with (A) the unions and/or the guilds with respect
to the security interests in favor of such unions and/or guilds required
pursuant to the terms of the collective bargaining agreements, (B) any licensee
or licensor having any rights to any Picture,

 

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(C) Persons providing any services in connection with any Picture, or (D)
Persons providing tax benefit and/or production subsidies or co-financing for
Pictures;

 

  (viii) to accept (and, subject to compliance with Section 14.10 (c), the
Administrative Agent shall accept) commitments from Persons which satisfy the
definition of “Eligible Assignee” for an additional $30,000,000 of Commitments
not committed to as of the date hereof as contemplated by Section 14.10(c)
hereof, by (i) obtaining an executed counterpart of this Credit Agreement from
each such Person, (ii) amending the Schedule of Commitments to add each such
Person’s name and Commitment and circulating the amended Schedule of Commitments
to the Lenders, the Issuing Bank and the Borrower, and (iii) recording in the
Register (as defined in Section 14.3(e) hereof) the name and address of each
such Person and the Commitment of, and principal amount of the Loans owing to
it, whereupon (x) the Borrower shall execute and deliver to the Administrative
Agent a Note (substantially in the form of Exhibit A hereto) to the order of
each such Person in an amount equal to its Commitment, and (y) each such Person
shall be a party hereto, have the rights and obligations of a Lender hereunder
and under the other Fundamental Documents and shall be bound by the provisions
hereof; and

 

  (ix) upon the acceptance of additional commitments pursuant to Section
13.1(b)(viii) hereof, to allocate equitably among the Lenders the Alternate Base
Rate Loans and LIBOR Loans so as to achieve pro rata status.

 

  (x) to approve the terms and conditions of any sale or leaseback or other tax
benefit transaction pursuant to Section 6.8 hereof; provided, however, that the
Administrative Agent shall notify the Lenders thereof within a reasonable period
following such approval;

 

  (xi) to approve and execute documents relating to a Permitted Co-Financed
Picture, including a Co-Financing Intercreditor Agreement, in the manner
contemplated by the terms hereof;

 

  (xii) to enter into and perform its obligations under any Approved Completion
Bond entered into in connection with a Qualifying Picture, together with such
additional documentation customarily entered into in connection therewith
including, without limitation, an Interparty Agreement in form and substance
reasonably satisfactory to the Administrative Agent, and in connection
therewith, to approve FFI’s insurance support package and/or credit support as
contemplated by the definition of “Approved Completion Guarantor” herein; and

 

  (xiii)

notwithstanding the fact that a Default or an Event of Default has occurred and
is continuing, to make the determination that Loans shall continue to be funded
for (A) any Qualifying Picture (I) that has not been Completed

 

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and (II) for which the Lenders have made an initial Loan or issued an initial
Letter of Credit pursuant to Section 4.2 hereof; provided, that (1) any such
post-Default or post-Event of Default Loans are paid directly into a Production
Account and the payments into such Production Account pursuant to the applicable
Approved Completion Bond are deemed to satisfy any pre-condition to the
obligations of the Approved Completion Guarantor to the Agent or the Agent is
otherwise satisfied that such Loans will only be used to Complete such
Qualifying Picture and (2) such Default or Event of Default is not related to
(w) the failure to pay any Obligations hereunder due and owing after the
applicable grace period has expired, (x) a Credit Party making a general
assignment for the benefit of its creditors, (y) the commencement of any case
entered by or against any Credit Party, whether voluntary or involuntary,
seeking to have an order for relief entered on its behalf or against it as
debtor, as applicable, or to adjudicate it a bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment, liquidation, dissolution or composition
of its or its debts under any law relating to bankruptcy, insolvency,
reorganization or relief of debtors, or seeking appointment of a receiver,
trustee, custodian or other similar official for it or for all or any
substantial part of its property under such law which, with respect to an
involuntary case, (i) results in the entry of any order for relief against it
under such law or (ii) remains undismissed for a period of 30 days or if a
Credit Party files an answer or other pleading in any such case, proceeding or
other action admitting the material allegations of any petition, complaint or
similar pleading filed against it or consenting to the relief sought therein or
a Credit Party shall take any action to authorize any of the foregoing or (z)
any challenge to or impairment of the Administrative Agent’s first priority
perfected Lien in the Collateral relating to such Qualifying Picture; provided
that any such Loans shall bear interest at a rate per annum of 2% in excess of
the rate then in effect for Alternate Base Rate Loans from time to time in
effect from the date advanced to the date of repayment.

 

SECTION 13.2. Payments. As between the Administrative Agent, the Issuing Bank
and the Lenders, any amounts received by the Administrative Agent in connection
with the Fundamental Documents, the application of which is not otherwise
provided for, shall be applied, first, to pay the accrued but unpaid Commitment
Fees in accordance with each Lender’s Percentage, second, to pay accrued but
unpaid interest on the Notes in accordance with the amount of outstanding Loans
owed to each Lender, third, to pay the principal balance outstanding on the
Notes (with amounts payable on the principal balance outstanding on the Notes in
accordance with the amount of outstanding Loans owed to each Lender) and amounts
outstanding under Swap Agreements, and fourth, to pay any other amounts then due
under this Credit Agreement. All amounts to be paid to any Lender by the
Administrative Agent shall be credited to that Lender, after collection by the
Administrative Agent, in immediately available funds either by wire transfer or
deposit in such Lender’s correspondent account with the Administrative Agent, or
as such Lender and the Administrative Agent shall from time to time agree.

 

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SECTION 13.3. Sharing of Setoffs and Cash Collateral. Each of the Lenders agrees
that if it shall, through the exercise of a right of banker’s Lien, setoff or
counterclaim against any Credit Party (including, but not limited to, a secured
claim under Section 506 of Title 11 of the United States Code or other security
or interest arising from, or in lieu of, such secured claim and received by such
Lender under any applicable bankruptcy, insolvency or other similar law) or
otherwise, obtain payment in respect of its Loans as a result of which the
unpaid portion of its Loans and L/C Exposure is proportionately less than the
unpaid portion of Loans and L/C Exposure of any of the other Lenders (a) it
shall promptly purchase at par (and shall be deemed to have thereupon purchased)
from such other Lenders a participation in the Loans or Letters of Credit of
such other Lenders, so that the aggregate unpaid principal amount of each of the
Lender’s Loans and its participation in Loans and Letters of Credit of the other
Lenders shall be in the same proportion to the aggregate unpaid principal amount
of all Loans then outstanding and L/C Exposure as the principal amount of its
Loans and L/C Exposure prior to the obtaining of such payment was to the
principal amount of all Loans outstanding prior to the obtaining of such
payment, and (b) such other adjustments shall be made from time to time as shall
be equitable to ensure that the Lenders share such payment pro rata. If all or
any portion of such excess payment is thereafter recovered from the Lender which
originally received such excess payment, such purchase (or portion thereof)
shall be canceled and the purchase price restored to the extent of such
recovery. The Credit Parties expressly consent to the foregoing arrangements and
agree that any Lender or Lenders holding (or deemed to be holding) a
participation in a Note or Letter of Credit may exercise any and all rights of
banker’s Lien, setoff or counterclaim with respect to any and all moneys owing
by the Borrower to such Lender or Lenders as fully as if such Lender or Lenders
held a Note and was the original obligee thereon, in the amount of such
participation.

