EXHIBIT 10.1
LOAN AND SECURITY AGREEMENT
by and among
IMAGE ENTERTAINMENT, INC.
as Administrative Borrower
and
EGAMI MEDIA, INC.,
IMAGE ENTERTAINMENT (UK), INC. and
HOME VISION ENTERTAINMENT, INC.
as Guarantors
WACHOVIA CAPITAL FINANCE CORPORATION (WESTERN)
as Agent
and
THE LENDERS FROM TIME TO TIME PARTY HERETO
as Lenders
Dated: May 4, 2007

 

 

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TABLE OF CONTENTS

              Page  
 
       
SECTION 1. DEFINITIONS
    1  
SECTION 2. CREDIT FACILITIES
    23  
2.1 Loans
    23  
2.2 Letters of Credit
    23  
2.3 Commitments
    26  
SECTION 3. INTEREST AND FEES
    27  
3.1 Interest
    27  
3.2 Fees
    28  
3.3 Changes in Laws and Increased Costs of Loans
    29  
SECTION 4. CONDITIONS PRECEDENT
    31  
4.1 Conditions Precedent to Initial Loans and Letters of Credit
    31  
4.2 Conditions Precedent to All Loans and Letters of Credit
    33  
SECTION 5. GRANT AND PERFECTION OF SECURITY INTEREST
    34  
5.1 Grant of Security Interest
    34  
5.2 Perfection of Security Interests
    35  
SECTION 6. COLLECTION AND ADMINISTRATION
    38  
6.1 Borrowers’ Loan Accounts
    38  
6.2 Statements
    38  
6.3 Collection of Accounts
    39  
6.4 Payments
    40  
6.5 Taxes
    41  
6.6 Authorization to Make Loans
    43  
6.7 Use of Proceeds
    43  
6.8 Appointment of Administrative Borrower as Agent for Requesting Loans and
Receipts of Loans and Statements
    43  
6.9 Pro Rata Treatment
    44  
6.10 Sharing of Payments, Etc
    44  
6.11 Settlement Procedures
    45  
6.12 Obligations Several; Independent Nature of Lenders’ Rights
    47  
6.13 Bank Products
    48  

 

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TABLE OF CONTENTS
(continued)

              Page  
 
       
SECTION 7. COLLATERAL REPORTING AND COVENANTS
    48  
7.1 Collateral Reporting
    48  
7.2 Accounts Covenants
    49  
7.3 Inventory Covenants
    50  
7.4 Equipment and Real Property Covenants
    50  
7.5 Power of Attorney
    51  
7.6 Right to Cure
    52  
7.7 Access to Premises
    52  
SECTION 8. REPRESENTATIONS AND WARRANTIES
    52  
8.1 Corporate Existence, Power and Authority
    52  
8.2 Name; State of Organization; Chief Executive Office; Collateral Locations
    53  
8.3 Financial Statements; No Material Adverse Change
    53  
8.4 Priority of Liens; Title to Properties
    54  
8.5 Tax Returns
    54  
8.6 Litigation
    54  
8.7 Compliance with Other Agreements and Applicable Laws
    54  
8.8 Environmental Compliance
    55  
8.9 Employee Benefits
    55  
8.10 Bank Accounts
    56  
8.11 Intellectual Property
    56  
8.12 Subsidiaries; Affiliates; Capitalization; Solvency
    57  
8.13 Labor Disputes
    57  
8.14 Restrictions on Subsidiaries
    58  
8.15 Material Contracts
    58  
8.16 Payable Practices
    58  
8.17 Accuracy and Completeness of Information
    58  
8.18 Security Interests of SAG and WGA
    58  
8.19 Survival of Warranties; Cumulative
    59  

 

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TABLE OF CONTENTS
(continued)

              Page  
 
       
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS
    59  
9.1 Maintenance of Existence
    59  
9.2 New Collateral Locations
    59  
9.3 Compliance with Laws, Regulations, Etc
    60  
9.4 Payment of Taxes and Claims
    60  
9.5 Insurance
    61  
9.6 Financial Statements and Other Information
    61  
9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc
    63  
9.8 Encumbrances
    65  
9.9 Indebtedness
    67  
9.10 Loans, Investments, Etc
    68  
9.11 Dividends and Redemptions
    70  
9.12 Transactions with Affiliates
    71  
9.13 Compliance with ERISA
    71  
9.14 End of Fiscal Years; Fiscal Quarters
    72  
9.15 Change in Business
    72  
9.16 Limitation of Restrictions Affecting Subsidiaries
    72  
9.17 Fixed Charge Coverage Ratio
    72  
9.18 Copyrights
    73  
9.19 License Agreements
    74  
9.20 Foreign Assets Control Regulations, Etc
    75  
9.21 After Acquired Real Property
    76  
9.22 Costs and Expenses
    76  
9.23 Further Assurances
    77  
SECTION 10. EVENTS OF DEFAULT AND REMEDIES
    77  
10.1 Events of Default
    77  
10.2 Remedies
    79  
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS; GOVERNING LAW
    83  
11.1 Governing Law; Choice of Forum; Service of Process; Jury Trial Waiver
    83  
11.2 Waiver of Notices
    84  
11.3 Amendments and Waivers
    85  
11.4 Waiver of Counterclaims
    86  
11.5 Indemnification
    87  

 

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TABLE OF CONTENTS
(continued)

              Page  
 
       
SECTION 12. THE AGENT
    87  
12.1 Appointment, Powers and Immunities
    87  
12.2 Reliance by Agent
    88  
12.3 Events of Default
    88  
12.4 Wachovia in its Individual Capacity
    89  
12.5 Indemnification
    89  
12.6 Non-Reliance on Agent and Other Lenders
    89  
12.7 Failure to Act
    90  
12.8 Additional Loans
    90  
12.9 Concerning the Collateral and the Related Financing Agreements
    90  
12.10 Field Audit, Examination Reports and other Information; Disclaimer by
Lenders
    90  
12.11 Collateral Matters
    91  
12.12 Agency for Perfection
    93  
12.13 Successor Agent
    93  
12.14 Other Agent Designations
    93  
SECTION 13. TERM OF AGREEMENT; MISCELLANEOUS
    94  
13.1 Term
    94  
13.2 Interpretative Provisions
    96  
13.3 Notices
    97  
13.4 Partial Invalidity
    98  
13.5 Confidentiality
    98  
13.6 Successors
    99  
13.7 Assignments; Participations
    100  
13.8 Entire Agreement
    102  
13.9 USA Patriot Act
    102  
13.10 Counterparts, Etc
    102  

 

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INDEX
TO
EXHIBITS AND SCHEDULES

     
Exhibit A
  Form of Assignment and Acceptance
 
   
Exhibit B
  Information Certificate
 
   
Exhibit C
  Form of Compliance Certificate
 
   
Schedule 1.41
  Existing Letters of Credit
 
   
Schedule 1.76
  Permitted Holders
 
   
Schedule 5.2(f)
  Beneficial Letters of Credit
 
   
Schedule 8.8
  Environmental Compliance
 
   
Schedule 8.13
  Labor Contracts
 
   
Schedule 8.15
  Material Contracts
 
   
Schedule 9.9
  Indebtedness
 
   
Schedule 9.10
  Loans and Advances

 

 

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LOAN AND SECURITY AGREEMENT
This Loan and Security Agreement dated May 4, 2007 is entered into by and among
Image Entertainment, Inc., a Delaware corporation (“Administrative Borrower” as
hereinafter further defined), Egami Media, Inc., a Delaware corporation
(“Egami”), Image Entertainment (UK), Inc., a Delaware corporation (“Image
(UK)”), Home Vision Entertainment, Inc., a Delaware corporation (“HVE” and
together with Egami and Image (UK), each individually a “Guarantor” and
collectively, “Guarantors” as hereinafter further defined), the parties hereto
from time to time as lenders, whether by execution of this Agreement or an
Assignment and Acceptance (each individually, a “Lender” and collectively,
“Lenders” as hereinafter further defined) and Wachovia Capital Finance
Corporation (Western), a California corporation, in its capacity as agent for
Lenders (in such capacity, “Agent” as hereinafter further defined).
W I T N E S S E T H:
WHEREAS, Administrative Borrower and Guarantors have requested that Agent and
Lenders enter into financing arrangements with Administrative Borrower pursuant
to which Lenders may make loans and provide other financial accommodations to
Administrative Borrower; and
WHEREAS, each Lender is willing to agree (severally and not jointly) to make
such loans and provide such financial accommodations to Administrative Borrower
on a pro rata basis according to its Commitment (as defined below) on the terms
and conditions set forth herein and Agent is willing to act as agent for Lenders
on the terms and conditions set forth herein and the other Financing Agreements;
NOW, THEREFORE, in consideration of the mutual conditions and agreements set
forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
SECTION 1. DEFINITIONS
For purposes of this Agreement, the following terms shall have the respective
meanings given to them below:
1.1 “Accounts” shall mean, as to each Borrower and Guarantor, all present and
future rights of such Borrower and Guarantor to payment of a monetary
obligation, whether or not earned by performance, which is not evidenced by
chattel paper or an instrument, (a) for property that has been or is to be sold,
leased, licensed, assigned, or otherwise disposed of, (b) for services rendered
or to be rendered, (c) for a secondary obligation incurred or to be incurred, or
(d) arising out of the use of a credit or charge card or information contained
on or for use with the card.

 

 

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1.2 “Adjusted Eurodollar Rate” shall mean, with respect to each Interest Period
for any Eurodollar Rate Loan comprising part of the same borrowing (including
conversions, extensions and renewals), the rate per annum determined by dividing
(a) the London Interbank Offered Rate for such Interest Period by (b) a
percentage equal to: (i) one (1) minus (ii) the Reserve Percentage. For purposes
hereof, “Reserve Percentage” shall mean for any day, that percentage, (expressed
as a decimal) which is in effect from time to time under Regulation D of the
Board of Governors of the Federal Reserve System (or any successor), as such
regulation may be amended from time to time or any successor regulation, as the
maximum reserve requirement (including, without limitation, any basic,
supplemental, emergency, special, or marginal reserves) applicable with respect
to Eurocurrency liabilities as that term is defined in Regulation D (or against
any other category of liabilities that includes deposits by reference to which
the interest rate of Eurodollar Loans is determined), whether or not any Lender
has any Eurocurrency liabilities subject to such reserve requirement at that
time. Eurodollar Loans shall be deemed to constitute Eurocurrency liabilities
and as such shall be deemed subject to reserve requirements without benefits of
credits for proration, exceptions or offsets that may be available from time to
time to a Lender. The Adjusted Eurodollar Rate shall be adjusted automatically
on and as of the effective date of any change in the Reserve Percentage.
1.3 “Administrative Borrower” shall mean Image Entertainment, Inc., a Delaware
corporation in its capacity as Administrative Borrower on behalf of itself and
any other Borrowers pursuant to Section 6.8 hereof and it successors and assigns
in such capacity.
1.4 “Affiliate” shall mean, with respect to a specified Person, any other Person
which directly or indirectly, through one or more intermediaries, controls or is
controlled by or is under common control with such Person, and without limiting
the generality of the foregoing, includes (a) any Person which beneficially owns
or holds five (5%) percent or more of any class of Voting Stock of such Person
or other equity interests in such Person, (b) any Person of which such Person
beneficially owns or holds five (5%) percent or more of any class of Voting
Stock or in which such Person beneficially owns or holds five (5%) percent or
more of the equity interests and (c) any director or executive officer of such
Person. For the purposes of this definition, the term “control” (including with
correlative meanings, the terms “controlled by” and “under common control
with”), as used with respect to any Person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of such Person, whether through the ownership of Voting Stock, by
agreement or otherwise.
1.5 “Agent” shall mean Wachovia Capital Finance Corporation (Western) in its
capacity as agent on behalf of Lenders pursuant to the terms hereof and any
replacement or successor agent hereunder.
1.6 “Agent Payment Account” shall mean account no. 5000000030321 of Agent at
Wachovia Bank, National Association, or such other account of Agent as Agent may
from time to time designate to Administrative Borrower as the Agent Payment
Account for purposes of this Agreement and the other Financing Agreements.

