EXHIBIT 10.1

 

LOAN AGREEMENT

 

This LOAN AGREEMENT (the “Agreement”) is entered into as of May 22, 2003 by and
between Digital Production Solutions, Inc., a Delaware corporation (“Lender”),
and Film Roman, Inc., a Delaware corporation ( “Borrower”).

 

WHEREAS, Lender or its designee is willing to lend to Borrower up to
$2,059,125.87 under the terms and subject to the conditions contained herein;
and

 

WHEREAS, Borrower is willing to borrow from Lender up to $2,059,125.87 under the
terms and subject to the conditions contained herein.

 

NOW, THEREFORE, in consideration of the covenants, warranties and mutual
agreements contained herein and in reliance upon the representations and
warranties contained herein, the parties hereto agree as follows:

 

SECTION 1    DEFINITIONS

 

In addition to the other terms defined herein, as used in this Agreement the
following terms shall have the following respective meanings:

 

“Business Day” means any day which is not a Saturday, a Sunday or a day on which
banks are required or permitted to be closed in the State of New York.

 

“Convertible Note” means the convertible note of Borrower issued to Lender
substantially in the form of Exhibit A hereto.

 

“Event of Default” means any event of default described in Section 6 hereof.

 

“Liabilities” means all debts, liabilities and obligations of Borrower to Lender
hereunder of every kind, nature and description, now existing or hereafter
incurred, matured or unmatured, direct or indirect, primary or secondary, joint
or several, absolute or contingent, due or to become due, regardless of how the
same may be evidenced, and including any extensions and renewals thereof or a
part thereof, together with interest, fees, charges, expenses and costs of
collection (including reasonable attorney’s fees).

 

“Loan Documents” means this Agreement, the Convertible Note, the Security
Agreement, the Pledge Agreement and all other agreements and instruments
extending, renewing, refinancing or rebinding any Liabilities arising under any
of the foregoing, in each case as the same may be amended, modified or
supplemented from time to time hereafter.

 

“Person” means any individual, partnership, corporation or other legal entity.

 

“Pledge Agreement” means that certain Pledge Agreement between Lender and
Borrower, dated as of the date hereof.

 

“Security Agreement” means that certain Guarantee and Security agreement among
Lender, Borrower and the subsidiaries of Borrower, dated as of the date hereof.

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SECTION 2    LOAN TERMS

 

2.1.    Amounts to be Loaned. Lender or its designee shall, subject to the terms
and conditions contained herein, lend hereunder to Borrower, from time to time,
and upon request of Borrower, amounts which, when added to amounts outstanding
to Borrower hereunder, shall not exceed, in the aggregate, the principal sum of
Two Million Fifty Nine Thousand One Hundred Twenty Five and 87/100 Dollars
($2,059,125.87); provided, however, that until the Company amends its
Certificate of Incorporation to increase the number of its authorized shares of
Common Stock, par value $0.01 per share to 60,000,000 and such amendment becomes
effective, the amount borrowed by Borrower under this Agreement shall not exceed
One Million Seven Hundred Fifty Five Thousand One Hundred Forty Eight and 77/100
Dollars ($1,755,148.77). Upon execution of this Agreement, Lender shall loan to
Borrower under this Agreement the sum of Fifty Nine Thousand One Hundred Twenty
Five and 87/100 Dollars ($59,125.87) in cash by wire transfer of immediately
available funds.

 

The obligation of Lender to make any loan under this Agreement is subject to the
fulfillment by Borrower of the conditions set forth in Section 3 hereof and the
accuracy of the representations and warranties contained in Section 4 hereof as
of the date of each loan. Each such representation and warranty shall be true on
and as of the date of each loan hereunder with the same effect as though such
representations and warranties had been made on and as of such date; and on each
such date no uncured Event of Default and no condition, event or act which, with
the giving of notice or the lapse of time, or both, would constitute an Event of
Default shall have occurred and be continuing and an authorized officer of
Borrower shall provide to Lender a certificate to such effect prior to each
loan.