 

SECTION 13.4. Notice to the Lenders. Upon receipt by the Administrative Agent
from any of the Credit Parties of any communication calling for an action on the
part of the Lenders, or upon notice to the Administrative Agent of any Event of
Default, the Administrative Agent will in turn immediately inform the other
Lenders in writing (which shall include facsimile communications) of the nature
of such communication or of the Event of Default, as the case may be.

 

SECTION 13.5. Liability of the Administrative Agent and Issuing Bank.

 

(a) The Administrative Agent or the Issuing Bank, when acting on behalf of the
Lenders, may execute any of its duties under this Credit Agreement or the other
Fundamental Documents by or through its officers, agents or employees and
neither the Administrative Agent, the Issuing Bank nor officers, agents or
employees shall be liable to the Lenders or any of them for any action taken or
omitted to be taken in good faith, nor be responsible to the Lenders or to any
of them for the consequences of any oversight or error of judgment, or for any
loss, unless the same shall happen through its gross negligence or willful
misconduct. The Administrative Agent, the Issuing Bank and their respective
directors, officers, agents, and employees shall in no event be liable to the
Lenders or to any of them for any action taken or omitted to be taken by it
pursuant to instructions received by it from the Required Lenders or in reliance
upon the advice of counsel selected by it with reasonable care. Without limiting
the foregoing, neither the Administrative Agent, the Issuing Bank nor any of
their respective directors, officers, employees, or agents shall be responsible
to any of the Lenders for the due execution, validity, genuineness,

 

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effectiveness, sufficiency, or enforceability of, or for any statement,
warranty, or representation in, or for the perfection of any security interest
contemplated by, this Credit Agreement, any other Fundamental Document or any
related agreement, document or order, or for freedom of any of the Collateral or
any of the Pledged Securities from prior Liens or security interests, or shall
be required to ascertain or to make any inquiry concerning the performance or
observance by the Borrower or any other Credit Party of any of the terms,
conditions, covenants, or agreements of this Credit Agreement, any other
Fundamental Document, or any related agreement or document.

 

(b) None of the Administrative Agent (in its capacity as agent for the Lenders),
the Issuing Bank or any of their respective directors, officers, employees or
agents shall have any responsibility to the Borrower or any other Credit Party
on account of the failure or delay in performance or breach by any of the
Lenders (other than JPMorgan Chase Bank, N.A.) of any of such Lender’s
obligations under this Credit Agreement, the other Fundamental Documents or any
related agreement or document or in connection herewith or therewith. No Lender
nor any of its directors, officers, employees or agents shall have any
responsibility to the Borrower or any other Credit Party on account of the
failure or delay in performance or breach by any other Lender of such other
Lender’s obligations under this Credit Agreement, the other Fundamental
Documents or any related agreement or document or in connection herewith or
therewith.

 

(c) Each of the Administrative Agent, in its capacity as agent for the Lenders
hereunder, and the Issuing Bank shall be entitled to rely on any communication,
instrument or document believed by it to be genuine or correct and to have been
signed or sent by a Person or Persons believed by it to be the proper Person or
Persons, and it shall be entitled to rely on advice of legal counsel,
independent public accountants, and other professional advisers and experts
selected by it.

 

SECTION 13.6. Reimbursement and Indemnification. Each of the Lenders agrees (i)
to reimburse the Administrative Agent for such Lender’s Pro Rata Share of any
expenses and fees incurred for the benefit of the Lenders under the Fundamental
Documents, including, without limitation, counsel fees and compensation of
agents and employees paid for services rendered on behalf of the Lenders, and
any other expense incurred in connection with the operations or enforcement
thereof not reimbursed by or on behalf of the Borrower, (ii) to indemnify and
hold harmless the Administrative Agent and any of its directors, officers,
employees, or agents, on demand, in accordance with such Lender’s Percentage,
from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever which may be imposed on, incurred by, or asserted
against, it or any of them in any way relating to or arising out of any of the
Fundamental Documents or any related agreement or document, or any action taken
or omitted by it or any of them under any Fundamental Documents or any related
agreement or document, to the extent not reimbursed by or on behalf of the
Borrower or any other Credit Party (except such as shall result from its gross
negligence or willful misconduct) and (iii) to indemnify and hold harmless the
Issuing Bank and any of its directors, officers, employees, or agents, on
demand, in the amount of its Percentage, from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs expenses or disbursements of any kind or nature whatsoever which may be
imposed on, incurred by, or

 

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asserted against it or any of them in any way relating to or arising out of the
issuance of any Letters of Credit or the failure to issue Letters of Credit if
such failure or issuance was at the direction of Required Lenders (except as
shall result from the gross negligence or willful misconduct of the Person to be
reimbursed, indemnified or held harmless, as applicable). To the extent
indemnification payments made by the Lenders pursuant to this Section 13.6 are
subsequently recovered by the Administrative Agent from a Credit Party, the
Administrative Agent will promptly refund such previously paid indemnity
payments to the Lenders.

 

SECTION 13.7. Rights of Administrative Agent. It is understood and agreed that
the Administrative Agent shall have the same duties, rights and powers as a
Lender hereunder (including the right to give such instructions) as any of the
other Lenders and may exercise such rights and powers, as well as its rights and
powers under other agreements and instruments to which it is or may be party,
and engage in other transactions with any Credit Party or Affiliate thereof, as
though it were not the Administrative Agent of the Lenders under this Credit
Agreement and the other Fundamental Documents.

 

SECTION 13.8. Independent Investigation by Lenders. Each of the Lenders
acknowledges that it has decided to enter into this Credit Agreement and the
other Fundamental Documents and to make the Loans and participate in Letters of
Credit hereunder based on its own analysis of the transactions contemplated
hereby and of the creditworthiness of the Credit Parties and agrees that the
Administrative Agent shall not bear any responsibility therefor.

 

SECTION 13.9. Agreement of Required Lenders. Except as set forth in Section
14.11 hereof, upon any occasion requiring or permitting an approval, consent,
waiver, election or other action on the part of the Lenders, action shall be
taken by the Administrative Agent for and on behalf of, or for the benefit of,
all Lenders upon the direction of the Required Lenders and any such action shall
be binding on all Lenders. No amendment, modification, consent or waiver shall
be effective except in accordance with the provisions of Section 14.10 hereof.

 

SECTION 13.10. Notice of Transfer. The Administrative Agent may deem and treat
any Lender which is a party to this Credit Agreement as the owner of such
Lender’s respective portions of the Loans for all purposes, unless and until a
written notice of the assignment or transfer thereof executed by any such Lender
shall have been received by the Administrative Agent and become effective in
accordance with Section 14.3 hereof.