 

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1.7 “Applicable Margin” shall mean, at any time, with respect to any Prime Rate
Loan or Eurodollar Rate Loan, the applicable rate per annum set forth below
under the caption “Prime Spread” or “Eurodollar Spread”, as the case may be,
based upon the EBITDA of Parent and its Subsidiaries during the twelve
(12) months, or such lesser number of months that have elapsed from and
including April 2007, ending on the most recent determination date, provided
that until the first day of the month immediately following the delivery to the
Agent, pursuant to Section 9.6(a) hereof, of the consolidated financial
information for the fiscal quarter ending September 30, 2007, the “Applicable
Margin” shall be the applicable rate per annum set forth below in Category 3:

                      Prime     Eurodollar   EBITDA   Spread     Spread  
Category 1
    0.0 %     1.50 %
³ $8,500,000
               
Category 2
    0.0 %     1.75 %
< $8,500,000 but ³ $7,500,000

               
Category 3
    0.0 %     2.00 %
< $7,500,000 but ³ $5,500,000

               
Category 4
    0.25 %     2.25 %
< $5,500,000
               

For purposes of the foregoing, (a) the Applicable Margin shall be determined as
of the end of each fiscal quarter of Parent (commencing with the fiscal quarter
ending September 30, 2007) based upon the annual or monthly financial statements
(for periods ending on the last day of a fiscal quarter or year) delivered
pursuant to Section 9.6(a), and (b) each change in the Applicable Margin
resulting from the EBITDA of Parent and its Subsidiaries shall be effective
during the period commencing on and including the first day of the month
immediately following the date of delivery to the Agent of such financial
statements indicating such change and ending on the date immediately preceding
the effective date of the next such change, provided that the EBITDA shall be
deemed to be in Category 4 at the option of the Agent or at the request of the
Required Lenders if the Parent fails to deliver the annual or monthly financial
statements required to be delivered by it pursuant to Section 9.6(a) hereof,
during the period from the expiration of the time for delivery thereof until
such financial statements are delivered. If any such financial statements
overstate the EBITDA, and if as a result of such overstatement, the interest and
fees charged hereunder are less than what would have been charged had such
financial statements accurately stated the EBITDA, then Borrowers shall be
responsible for the difference between the interest and fees charged as result
of such overstatement and what would have been charged had such financial
statements accurately stated the EBITDA, and shall pay the amount of such
difference to the Agent upon its demand therefor.
1.8 “Assignment and Acceptance” shall mean an Assignment and Acceptance
substantially in the form of Exhibit A attached hereto (with blanks
appropriately completed) delivered to Agent in connection with an assignment of
a Lender’s interest hereunder in accordance with the provisions of Section 13.7
hereof.
1.9 “Bank Product Provider” shall mean any Lender, Affiliate of Lender or other
financial institution (in each case as to any such Lender, Affiliate or other
financial institution to the extent approved by Agent) that provides any Bank
Products to Borrowers or Guarantors.

 

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1.10 “Bank Products” shall mean any one or more of the following types or
services or facilities provided to a Borrower by a Bank Product Provider:
(a) credit cards or stored value cards or (b) cash management or related
services, including (i) the automated clearinghouse transfer of funds for the
account of a Borrower pursuant to agreement or overdraft for any accounts of
Borrowers maintained at Agent or any Bank Product Provider that are subject to
the control of Agent pursuant to any Deposit Account Control Agreement to which
Agent or such Bank Product Provider is a party, as applicable, and
(ii) controlled disbursement services and (c) Hedge Agreements if and to the
extent permitted hereunder. Any of the foregoing shall only be included in the
definition of the term “Bank Products” to the extent that the Bank Product
Provider has been approved by Agent.
1.11 “Blocked Accounts” shall have the meaning set forth in Section 6.3 hereof.
1.12 “Borrowers” shall mean, collectively, the following (together with their
respective successors and assigns): (a) Image Entertainment, Inc., a Delaware
corporation; and (b) any other Person that at any time after the date hereof
becomes a Borrower; each sometimes being referred to herein individually as a
“Borrower”.
1.13 “Borrowing Base” shall mean, at any time, as to each Borrower, the amount
equal to:
(a) the amount equal to eighty-five (85%) percent of the Eligible Accounts of
such Borrower, minus
(b) Reserves attributable to such Borrower.
Notwithstanding the foregoing, the maximum portion of the Borrowing Base
calculated upon Eligible Accounts that are unpaid more than ninety (90) days
after the date of the original invoice for them (but not more than one hundred
five (105) days after such date), shall be limited to Two Million Five Hundred
Thousand Dollars ($2,500,000).
1.14 “Business Day” shall mean any day other than a Saturday, Sunday, or other
day on which commercial banks are authorized or required to close under the laws
of the State of California or the State of North Carolina, and a day on which
Agent is open for the transaction of business, except that if a determination of
a Business Day shall relate to any Eurodollar Rate Loans, the term Business Day
shall also exclude any day on which banks are closed for dealings in dollar
deposits in the London interbank market or other applicable Eurodollar Rate
market.
1.15 “Capital Expenditures” shall mean, for any period, any expenditure of money
under a Capital Lease or for the lease, purchase or other acquisition of any
capital asset, for the lease of any other asset, whether payable currently or in
the future, or for the purchase or construction of assets, or for improvements
or additions thereto, which are capitalized on a Person’s balance sheet.
1.16 “Capital Leases” shall mean, as applied to any Person, any lease of (or any
agreement conveying the right to use) any property (whether real, personal or
mixed) by such Person as lessee which in accordance with GAAP, is required to be
reflected as a liability on the balance sheet of such Person.

 

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1.17 “Capital Stock” shall mean, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated) of such
Person’s capital stock or partnership, limited liability company or other equity
interests at any time outstanding, and any and all rights, warrants or options
exchangeable for or convertible into such capital stock or other interests (but
excluding any debt security that is exchangeable for or convertible into such
capital stock).
1.18 “Cash Equivalents” shall mean, at any time, (a) any evidence of
Indebtedness with a maturity date of ninety (90) days or less issued or directly
and fully guaranteed or insured by the United States of America or any agency or
instrumentality thereof; provided, that, the full faith and credit of the United
States of America is pledged in support thereof; (b) certificates of deposit or
bankers’ acceptances with a maturity of ninety (90) days or less of any
financial institution that is a member of the Federal Reserve System having
combined capital and surplus and undivided profits of not less than
$1,000,000,000; (c) commercial paper (including variable rate demand notes) with
a maturity of ninety (90) days or less issued by a corporation (except an
Affiliate of any Borrower or Guarantor) organized under the laws of any State of
the United States of America or the District of Columbia and rated at least A-1
by Standard & Poor’s Ratings Service, a division of The McGraw-Hill Companies,
Inc. or at least P-1 by Moody’s Investors Service, Inc.; (d) repurchase
obligations with a term of not more than thirty (30) days for underlying
securities of the types described in clause (a) above entered into with any
financial institution having combined capital and surplus and undivided profits
of not less than $1,000,000,000; (e) repurchase agreements and reverse
repurchase agreements relating to marketable direct obligations issued or
unconditionally guaranteed by the United States of America or issued by any
governmental agency thereof and backed by the full faith and credit of the
United States of America, in each case maturing within ninety (90) days or less
from the date of acquisition; provided, that, the terms of such agreements
comply with the guidelines set forth in the Federal Financial Agreements of
Depository Institutions with Securities Dealers and Others, as adopted by the
Comptroller of the Currency on October 31, 1985; and (f) investments in money
market funds and mutual funds which invest substantially all of their assets in
securities of the types described in clauses (a) through (e) above.
1.19 “Change of Control” shall mean (a) the transfer (in one transaction or a
series of transactions) of all or substantially all of the assets of any
Borrower or Guarantor to any Person or group (as such term is used in
Section 13(d)(3) of the Exchange Act), other than as permitted in Section 9.7
hereof; (b) the liquidation or dissolution of any Borrower or Guarantor or the
adoption of a plan by the stockholders of any Borrower or Guarantor relating to
the dissolution or liquidation of such Borrower or Guarantor, other than as
permitted in Section 9.7 hereof; (c) the acquisition by any Person or group (as
such term is used in Section 13(d)(3) of the Exchange Act), except for one or
more Permitted Holders, of beneficial ownership, directly or indirectly, of a
majority of the voting power of the total outstanding Voting Stock of any
Borrower or Guarantor or the Board of Directors of any Borrower or Guarantor;
(d) during any period of two (2) consecutive years, individuals who at the
beginning of such period constituted the Board of Directors of any Borrower or
Guarantor (together with any new directors who have been appointed by any
Permitted Holder, or whose nomination for election by the stockholders of such
Borrower or Guarantor, as the case may be, was approved by a vote of at least
sixty-six and two-thirds (66 2/3%) percent of the directors then still in office
who were either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors of any Borrower or Guarantor
then still in office; or (e) the failure of Parent to own directly or indirectly
one hundred (100%) percent of the voting power of the total outstanding Voting
Stock of any other Borrower or Guarantor.

 

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1.20 “Code” shall mean the Internal Revenue Code of 1986, as the same now exists
or may from time to time hereafter be amended, modified, recodified or
supplemented, together with all rules, regulations and interpretations
thereunder or related thereto.
1.21 “Collateral” shall have the meaning set forth in Section 5 hereof.
1.22 “Collateral Access Agreement” shall mean an agreement in writing, in form
and substance satisfactory to Agent, from any lessor of premises to any Borrower
or Guarantor, or any other person to whom any Collateral is consigned or who has
custody, control or possession of any such Collateral or is otherwise the owner
or operator of any premises on which any of such Collateral is located, in favor
of Agent with respect to the Collateral at such premises or otherwise in the
custody, control or possession of such lessor, consignee or other person.
1.23 “Commitment” shall mean, at any time, as to each Lender, the principal
amount set forth below such Lender’s signature on the signatures pages hereto
designated as the Commitment or on Schedule 1 to the Assignment and Acceptance
Agreement pursuant to which such Lender became a Lender hereunder in accordance
with the provisions of Section 13.7 hereof, as the same may be adjusted from
time to time in accordance with the terms hereof; sometimes being collectively
referred to herein as “Commitments”.
1.24 “Credit Facility” shall mean the Loans and Letters of Credit provided to or
for the benefit of any Borrower pursuant to Sections 2.1 and 2.2 hereof.
1.25 “Default” shall mean an act, condition or event which with notice or
passage of time or both would constitute an Event of Default.
1.26 “Defaulting Lender” shall have the meaning set forth in Section 6.11
hereof.
1.27 “Deposit Account Control Agreement” shall mean an agreement in writing, in
form and substance satisfactory to Agent, by and among Agent, the Borrower or
Guarantor with a deposit account at any bank and the bank at which such deposit
account is at any time maintained which provides that such bank will comply with
instructions originated by Agent directing disposition of the funds in the
deposit account without further consent by such Borrower or Guarantor and has
such other terms and conditions as Agent may require.
1.28 “EBITDA” shall mean, as to any Person, with respect to any period, an
amount equal to: (a) the Net Income of such Person and its Subsidiaries for such
period on a consolidated basis determined in accordance with GAAP, plus
(b) depreciation, amortization and other non-cash charges (including, but not
limited to, imputed interest and deferred compensation) of such Person for such
period (to the extent deducted in the computation of Net Income), all in
accordance with GAAP, plus (c) Interest Expense of such Person for such period
(to the extent deducted in the computation of Net Income), plus (d) charges for
Federal, State, local and foreign income taxes for such period (to the extent
deducted in the computation of Net Income), plus (e) all extraordinary losses
and unusual losses related to the restructuring of the business of such Person
and costs associated with the financing transaction contemplated by this
Agreement, minus (f) all income (and plus all charges, up to the amount of such
income) attributable to any Subsidiary of such Person.

 

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1.29 “Eligible Accounts” shall mean Accounts created by a Borrower that in each
case satisfy the criteria set forth below as determined by Agent subject to the
provisions of Section 9.18 hereof. In general, subject to those provisions,
Accounts shall be Eligible Accounts if:
(a) such Accounts arise from the actual and bona fide sale and delivery of goods
by such Borrower or rendition of services by such Borrower in the ordinary
course of its business which transactions are completed in accordance with the
terms and provisions contained in any documents related thereto;
(b) such Accounts are not unpaid more than sixty (60) days after the original
due date for them or more than one hundred five (105) days after the date of the
original invoice for them;
(c) such Accounts comply with the terms and conditions contained in
Section 7.2(b) of this Agreement;
(d) such Accounts do not arise from sales on consignment, guaranteed sale, sale
and return, sale on approval, or other terms under which payment by the account
debtor may be conditional or contingent;
(e) the chief executive office of the account debtor with respect to such
Accounts is located in the United States of America or Canada (provided, that,
at any time promptly upon Agent’s request, such Borrower shall execute and
deliver, or cause to be executed and delivered, such other agreements, documents
and instruments as may be required by Agent to perfect the security interests of
Agent in those Accounts of an account debtor with its chief executive office or
principal place of business in Canada in accordance with the applicable laws of
the Province of Canada in which such chief executive office or principal place
of business is located and take or cause to be taken such other and further
actions as Agent may request to enable Agent as secured party with respect
thereto to collect such Accounts under the applicable Federal or Provincial laws
of Canada) or, at Agent’s option, if the chief executive office and principal
place of business of the account debtor with respect to such Accounts is located
other than in the United States of America or Canada, then if either: (i) the
account debtor has delivered to such Borrower an irrevocable letter of credit
issued or confirmed by a bank satisfactory to Agent and payable only in the
United States of America and in U.S. dollars, sufficient to cover such Account,
in form and substance satisfactory to Agent and if required by Agent, the
original of such letter of credit has been delivered to Agent or Agent’s agent
and the issuer thereof, and such Borrower has complied with the terms of
Section 5.2(f) hereof with respect to the assignment of the proceeds of such
letter of credit to Agent or naming Agent as transferee beneficiary thereunder,
as Agent may specify, or (ii) such Account is subject to credit insurance
payable to Agent issued by an insurer and on terms and in an amount acceptable
to Agent, or (iii) such Account is otherwise acceptable in all respects to Agent
(subject to such lending formula with respect thereto as Agent may determine);