 

2.2.    Convertible Note. The obligation of Borrower to repay all amounts loaned
by Lender pursuant to this Agreement shall be evidenced by the Convertible Note
of Borrower, dated the date of this Agreement.

 

2.3.    Interest. Any principal amount outstanding at the close of each day
shall accrue interest at a fluctuating interest rate per annum equal at all
times to the sum of (a) the prime bank lending rate as published from time to
time in the Wall Street Journal (Eastern Edition) plus (b) 2% per annum
(calculated on a year of 360 days and payable for the actual number of days
elapsed including any time extended by reason of Saturdays, Sundays and
holidays).

 

2.4.    Notice of Borrowing. Borrower shall give Lender not less than ten (10)
days’ prior notice of each loan. The notice shall specify the date on which the
loan is to be obtained (which shall be a Business Day) and the amount of such
loan.

 

2.5.    Loan Records. Lender shall maintain on its books and records accounts in
the name of Borrower showing the date and amount of each loan under this
Agreement, as well as the date and amount of each payment of principal by
Borrower with respect thereto.

 

2.6.    Payments; No Revolving Facility. All principal and interest shall be due
and payable no later than May 22, 2008 (the “Maturity Date”). Except as
otherwise provided in this Agreement, all payments by or on behalf of Borrower
shall be made at Lender’s offices at

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520 Broad Street, Newark, New Jersey 07102, and shall be credited (on a
conditional basis subject to collection and final payment) on the day of receipt
by Lender, and shall be applied to the Convertible Note, first to any interest
due thereon to the date of payment, and the balance, if any, to the unpaid
principal of the Convertible Note. The right of Borrower to make such payments
in such manner at any time without prepayment premium or penalty is absolute and
unconditional; provided, however, that Lender shall not be obligated to relend
to Borrower any amounts prepaid by Borrower.

 

SECTION 3    CONDITIONS OF LENDING

 

3.1.    Conditions. No loan may be requested (and Lender shall not be obligated
to make any loan) hereunder at any time unless as of the date of such loan
request, Borrower shall be in compliance with all material terms, conditions and
obligations of this Agreement, all of the material representations and
warranties contained herein shall be true on and as of such date with the same
effect as though the same had been made on and as of such date, no Event of
Default, and no condition, event or act which, with the giving of notice or the
lapse of time or both, would constitute an Event of Default, shall exist, and
all of the following conditions are fully satisfied:

 

  (a)   Convertible Note. Lender shall have received on or before the date
hereof the Convertible Note duly executed and delivered by Borrower.

 

  (b)   Other Indebtedness. Except for amounts owed under the Production
Services Agreement, dated February 5, 2003, by and between the Borrower and
Twentieth Century Fox Television (the “Fox Payment Obligations”), Borrower shall
not have any other indebtedness for borrowed money to any other Person that, as
to right of payment, is senior to, or ranks on a parity with, the loans made
hereunder.

 

  (c)   No Notice of Borrower’s Default. Lender shall not have received notice
of any default of Borrower in respect of any order, writ, injunction or decree
of any court or federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign unless
such default (or alleged default) shall have been cured on or before the date of
such request for a loan, and Lender shall have received evidence reasonably
satisfactory to it of such cure.

 

SECTION 4    REPRESENTATIONS AND WARRANTIES

 

Borrower represents and warrants, as of the date hereof and as of the date of
each loan hereunder or any renewal thereof, that:

 

4.1.    Status. Borrower is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware, and has the requisite
power and lawful authority to own, lease and operate its respective assets and
properties and to carry on its respective business as it is now being conducted.
Borrower is duly qualified as a foreign entity to transact business, and is in
good standing, in each jurisdiction where the character of its properties, owned
or leased, or the nature of its activities, makes such qualification necessary,

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other than where the failure to be so qualified or licensed would not have a
material adverse effect on the business, operations, conditions (financial or
otherwise) or future prospects of the business currently being conducted by the
Company and its Subsidiaries taken as a whole, other than any effect relating to
or arising out of an event, matter, occurrence or action affecting the United
States or global economy generally (a “Material Adverse Effect”).