 

SECTION 13.11. Successor Administrative Agent. The Administrative Agent may
resign at any time by giving ten days’ prior written notice thereof to the
Lenders and the Borrower, but such resignation shall not become effective until
acceptance by a successor agent of its appointment pursuant hereto. Upon any
such resignation, the retiring Administrative Agent shall consult with the
Borrower and promptly appoint a successor agent from among the Lenders which
successor shall be experienced and sophisticated in entertainment industry
lending; provided, that such replacement is reasonably acceptable (as evidenced
in writing) to the Required Lenders and the Borrower; provided, however, that
such approval by the Borrower shall not be required at any time when a Default
or Event of Default is continuing. If no successor agent shall have been so
appointed by the retiring Administrative Agent and shall have accepted such
appointment, within 30 days after the retiring agent’s giving of notice of
resignation, the Borrower may appoint a successor agent (which successor may be
replaced by

 

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the Required Lenders; provided, that such successor is experienced and
sophisticated in entertainment industry lending and reasonably acceptable to the
Borrower), which shall be either a Lender or a commercial bank organized under
the laws of the United States of America or of any State thereof and shall have
a combined capital and surplus of at least $250,000,000 and shall be experienced
and sophisticated in entertainment industry lending. Upon the acceptance of any
appointment as Administrative Agent hereunder by a successor agent, such
successor agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Administrative Agent, and
the retiring Administrative Agent shall be discharged from its duties and
obligations under this Credit Agreement, the other Fundamental Documents and any
other credit documentation. After any retiring Administrative Agent’s
resignation hereunder as Administrative Agent, the provisions of this Article 13
and Article 14 shall inure to its benefit as to any actions taken or omitted to
be taken by it while it was Administrative Agent under this Credit Agreement.

 

SECTION 13.12. Successor Issuing Bank. The Issuing Bank may resign at any time
by giving ten days’ prior written notice thereof to the Lenders and the
Borrower, but such resignation shall not become effective until acceptance by a
successor Issuing Bank of its appointment pursuant hereto. Upon any such
resignation, the retiring Issuing Bank shall consult with the Borrower and
promptly appoint a successor Issuing Bank from among the Lenders which is
experienced and sophisticated in entertainment industry lending, provided that
such replacement is reasonably acceptable (as evidenced in writing) to the
Required Lenders and the Borrower and has a credit rating at least as high as
that of the Issuing Bank; provided, however, that such approval by the Borrower
shall not be required at any time when a Default or Event of Default shall have
occurred and be continuing. If no successor Issuing Bank shall have been so
appointed by the retiring Issuing Bank and shall have accepted such appointment
within 30 days after the retiring Issuing Bank’s giving of notice of
resignation, the Borrower may appoint a successor Issuing Bank (which successor
may be replaced by the Required Lenders; provided that such successor is
reasonably acceptable to the Borrower), which shall be either a Lender or a
commercial bank organized, licensed, carrying on business under the laws of the
United States of America or of any State thereof and shall have a combined
capital and surplus of at least US$250,000,000. Upon the acceptance of any
appointment as Issuing Bank hereunder by a successor Issuing Bank, such
successor Issuing Bank shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Issuing Bank, and the
retiring Issuing Bank shall be discharged from its duties and obligations under
this Credit Agreement, the other Fundamental Documents and any other credit
documentation, except with respect to Letters of Credit which are outstanding at
the time of the resignation unless the successor Issuing Bank replaces the
retiring Issuing Bank as the issuing bank on such Letters of Credit. The
Borrower and each Lender hereby agrees that each will use its commercially
reasonable efforts to replace any such outstanding Letters of Credit issued by
the retiring Issuing Bank. After any retiring Issuing Bank’s resignation
hereunder as Issuing Bank, the provisions of this Article 13 and Article 14
shall inure to its benefit as to any actions taken or omitted to be taken by it
while it was Issuing Bank under this Credit Agreement.

 

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14. MISCELLANEOUS

 

SECTION 14.1. Notices.

 

(a) Except in the case of notices and other communications expressly permitted
to be given by telephone (and subject to paragraph (b) below), all notices and
other communications provided for herein shall be in writing and shall be
delivered by hand or overnight courier service, mailed by certified or
registered mail or sent by telecopy, as follows:

 

  (i) if to any Credit Party, to it at IDTE Animation Slate, LLC., c/o IDT
Entertainment, Inc., 520 Broad Street, Newark, NJ 07102 (Telecopy No. (973)
438-1741), Attention: Sam Abraham, with a copy to O’Melveny and Myers LLP, 1999
Avenue of the Stars, Suite 700, Los Angeles, California 90067, Attention:
Stephen Scharf (Telecopy No. (310) 246-6779);

 

  (ii) if to the Administrative Agent or to JPMorgan Chase Bank, N.A., to (x)
JPMorgan Chase Bank, N.A., 131 South Dearborn, Floor 6, Chicago, IL 60603-5506,
Attention: Stephen C. Price (Telecopy No. (312) 325-3231), with copies to (y)
JPMorgan Chase Bank, N.A., Loan and Agency Services Group, 1111 Fannin, 10th
Floor, Houston, Texas 77002, Attention: Pearl Esparza (Telecopy No. (713)
750-2358) and to (z) J.P. Morgan Securities Inc., 1999 Avenue of the Stars, 27th
Floor, Los Angeles, California 90067, Attention: Jason Somerville (Telecopy No.
(310) 860-7260); and

 

  (iii) if to any other Lender, to it at its address (or telecopy number) set
forth on the signature pages hereto.

 

(b) Notices and other communications to the Lenders hereunder may be delivered
or furnished by electronic communications pursuant to procedures approved by the
Administrative Agent; provided, that the foregoing shall not apply to notices
pursuant to Article 2 unless otherwise agreed by the Administrative Agent, the
Issuing Bank (if applicable) and the applicable Lender. Each of the
Administrative Agent, the Issuing Bank and the Borrower may, each in its
discretion, agree to accept notices and other communications to it hereunder by
electronic communications pursuant to procedures approved by it; provided, that
approval of such procedures may be limited to particular notices or
communications.

 

(c) Any party hereto may change its address or telecopy number for notices and
other communications hereunder by notice to all of the other parties hereto. All
notices and other communications given to any party hereto in accordance with
the provisions of this Credit Agreement shall be deemed to have been given on
the date of receipt.

 

(d) If the Administrative Agent shall exercise its right hereunder (i) to delete
the name of a Person of Affiliated Group from the list of Acceptable Obligors or
(ii) to reduce the Allowable Amount with respect to any Acceptable Obligor, to
the extent reasonably practicable the notice exercising such right shall include
a brief statement of the reasons for such actions; provided, that the absence of
any such statement or any inadequacy thereof shall not render such notice
ineffective.

 

SECTION 14.2. Survival of Agreement, Representations and Warranties, etc. All
warranties, representations and covenants made by the Parent or any of the
Credit Parties

 

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herein, in any other Fundamental Document or in any certificate or other
instrument delivered by it or on its behalf in connection with this Credit
Agreement or any other Fundamental Document shall be considered to have been
relied upon by the Administrative Agent, the Issuing Bank and the Lenders and,
except for any terminations, amendments, modifications or waivers thereof in
accordance with the terms hereof, shall survive the making of the Loans herein
contemplated and the execution and delivery to the Administrative Agent of the
Notes regardless of any investigation made by the Administrative Agent, the
Issuing Bank or the Lenders or on their behalf and shall continue in full force
and effect so long as any Obligation is outstanding and unpaid and so long as
the Commitments have not been terminated. All statements in any such certificate
or other instrument shall constitute representations and warranties by the
Credit Parties hereunder.

 

SECTION 14.3. Successors and Assigns; Syndications; Loan Sales; Participations.