 

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(f) such Accounts do not consist of progress billings (such that the obligation
of the account debtors with respect to such Accounts is conditioned upon such
Borrower’s satisfactory completion of any further performance under the
agreement giving rise thereto), bill and hold invoices or retainage invoices,
except as to bill and hold invoices, if Agent shall have received an agreement
in writing from the account debtor, in form and substance satisfactory to Agent,
confirming the unconditional obligation of the account debtor to take the goods
related thereto and pay such invoice;
(g) the account debtor with respect to such Accounts has not asserted a
counterclaim, defense or dispute and is not owed or does not claim to be owed
any amounts that may give rise to any right of setoff or recoupment against such
Accounts (but the portion of the Accounts of such account debtor in excess of
the amount at any time and from time to time owed by such Borrower to such
account debtor or claimed owed by such account debtor may be deemed Eligible
Accounts);
(h) there are no facts, events or occurrences which would impair the validity,
enforceability or collectability of such Accounts or reduce the amount payable
or delay payment thereunder;
(i) such Accounts are subject to the first priority, valid and perfected
security interest of Agent and any goods giving rise thereto are not, and were
not at the time of the sale thereof, subject to any liens except those permitted
in this Agreement that are subject to an intercreditor agreement in form and
substance satisfactory to Agent between the holder of such security interest or
lien and Agent;
(j) neither the account debtor nor any officer or employee of the account debtor
with respect to such Accounts is an officer, employee, agent or other Affiliate
of any Borrower or Guarantor;
(k) the account debtors with respect to such Accounts are not any foreign
government, the United States of America, any State, political subdivision,
department, agency or instrumentality thereof, unless, if the account debtor is
the United States of America, any State, political subdivision, department,
agency or instrumentality thereof, upon Agent’s request, the Federal Assignment
of Claims Act of 1940, as amended or any similar State or local law, if
applicable, has been complied with in a manner satisfactory to Agent;
(l) there are no proceedings or actions which are threatened or pending against
the account debtors with respect to such Accounts which might result in any
material adverse change in any such account debtor’s financial condition
(including, without limitation, any bankruptcy, dissolution, liquidation,
reorganization or similar proceeding);
(m) the aggregate amount of such Accounts owing by a single account debtor
(other than Amazon.com, AEC One Stop and Anderson Merchandising) do not
constitute more than ten (10%) percent of the aggregate amount of all otherwise
Eligible Accounts and such Accounts owing by each of Amazon.com and AEC One Stop
do not, in each case, constitute more than twenty-five (25%) percent of the
aggregate amount of all otherwise Eligible Accounts and such Accounts owing by
Anderson Merchandising do not constitute more than thirty (30%) percent of the
aggregate amount of all otherwise Eligible Accounts (but the portion of the
Accounts not in excess of the applicable percentages may be deemed Eligible
Accounts);

 

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(n) such Accounts are not owed by an account debtor who has Accounts unpaid more
than sixty (60) days after the original due date for them or more than one
hundred five (105) days after the original invoice date for them which
constitute more than fifty (50%) percent of the total Accounts of such account
debtor;
(o) the account debtor is not located in a state requiring the filing of a
Notice of Business Activities Report or similar report in order to permit such
Borrower to seek judicial enforcement in such State of payment of such Account,
unless such Borrower has qualified to do business in such state or has filed a
Notice of Business Activities Report or equivalent report for the then current
year or such failure to file and inability to seek judicial enforcement is
capable of being remedied without any material delay or material cost;
(p) such Accounts are owed by account debtors whose total indebtedness to such
Borrower does not exceed the credit limit with respect to such account debtors
as determined by such Borrower from time to time, to the extent such credit
limit as to any account debtor is established consistent with the current
practices of such Borrower as of the date hereof and such credit limit is
acceptable to Agent (but the portion of the Accounts not in excess of such
credit limit may be deemed Eligible Accounts); and
(q) such Accounts are owed by account debtors deemed creditworthy at all times
by Agent in good faith.
The criteria for Eligible Accounts set forth above may only be changed and any
new criteria for Eligible Accounts may only be established by Agent in good
faith based on either: (i) an event, condition or other circumstance arising
after the date hereof, or (ii) an event, condition or other circumstance
existing on the date hereof to the extent Agent has no written notice thereof
from a Borrower prior to the date hereof, in either case under clause (i) or
(ii) which adversely affects or could reasonably be expected to adversely affect
the Accounts in the good faith determination of Agent. Any Accounts that are not
Eligible Accounts shall nevertheless be part of the Collateral.
1.30 “Eligible Transferee” shall mean (a) any Lender; (b) the parent company of
any Lender and/or any Affiliate of such Lender which is at least fifty (50%)
percent owned by such Lender or its parent company; (c) any person (whether a
corporation, partnership, trust or otherwise) that is engaged in the business of
making, purchasing, holding or otherwise investing in bank loans and similar
extensions of credit in the ordinary course of its business and is administered
or managed by a Lender or with respect to any Lender that is a fund which
invests in bank loans and similar extensions of credit, any other fund that
invests in bank loans and similar extensions of credit and is managed by the
same investment advisor as such Lender or by an Affiliate of such investment
advisor, and in each case is approved by Agent; and (d) any other commercial
bank, financial institution or “accredited investor” (as defined in Regulation D
under the Securities Act of 1933) approved by Agent, provided, that, (i) neither
any Borrower nor any Guarantor or any Affiliate of any Borrower or Guarantor
shall qualify as an Eligible Transferee and (ii) no Person to whom any
Indebtedness which is in any way subordinated in right of payment to any other
Indebtedness of any Borrower or Guarantor shall qualify as an Eligible
Transferee, except as Agent may otherwise specifically agree.

 

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1.31 “Environmental Laws” shall mean all foreign, Federal, State and local laws
(including common law), legislation, rules, codes, licenses, permits (including
any conditions imposed therein), authorizations, judicial or administrative
decisions, injunctions or agreements between any Borrower or Guarantor and any
Governmental Authority, (a) relating to pollution and the protection,
preservation or restoration of the environment (including air, water vapor,
surface water, ground water, drinking water, drinking water supply, surface
land, subsurface land, plant and animal life or any other natural resource), or
to human health or safety, (b) relating to the exposure to, or the use, storage,
recycling, treatment, generation, manufacture, processing, distribution,
transportation, handling, labeling, production, release or disposal, or
threatened release, of Hazardous Materials, or (c) relating to all laws with
regard to recordkeeping, notification, disclosure and reporting requirements
respecting Hazardous Materials. The term “Environmental Laws” includes (i) the
Federal Comprehensive Environmental Response, Compensation and Liability Act of
1980, the Federal Superfund Amendments and Reauthorization Act, the Federal
Water Pollution Control Act of 1972, the Federal Clean Water Act, the Federal
Clean Air Act, the Federal Resource Conservation and Recovery Act of 1976
(including the Hazardous and Solid Waste Amendments thereto), the Federal Solid
Waste Disposal and the Federal Toxic Substances Control Act, the Federal
Insecticide, Fungicide and Rodenticide Act, and the Federal Safe Drinking Water
Act of 1974, (ii) applicable state counterparts to such laws and (iii) any
common law or equitable doctrine that may impose liability or obligations for
injuries or damages due to, or threatened as a result of, the presence of or
exposure to any Hazardous Materials.
1.32 “Equipment” shall mean, as to each Borrower and Guarantor, all of such
Borrower’s and Guarantor’s now owned and hereafter acquired equipment, wherever
located, including machinery, data processing and computer equipment (whether
owned or licensed and including embedded software), vehicles, tools, furniture,
fixtures, all attachments, accessions and property now or hereafter affixed
thereto or used in connection therewith, and substitutions and replacements
thereof, wherever located.
1.33 “ERISA” shall mean the Employee Retirement Income Security Act of 1974,
together with all rules, regulations and interpretations thereunder or related
thereto.
1.34 “ERISA Affiliate” shall mean any person required to be aggregated with any
Borrower, any Guarantor or any of its or their respective Subsidiaries under
Sections 414(b), 414(c), 414(m) or 414(o) of the Code.
1.35 “ERISA Event” shall mean (a) any “reportable event”, as defined in Section
4043(c) of ERISA or the regulations issued thereunder, with respect to a Pension
Plan, other than events as to which the requirement of notice has been waived in
regulations by the Pension Benefit Guaranty Corporation; (b) the adoption of any
amendment to a Pension Plan that would require the provision of security
pursuant to Section 401(a)(29) of the Code or Section 307 of ERISA; (c) a
complete or partial withdrawal by any Borrower, Guarantor or any ERISA Affiliate
from a Multiemployer Plan or a cessation of operations which is treated as such
a withdrawal or notification that a Multiemployer Plan is in reorganization;
(d) the filing of a notice of intent to terminate, the treatment of a Pension
Plan amendment as a termination under Section 4041 or 4041A of ERISA, or the
commencement of proceedings by the Pension Benefit Guaranty Corporation to
terminate a Pension Plan; (e) an event or condition which might reasonably be
expected to constitute grounds under Section 4042 of ERISA for the termination
of, or the appointment of a trustee to administer, any Plan; (f) the imposition
of any liability under Title IV of ERISA, other than the Pension Benefit
Guaranty Corporation premiums due but not delinquent under Section 4007 of
ERISA, upon any Borrower, Guarantor or any ERISA Affiliate in excess of $250,000
and (g) any other event or condition with respect to a Plan including any
Pension Plan subject to Title IV of ERISA maintained, or contributed to, by any
ERISA Affiliate that could reasonably be expected to result in liability of any
Borrower in excess of $250,000.

 

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1.36 “Eurodollar Rate Loans” shall mean any Loans or portion thereof on which
interest is payable based on the Adjusted Eurodollar Rate in accordance with the
terms hereof.
1.37 “Event of Default” shall mean the occurrence or existence of any event or
condition described in Section 10.1 hereof.
1.38 “Excess Availability” shall mean, as to each Borrower, the amount, as
determined by Agent, calculated at any date, equal to: (a) the lesser of:
(i) the Borrowing Base of such Borrower and (ii) the Revolving Loan Limit of
such Borrower (in each case under (i) or (ii) after giving effect to any
Reserves other than any Reserves in respect of Letter of Credit Obligations),
minus (b) the sum of: (i) the amount of all then outstanding and unpaid
Obligations of such Borrower (but not including for this purpose Obligations of
such Borrower arising pursuant to any guarantees in favor of Agent and Lenders
of the Obligations of the other Borrowers or any outstanding Letter of Credit
Obligations), plus (ii) the amount of all Reserves then established in respect
of Letter of Credit Obligations, and solely for the purpose of the condition
precedent set forth in Section 4.1(f) hereof, plus (iii) the aggregate amount of
all then outstanding and unpaid trade payables and other obligations of such
Borrower which are outstanding more than sixty (60) days past due as of the end
of the immediately preceding month or at Agent’s option, as of a more recent
date based on such reports as Agent may from time to time specify (other than
trade payables or other obligations being contested or disputed by such Borrower
in good faith), plus (iv) without duplication, the amount of checks issued by
such Borrower to pay trade payables and other obligations which are more than
sixty (60) days past due as of the end of the immediately preceding month or at
Agent’s option, as of a more recent date based on such reports as Agent may from
time to time specify (other than trade payables or other obligations being
contested or disputed by such Borrower in good faith), but not yet sent.
1.39 “Exchange Act” shall mean the Securities Exchange Act of 1934, together
with all rules, regulations and interpretations thereunder or related thereto.
1.40 “Existing Lenders” shall mean Wells Fargo Foothill, Inc. and its
predecessors, successors and assigns.
1.41 “Existing Letters of Credit” shall mean, collectively, the letters of
credit issued for the account of a Borrower or Guarantor or for which such
Borrower or Guarantor is otherwise liable listed on Schedule 1.41 hereto, as the
same now exist or may hereafter be amended, modified, supplemented, extended,
renewed, restated or replaced.