 

4.2.    Authority. Borrower has all necessary legal right and power and all
authority and approval required to enter into, execute and deliver this
Agreement, the Convertible Note, and each other Loan Document to which it is a
party and to perform fully its respective obligations hereunder and thereunder.
The execution and delivery by Borrower of this Agreement, the Convertible Note,
and each other Loan Document to which it is a party and the consummation by
Borrower of the transactions consummated hereby and thereby have been duly
authorized by the board of directors of Borrower and no other proceedings on the
part of Borrower are necessary to authorize the execution, delivery and
performance of this Agreement, the Convertible Note, and each other Loan
Document to which it is a party and the consummation of the transactions
consummated hereby and thereby. This Agreement, the Convertible Note, and each
other Loan Document have been duly executed and delivered by Borrower and this
Agreement, the Convertible Note, and each other Loan Document to which it is a
party constitute the valid and binding obligations of Borrower enforceable
against Borrower in accordance with their respective terms. Neither the
execution and delivery of this Agreement, the Convertible Note, or any other
Loan Document, or the consummation of the transactions contemplated hereby or
thereby, nor compliance with the terms and provisions hereof or thereof, will
conflict with or result in a breach of any of the terms, conditions or
provisions of Borrower’s Certificate of Incorporation or By-laws, or of any law
or any regulation, or any order, writ, injunction or decree of any court or
governmental instrumentality, or of any agreement or instrument to which
Borrower is subject, or constitute a default thereunder, or result in the
creation or imposition of any lien, charge or encumbrance of any nature
whatsoever upon any of Borrower’s property or assets pursuant to the terms of
any such agreement or instrument or otherwise except pursuant to and under this
Agreement.

 

4.3.    Financial Statements. The financial statements to be delivered to Lender
hereunder will fairly present the consolidated financial condition (including
contingent liabilities) of Borrower at the dates thereof in accordance with
generally accepted accounting principles consistently applied.

 

4.4.    Seniority. Except for the Fox Payment Obligations, the loans made
hereunder are and shall be senior obligations of Borrower and no other
indebtedness of Borrower for borrowed money is senior to, or on a parity with,
in right of payment, with the Liabilities or the liabilities of Borrower to
Lender under any other debt instrument.

 

SECTION 5    GENERAL COVENANTS OF BORROWER

 

Borrower covenants and agrees, until the Maturity Date and thereafter until
final payment in full of the Liabilities, as follows:

 

5.1.    Reporting Requirements. Borrower shall furnish to Lender: (a) within
fifteen (15) days after the end of each month, financial statements indicating
Borrower’s

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financial condition and the results of its operations for each such month; and
(b) within sixty (60) days after the end of each fiscal year of Borrower, such
financial statements at the end of and for the entire fiscal year. Such
financial statements shall fairly present, in all material respects, the results
of the operations of Borrower for the periods covered and the financial
condition of Borrower as at the end of such periods in accordance with generally
accepted accounting principles in the United States consistently applied
(subject, in the case of interim financial statements, to good faith year-end
adjustments), and each such statement will be certified as such by the president
or chief financial officer of Borrower to his or her best knowledge. The
financial statements shall be accompanied by a certificate of Borrower’s chief
executive officer to the effect that to his or her best knowledge no Event of
Default has occurred or, if the same has occurred, the nature thereof. In
addition, as soon as possible, and in any event within three Business Days after
becoming aware of the occurrence of any Default or Event of Default or any other
event or occurrence which has or would reasonably be expected to have a
materially adverse effect upon the business, property or financial condition of
Borrower, Borrower shall provide to Lender a written statement setting forth
details of such Default, Event of Default or other event or occurrence and the
action which Borrower has taken or has caused to be taken or proposes to take or
cause to be taken with respect thereto.