 

(a) Whenever in this Credit Agreement any of the parties hereto is referred to,
such reference shall be deemed to include the successors and assigns of such
party; provided, however, that neither the Borrower nor any other Credit Party
may assign its rights hereunder without the prior written consent of the
Administrative Agent and all Lenders, and all covenants, promises and agreements
by or on behalf of any of the Credit Parties which are contained in this Credit
Agreement shall inure to the benefit of the successors and assigns of the
Administrative Agent, the Issuing Bank and the Lenders.

 

(b) Each of the Lenders may (but only with the prior written consent of the
Administrative Agent and the Issuing Bank, which consent shall not be
unreasonably withheld or delayed and, at any time prior to the occurrence of a
Default or Event of Default, with the prior written consent of the Borrower,
which consent will not be unreasonably withheld or delayed) assign to an
Eligible Assignee all or a portion of its interests, rights and obligations
under this Credit Agreement (including, without limitation, all or a portion of
its Commitment and the same portion of all Loans at the time owing to it, the
Notes held by it and its rights and obligations with regard to any Letters of
Credit); provided, however, that (i) each assignment shall be of a constant, and
not a varying, percentage of the assigning Lender’s interests, rights and
obligations under this Credit Agreement, (ii) each assignment shall be in a
minimum Commitment amount (or at any time after the Commitment Termination Date,
minimum aggregate amount of Loans and L/C Exposure) equal to $2,500,000, and
(iii) the parties to each such assignment shall execute and deliver to the
Administrative Agent, for its acceptance and recording in the Register (as
defined below), an Assignment and Assumption, together with the assigning
Lender’s original Note and a processing and recordation fee of $3,500 to be paid
to the Administrative Agent by the assigning Lender or the assignee. Upon such
execution, delivery, acceptance and recording, from and after the effective date
specified in each Assignment and Assumption, which effective date shall not
(unless otherwise agreed to by the Administrative Agent) be earlier than five
Business Days after the date of acceptance and recording by the Administrative
Agent, (x) the assignee thereunder shall be a party hereto and, to the extent
provided in such Assignment and Assumption, have the rights and obligations of a
Lender hereunder and under the other Fundamental Documents and shall be bound by
the provisions hereof, and (y) the assigning Lender thereunder shall, to the
extent provided in such Assignment and Assumption, relinquish its rights and be
released from its obligations under this Credit Agreement except that,

 

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notwithstanding such assignment, any rights and remedies available to the
Borrower for any breaches by such assigning Lender of its obligations hereunder
while a Lender shall be preserved after such assignment and such Lender shall
not be relieved of any liability to the Borrower due to any such breach. In the
case of an Assignment and Assumption covering all or the remaining portion of
the assigning Lender’s rights and obligations under this Credit Agreement, such
assigning Lender shall cease to be a party hereto.

 

(c) Notwithstanding any provision herein otherwise requiring the consent of the
Borrower, each Lender may at any time make an assignment of its interests,
rights and obligations under this Credit Agreement without the consent of the
Borrower, to (i) any Affiliate of such Lender, (ii) any Person, or Affiliate of
a Person, that manages such Lender (a “Related Fund”) or (iii) any other Lender
hereunder. Any such assignment to any Affiliate of the assigning Lender, a
Related Fund or any other Lender hereunder shall not be subject to the
requirement of Section 14.3(b) that the amount of the Commitment (or Loans or
L/C Exposure if applicable) of the assigning Lender subject to each assignment
be in a minimum principal amount of $2,500,000, and any such assignment to any
Affiliate of the assigning Lender shall not release the assigning Lender of its
remaining obligations hereunder, if any.

 

(d) By executing and delivering an Assignment and Assumption, the assigning
Lender thereunder and the assignee thereunder confirm to and agree with each
other and the other parties hereto as follows: (i) other than the representation
and warranty that it is the legal and beneficial owner of the interest being
assigned thereby and that such interest is free and clear of any adverse claim,
the assigning Lender makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or representations
made in or in connection with this Credit Agreement or any other Fundamental
Document or the execution, legality, validity, enforceability, genuineness,
sufficiency or value of the Fundamental Documents or any other instrument or
document furnished pursuant hereto or thereto; (ii) such assignor Lender makes
no representation or warranty and assumes no responsibility with respect to the
financial condition of any Credit Party or the performance or observance by any
Credit Party of any of their obligations under the Fundamental Documents or any
other instrument or document furnished pursuant thereto; (iii) such assignee
confirms that it has received a copy of this Credit Agreement, together with
copies of the most recent financial statements delivered pursuant to Sections
5.1(a) and 5.1(b) (if such financial statements shall have theretofore been
delivered) and such other documents and information as it has deemed appropriate
to make its own credit analysis and decision to enter into such Assignment and
Assumption; (iv) such assignee agrees that it will, independently and without
reliance upon the assigning Lender, the Administrative Agent or any other Lender
and based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit decisions in taking or not taking action
under this Credit Agreement or any other Fundamental Document; (v) such assignee
appoints and authorizes the Administrative Agent to take such action as the
agent on its behalf and to exercise such powers under this Credit Agreement as
are delegated to the Administrative Agent by the terms hereof, together with
such powers as are reasonably incidental thereto; and (vi) such assignee agrees
that it will be bound by the provisions of this Credit Agreement and will
perform in accordance with their terms all of the obligations which by the terms
of this Credit Agreement are required to be performed by it as a Lender.

 

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(e) The Administrative Agent (acting for this purpose on behalf of the Borrower)
shall maintain at its address at which notices are to be given to it pursuant to
Section 14.1 a copy of each Assignment and Assumption and a register for the
recordation of the names and addresses of the Lenders and the Commitments of,
and principal amount of the Loans owing to, each Lender from time to time (the
“Register”). The entries in the Register shall be conclusive, in the absence of
manifest error, and the Credit Parties, the Administrative Agent, the Issuing
Bank and the Lenders may treat each Person whose name is recorded in the
Register as a Lender hereunder for all purposes of the Fundamental Documents.
The Register shall be available for inspection by any Credit Party or any Lender
at any reasonable time and from time to time upon reasonable prior notice.

 

(f) Subject to the foregoing, upon its receipt of an Assignment and Assumption
executed by an assigning Lender and an assignee together with the assigning
Lender’s original Note and the processing and recordation fee, the
Administrative Agent shall, if such Assignment and Assumption has been
completed, is in the form of Exhibit I hereto, and has been consented to in
writing by the Issuing Bank and, if applicable, the Borrower, (i) accept such
Assignment and Assumption, and (ii) record the information contained therein in
the Register. Within five (5) Business Days after receipt of the notice, the
Borrower, at its own expense, shall execute and deliver to the Administrative
Agent, in exchange for the surrendered Note, a new Note to the order of such
assignee in an amount equal to the Commitment assumed by it pursuant to such
Assignment and Assumption and if the assigning Lender has retained a Commitment
hereunder a new Note to the order of the assigning Lender in an amount equal to
the Commitment retained by it hereunder. Such new Notes shall be in an aggregate
principal amount equal to the aggregate principal amount of the surrendered Note
and shall otherwise be in substantially the form of Exhibit A hereto. In
addition the Credit Parties will promptly, at their own expense, execute such
amendments to the Fundamental Documents to which each is a party and such
additional documents, and take such other actions as the Administrative Agent or
the assignee Lender may reasonably request in order to give such assignee Lender
the full benefit of the Liens contemplated by the Fundamental Documents.