 

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1.42 “Fee Letter” shall mean the letter agreement, dated of even date herewith,
by and among Borrowers, Guarantors and Agent, setting forth certain fees payable
by Borrowers to Agent for the benefit of itself and Lenders, as the same now
exists or may hereafter be amended, modified, supplemented, extended, renewed,
restated or replaced.
1.43 “Financing Agreements” shall mean, collectively, this Agreement and all
notes, guarantees, security agreements, deposit account control agreements,
investment property control agreements, intercreditor agreements and all other
agreements, documents and instruments now or at any time hereafter executed
and/or delivered by any Borrower or Obligor in connection with this Agreement;
provided, that, in no event shall the term Financing Agreements be deemed to
include any Hedge Agreement.
1.44 “Fixed Charge Coverage Ratio” shall mean, as to any Person, with respect to
any period, the ratio of (a) the EBITDA of such Person during such period,
calculated without giving effect to any asset write-downs associated with Source
Entertainment, expenses directly associated with that certain Agreement and Plan
of Merger dated as of March 29, 2007 among BTP Acquisition Company, LLC, IEAC,
Inc. and Parent, and any expenses directly associated with derivative
shareholder lawsuits against Parent, plus any amortization of production costs
(to the extent not already added to Net Income in calculating such EBITDA),
minus taxes, whether Federal, State or local, and whether foreign or domestic,
that are paid or payable by such Person or its Subsidiaries in cash in respect
of such period, and minus any Capital Expenditures made by such Person or its
Subsidiaries during such period to the extent they are not financed, to (b) all
principal sums paid or payable by such Person or its Subsidiaries on
Indebtedness during such period and all Interest Expense of such Person and its
Subsidiaries during such period, minus any such Interest Expense not paid or
payable in cash, minus deferred finance expense on subordinated Indebtedness,
minus any warrant amortization, and plus production costs expenditures, in each
case made or incurred by such Person or its Subsidiaries during such period.
1.45 “Foreign Lender” shall mean any Lender that is organized under the laws of
a jurisdiction other than that in which a Borrower is resident for tax purposes.
For purposes of this definition, the United States of America, each State
thereof and the District of Columbia shall be deemed to constitute a single
jurisdiction.
1.46 “Funding Bank” shall have the meaning given to such term in Section 3.3
hereof.
1.47 “GAAP” shall mean generally accepted accounting principles in the United
States of America as in effect from time to time as set forth in the opinions
and pronouncements of the Accounting Principles Board and the American Institute
of Certified Public Accountants and the statements and pronouncements of the
Financial Accounting Standards Board which are applicable to the circumstances
as of the date of determination consistently applied, except that, for purposes
of Sections 9.17 and 9.18 hereof, GAAP shall be determined on the basis of such
principles in effect on the date hereof and consistent with those used in the
preparation of the most recent audited financial statements delivered to Agent
prior to the date hereof.

 

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1.48 “Governmental Authority” shall mean any nation or government, any state,
province, or other political subdivision thereof, any central bank (or similar
monetary or regulatory authority) thereof, and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
1.49 “Guarantors” shall mean, collectively, the following (together with their
respective successors and assigns): (a) Egami Media, Inc., a Delaware
corporation; (b) Image Entertainment (UK), Inc., a Delaware corporation;
(c) Home Vision Entertainment, Inc., a Delaware corporation; and (d) any other
Person that at any time after the date hereof becomes party to a guarantee in
favor of Agent or any Lender or otherwise liable on or with respect to the
Obligations or who is the owner of any property which is security for the
Obligations (other than Borrowers); each sometimes being referred to herein
individually as a “Guarantor”.
1.50 “Hazardous Materials” shall mean any hazardous, toxic or dangerous
substances, materials and wastes, including hydrocarbons (including naturally
occurring or man-made petroleum and hydrocarbons), flammable explosives,
asbestos, urea formaldehyde insulation, radioactive materials, biological
substances, polychlorinated biphenyls, pesticides, herbicides and any other kind
and/or type of pollutants or contaminants (including materials which include
hazardous constituents), sewage, sludge, industrial slag, solvents and/or any
other similar substances, materials, or wastes and including any other
substances, materials or wastes that are or become regulated under any
Environmental Law (including any that are or become classified as hazardous or
toxic under any Environmental Law).
1.51 “Hedge Agreement” shall mean an agreement between any Borrower or Guarantor
and Agent or any Bank Product Provider that is a swap agreement as such term is
defined in 11 U.S.C. Section 101, and including any rate swap agreement, basis
swap, forward rate agreement, commodity swap, interest rate option, forward
foreign exchange agreement, spot foreign exchange agreement, rate cap agreement
rate, floor agreement, rate collar agreement, currency swap agreement,
cross-currency rate swap agreement, currency option, any other similar agreement
(including any option to enter into any of the foregoing or a master agreement
for any the foregoing together with all supplements thereto) for the purpose of
protecting against or managing exposure to fluctuations in interest or exchange
rates, currency valuations or commodity prices; sometimes being collectively
referred to herein as “Hedge Agreements”.

 

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1.52 “Indebtedness” shall mean, with respect to any Person, any liability,
whether or not contingent, (a) in respect of borrowed money (whether or not the
recourse of the lender is to the whole of the assets of such Person or only to a
portion thereof) or evidenced by bonds, notes, debentures or similar
instruments; (b) representing the balance deferred and unpaid of the purchase
price of any property or services (other than an account payable to a trade
creditor (whether or not an Affiliate) incurred in the ordinary course of
business of such Person and payable in accordance with customary trade
practices); (c) all obligations as lessee under leases which have been, or
should be, in accordance with GAAP recorded as Capital Leases; (d) any
contractual obligation, contingent or otherwise, of such Person to pay or be
liable for the payment of any indebtedness described in this definition of
another Person, including, without limitation, any such indebtedness, directly
or indirectly guaranteed, or any agreement to purchase, repurchase, or otherwise
acquire such indebtedness, obligation or liability or any security therefor, or
to provide funds for the payment or discharge thereof, or to maintain solvency,
assets, level of income, or other financial condition; (e) all obligations with
respect to redeemable stock and redemption or repurchase obligations under any
Capital Stock or other equity securities issued by such Person; (f) all
reimbursement obligations and other liabilities of such Person with respect to
surety bonds (whether bid, performance or otherwise), letters of credit,
banker’s acceptances, drafts or similar documents or instruments issued for such
Person’s account; (g) all indebtedness of such Person in respect of indebtedness
of another Person for borrowed money or indebtedness of another Person otherwise
described in this definition which is secured by any consensual lien, security
interest, collateral assignment, conditional sale, mortgage, deed of trust, or
other encumbrance on any asset of such Person, whether or not such obligations,
liabilities or indebtedness are assumed by or are a personal liability of such
Person, all as of such time; (h) all obligations, liabilities and indebtedness
of such Person (marked to market) arising under swap agreements, cap agreements
and collar agreements and other agreements or arrangements designed to protect
such person against fluctuations in interest rates or currency or commodity
values; (i) all obligations owed by such Person under License Agreements with
respect to non-refundable, advance or minimum guarantee royalty payments;
(j) indebtedness of any partnership or joint venture in which such Person is a
general partner or a joint venturer to the extent such Person is liable therefor
as a result of such Person’s ownership interest in such entity, except to the
extent that the terms of such indebtedness expressly provide that such Person is
not liable therefor or such Person has no liability therefor as a matter of law
and (k) the principal and interest portions of all rental obligations of such
Person under any synthetic lease or similar off-balance sheet financing where
such transaction is considered to be borrowed money for tax purposes but is
classified as an operating lease in accordance with GAAP.
1.53 “Information Certificate” shall mean, collectively, the Information
Certificates of Borrowers and Guarantors constituting Exhibit B hereto
containing material information with respect to Borrowers and Guarantors, their
respective businesses and assets provided by or on behalf of Borrowers and
Guarantors to Agent in connection with the preparation of this Agreement and the
other Financing Agreements and the financing arrangements provided for herein.
1.54 “Intellectual Property” shall mean, as to each Borrower and Guarantor, such
Borrower’s and Guarantor’s now owned and hereafter arising or acquired: patents,
patent rights, patent applications, copyrights, works which are the subject
matter of copyrights, copyright applications, copyright registrations,
trademarks, servicemarks, trade names, trade styles, trademark and service mark
applications, and licenses and rights to use any of the foregoing and all
applications, registrations and recordings relating to any of the foregoing as
may be filed in the United States Copyright Office, the United States Patent and
Trademark Office or in any similar office or agency of the United States, any
State thereof, any political subdivision thereof or in any other country or
jurisdiction, together with all rights and privileges arising under applicable
law with respect to any Borrower’s or Guarantor’s use of any of the foregoing;
all extensions, renewals, reissues, divisions, continuations, and
continuations-in-part of any of the foregoing; all rights to sue for past,
present and future infringement of any of the foregoing; inventions, trade
secrets, formulae, processes, compounds, drawings, designs, blueprints, surveys,
reports, manuals, and operating standards; goodwill (including any goodwill
associated with any trademark or servicemark, or the license of any trademark or
servicemark); customer and other lists in whatever form maintained; trade secret
rights, copyright rights, rights in works of authorship, domain names and domain
name registration; software and contract rights relating to computer software
programs, in whatever form created or maintained.

 

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1.55 “Interest Expense” shall mean, for any period, as to any Person and its
Subsidiaries, all of the following as determined in accordance with GAAP, total
interest expense, whether paid or accrued (including the interest component of
Capital Leases for such period), including, without limitation, all bank fees,
commissions, discounts and other fees and charges owed with respect to letters
of credit, banker’s acceptances or similar instruments, but excluding
(a) amortization of discount and amortization of deferred financing fees and
closing costs paid in cash in connection with the transactions contemplated
hereby, (b) interest paid in property other than cash and (c) any other interest
expense not payable in cash.
1.56 “Interest Period” shall mean for any Eurodollar Rate Loan, a period of
approximately one (1), two (2), or three (3) months duration as any Borrower (or
Administrative Borrower on behalf of such Borrower) may elect, the exact
duration to be determined in accordance with the customary practice in the
applicable Eurodollar Rate market; provided, that, such Borrower (or
Administrative Borrower on behalf of such Borrower) may not elect an Interest
Period which will end after the last day of the then-current term of this
Agreement.
1.57 “Interest Rate” shall mean,
(a) Subject to clause (b) of this definition below:
(i) as to Prime Rate Loans, a rate equal to the sum of the Applicable Margin
plus the Prime Rate; and
(ii) as to Eurodollar Rate Loans, a rate equal to the sum of the Applicable
Margin plus the Adjusted Eurodollar Rate (in each case, based on the London
Interbank Offered Rate applicable for the Interest Period selected by a
Borrower, or by Administrative Borrower on behalf of such Borrower, as in effect
two (2) Business Days prior to the commencement of the Interest Period, whether
such rate is higher or lower than any rate previously quoted to any Borrower or
Guarantor).
(b) Notwithstanding anything to the contrary contained in clause (a) of this
definition, the Interest Rate shall mean a rate two (2.0%) percent per annum
higher than the applicable rate set forth in such clause (a), at Agent’s option,
without notice, (i) either (A) for the period on and after the date of
termination or non-renewal hereof until such time as all Obligations are
indefeasibly paid and satisfied in full in immediately available funds, or
(B) for the period from and after the date of the occurrence of any Event of
Default, and for so long as such Event of Default is continuing as determined by
Agent and (ii) on the Revolving Loans to any Borrower at any time outstanding in
excess of the Borrowing Base of such Borrower or the Revolving Loan Limit of
such Borrower (whether or not such excess(es) arise or are made with or without
Agent’s or any Lender’s knowledge or consent and whether made before or after an
Event of Default).
1.58 “Inventory” shall mean, as to each Borrower and Guarantor, all of such
Borrower’s and Guarantor’s now owned and hereafter existing or acquired goods,
wherever located, which (a) are leased by such Borrower or Guarantor as lessor;
(b) are held by such Borrower or Guarantor for sale or lease or to be furnished
under a contract of service; (c) are furnished by such Borrower or Guarantor
under a contract of service; or (d) consist of raw materials, work in process,
finished goods or materials used or consumed in its business.

 

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1.59 “Investment Property Control Agreement” shall mean an agreement in writing,
in form and substance satisfactory to Agent, by and among Agent, any Borrower or
Guarantor (as the case may be) and any securities intermediary, commodity
intermediary or other person who has custody, control or possession of any
investment property of such Borrower or Guarantor acknowledging that such
securities intermediary, commodity intermediary or other person has custody,
control or possession of such investment property on behalf of Agent, that it
will comply with entitlement orders originated by Agent with respect to such
investment property, or other instructions of Agent, and has such other terms
and conditions as Agent may require.
1.60 “Lenders” shall mean the financial institutions who are signatories hereto
as Lenders and other persons made a party to this Agreement as a Lender in
accordance with Section 13.7 hereof, and their respective successors and
assigns; each sometimes being referred to herein individually as a “Lender”.
1.61 “Letter of Credit Documents” shall mean, with respect to any Letter of
Credit, such Letter of Credit, any amendments thereto, any documents delivered
in connection therewith, any application therefor, and any agreements,
instruments, guarantees or other documents (whether general in application or
applicable only to such Letter of Credit) governing or providing for (a) the
rights and obligations of the parties concerned or at risk or (b) any collateral
security for such obligations.
1.62 “Letter of Credit Limit” shall mean $2,000,000.
1.63 “Letter of Credit Obligations” shall mean, at any time, the sum of (a) the
aggregate undrawn amount of all Letters of Credit outstanding at such time, plus
(b) the aggregate amount of all drawings under Letters of Credit for which the
issuer thereof has not at such time been reimbursed, plus (c) without
duplication, the aggregate amount of all payments made by each Lender to the
issuer with respect to such Lender’s participation in Letters of Credit as
provided in Section 2.2 for which Borrowers have not at such time reimbursed the
Lenders, whether by way of a Revolving Loan or otherwise.
1.64 “Letters of Credit” shall mean all letters of credit (whether documentary
or stand-by and whether for the purchase of inventory, equipment or otherwise)
issued by an issuer for the account of any Borrower pursuant to this Agreement,
and all amendments, renewals, extensions or replacements thereof and including,
but not limited to, the Existing Letters of Credit. The issuer of the Letters of
Credit shall be, and all references to such issuer herein shall mean, Wachovia
Bank, National Association and its successors and assigns or such other bank as
Lender may from time to time designate.
1.65 “License Agreements” shall have the meaning set forth in Section 8.11
hereof.
1.66 “Loans” shall mean, collectively, the Revolving Loans.