 

5.2.    Affirmative Covenants. Borrower will:

 

  (a)   pay all its other debts and discharge all other obligations when due,
including all taxes, unless and to the extent that such payment is being
contested in good faith by appropriate proceedings;

 

  (b)   maintain its financial records in accordance with generally accepted
accounting principles in the United States;

 

  (c)   maintain its existence in its state of organization;

 

  (d)   comply in all material respects with any applicable law, rule or
regulation, or any order, writ, injunction or decree of any court or
governmental instrumentality, in effect from time to time; and

 

  (e)   maintain insurance coverage on its physical assets and against other
business risks in such amounts and of such types as are customarily covered by
companies similar in size and nature to Borrower.

 

5.3.    Negative Covenants. Without the prior written consent of Lender,
Borrower will not:

 

  (a)   declare or pay any cash dividends, retire or otherwise acquire for value
any or all of its capital stock, or return any capital or make any distribution
of its assets to its stockholders, except as reasonable salaries or bonuses for
labor actually performed or services actually rendered or except as provided
under the Borrower’s employee, director or consultant benefit plans.

 

  (b)   create, incur, assume or suffer to exist any liability for borrowed
money;

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  (c)   other than in the ordinary course of Borrower’s business and other than
payment of the Fox Payment Obligations, make any payment of principal on any
indebtedness for borrowed money (other than on the loans made hereunder);

 

  (d)   mortgage, pledge, or subject to any lien or otherwise encumber any
assets of Borrower;

 

  (e)   form any new subsidiaries;

 

  (f)   make any capital purchases or acquisitions, which in the aggregate
exceed $150,000; or

 

  (g)   dissolve, liquidate or wind up its affairs.

 

5.4.    Lender’s Costs and Expenses. Borrower hereby expressly agrees to remit
to Lender forthwith all costs and expenses reasonably incurred by Lender in
connection with the collection of the Convertible Note (including reasonable
attorney’s fees and court costs); together with interest on any of the above
from the date of such expenditure to the date of repayment in full to Lender at
the rate of interest payable on the Convertible Note. At its option, Lender may
charge such costs, expenses and amounts as a loan pursuant to this Agreement.

 

SECTION 6    DEFAULT

 

6.1.    Events of Default. Without limitation of any of Lender’s rights as
provided elsewhere in this Agreement, upon the occurrence of any of the
following, an Event of Default shall have occurred, Lender’s obligation to lend
hereunder shall terminate and, at Lender’s option, after the expiration of
thirty (30) days from the delivery in accordance with Section 8.6 hereof of
written notice to Borrower of the occurrence thereof (during which thirty (30)
day period Borrower shall have the opportunity to cure such Event of Default),
all Liabilities shall become immediately due and payable without notice,
presentation or demand of any kind, all of which are hereby waived, provided
that no acceleration of the Liabilities shall occur if such Event of Default
shall be cured to Lender’s reasonable satisfaction prior to the expiration of
such thirty (30) day period:

 

  (a)   Borrower fails to pay when due any principal or any interest (in
accordance with Section 2.3 hereof) on the Convertible Note;

 

  (b)   Borrower fails or neglects to perform, keep or observe (i) any of the
provisions of Section 5.2 hereof, (ii) any of the provisions of Section 5.3
hereof, or (iii) any material term, covenant or agreement on its part to be
performed or observed in any Loan Document;

 

  (c)  

(i) Borrower defaults in any payment of the principal of or interest on any
obligation(s) for borrowed money or evidences of indebtedness for borrowed money
(other than hereunder), whether owing to Lender or any other Person, or in the
performance of any other term or condition contained in any agreement under
which any such obligation(s) for

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borrowed money or evidences of indebtedness for borrowed money is created, and
such default(s) shall continue beyond the period of grace, if any, specified
therein, and (ii) such obligation or indebtedness is accelerated; or

 

  (d)   Final judgment(s) singly or in the aggregate amount of twenty-five
thousand dollars ($25,000.00) or more at any one time outstanding are rendered
against Borrower, and remain unsatisfied for a period of thirty (30) days
thereafter.