 

(g) Each of the Lenders may, without the consent of any of the Credit Parties,
the Administrative Agent, the Issuing Bank or the other Lenders, sell
participations to one or more banks or other entities in all or a portion of its
rights and obligations under this Credit Agreement (including, without
limitation, all or a portion of its Commitment and the Loans owing to it and the
Note held by it); provided, however, that (i) such Lender’s obligations under
this Credit Agreement shall remain unchanged, (ii) such participant shall not be
granted any voting rights or any right to control the vote of such Lender under
this Credit Agreement, except with respect to proposed changes to interest
rates, amount of Commitments, final maturity of any Loan, releases of all or
substantially all the Collateral and fees (in each case, only as applicable to
such participant), (iii) any such Lender shall remain solely responsible to the
other parties hereto for the performance of such obligations, (iv) the
participating banks or other entities shall be entitled to the cost protection
provisions contained in Sections 2.9, 2.10, 2.11, 2.13 (subject to the last
sentence of this Section 14.3(g)) and 14.3 hereof but a participant shall not be
entitled to receive pursuant to such provisions an amount larger than its share
of the amount to which the Lender granting such participation would have been
entitled to receive, and (v) the Credit Parties, the Administrative Agent, the
Issuing Bank and the other Lenders shall continue to deal solely and directly
with such Lender in connection with such Lender’s and its participants’ rights

 

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and obligations under this Credit Agreement. No holder of a participating
interest shall be entitled to the benefits of Section 2.13 with respect to
withholding taxes under the law of the jurisdiction in which the Borrower is
located, unless the Borrower is notified of the participation sold to such
holder and such holder agrees, for the benefit of the Borrower, to comply with
Section 2.13(e) and Section 2.13(f) as though it were a Lender.

 

(h) A Lender may, in connection with any assignment or participation or proposed
assignment or participation pursuant to this Section 14.3, disclose to the
assignee or participant or proposed assignee or participant, any information
relating to any Credit Party furnished to the Administrative Agent or such
Lender by or on behalf of the Borrower or another Credit Party (provided that
such proposed assignee or participant agrees to hold such information
confidential in accordance with Section 14.18 hereof).

 

(i) Any assignment pursuant to paragraph (b) or (c) of this Section 14.3 shall
constitute an amendment of the Schedule of Commitments as of the effective date
of such assignment without any other further action required.

 

(j) The Credit Parties consent that any Lender may at any time and from time to
time pledge or otherwise grant a security interest in any Loan or in any Note
evidencing the Loans (or any part thereof) to any Federal Reserve Bank.

 

SECTION 14.4. Expenses; Documentary Taxes. Whether or not the transactions
hereby contemplated shall be consummated, the Borrower agrees to pay (i) all
reasonable out-of-pocket expenses incurred by the Administrative Agent or the
Arranger in connection with, or growing out of, the performance of due
diligence, the syndication of the credit facility contemplated hereby, the
negotiation, preparation, execution, delivery, waiver or modification and
administration of this Credit Agreement and any other documentation contemplated
hereby, the making of the Loans, the issuance of the Letters of Credit, the
Collateral, the Pledged Securities or any Fundamental Document, including but
not limited to, the reasonable out-of-pocket costs and reasonable internally
allocated charges of audit or field examinations of the Administrative Agent in
connection with the administration of this Credit Agreement, the verification of
financial data and the transactions contemplated hereby, and the reasonable fees
and disbursements of Morgan, Lewis & Bockius, LLP, counsel for the
Administrative Agent and any other local counsel that the Administrative Agent
shall retain, and (ii) all reasonable out-of-pocket expenses incurred by the
Administrative Agent or the Lenders in the enforcement or protection (as
distinguished from administration) of the rights and remedies of the Lenders in
connection with this Credit Agreement, the Notes, the Letters of Credit or the
other Fundamental Documents, or as a result of any transaction, action or
non-action arising from any of the foregoing, including, but not limited to, the
fees and disbursements of any counsel for the Administrative Agent or the
Lenders. Such payments shall be made on the date this Credit Agreement is
executed by the Borrower and thereafter on demand. The Borrower agrees that it
shall indemnify the Administrative Agent, the Issuing Bank and the Lenders from
and hold them harmless against any documentary taxes, assessments or charges
made by any Governmental Authority by reason of the execution and delivery of
this Credit Agreement or the Notes or the issuance of any Letters of Credit. The
obligations of the Borrower under this Section shall survive the termination of
this Credit Agreement, the payment of the Loans and the expiration of the
Letters of Credit.

 

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SECTION 14.5. Indemnity. The Credit Parties agree (a) to indemnify and hold
harmless the Administrative Agent, the Issuing Bank, the Arranger and the
Lenders and their respective directors, officers, employees and agents (each an
“Indemnified Party”) (to the full extent permitted by Applicable Law) from and
against any and all claims, demands, losses, judgments, damages and liabilities
(including liabilities for penalties) incurred by any of them as a result of, or
arising out of, or in any way related to, or by reason of, any investigation,
litigation or other proceeding (whether or not any Lender, the Administrative
Agent, the Issuing Bank or the Arranger is a party thereto) related to the
entering into and/or performance of any Fundamental Document or the use of the
proceeds of any Loans or Letters of Credit hereunder or the consummation of the
transaction contemplated in any Fundamental Document, including, without
limitation, the reasonable fees and disbursements of counsel incurred in
connection with any such investigation, litigation or other proceeding (but
excluding (i) any such losses, liabilities, claims, damages or expenses of an
Indemnified Party to the extent they are found in a final judgment of a court to
have been incurred by reason of the gross negligence or willful misconduct of
such Indemnified Party, (ii) litigation solely between a Credit Party or Credit
Parties, on the one hand, and the Administrative Agent, the Issuing Bank or the
Lenders, on the other hand, in connection with this Credit Agreement or the
other Fundamental Documents or in any way relating to the transactions
contemplated hereby or thereby if, after final non-appealable judgment, the
Administrative Agent, the Issuing Bank or the Lenders are not the prevailing
party or parties in such litigation and (iii) litigation among the Lenders or
between the Administrative Agent and/or the Issuing Bank and the Lenders in
connection with this Credit Agreement, the Fundamental Documents or in any way
relating to the transactions contemplated thereby or hereby). If any proceeding,
including any governmental investigation, shall be instituted involving any
Indemnified Party, in respect of which indemnity may be sought against the
Credit Parties, such Indemnified Party shall promptly notify the Borrower in
writing. The foregoing indemnity agreement includes any costs incurred by an
Indemnified Party in connection with any action or proceeding in connection with
which any officer or employee of the Administrative Agent, the Issuing Bank, the
Arranger or the Lenders is called as a witness or deponent, including, but not
limited to, the reasonable fees and disbursements of Morgan, Lewis & Bockius
LLP, counsel to the Administrative Agent, the Issuing Bank and the Arranger and
any reasonable out-of-pocket costs incurred by the Administrative Agent, the
Issuing Bank, the Arranger or the Lenders in appearing as a witness or in
otherwise complying with legal process served upon them. The obligations of the
Borrower under this Section 13.5 shall survive the termination of this Credit
Agreement, the payment of the Loans and the reimbursement of all L/C Exposure
and shall inure to the benefit of any Person who was a Lender notwithstanding
such Person’s assignment of all its Loans, L/C Exposure and Commitment
hereunder.