 

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1.67 “London Interbank Offered Rate” shall mean, with respect to any Eurodollar
Loan for the Interest Period applicable thereto, the rate of interest per annum
(rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on
Telerate Page 3750 (or any successor page) as the London interbank offered rate
for deposits in U.S. Dollars at approximately 11:00 A.M. (London time) two
(2) Business Days prior to the first day of such Interest Period for a term
comparable to such Interest Period; provided, that, if more than one rate is
specified on Telerate Page 3750, the applicable rate shall be the arithmetic
mean of all such rates. If, for any reason, such rate is not available, the term
“London Interbank Offered Rate” shall mean, with respect to any Eurodollar Loan
for the Interest Period applicable thereto, the rate of interest per annum
(rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on Reuters
Screen LIBO Page as the London interbank offered rate for deposits in Dollars at
approximately 11:00 A.M. (London time) two (2) Business Days prior to the first
day of such Interest Period for a term comparable to such Interest Period;
provided, however, if more than one rate is specified on Reuters Screen LIBO
Page, the applicable rate shall be the arithmetic mean of all such rates.
1.68 “Material Adverse Effect” shall mean a material adverse effect on (a) the
financial condition, business, performance or operations of Borrowers; (b) the
legality, validity or enforceability of this Agreement or any of the other
Financing Agreements; (c) the legality, validity, enforceability, perfection or
priority of the security interests and liens of Agent upon the Collateral;
(d) the Collateral or its value; (e) the ability of any Borrower to repay the
Obligations or of any Borrower to perform its obligations under this Agreement
or any of the other Financing Agreements as and when to be performed; or (f) the
ability of Agent or any Lender to enforce the Obligations or realize upon the
Collateral or otherwise with respect to the rights and remedies of Agent and
Lenders under this Agreement or any of the other Financing Agreements.
1.69 “Material Contract” shall mean (a) any contract or other agreement (other
than the Financing Agreements), written or oral, of any Borrower or Guarantor
involving monetary liability of or to any Person in an amount in excess of
$500,000 in any fiscal year and (b) any other contract or other agreement (other
than the Financing Agreements), whether written or oral, to which any Borrower
or Guarantor is a party as to which the breach, nonperformance, cancellation or
failure to renew by any party thereto would have a Material Adverse Effect.
1.70 “Multiemployer Plan” shall mean a “multi-employer plan” as defined in
Section 4001(a)(3) of ERISA which is or was at any time during the current year
or the immediately preceding six (6) years contributed to by any Borrower,
Guarantor or any ERISA Affiliate or with respect to which any Borrower,
Guarantor or any ERISA Affiliate may incur any liability.

 

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1.71 “Net Income” shall mean, with respect to any Person, for any period, the
aggregate of the net income (loss) of such Person and its Subsidiaries, on a
consolidated basis, for such period (excluding to the extent included therein
any extraordinary or one-time gains or losses) after deducting all charges which
should be deducted before arriving at the net income (loss) for such period and
after deducting the Provision for Taxes for such period, all as determined in
accordance with GAAP, provided, that, (a) the net income of any Person that is
not a wholly-owned Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid or payable to such Person or a wholly-owned Subsidiary of
such Person; (b) the effect of any change in accounting principles adopted by
such Person or its Subsidiaries after the date hereof shall be excluded; and
(c) the net income (if positive) of any wholly-owned Subsidiary to the extent
that the declaration or payment of dividends or similar distributions by such
wholly-owned Subsidiary to such Person or to any other wholly-owned Subsidiary
of such Person is not at the time permitted by operation of the terms of its
charter or any agreement, instrument, judgment, decree, order, statute, rule of
government regulation applicable to such wholly-owned Subsidiary shall be
excluded. For the purpose of this definition, net income excludes any gain or
loss, together with any related Provision for Taxes for such gain or loss
realized upon the sale or other disposition of any assets that are not sold in
the ordinary course of business (including, without limitation, dispositions
pursuant to sale and leaseback transactions), or of any Capital Stock of such
Person or a Subsidiary of such Person and any net income realized as a result of
changes in accounting principles or the application thereof to such Person.
1.72 “Obligations” shall mean (a) any and all Loans, Letter of Credit
Obligations and all other obligations, liabilities and indebtedness of every
kind, nature and description owing by any or all of Borrowers to Agent or any
Lender or any Issuing Bank, including principal, interest, charges, fees, costs
and expenses, however evidenced, whether as principal, surety, endorser,
guarantor or otherwise, arising under this Agreement or any of the other
Financing Agreements or on account of any Letter of Credit and all other Letter
of Credit Obligations, whether now existing or hereafter arising, whether
arising before, during or after the initial or any renewal term of this
Agreement or after the commencement of any case with respect to such Borrower
under the United States Bankruptcy Code or any similar statute (including the
payment of interest and other amounts which would accrue and become due but for
the commencement of such case, whether or not such amounts are allowed or
allowable in whole or in part in such case), whether direct or indirect,
absolute or contingent, joint or several, due or not due, primary or secondary,
liquidated or unliquidated, or secured or unsecured and (b) for purposes only of
Section 5.1 hereof and subject to the priority in right of payment set forth in
Section 6.4 hereof, all obligations, liabilities and indebtedness of every kind,
nature and description owing by any or all of Borrowers or Guarantors to Agent
or any Bank Product Provider arising under or pursuant to any Bank Products,
whether now existing or hereafter arising, provided, that, (i) as to any such
obligations, liabilities and indebtedness arising under or pursuant to a Hedge
Agreement, the same shall only be included within the Obligations if upon
Agent’s request, Agent shall have entered into an agreement, in form and
substance satisfactory to Agent, with the Bank Product Provider that is a
counterparty to such Hedge Agreement, as acknowledged and agreed to by Borrowers
and Guarantors, providing for the delivery to Agent by such counterparty of
information with respect to the amount of such obligations and providing for the
other rights of Agent and such Bank Product Provider in connection with such
arrangements, (ii) any Bank Product Provider, other than Wachovia and its
Affiliates, shall have delivered written notice to Agent that (A) such Bank
Product Provider has entered into a transaction to provide Bank Products to a
Borrower and Guarantor and (B) the obligations arising pursuant to such Bank
Products provided to Borrowers and Guarantors constitute Obligations entitled to
the benefits of the security interest of Agent granted hereunder, and Agent
shall have accepted such notice in writing and (iii) in no event shall any Bank
Product Provider acting in such capacity to whom such obligations, liabilities
or indebtedness are owing be deemed a Lender for purposes hereof to the extent
of and as to such obligations, liabilities or indebtedness except that each
reference to the term “Lender” in Sections 12.1, 12.2, 12.3(b), 12.6, 12.7,
12.9, 12.12 and 13.6 hereof shall be deemed to include such Bank Product
Provider and in no event shall the approval of any such person in its capacity
as Bank Product Provider be required in connection with the release or
termination of any security interest or lien of Agent.

 

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1.73 “Other Taxes” shall have the meaning given to such term in Section 6.5
hereof.
1.74 “Parent” shall mean Image Entertainment, Inc., a Delaware corporation, and
its successors and assigns.
1.75 “Participant” shall mean any financial institution that acquires and holds
a participation in the interest of any Lender in any of the Loans and Letters of
Credit in conformity with the provisions of Section 13.7 of this Agreement
governing participations.
1.76 “Permitted Holders” shall mean the persons listed on Schedule 1.76 hereto
and their respective successors and assigns.
1.77 “Person” or “person” shall mean any individual, sole proprietorship,
partnership, corporation (including any corporation which elects subchapter S
status under the Code), limited liability company, limited liability
partnership, business trust, unincorporated association, joint stock
corporation, trust, joint venture or other entity or any government or any
agency or instrumentality or political subdivision thereof.
1.78 “Pension Plan” shall mean a pension plan (as defined in Section 3(2) of
ERISA) subject to Title IV of ERISA which any Borrower or Guarantor sponsors,
maintains, or to which any Borrower, Guarantor or ERISA Affiliate makes, is
making, or is obligated to make contributions, other than a Multiemployer Plan.
1.79 “Plan” shall mean an employee benefit plan (as defined in Section 3(3) of
ERISA) which any Borrower or Guarantor sponsors, maintains, or to which it
makes, is making, or is obligated to make contributions, or in the case of a
Multiemployer Plan has made contributions at any time during the immediately
preceding six (6) plan years or with respect to which any Borrower or Guarantor
may incur liability.
1.80 “Prime Rate” shall mean the higher of the rate from time to time publicly
announced by Reference Bank, as its prime rate, whether or not such announced
rate is the best rate available at such bank or the Federal Funds Effective Rate
from time to time plus one-half (1/2%) percent. The term “Federal Funds
Effective Rate” shall mean, for any period, a fluctuating interest rate per
annum equal, for each day during such period, to the weighted average of the
rates on overnight Federal Funds transactions with members of the Federal
Reserve System arranged by Federal Funds brokers, as published for such day (or,
if such day is not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of New York, or, if such rate is not so published for any
day that is a Business Day, the average of the quotations for such day on such
transactions received by Agent from three Federal Funds brokers of recognized
standing selected by it.
1.81 “Prime Rate Loans” shall mean any Loans or portion thereof on which
interest is payable based on the Prime Rate in accordance with the terms
thereof.
1.82 “Pro Rata Share” shall mean as to any Lender, the fraction (expressed as a
percentage) the numerator of which is such Lender’s Commitment and the
denominator of which is the aggregate amount of all of the Commitments of
Lenders, as adjusted from time to time in accordance with the provisions of
Section 13.7 hereof; provided, that, if the Commitments have been terminated,
the numerator shall be the unpaid amount of such Lender’s Loans and its interest
in the Letters of Credit and the denominator shall be the aggregate amount of
all unpaid Loans and Letters of Credit.

 

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1.83 “Provision for Taxes” shall mean, with respect to any Person, for any
period, an amount equal to all taxes imposed on or measured by net income,
whether Federal, State or local, and whether foreign or domestic, that are paid
or payable by such Person and its Subsidiaries in respect of such period on a
consolidated basis in accordance with GAAP.
1.84 “Real Property” shall mean all now owned and hereafter acquired real
property of each Borrower and Guarantor, including leasehold interests, together
with all buildings, structures, and other improvements located thereon and all
licenses, easements and appurtenances relating thereto, wherever located.
1.85 “Receivables” shall mean all of the following now owned or hereafter
arising or acquired property of each Borrower and Guarantor: (a) all Accounts;
(b) all interest, fees, late charges, penalties, collection fees and other
amounts due or to become due or otherwise payable in connection with any
Account; (c) all payment intangibles of such Borrower or Guarantor; (d) letters
of credit, indemnities, guarantees, security or other deposits and proceeds
thereof issued payable to any Borrower or Guarantor or otherwise in favor of or
delivered to any Borrower or Guarantor in connection with any Account; or
(e) all other accounts, contract rights, chattel paper, instruments, notes,
general intangibles and other forms of obligations owing to any Borrower or
Guarantor, whether from the sale and lease of goods or other property, licensing
of any property (including Intellectual Property or other general intangibles),
rendition of services or from loans or advances by any Borrower or Guarantor or
to or for the benefit of any third person (including loans or advances to any
Affiliates or Subsidiaries of any Borrower or Guarantor) or otherwise associated
with any Accounts, Inventory or general intangibles of any Borrower or Guarantor
(including, without limitation, choses in action, causes of action, tax refunds,
tax refund claims, any funds which may become payable to any Borrower or
Guarantor in connection with the termination of any Plan or other employee
benefit plan and any other amounts payable to any Borrower or Guarantor from any
Plan or other employee benefit plan, rights and claims against carriers and
shippers, rights to indemnification, business interruption insurance and
proceeds thereof, casualty or any similar types of insurance and any proceeds
thereof and proceeds of insurance covering the lives of employees on which any
Borrower or Guarantor is a beneficiary).
1.86 “Records” shall mean, as to each Borrower and Guarantor, all of such
Borrower’s and Guarantor’s present and future books of account of every kind or
nature, purchase and sale agreements, invoices, ledger cards, bills of lading
and other shipping evidence, statements, correspondence, memoranda, credit files
and other data relating to the Collateral or any account debtor, together with
the tapes, disks, diskettes and other data and software storage media and
devices, file cabinets or containers in or on which the foregoing are stored
(including any rights of any Borrower or Guarantor with respect to the foregoing
maintained with or by any other person).
1.87 “Reference Bank” shall mean Wachovia Bank, National Association, or such
other bank as Agent may from time to time designate.