 

6.2.    Further Events of Default. Lender’s obligation to lend hereunder shall
terminate and all Liabilities shall become immediately due and payable without
notice, presentation or demand of any kind, all of which are hereby waived upon
the occurrence of any of the following events, each of which shall constitute an
Event of Default:

 

  (a)   Borrower fails to comply with its obligations under Section 5.1 of the
Stock Purchase Agreement, dated as of the date hereof, between Borrower and
Lender;

 

  (b)   Borrower becomes insolvent or generally fails to pay, or admits in
writing its inability to pay, its debts when due;

 

  (c)   Borrower makes an assignment for the benefit of creditors, commences a
case in bankruptcy, or commences any proceeding under any other insolvency law;

 

  (d)   A case in bankruptcy or any proceeding under any other insolvency law is
commenced against Borrower and the case or proceeding is not dismissed within
sixty (60) days; or

 

  (e)   A trustee, receiver or agent is appointed or authorized to take charge
of substantially all of the property of Borrower for the purpose of enforcing a
lien against such property or for the purpose of general administration of such
property for the benefit of creditors.

 

SECTION 7    CONVERSION

 

Lender may, in its sole discretion, at any time when any principal and/or
accrued interest remains outstanding hereunder, convert such unpaid principal
and accrued but unpaid interest, in whole or in part, into fully paid and
nonassessable shares of Common Stock, par value $0.01 per share, of Borrower as
set forth in Section 3 of the Convertible Note.

 

SECTION 8    MISCELLANEOUS

 

8.1.    Security. As an inducement to Lender to enter into this Agreement (i)
Borrower and each of its subsidiaries shall enter into the Security Agreement
with Lender and (ii) Borrower shall enter into the Pledge Agreement for the
benefit of Lender.

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8.2.    Waivers and Enforcement of Rights. To the extent permitted by law and
except as otherwise provided in this Agreement, Borrower expressly waives all
rights to any notice of hearing and to any hearing prior to the taking of any
action by Lender under and pursuant to this Agreement. Borrower waives demand,
notice of default, protest, presentment, notice of acceptance of this Agreement,
notice of loans made, credit extended, or other action taken in reliance hereon
and all other demands and notices of any description except as otherwise
expressly provided herein. Borrower hereby waives promptness by Lender in making
any demand upon Borrower, and agrees that no delay or omission by Lender in
exercising any of its rights hereunder or under any other agreement or
instrument between Borrower and Lender shall be deemed to constitute a waiver of
such Lender’s rights. Failure by Lender to exercise any right, remedy or option
under this Agreement or delay by Lender in exercising the same will not operate
as a waiver. No waiver by Lender will be effective unless it is confirmed in
writing by Lender and then only to the extent specifically stated therein. All
rights and remedies of Lender hereunder shall be cumulative and may be exercised
singularly or concurrently.

 

8.3.    Successors and Assigns. The covenants, representations, warranties and
agreements herein set forth shall be binding upon Borrower, its successors and
assigns and shall inure to the benefit of Lender, its successors and assigns.
Lender may assign this Agreement, and any or all of its rights and obligations
hereunder, to one or more third parties, however, no part of this Agreement may
be assigned by Borrower without the prior written consent of the Lender. Any
permitted purchaser, assignee, transferee or pledgee of any of the Liabilities
shall forthwith become vested with and entitled to exercise all the powers and
rights given by this Agreement to Lender, as if said purchaser, assignee,
transferee or pledgee were originally named herein.