 

If the Parent or a Credit Party shall fail to do any act or thing which it has
covenanted to do hereunder or under a Fundamental Document, or any
representation or warranty of the Parent or a Credit Party shall be breached,
the Administrative Agent may (but shall not be obligated to) do the same or
cause it to be done or remedy any such breach and there shall be added to the
Obligations hereunder the cost or expense incurred by the Administrative Agent
in so doing, and any and all amounts expended by the Administrative Agent in
taking any such action shall be repayable to it upon its demand therefor and
shall bear interest at a rate per annum of 2% in excess of the rate then in
effect for Alternate Base Rate Loans from time to time in effect from the date
advanced to the date of repayment.

 

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SECTION 14.6. CHOICE OF LAW. THIS CREDIT AGREEMENT AND THE NOTES SHALL IN ALL
RESPECTS BE CONSTRUED IN ACCORDANCE WITH, AND GOVERNED BY, THE LAWS OF THE STATE
OF NEW YORK WHICH ARE APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED WHOLLY
WITHIN SUCH STATE AND, IN THE CASE OF PROVISIONS RELATING TO INTEREST RATES, ANY
APPLICABLE LAW OF THE UNITED STATES OF AMERICA. EACH LETTER OF CREDIT SHALL BE
GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OR
RULES DESIGNATED IN SUCH LETTER OF CREDIT, OR IF NO SUCH LAWS OR RULES ARE
DESIGNATED, THE UNIFORM CUSTOMS AND PRACTICES FOR DOCUMENTARY CREDITS (1993
REVISION), INTERNATIONAL CHAMBER OF COMMERCE, PUBLICATION NO. 500 (THE “UNIFORM
CUSTOMS”) AND, AS TO MATTERS NOT GOVERNED BY THE UNIFORM CUSTOMS, THE LAWS OF
THE STATE OF NEW YORK.

 

SECTION 14.7. WAIVER OF JURY TRIAL. TO THE EXTENT NOT PROHIBITED BY APPLICABLE
LAW WHICH CANNOT BE WAIVED, EACH CREDIT PARTY HEREBY WAIVES, AND COVENANTS THAT
IT WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR OTHERWISE), ANY RIGHT TO
TRIAL BY JURY IN ANY FORUM IN RESPECT OF ANY ISSUE, CLAIM, DEMAND, ACTION, OR
CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS CREDIT AGREEMENT, THE SUBJECT
MATTER HEREOF, ANY OTHER FUNDAMENTAL DOCUMENT OR THE SUBJECT MATTER THEREOF, IN
EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING AND WHETHER IN CONTRACT OR
TORT OR OTHERWISE. EACH CREDIT PARTY ACKNOWLEDGES THAT IT HAS BEEN INFORMED BY
THE OTHER PARTIES HERETO THAT THE PROVISIONS OF THIS SECTION CONSTITUTE A
MATERIAL INDUCEMENT UPON WHICH SUCH OTHER PARTIES HAVE RELIED, ARE RELYING AND
WILL RELY IN ENTERING INTO THIS CREDIT AGREEMENT AND ANY OTHER FUNDAMENTAL
DOCUMENT. ANY PARTY MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION
14.7 WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF ANY CREDIT PARTY TO
THE WAIVER OF ITS RIGHTS TO TRIAL BY JURY.

 

SECTION 14.8. WAIVER WITH RESPECT TO DAMAGES. EACH CREDIT PARTY ACKNOWLEDGES
THAT NEITHER THE ADMINISTRATIVE AGENT, THE ARRANGER, THE ISSUING BANK NOR ANY
LENDER HAS ANY FIDUCIARY RELATIONSHIP WITH, OR FIDUCIARY DUTY TO, ANY CREDIT
PARTY ARISING OUT OF OR IN CONNECTION WITH THIS CREDIT AGREEMENT OR ANY OTHER
FUNDAMENTAL DOCUMENT AND THE RELATIONSHIP BETWEEN THE ADMINISTRATIVE AGENT, THE
ARRANGER, THE ISSUING BANK AND THE LENDERS, ON THE ONE HAND, AND THE CREDIT
PARTIES, ON THE OTHER HAND, IN CONNECTION THEREWITH IS SOLELY THAT OF DEBTOR AND
CREDITOR. TO THE EXTENT PERMITTED BY APPLICABLE LAW, NO CREDIT PARTY SHALL
ASSERT, AND EACH CREDIT PARTY HEREBY WAIVES, ANY CLAIMS AGAINST THE
ADMINISTRATIVE AGENT, THE ARRANGER, THE ISSUING BANK AND THE LENDERS ON ANY
THEORY OF

 

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LIABILITY, FOR SPECIAL, INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES (AS OPPOSED
TO DIRECT OR ACTUAL DAMAGES) ARISING OUT OF, IN CONNECTION WITH, OR AS A RESULT
OF, THIS CREDIT AGREEMENT, ANY FUNDAMENTAL DOCUMENT, ANY AGREEMENT OR INSTRUMENT
CONTEMPLATED HEREBY OR THEREBY, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR
THEREBY.

 

SECTION 14.9. No Waiver. No failure on the part of the Administrative Agent, the
Issuing Bank or any Lender to exercise, and no delay in exercising, any right,
power or remedy hereunder, under the Notes or any other Fundamental Document
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such right, power or remedy preclude any other or further exercise thereof
or the exercise of any other right, power or remedy. All remedies hereunder are
cumulative and are not exclusive of any other remedies provided by law.

 

SECTION 14.10. Amendments, etc.

 

(a) No modification, amendment or waiver of any provision of this Credit
Agreement, and no consent to any departure by a Credit Party herefrom, shall in
any event be effective unless the same shall be in writing and signed by the
Required Lenders and the Administrative Agent, and acknowledged and agreed to by
the Borrower and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given; provided,
however, that (A) no such modification, amendment, waiver or consent shall,
without the written consent of all Lenders, (i) amend or modify any provision of
this Credit Agreement which provides for the unanimous consent or approval of
the Lenders, (ii) release any material amount of Collateral or any of the
Pledged Securities (except as contemplated herein) or release any Guarantor from
its obligations hereunder (except as contemplated herein), (iii) alter the final
scheduled maturity or principal amount of any Loan, or decrease the rate of
interest payable thereon, or decrease the rate at which the Commitment Fees
accrue, or delay the fixed scheduled maturity of any payment required to be made
under this Credit Agreement, (iv) subordinate the Obligations hereunder to other
Indebtedness or subordinate the security interests of the Administrative Agent
in the Collateral except as permitted by Section 13.1, (v) amend the definition
of “Required Lenders” to decrease the percentage of Lenders referred to therein,
(vi) materially amend the definition of “Collateral”, (vii) amend or modify this
Section 14.11(a), (B) no such modification, amendment, waiver or consent shall
increase the Commitment of any Lender without the written consent of such
Lender, and (C) no such modification, amendment, waiver or consent shall amend
Section 2.2 hereof without the written consent of the Administrative Agent. No
such amendment or modification may adversely affect the rights and obligations
of the Administrative Agent hereunder without its prior written consent. No
notice to or demand on any of the Credit Parties shall entitle such Credit Party
to any other or further notice or demand in the same, similar or other
circumstances. Each holder of a Note shall be bound by any amendment,
modification, waiver or consent authorized as provided herein, whether or not
such Note shall have been marked to indicate such amendment, modification,
waiver or consent and any consent by any holder of such Note shall bind any
Person subsequently acquiring such Note, whether or not such Note is so marked.