 

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1.88 “Renewal Date” shall have the meaning set forth in Section 13.1 hereof.
1.89 “Register” shall have the meaning set forth in Section 13.7 hereof.
1.90 “Required Lenders” shall mean, at any time, those Lenders whose Pro Rata
Shares aggregate sixty-six and two-thirds (66 2/3%) percent or more of the
aggregate of the Commitments of all Lenders, or if the Commitments shall have
been terminated, Lenders to whom at least sixty-six and two-thirds (66 2/3%)
percent of the then outstanding Obligations are owing.
1.91 “Reserves” shall mean as of any date of determination, such amounts as
Agent may from time to time establish and revise in good faith reducing the
amount of Loans and Letters of Credit that would otherwise be available to any
Borrower under the lending formula(s) provided for herein: (a) to reflect
events, conditions, contingencies or risks which, as determined by Agent in good
faith, adversely affect, or would have a reasonable likelihood of adversely
affecting, either (i) the Collateral or any other property which is security for
the Obligations or its value or (ii) the assets, business or prospects of any
Borrower or Obligor or (iii) the security interests and other rights of Agent or
any Lender in the Collateral (including the enforceability, perfection and
priority thereof) or (b) to reflect Agent’s good faith belief that any
collateral report or financial information furnished by or on behalf of any
Borrower or Obligor to Agent is or may have been incomplete, inaccurate or
misleading in any material respect or (c) to reflect outstanding Letter of
Credit Obligations as provided in Section 2.2 hereof or (d) in respect of any
state of facts which Agent determines in good faith constitutes a Default or an
Event of Default. Without limiting the generality of the foregoing, Reserves
may, at Agent’s option, be established to reflect: (i) dilution with respect to
the Accounts (based on the ratio of the aggregate amount of non-cash reductions
in Accounts for any period to the aggregate dollar amount of the sales of such
Borrower for such period) as calculated by Agent for any period is or is
reasonably anticipated to be greater than five (5%) percent; (ii) returns,
discounts, claims, credits and allowances of any nature that are not paid
pursuant to the reduction of Accounts; (iii) sales, excise or similar taxes
included in the amount of any Accounts reported to Agent; (iv) amounts due or to
become due to owners and lessors of premises where any Collateral is located,
other than for those locations where Agent has received a Collateral Access
Agreement that Agent has accepted in writing; (v) amounts due or to become due
to owners and licensors of trademarks and other Intellectual Property used by
any Borrower and (vi) obligations, liabilities or indebtedness (contingent or
otherwise) of Borrowers or Guarantors to Agent or any Bank Product Provider
arising under or in connection with any Bank Products or as such Affiliate or
Person may otherwise require in connection therewith to the extent that such
obligations, liabilities or indebtedness constitute Obligations as such term is
defined herein or otherwise receive the benefit of the security interest of
Agent in any Collateral. The amount of any Reserve established by Agent shall
have a reasonable relationship to the event, condition or other matter which is
the basis for such reserve as determined by Agent in good faith and to the
extent that such Reserve is in respect of amounts that may be payable to third
parties Agent may, at its option, deduct such Reserve from the Revolving Loan
Limit, at any time that such limit is less than the amount of the Borrowing
Base.

 

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1.92 “Revolving Loan Limit” shall mean, as to each Borrower, at any time, the
amount equal to the $15,000,000 minus the then outstanding principal amount of
the Revolving Loans and Letters of Credit provided to the other Borrowers,
provided that upon the election of Administrative Borrower exercised by prior
written notice to Agent, the foregoing amount of $15,000,000 may be increased to
$20,000,000 so long as (a) no Default or Event of Default has occurred and is
continuing, (b) the Fixed Charge Coverage Ratio of Borrowers for the twelve
(12) months most recently ended, or such lesser number of months that have
elapsed from and including April 2007, is no less than 1.10 to one, and (c) as
of the date of such increase, the difference of the Excess Availability minus
the aggregate sum of principal payments becoming due on Indebtedness during the
following six (6) months, is no less than $5,000,000.
1.93 “Revolving Loans” shall mean the loans now or hereafter made by or on
behalf of any Lender or by Agent for the account of any Lender on a revolving
basis pursuant to the Credit Facility (involving advances, repayments and
readvances) as set forth in Section 2.1 hereof.
1.94 “Secured Parties” shall mean, collectively, (a) Agent, (b) Issuing Bank,
(c) Lenders, and (d) Bank Product Providers (to the extent approved by Agent).
1.95 “Solvent” shall mean, at any time with respect to any Person, that at such
time such Person (a) is able to pay its debts as they mature and has (and has a
reasonable basis to believe it will continue to have) sufficient capital (and
not unreasonably small capital) to carry on its business consistent with its
practices as of the date hereof, and (b) the assets and properties of such
Person at a fair valuation (and including as assets for this purpose at a fair
valuation all rights of subrogation, contribution or indemnification arising
pursuant to any guarantees given by such Person) are greater than the
Indebtedness of such Person, and including subordinated and contingent
liabilities computed at the amount which, such person has a reasonable basis to
believe, represents an amount which can reasonably be expected to become an
actual or matured liability (and including as to contingent liabilities arising
pursuant to any guarantee the face amount of such liability as reduced to
reflect the probability of it becoming a matured liability).
1.96 “Special Agent Advances” shall have the meaning set forth in Section 12.11
hereof.
1.97 “Subsidiary” or “subsidiary” shall mean, with respect to any Person, any
corporation, limited liability company, limited liability partnership or other
limited or general partnership, trust, association or other business entity of
which an aggregate of at least a majority of the outstanding Capital Stock or
other interests entitled to vote in the election of the board of directors of
such corporation (irrespective of whether, at the time, Capital Stock of any
other class or classes of such corporation shall have or might have voting power
by reason of the happening of any contingency), managers, trustees or other
controlling persons, or an equivalent controlling interest therein, of such
Person is, at the time, directly or indirectly, owned by such Person and/or one
or more subsidiaries of such Person.
1.98 “UCC” shall mean the Uniform Commercial Code as in effect in the State of
California and any successor statute, as in effect from time to time (except
that terms used herein which are defined in the Uniform Commercial Code as in
effect in the State of California on the date hereof shall continue to have the
same meaning notwithstanding any replacement or amendment of such statute except
as Agent may otherwise determine).

 

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1.99 “Voting Stock” shall mean with respect to any Person, (a) one (1) or more
classes of Capital Stock of such Person having general voting powers to elect at
least a majority of the board of directors, managers or trustees of such Person,
irrespective of whether at the time Capital Stock of any other class or classes
have or might have voting power by reason of the happening of any contingency,
and (b) any Capital Stock of such Person convertible or exchangeable without
restriction at the option of the holder thereof into Capital Stock of such
Person described in clause (a) of this definition.
1.100 “Wachovia” shall mean Wachovia Capital Finance Corporation (Western), a
California corporation, in its individual capacity, and its successors and
assigns.
SECTION 2. CREDIT FACILITIES
2.1 Loans.
(a) Subject to and upon the terms and conditions contained herein, each Lender
severally (and not jointly) agrees to make its Pro Rata Share of Revolving Loans
to each Borrower from time to time in amounts requested by such Borrower (or
Administrative Borrower on behalf of such Borrower) up to the aggregate amount
outstanding for all Lenders at any time equal to the lesser of: (i) the
Borrowing Base of such Borrower at such time or (ii) the Revolving Loan Limit of
such Borrower at such time.
(b) Except in Agent’s discretion, with the consent of all Lenders, or as
otherwise provided herein, (i) the aggregate principal amount of the Revolving
Loans and Letter of Credit Obligations outstanding at any time to a Borrower
shall not exceed the Borrowing Base of such Borrower, and (ii) the aggregate
principal amount of the Revolving Loans and Letter of Credit Obligations
outstanding at any time to a Borrower shall not exceed the Revolving Loan Limit
of such Borrower.
(c) In the event that except as otherwise provided herein, the aggregate
principal amount of the Revolving Loans and Letter of Credit Obligations
outstanding to a Borrower exceeds the Borrowing Base of such Borrower or the
Revolving Loan Limit of such Borrower, such event shall not limit, waive or
otherwise affect any rights of Agent or Lenders in such circumstances or on any
future occasions and Borrowers shall, upon demand by Agent, which may be made at
any time or from time to time, immediately repay to Agent the entire amount of
any such excess(es) for which payment is demanded.
2.2 Letters of Credit.
(a) Subject to and upon the terms and conditions contained herein and in the
Letter of Credit Documents, at the request of a Borrower (or Administrative
Borrower on behalf of such Borrower), Agent agrees to provide or arrange for the
account of such Borrower one or more Letters of Credit, for the ratable risk of
each Lender according to its Pro Rata Share, containing terms and conditions
acceptable to Agent and the issuer thereof.

 

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(b) The Borrower requesting such Letter of Credit (or Administrative Borrower on
behalf of such Borrower) shall give Agent three (3) Business Days’ prior written
notice of such Borrower’s request for the issuance of a Letter of Credit. Such
notice shall be irrevocable and shall specify the original face amount of the
Letter of Credit requested, the effective date (which date shall be a Business
Day and in no event shall be a date less than ten (10) days prior to the end of
the then current term of this Agreement) of issuance of such requested Letter of
Credit, whether such Letter of Credit may be drawn in a single or in partial
draws, the date on which such requested Letter of Credit is to expire (which
date shall be a Business Day and shall not be more than one year from the date
of issuance), the purpose for which such Letter of Credit is to be issued, and
the beneficiary of the requested Letter of Credit. The Borrower requesting the
Letter of Credit (or Administrative Borrower on behalf of such Borrower) shall
attach to such notice the proposed terms of the Letter of Credit. The renewal or
extension of any Letter of Credit shall, for purposes hereof, be treated in all
respects the same as the issuance of a new Letter of Credit hereunder.
(c) In addition to being subject to the satisfaction of the applicable
conditions precedent contained in Section 4 hereof and the other terms and
conditions contained herein, no Letter of Credit shall be available unless each
of the following conditions precedent have been satisfied in a manner
satisfactory to Agent: (i) the Borrower requesting such Letter of Credit (or
Administrative Borrower on behalf of such Borrower) shall have delivered to the
proposed issuer of such Letter of Credit at such times and in such manner as
such proposed issuer may require, an application, in form and substance
satisfactory to such proposed issuer and Agent, for the issuance of the Letter
of Credit and such other Letter of Credit Documents as may be required pursuant
to the terms thereof, and the form and terms of the proposed Letter of Credit
shall be satisfactory to Agent and such proposed issuer; (ii) as of the date of
issuance, no order of any court, arbitrator or other Governmental Authority
shall purport by its terms to enjoin or restrain money center banks generally
from issuing letters of credit of the type and in the amount of the proposed
Letter of Credit, and no law, rule or regulation applicable to money center
banks generally and no request or directive (whether or not having the force of
law) from any Governmental Authority with jurisdiction over money center banks
generally shall prohibit, or request that the proposed issuer of such Letter of
Credit refrain from, the issuance of letters of credit generally or the issuance
of such Letters of Credit; (iii) after giving effect to the issuance of such
Letter of Credit, the Letter of Credit Obligations shall not exceed the Letter
of Credit Limit; and (iv) the Excess Availability of the Borrower requesting
such Letter of Credit, prior to giving effect to any Reserves with respect to
such Letter of Credit, on the date of the proposed issuance of any Letter of
Credit, shall be equal to or greater than an amount equal to one hundred (100%)
percent of the Letter of Credit Obligations with respect thereto. Effective on
the issuance of each Letter of Credit, a Reserve shall be established in the
applicable amount set forth above.
(d) Except in Agent’s discretion, with the consent of all Lenders, the amount of
all outstanding Letter of Credit Obligations shall not at any time exceed the
Letter of Credit Limit.

 

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(e) Each Borrower shall reimburse immediately the issuer of a Letter of Credit
for any draw under any Letter of Credit issued for the account of such Borrower
by such issuer and pay such issuer the amount of all other charges and fees
payable to issuer in connection with any Letter of Credit issued for the account
of such Borrower immediately when due, irrespective of any claim, setoff,
defense or other right which such Borrower may have at any time against the
issuer or any other Person. Each drawing under any Letter of Credit or other
amount payable in connection therewith when due shall constitute a request by
the Borrower for whose account such Letter of Credit was issued to Agent for a
Prime Rate Loan in the amount of such drawing or other amount then due and shall
be made by Agent on behalf of Lenders as a Revolving Loan (or Special Agent
Advance, as the case may be). The date of such Loan shall be the date of the
drawing or as to other amounts, the due date therefor. Any payments made by or
on behalf of Agent or any Lender to an issuer and/or related parties in
connection with any Letter of Credit shall constitute additional Revolving Loans
to such Borrower pursuant to this Section 2 (or Special Agent Advances as the
case may be).
(f) Borrowers and Guarantors shall indemnify and hold Agent and Lenders harmless
from and against any and all losses, claims, damages, liabilities, costs and
expenses which Agent or any Lender may suffer or incur in connection with any
Letter of Credit and any documents, drafts or acceptances relating thereto,
including any losses, claims, damages, liabilities, costs and expenses due to
any action taken by any issuer or correspondent with respect to any Letter of
Credit, except for such losses, claims, damages, liabilities, costs or expenses
that are a direct result of the gross negligence or wilful misconduct of Agent
or any Lender as determined pursuant to a final non-appealable order of a court
of competent jurisdiction. Each Borrower and Guarantor assumes all risks with
respect to the acts or omissions of the drawer under or beneficiary of any
Letter of Credit and for such purposes the drawer or beneficiary shall be deemed
such Borrower’s agent. Each Borrower and Guarantor assumes all risks for, and
agrees to pay, all foreign, Federal, State and local taxes, duties and levies
relating to any goods subject to any Letter of Credit or any documents, drafts
or acceptances thereunder. Each Borrower and Guarantor hereby releases and holds
Agent and Lenders harmless from and against any acts, waivers, errors, delays or
omissions with respect to or relating to any Letter of Credit, except for the
gross negligence or wilful misconduct of Agent or any Lender as determined
pursuant to a final, non-appealable order of a court of competent jurisdiction.
The provisions of this Section 2.2(f) shall survive the payment of Obligations
and the termination of this Agreement.
(g) In connection with Inventory purchased pursuant to any Letter of Credit,
Borrowers and Guarantors shall, at Agent’s request, instruct all suppliers,
carriers, forwarders, customs brokers, warehouses or others receiving or holding
cash, checks, Inventory, documents or instruments in which Agent holds a
security interest that upon Agent’s request, such items are to be delivered to
Agent and/or subject to Agent’s order, and if they shall come into such
Borrower’s or Guarantor’s possession, to deliver them, upon Agent’s request, to
Agent in their original form. Except as otherwise provided herein, Agent shall
not exercise such right to request such items so long as no Default or Event of
Default shall exist or have occurred and be continuing. Except as Agent may
otherwise specify, Borrowers shall designate Agent or the issuer of the Letter
of Credit related thereto, as the consignee on all bills of lading and other
negotiable and non-negotiable documents.