 

8.4.    Maturity Date; Duration. This Agreement shall have an initial term from
the date hereof through and including the Maturity Date. Unless this Agreement
shall be earlier terminated in accordance with the provisions hereof or the
Liabilities become due and payable as provided herein, all Liabilities shall be
due and payable on the Maturity Date. Upon the effective date of termination all
of the Liabilities shall become immediately due and payable without further
notice or demand. Lender’s rights with respect to obligations owing to it prior
to the effective date of termination will not be affected by termination, and
all of the provisions of this Agreement shall continue to be operative until all
such obligations have been fully satisfied.

 

8.5.    ENTIRE AGREEMENT; AMENDMENT; SEVERABILITY. THIS AGREEMENT AND THE LOAN
DOCUMENTS CONSTITUTE THE ENTIRE AGREEMENT BETWEEN THE PARTIES WITH RESPECT TO
THE SUBJECT MATTER HEREOF AND SHALL BE GOVERNED BY THE LAWS OF THE STATE OF
DELAWARE, WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW
PROVISIONS. None of the terms or provisions hereof may be waived, altered,
modified, or amended in respect of Borrower except by an agreement in writing
signed by Lender and Borrower. If at any time one or more provisions of this
Agreement, any amendment or supplement thereto or any related writing is or
becomes invalid, illegal or unenforceable in whole or in part, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.

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8.6.    Notices. Any notices, request, demand or other communication required or
permitted hereunder shall be in writing and shall be deemed to have been given
if delivered or sent by facsimile transmission, upon receipt, if by hand
delivery, upon receipt, if sent by nationally recognized overnight courier
service, one day after deposit with such, or if sent by registered or certified
mail, upon the sooner of the date on which receipt is acknowledged or the
expiration of three days after deposit in United States post officer facilities
properly addressed with postage prepaid. All notices to a party will be sent to
the addresses set forth below or to such other address or person as such party
may designate by notice to each other party hereunder.

 

If to Lender, to:

 

Digital Production Solutions, Inc.

c/o IDT Corporation

520 Broad Street

Newark, NJ 07102

Attention: Morris Berger

Facsimile: 973-438-1741

With a copy to:

 

McDermott, Will & Emery

50 Rockefeller Plaza

New York, NY 10020

Attention: Mark Selinger, Esq.

Facsimile: 212-547-5444

If to Borrower, to:

 

Film Roman, Inc.

12020 Chandler Boulevard, Suite 200

North Hollywood, CA 91607

Attn: Chief Executive Officer

Facsimile: 818-985-2973

With a copy to:

 

Dixon Q. Dern, Esq.

1901 Avenue of the Stars, Suite 400

Los Angeles, CA 90067

Facsimile: 310-557-2224

With a copy to:

 

Shaw Pittman LLP

2029 Century Park East, Suite 2550

Los Angeles, CA 90067

Attn: John J. Molloy, III, Esq.

Facsimile: 310-551-4501

 

8.7.    Consent to Jurisdiction. Each of the parties hereby agrees that any
dispute among them or any claim, suit or proceeding arising under this Agreement
shall be brought before the federal or state courts sitting in Delaware, and
hereby consents to personal jurisdiction, service of process and venue in the
federal or state courts of Delaware for such claim, suit or proceeding.

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8.8.    Counterparts. This Agreement may be executed in several counterparts
each of which shall be an original and all of which shall constitute but one and
the same instrument.

 

8.9.    Headings. The headings to Sections appearing in this Agreement have been
inserted for the purpose of convenience and ready reference. They do not purport
to, and shall not be deemed to, define, limit or extend the scope or intent of
the Sections to which they appertain.

 

IN WITNESS WHEREOF, the parties have caused this Loan Agreement to be executed
by their duly elected officers duly authorized as of the date first above
written.

 

DIGITAL PRODUCTION SOLUTIONS, INC.

By:

 

/s/    Morris Berger        

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Name: Morris Berger

Title: President

 

 

FILM ROMAN, INC.

By:

 

/s/    John W. Hyde        

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Name: John W. Hyde

Title: Chief Executive Officer