 

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(b) If any Lender (i) requests compensation under Sections 2.7(b), 2.10 or 2.13,
or (ii) defaults in its obligation to fund Loans hereunder or (iii) does not
consent to any waiver, consent or modification requested by the Borrower (but
only where the consent of all the Lenders is required for such waiver, consent
or modification and the Borrower obtains the waiver, consent or modification
from all other Lenders), then the Borrower may, at its sole expense and effort
and upon notice to such Lender and the Administrative Agent, require such Lender
to assign and delegate, without recourse (in accordance with and subject to the
restrictions contained in Section 14.3), all of its interests, rights and
obligations under this Credit Agreement to another Lender or an Eligible
Assignee which shall assume such obligations and which accepts such assignment;
provided that (i) the Borrower shall have received the prior written consent of
the Administrative Agent and the Issuing Bank in the sole and absolute
discretion of each, (ii) such Lender shall have received payment of an amount
equal to the outstanding principal of its Loans and L/C Exposure, accrued
interest thereon, accrued fees and all other amounts then payable to it
hereunder from the assignee (to the extent of such outstanding principal and
accrued interest and fees) or the Borrower (in the case of all other amounts)
and (iii) in the case of any such assignment resulting from a claim for
compensation under Section 2.10 or payments required to be made pursuant to
Sections 2.7(b) or 2.13, such assignment will result in a reduction in such
compensation or payment on an ongoing basis. No Lender shall be required to make
any such assignment and delegation if, prior thereto, as a result of a waiver by
such Lender or otherwise, the circumstances entitling the Borrower to require
such assignment and delegation cease to apply.

 

(c) Subject to compliance with the procedures described in Section 13.1(b)(viii)
and (ix) hereof, the Borrower may request that the Administrative Agent increase
the Total Commitments subsequent to the Closing Date by up to $30,000,000,
provided that (i) no Default or Event of Default shall have occurred and be
continuing or will exist after giving effect to such increase, (ii) the Borrower
are in pro forma compliance with all covenants on the date of such increase and
for the most recently completed covenant testing period, after giving effect to
such increase and any other appropriate pro forma adjustments acceptable to the
Administrative Agent and (iii) the new lender proposed by the Borrower is
approved by the Administrative Agent and the Issuing Bank, such approval not to
be unreasonably withheld.

 

SECTION 14.11. Severability. Any provision of this Credit Agreement or of the
Notes which is invalid, illegal or unenforceable in any jurisdiction shall, as
to such jurisdiction, be ineffective to the extent of such invalidity,
illegality or unenforceability without invalidating the remaining provisions
hereof, and any such invalidity, illegality or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.

 

SECTION 14.12. SERVICE OF PROCESS. EACH CREDIT PARTY (EACH A “SUBMITTING PARTY”)
HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE STATE COURTS OF THE STATE
OF NEW YORK IN NEW YORK COUNTY AND TO THE JURISDICTION OF THE UNITED STATES
DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, FOR THE PURPOSES OF ANY
SUIT, ACTION OR OTHER PROCEEDING ARISING OUT OF OR BASED UPON THIS CREDIT
AGREEMENT, THE SUBJECT MATTER HEREOF, ANY OTHER FUNDAMENTAL DOCUMENT AND THE
SUBJECT MATTER THEREOF. EACH SUBMITTING PARTY TO THE EXTENT PERMITTED BY
APPLICABLE LAW (A)

 

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HEREBY WAIVES, AND AGREES NOT TO ASSERT, BY WAY OF MOTION, AS A DEFENSE, OR
OTHERWISE, IN ANY SUCH SUIT, ACTION OR OTHER PROCEEDING BROUGHT IN THE
ABOVE-NAMED COURTS, ANY CLAIM THAT IT IS NOT SUBJECT PERSONALLY TO THE
JURISDICTION OF SUCH COURTS, THAT ITS PROPERTY IS EXEMPT OR IMMUNE FROM
ATTACHMENT OR EXECUTION, THAT THE SUIT, ACTION OR PROCEEDING IS BROUGHT IN AN
INCONVENIENT FORUM, THAT THE VENUE OF THE SUIT, ACTION OR PROCEEDING IS IMPROPER
OR THAT THIS CREDIT AGREEMENT, THE SUBJECT MATTER HEREOF, THE OTHER FUNDAMENTAL
DOCUMENTS OR THE SUBJECT MATTER THEREOF (AS APPLICABLE) MAY NOT BE ENFORCED IN
OR BY SUCH COURT, (B) HEREBY WAIVES THE RIGHT TO REMOVE ANY SUCH ACTION, SUIT OR
PROCEEDING INSTITUTED BY THE ADMINISTRATIVE AGENT OR A LENDER IN STATE COURT TO
FEDERAL COURT, AND (C) HEREBY WAIVES THE RIGHT TO ASSERT IN ANY SUCH ACTION,
SUIT OR PROCEEDING ANY OFFSETS OR COUNTERCLAIMS EXCEPT COUNTERCLAIMS THAT ARE
COMPULSORY OR OTHERWISE ARISE FROM THE SAME SUBJECT MATTER. EACH SUBMITTING
PARTY HEREBY CONSENTS TO SERVICE OF PROCESS BY MAIL AT THE ADDRESS TO WHICH
NOTICES ARE TO BE GIVEN TO IT PURSUANT TO SECTION 14.1 HEREOF. EACH SUBMITTING
PARTY AGREES THAT ITS SUBMISSION TO JURISDICTION AND CONSENT TO SERVICE OF
PROCESS BY MAIL IS MADE FOR THE EXPRESS BENEFIT OF EACH OF THE OTHER SUBMITTING
PARTIES. FINAL JUDGMENT AGAINST ANY SUBMITTING PARTY IN ANY SUCH ACTION, SUIT OR
PROCEEDING SHALL BE CONCLUSIVE, AND MAY BE ENFORCED IN ANY OTHER JURISDICTION
(X) BY SUIT, ACTION OR PROCEEDING ON THE JUDGMENT, A CERTIFIED OR TRUE COPY OF
WHICH SHALL BE CONCLUSIVE EVIDENCE OF THE FACT AND OF THE AMOUNT OF INDEBTEDNESS
OR LIABILITY OF THE SUBMITTING PARTY THEREIN DESCRIBED, OR (Y) IN ANY OTHER
MANNER PROVIDED BY OR PURSUANT TO THE LAWS OF SUCH OTHER JURISDICTION; PROVIDED,
HOWEVER, THAT THE ADMINISTRATIVE AGENT OR A LENDER MAY AT ITS OPTION BRING SUIT,
OR INSTITUTE OTHER JUDICIAL PROCEEDINGS AGAINST A SUBMITTING PARTY OR ANY OF ITS
ASSETS IN ANY STATE OR FEDERAL COURT OF THE UNITED STATES OF AMERICA OR OF ANY
COUNTRY OR PLACE WHERE THE SUBMITTING PARTY OR SUCH ASSETS MAY BE FOUND.