 

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(h) Each Borrower and Guarantor hereby irrevocably authorizes and directs any
issuer of a Letter of Credit to name such Borrower or Guarantor as the account
party therein and to deliver to Agent all instruments, documents and other
writings and property received by issuer pursuant to the Letter of Credit and to
accept and rely upon Agent’s instructions and agreements with respect to all
matters arising in connection with the Letter of Credit or the Letter of Credit
Documents with respect thereto. Nothing contained herein shall be deemed or
construed to grant any Borrower or Guarantor any right or authority to pledge
the credit of Agent or any Lender in any manner. Agent and Lenders shall have no
liability of any kind with respect to any Letter of Credit provided by an issuer
unless Agent has duly executed and delivered to such issuer the application or a
guarantee or indemnification in writing with respect to such Letter of Credit.
Borrowers and Guarantors shall be bound by any reasonable interpretation made in
good faith by Agent, or any other issuer or correspondent under or in connection
with any Letter of Credit or any documents, drafts or acceptances thereunder,
notwithstanding that such interpretation may be inconsistent with any
instructions of any Borrower or Guarantor.
(i) Immediately upon the issuance or amendment of any Letter of Credit, each
Lender shall be deemed to have irrevocably and unconditionally purchased and
received, without recourse or warranty, an undivided interest and participation
to the extent of such Lender’s Pro Rata Share of the liability with respect to
such Letter of Credit and the obligations of Borrowers with respect thereto
(including all Letter of Credit Obligations with respect thereto). Each Lender
shall absolutely, unconditionally and irrevocably assume, as primary obligor and
not as surety, and be obligated to pay to the issuer of any such Letter of
Credit therefor and discharge when due, its Pro Rata Share of all of such
obligations arising under such Letter of Credit. Without limiting the scope and
nature of each Lender’s participation in any Letter of Credit, to the extent
that the issuer has not been reimbursed or otherwise paid as required hereunder
or under any such Letter of Credit, each such Lender shall pay to the issuer its
Pro Rata Share of such unreimbursed drawing or other amounts then due to issuer
in connection therewith.
(j) The obligations of Borrowers to pay each Letter of Credit Obligations and
the obligations of Lenders to make payments to Agent for the account of any
issuer with respect to Letters of Credit shall be absolute, unconditional and
irrevocable and shall be performed strictly in accordance with the terms of this
Agreement under any and all circumstances, whatsoever, notwithstanding the
occurrence or continuance of any Default, Event of Default, the failure to
satisfy any other condition set forth in Section 4 or any other event or
circumstance. If such amount is not made available by a Lender when due, Agent
shall be entitled to recover such amount on demand from such Lender with
interest thereon, for each day from the date such amount was due until the date
such amount is paid to Agent at the interest rate then payable by any Borrower
in respect of Loans that are Prime Rate Loans. Any such reimbursement shall not
relieve or otherwise impair the obligation of Borrowers to reimburse the issuer
under any Letter of Credit or make any other payment in connection therewith.
(k) Any rights, remedies, duties or obligations granted or undertaken by any
Borrower to any issuer or correspondent in any application for any Letter of
Credit, or any other agreement in favor of any issuer or correspondent relating
to any Letter of Credit, shall be deemed to have been granted or undertaken by
such Borrower to Agent. Any duties or obligations undertaken by Agent to any
issuer or correspondent in any application for any Letter of Credit, or any
other agreement by Agent in favor of any issuer or correspondent relating to any
Letter of Credit, shall be deemed to have been undertaken by Borrowers to Agent
and to apply in all respects to Borrowers.
2.3 Commitments. The aggregate amount of each Lender’s Pro Rata Share of the
Loans and Letter of Credit Obligations shall not exceed the amount of such
Lender’s Commitment, as the same may from time to time be amended in accordance
with the provisions hereof.

 

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SECTION 3. INTEREST AND FEES
3.1 Interest.
(a) Borrowers shall pay to Agent, for the benefit of Lenders, interest on the
outstanding principal amount of the Loans at the Interest Rate. All interest
accruing hereunder on and after the date of any Event of Default or termination
hereof shall be payable on demand.
(b) Each Borrower (or Administrative Borrower on behalf of such Borrower) may
from time to time request Eurodollar Rate Loans or may request that Prime Rate
Loans be converted to Eurodollar Rate Loans or that any existing Eurodollar Rate
Loans continue for an additional Interest Period. Such request from a Borrower
(or Administrative Borrower on behalf of such Borrower) shall specify the amount
of the Eurodollar Rate Loans or the amount of the Prime Rate Loans to be
converted to Eurodollar Rate Loans or the amount of the Eurodollar Rate Loans to
be continued (subject to the limits set forth below) and the Interest Period to
be applicable to such Eurodollar Rate Loans. Subject to the terms and conditions
contained herein, three (3) Business Days after receipt by Agent of such a
request from a Borrower (or Administrative Borrower on behalf of such Borrower),
such Eurodollar Rate Loans shall be made or Prime Rate Loans shall be converted
to Eurodollar Rate Loans or such Eurodollar Rate Loans shall continue, as the
case may be, provided, that, (i) no Default or Event of Default shall exist or
have occurred and be continuing, (ii) no party hereto shall have sent any notice
of termination of this Agreement, (iii) such Borrower (or Administrative
Borrower on behalf of such Borrower) shall have complied with such customary
procedures as are established by Agent and specified by Agent to Administrative
Borrower from time to time for requests by Borrowers for Eurodollar Rate Loans,
(iv) no more than four (4) Interest Periods may be in effect at any one time,
(v) the aggregate amount of the Eurodollar Rate Loans must be in an amount not
less than $2,000,000 or an integral multiple of $1,000,000 in excess thereof,
(vi) the maximum amount of the Eurodollar Rate Loans in the aggregate at any
time requested by Borrowers shall not exceed the amount equal to eighty (80%)
percent of the lowest principal amount of the Revolving Loans which it is
anticipated will be outstanding during the applicable Interest Period, in each
case as determined by Agent in good faith (but with no obligation of Agent or
Lenders to make such Loans), and (vii) Agent and each Lender shall have
determined that the Interest Period or Adjusted Eurodollar Rate is available to
Agent and such Lender and can be readily determined as of the date of the
request for such Eurodollar Rate Loan by such Borrower. Any request by or on
behalf of a Borrower for Eurodollar Rate Loans or to convert Prime Rate Loans to
Eurodollar Rate Loans or to continue any existing Eurodollar Rate Loans shall be
irrevocable. Notwithstanding anything to the contrary contained herein, Agent
and Lenders shall not be required to purchase United States Dollar deposits in
the London interbank market or other applicable Eurodollar Rate market to fund
any Eurodollar Rate Loans, but the provisions hereof shall be deemed to apply as
if Agent and Lenders had purchased such deposits to fund the Eurodollar Rate
Loans.

 

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(c) Any Eurodollar Rate Loans shall automatically convert to Prime Rate Loans
upon the last day of the applicable Interest Period, unless Agent has received
and approved a request to continue such Eurodollar Rate Loan at least three
(3) Business Days prior to such last day in accordance with the terms hereof.
Any Eurodollar Rate Loans shall, at Agent’s option, upon notice by Agent to
Parent, be subsequently converted to Prime Rate Loans in the event that this
Agreement shall terminate or not be renewed. Borrowers shall pay to Agent, for
the benefit of Lenders, upon demand by Agent (or Agent may, at its option,
charge any loan account of any Borrower) any amounts required to compensate any
Lender or Participant for any loss (including loss of anticipated profits), cost
or expense incurred by such person, as a result of the conversion of Eurodollar
Rate Loans to Prime Rate Loans pursuant to any of the foregoing.
(d) Interest shall be payable by Borrowers to Agent, for the account of Lenders,
monthly in arrears not later than the first day of each calendar month and shall
be calculated on the basis of a three hundred sixty (360) day year and actual
days elapsed. The interest rate on non-contingent Obligations (other than
Eurodollar Rate Loans) shall increase or decrease by an amount equal to each
increase or decrease in the Prime Rate effective on the day any change in such
Prime Rate is announced. In no event shall charges constituting interest payable
by Borrowers to Agent and Lenders exceed the maximum amount or the rate
permitted under any applicable law or regulation, and if any such part or
provision of this Agreement is in contravention of any such law or regulation,
such part or provision shall be deemed amended to conform thereto.
3.2 Fees.
(a) Borrowers shall pay to Agent, for the account of Lenders, monthly an unused
line fee at a rate equal to three-eighths of one (0.375%) percent per annum
calculated upon the amount by which the aggregate sum of the Revolving Loan
Limits for all Borrowers exceeds the average daily principal balance of the
outstanding Revolving Loans and Letters of Credit during the immediately
preceding month (or part thereof) while this Agreement is in effect and for so
long thereafter as any of the Obligations are outstanding, which fee shall be
payable on the first day of each month in arrears.
(b) Borrowers shall pay to Agent, for the account of Lenders, a fee at a per
annum rate equal to the Applicable Margin for Eurodollar Rate Loans, on the
average daily maximum amount available to be drawn under all of such Letters of
Credit for the immediately preceding month (or part thereof), payable in arrears
as of the first day of each succeeding month, computed for each day from the
date of issuance to the date of expiration; except that Borrowers shall pay, at
Agent’s option, without notice, such fee at a rate two (2%) percent greater than
the otherwise applicable rate on such average daily maximum amount for: (i) the
period from and after the date of termination or non-renewal hereof until
Lenders have received full and final payment of all Obligations (notwithstanding
entry of a judgment against any Borrower or Guarantor) and (ii) the period from
and after the date of the occurrence of an Event of Default for so long as such
Event of Default is continuing as determined by Agent. Such letter of credit
fees shall be calculated on the basis of a three hundred sixty (360) day year
and actual days elapsed and the obligation of Borrowers to pay such fee shall
survive the termination or non-renewal of this Agreement. In addition to the
letter of credit fees provided above, Borrowers shall pay to the issuer of any
Letter of Credit for its own account (without sharing with Lenders) the letter
of credit fronting and negotiation fees agreed to by Borrowers and such issuer
from time to time and the customary charges from time to time of such issuer
with respect to the issuance, amendment, transfer, administration, cancellation
and conversion of, and drawings under, such Letters of Credit.