 

SECTION 14.13. Headings. Section headings used herein and the Table of Contents
are for convenience only and are not to affect the construction of or be taken
into consideration in interpreting this Credit Agreement.

 

SECTION 14.14. Execution in Counterparts. This Credit Agreement may be executed
by facsimile and in any number of counterparts, each of which shall constitute
an original, but all of which taken together shall constitute one and the same
instrument.

 

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SECTION 14.15. Subordination of Intercompany Indebtedness, Receivables and
Advances.

 

(a) Each Credit Party hereby agrees that any intercompany Indebtedness or other
intercompany receivables or intercompany advances of any other Credit Party,
directly or indirectly, in favor of such Credit Party of whatever nature at any
time outstanding shall be completely subordinate in right of payment to the
prior payment in full of the Obligations, and that no payment on any such
Indebtedness, receivable or advance shall be made (i) except intercompany
receivables and intercompany advances permitted pursuant to the terms hereof may
be repaid and intercompany Indebtedness permitted pursuant to the terms hereof
may be repaid, in each case so long as no Default or Event of Default shall have
occurred and be continuing, and (ii) except as specifically consented to by all
the Lenders in writing, until the prior payment in full of all the Obligations
and termination of the Commitments.

 

(b) In the event that any payment on any such Indebtedness shall be received by
such Credit Party other than as permitted by Section 14.15(a) before payment in
full of all Obligations and termination of the Commitments, such Credit Party
shall receive such payments and hold the same in trust for, segregate the same
from its own assets and shall immediately pay over to, the Administrative Agent
on behalf of itself, the Issuing Bank and the Lenders all such sums to the
extent necessary so that the Administrative Agent, the Issuing Bank and the
Lenders shall have been paid all Obligations owed or which may become owing.

 

SECTION 14.16. USA Patriot Act. Each Lender hereby notifies the Borrower that,
pursuant to the requirements of the USA Patriot Act, it is required to obtain,
verify and record information that identifies the Borrower, which information
includes the name and address of the Borrower and other information that will
allow such Lender to identify the Borrower in accordance with the USA Patriot
Act.

 

SECTION 14.17. Entire Agreement. This Credit Agreement (including the Exhibits
and Schedules hereto) represents the entire agreement of the parties with regard
to the subject matter hereof and the terms of any letters and other
documentation entered into between any of the parties hereto (other than the Fee
Letter) prior to the execution of this Credit Agreement which relate to Loans to
be made hereunder and the Letters of Credit to be issued hereunder shall be
replaced by the terms of this Credit Agreement.

 

SECTION 14.18. Confidentiality. Each of the Administrative Agent, the Issuing
Bank and the Lenders agrees to maintain the confidentiality of the Information
(as defined below), except that Information may be disclosed (a) to it and its
Affiliates’ directors, officers, employees and agents, including accountants,
legal counsel and other advisors (it being understood that the Persons to whom
such disclosure is made will be informed of the confidential nature of such
Information and instructed to keep such Information confidential), (b) to the
extent requested by any regulatory authority, (c) to the extent required by
Applicable Laws or by any subpoena or similar legal process, (d) to any other
party to this Credit Agreement, (e) in connection with the exercise of any
remedies hereunder or any suit, action or proceeding relating to this Credit
Agreement or the enforcement of rights hereunder, (f) subject to an agreement
containing provisions substantially the same as those of this Section, to (i)
any assignee of or participant in, or any prospective assignee of or participant
in, any of its rights or obligations under this Credit Agreement, or (ii) any
actual or prospective counterparty (or its advisors) to any swap or derivative
transaction relating to the Borrower and its obligations, (g) with the consent
of the Borrower, or (h) to the extent such Information (x) becomes publicly

 

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available other than as a result of a breach of this Section, or (y) becomes
available to the Administrative Agent, the Issuing Bank or any Lender on a
non-confidential basis from a source other than a Credit Party. For the purposes
of this Section, “Information” means all information received from any Credit
Party relating to any Credit Party or its business, other than any such
information that is available to the Administrative Agent, the Issuing Bank or
any Lender on a non-confidential basis prior to disclosure by such Credit Party;
provided, that in the case of information received from a Credit Party after the
date hereof, such information is clearly identified at the time of delivery as
confidential. Any Person required to maintain the confidentiality of Information
as provided in this Section shall be considered to have complied with its
obligation to do so if such Person has exercised the same degree of care to
maintain the confidentiality of such Information as such Person would accord to
its own confidential information.

 

[Signature Pages Follow]

 

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

 

BORROWER: IDTE ANIMATION SLATE, LLC By  

 

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

Name:     Title:     GUARANTORS: YANKEE IRVING, LLC By  

 

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

Name:     Title:    

 

[Signature Page to Credit, Security, Guaranty and Pledge Agreement]

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

PARENT: IDT ENTERTAINMENT, INC. By  

 

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

Name:     Title:    

 

[Signature Page to Credit, Security, Guaranty and Pledge Agreement]

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

JPMORGAN CHASE BANK, NATIONAL

ASSOCIATION, individually, as Administrative

Agent and as Issuing Bank

By  

 

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

Name:     Title:    

 

[Signature Page to Credit, Security, Guaranty and Pledge Agreement]

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

LENDERS:

JPMORGAN CHASE BANK, NATIONAL

ASSOCIATION, individually, as Administrative

Agent and as Issuing Bank

By  

 

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

Name:   David Shaheen Title:   Vice President

 

[Signature Page to Credit, Security, Guaranty and Pledge Agreement]

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

THE ROYAL BANK OF SCOTLAND PLC By  

 

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

Name:   Alexander Stewart Brown Title:  
As Attorney for The Royal Bank of Scotland plc

 

[Signature Page to Credit, Security, Guaranty and Pledge Agreement]

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

U.S. BANK NATIONAL ASSOCIATION By  

 

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

Name:   David K. Henry Title:   Vice President

 

[Signature Page to Credit, Security, Guaranty and Pledge Agreement]

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

BANK LEUMI USA By  

 

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

Name:   Jacques Delvoye Title:   Vice President

 

[Signature Page to Credit, Security, Guaranty and Pledge Agreement]

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

BAYERISCHE HYPO-UND VEREINSBANK AG By  

 

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

Name:   Roland Schwab Title:   Senior Vice President

 

BAYERISCHE HYPO-UND VEREINSBANK AG By  

 

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

Name:   Harald Gugel Title:   Vice President

 

[Signature Page to Credit, Security, Guaranty and Pledge Agreement]

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

MANUFACTURERS BANK By  

 

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

Name:   Sandy Lee Title:   Vice President

 

[Signature Page to Credit, Security, Guaranty and Pledge Agreement]

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

MERCANTILE NATIONAL BANK By  

 

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

Name:   Randi Greenberg Title:   Vice President

 

[Signature Page to Credit, Security, Guaranty and Pledge Agreement]