 

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(c) Borrowers shall pay to Agent the other fees and amounts set forth in the Fee
Letter in the amounts and at the times specified therein. To the extent payment
in full of the applicable fee is received by Agent from Borrowers on or about
the date hereof, Agent shall pay to each Lender its share of such fees in
accordance with the terms of the arrangements of Agent with such Lender.
3.3 Changes in Laws and Increased Costs of Loans.
(a) If after the date hereof, either (i) any change in, or in the interpretation
of, any law or regulation is introduced, including, without limitation, with
respect to reserve requirements, applicable to any Lender or any banking or
financial institution from whom any Lender borrows funds or obtains credit (a
“Funding Bank”), or (ii) a Funding Bank or any Lender complies with any future
guideline or request from any central bank or other Governmental Authority or
(iii) a Funding Bank or any Lender determines that the adoption of any
applicable law, rule or regulation regarding capital adequacy, or any change
therein, or any change in the interpretation or administration thereof by any
Governmental Authority, central bank or comparable agency charged with the
interpretation or administration thereof has or would have the effect described
below, or a Funding Bank or any Lender complies with any request or directive
regarding capital adequacy (whether or not having the force of law) of any such
authority, central bank or comparable agency, and in the case of any event set
forth in this clause (iii), such adoption, change or compliance has or would
have the direct or indirect effect of reducing the rate of return on any
Lender’s capital as a consequence of its obligations hereunder to a level below
that which such Lender could have achieved but for such adoption, change or
compliance (taking into consideration the Funding Bank’s or Lender’s policies
with respect to capital adequacy) by an amount deemed by such Lender to be
material, and the result of any of the foregoing events described in clauses
(i), (ii) or (iii) is or results in an increase in the cost to any Lender of
funding or maintaining the Loans, the Letters of Credit or its Commitment, then
Borrowers and Guarantors shall from time to time upon demand by Agent pay to
Agent additional amounts sufficient to indemnify such Lender against such
increased cost on an after-tax basis (after taking into account applicable
deductions and credits in respect of the amount indemnified). A certificate as
to the amount of such increased cost shall be submitted to Administrative
Borrower by Agent or the applicable Lender and shall be conclusive, absent
manifest error.
(b) If prior to the first day of any Interest Period, (i) Agent shall have
determined in good faith (which determination shall be conclusive and binding
upon Borrowers and Guarantors) that, by reason of circumstances affecting the
relevant market, adequate and reasonable means do not exist for ascertaining the
Adjusted Eurodollar Rate for such Interest Period, (ii) Agent has received
notice from the Required Lenders that the Adjusted Eurodollar Rate determined or
to be determined for such Interest Period will not adequately and fairly reflect
the cost to Lenders of making or maintaining Eurodollar Rate Loans during such
Interest Period, or (iii) Dollar deposits in the principal amounts of the
Eurodollar Rate Loans to which such Interest Period is to be applicable are not
generally available in the London interbank market, Agent shall give telecopy or
telephonic notice thereof to Administrative Borrower as soon as practicable
thereafter, and will also give prompt written notice to Administrative Borrower
when such conditions no longer exist. If such notice is given (A) any Eurodollar
Rate Loans requested to be made on the first day of such Interest Period shall
be made as Prime Rate Loans, (B) any Loans that were to have been converted on
the first day of such Interest Period to or continued as Eurodollar Rate Loans
shall be converted to or continued as Prime Rate Loans and (C) each outstanding
Eurodollar Rate Loan shall be converted, on the last day of the then-current
Interest Period thereof, to Prime Rate Loans. Until such notice has been
withdrawn by Agent, no further Eurodollar Rate Loans shall be made or continued
as such, nor shall any Borrower (or Administrative Borrower on behalf of any
Borrower) have the right to convert Prime Rate Loans to Eurodollar Rate Loans.

 

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(c) Notwithstanding any other provision herein, if the adoption of or any change
in any law, treaty, rule or regulation or final, non-appealable determination of
an arbitrator or a court or other Governmental Authority or in the
interpretation or application thereof occurring after the date hereof shall make
it unlawful for Agent or any Lender to make or maintain Eurodollar Rate Loans as
contemplated by this Agreement, (i) Agent or such Lender shall promptly give
written notice of such circumstances to Administrative Borrower (which notice
shall be withdrawn whenever such circumstances no longer exist), (ii) the
commitment of such Lender hereunder to make Eurodollar Rate Loans, continue
Eurodollar Rate Loans as such and convert Prime Rate Loans to Eurodollar Rate
Loans shall forthwith be canceled and, until such time as it shall no longer be
unlawful for such Lender to make or maintain Eurodollar Rate Loans, such Lender
shall then have a commitment only to make a Prime Rate Loan when a Eurodollar
Rate Loan is requested and (iii) such Lender’s Loans then outstanding as
Eurodollar Rate Loans, if any, shall be converted automatically to Prime Rate
Loans on the respective last days of the then current Interest Periods with
respect to such Loans or within such earlier period as required by law. If any
such conversion of a Eurodollar Rate Loan occurs on a day which is not the last
day of the then current Interest Period with respect thereto, Borrowers and
Guarantors shall pay to such Lender such amounts, if any, as may be required
pursuant to Section 3.3(d) below.
(d) Borrowers and Guarantors shall indemnify Agent and each Lender and to hold
Agent and each Lender harmless from any loss or expense which Agent or such
Lender may sustain or incur as a consequence of (i) default by Borrower in
making a borrowing of, conversion into or extension of Eurodollar Rate Loans
after such Borrower (or Administrative Borrower on behalf of such Borrower) has
given a notice requesting the same in accordance with the provisions of this
Loan Agreement, (ii) default by any Borrower in making any prepayment of a
Eurodollar Rate Loan after such Borrower has given a notice thereof in
accordance with the provisions of this Agreement, and (iii) the making of a
prepayment of Eurodollar Rate Loans on a day which is not the last day of an
Interest Period with respect thereto. With respect to Eurodollar Rate Loans,
such indemnification may include an amount equal to the excess, if any, of
(A) the amount of interest which would have accrued on the amount so prepaid, or
not so borrowed, converted or extended, for the period from the date of such
prepayment or of such failure to borrow, convert or extend to the last day of
the applicable Interest Period (or, in the case of a failure to borrow, convert
or extend, the Interest Period that would have commenced on the date of such
failure) in each case at the applicable rate of interest for such Eurodollar
Rate Loans provided for herein over (B) the amount of interest (as determined by
such Agent or such Lender) which would have accrued to Agent or such Lender on
such amount by placing such amount on deposit for a comparable period with
leading banks in the interbank Eurodollar market. This covenant shall survive
the termination or non-renewal of this Agreement and the payment of the
Obligations.

 

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SECTION 4. CONDITIONS PRECEDENT
4.1 Conditions Precedent to Initial Loans and Letters of Credit. The obligation
of Lenders to make the initial Loans or of Agent and Lenders to provide for the
initial Letters of Credit hereunder is subject to the satisfaction of, or waiver
of, immediately prior to or concurrently with the making of such Loan or the
issuance of such Letter of Credit of each of the following conditions precedent:
(a) Agent shall have received, in form and substance satisfactory to Agent, all
releases, terminations and such other documents as Agent may request to evidence
and effectuate the termination by the Existing Lenders of their respective
financing arrangements with Borrowers and Guarantors and the termination and
release by it or them, as the case may be, of any interest in and to any assets
and properties of each Borrower and Guarantor, duly authorized, executed and
delivered by it or each of them, including, but not limited to, (i) UCC
termination statements for all UCC financing statements previously filed by it
or any of them or their predecessors, as secured party and any Borrower or
Guarantor, as debtor; and (ii) satisfactions and discharges of any mortgages,
deeds of trust or deeds to secure debt by any Borrower or Guarantor in favor of
it or any of them, in form acceptable for recording with the appropriate
Governmental Authority;
(b) all requisite corporate action and proceedings in connection with this
Agreement and the other Financing Agreements shall be satisfactory in form and
substance to Agent, and Agent shall have received all information and copies of
all documents, including records of requisite corporate action and proceedings
which Agent may have requested in connection therewith, such documents where
requested by Agent or its counsel to be certified by appropriate corporate
officers or Governmental Authority (and including a copy of the certificate of
incorporation of each Borrower and Guarantor certified by the Secretary of State
(or equivalent Governmental Authority) which shall set forth the same complete
corporate name of such Borrower or Guarantor as is set forth herein and such
document as shall set forth the organizational identification number of each
Borrower or Guarantor, if one is issued in its jurisdiction of incorporation);
(c) no material adverse change shall have occurred in the assets, business or
prospects of Borrowers since the date of Agent’s latest field examination (not
including for this purpose the field review referred to in clause (d) below) and
no change or event shall have occurred which would impair the ability of any
Borrower or Guarantor to perform its obligations hereunder or under any of the
other Financing Agreements to which it is a party or of Agent or any Lender to
enforce the Obligations or realize upon the Collateral;

 

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(d) Agent shall have completed a field review of the Records and such other
information with respect to the Collateral as Agent may require to determine the
amount of Loans available to Borrowers (including, without limitation, current
perpetual inventory records and/or roll-forwards of Accounts through the date of
closing, together with such supporting documentation as may be necessary or
appropriate, and other documents and information that will enable Agent to
accurately identify and verify the Collateral), the results of which in each
case shall be satisfactory to Agent, not more than three (3) Business Days prior
to the date hereof or such earlier date as Agent may agree;
(e) Agent shall have received, in form and substance satisfactory to Agent, all
consents, waivers, acknowledgments and other agreements from third persons which
Agent may deem necessary or desirable in order to permit, protect and perfect
its security interests in and liens upon the Collateral or to effectuate the
provisions or purposes of this Agreement and the other Financing Agreements,
including, without limitation, Collateral Access Agreements;
(f) the Excess Availability as determined by Agent, as of the date hereof, shall
be not less than $5,000,000 after giving effect to the initial Loans made or to
be made and Letters of Credit issued or to be issued in connection with the
initial transactions hereunder;
(g) Agent shall have received, in form and substance satisfactory to Agent, a
guaranty duly executed and delivered by Guarantors;
(h) Agent shall have received, in form and substance satisfactory to Agent,
subordination agreements duly executed and delivered by Sonopress LLC, a
Delaware limited liability company, and Portside Growth and Opportunity Fund, a
company organized under the laws of the Cayman Islands, respectively, and
acknowledged by Administrative Borrower;
(i) Agent shall have received, in form and substance satisfactory to Agent,
Deposit Account Control Agreements by and among Agent, each Borrower and
Guarantor, as the case may be and each bank where such Borrower (or Guarantor)
has a deposit account, in each case, duly authorized, executed and delivered by
such bank and Borrower or Guarantor, as the case may be (or Agent shall be the
bank’s customer with respect to such deposit account as Agent may specify);
(j) Agent shall have received evidence, in form and substance satisfactory to
Agent, that Agent has a valid perfected first priority security interest in all
of the Collateral;
(k) Agent shall have received and reviewed lien and judgment search results for
the jurisdiction of organization of each Borrower and Guarantor, the
jurisdiction of the chief executive office of each Borrower and Guarantor and
all jurisdictions in which assets of Borrowers and Guarantors are located, which
search results shall be in form and substance satisfactory to Agent;
(l) Agent shall have received originals of the shares of the stock certificates
representing all of the issued and outstanding shares of the Capital Stock of
each Borrower and Guarantor (other than Parent) and owned by any Borrower or
Guarantor, in each case together with stock powers duly executed in blank with
respect thereto;

 

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(m) Agent shall have received evidence of insurance and loss payee endorsements
required hereunder and under the other Financing Agreements, in form and
substance satisfactory to Agent, and certificates of insurance policies and/or
endorsements naming Agent as loss payee;
(n) Agent shall have received, in form and substance satisfactory to Agent, such
opinion letters of counsel to Borrowers and Guarantors with respect to the
Financing Agreements and such other matters as Agent may request; and
(o) the other Financing Agreements and all instruments and documents hereunder
and thereunder shall have been duly executed and delivered to Agent, in form and
substance satisfactory to Agent.
4.2 Conditions Precedent to All Loans and Letters of Credit. The obligation of
Lenders to make the Loans, including the initial Loans, or of the Agent and
Lenders to provide for any Letter of Credit, including the initial Letters of
Credit, is subject to the further satisfaction of, or waiver of, immediately
prior to or concurrently with the making of each such Loan or the issuance of
such Letter of Credit of each of the following conditions precedent:
(a) all representations and warranties contained herein and in the other
Financing Agreements shall be true and correct with the same effect as though
such representations and warranties had been made on and as of the date of the
making of each such Loan or providing each such Letter of Credit and after
giving effect thereto, except to the extent that such representations and
warranties expressly relate solely to an earlier date (in which case such
representations and warranties shall have been true and accurate on and as of
such earlier date);
(b) no law, regulation, order, judgment or decree of any Governmental Authority
shall exist, and no action, suit, investigation, litigation or proceeding shall
be pending or threatened in any court or before any arbitrator or Governmental
Authority, which (i) purports to enjoin, prohibit, restrain or otherwise affect
(A) the making of the Loans or providing the Letters of Credit, or (B) the
consummation of the transactions contemplated pursuant to the terms hereof or
the other Financing Agreements or (ii) has or has a reasonable likelihood of
having a Material Adverse Effect; and
(c) no Default or Event of Default shall exist or have occurred and be
continuing on and as of the date of the making of such Loan or providing each
such Letter of Credit and after giving effect thereto.

 

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SECTION 5. GRANT AND PERFECTION OF SECURITY INTEREST
5.1 Grant of Security Interest. To secure payment and performance of all
Obligations, each Borrower and Guarantor hereby grants to Agent, for itself and
the benefit of Secured Parties, a continuing security interest in, a lien upon,
and a right of set off against, and hereby assigns to Agent, for itself and the
benefit of Lenders, as security, all personal and real property and fixtures,
and interests in property and fixtures, of each Borrower and Guarantor, whether
now owned or hereafter acquired or existing, and wherever located (together with
all other collateral security for the Obligations at any time granted to or held
or acquired by Agent or any Lender, collectively, the “Collateral”), including:
(a) all Accounts;
(b) all general intangibles, including, without limitation, all Intellectual
Property;
(c) all goods, including, without limitation, Inventory and Equipment;
(d) all Real Property and fixtures;
(e) all chattel paper, including, without limitation, all tangible and
electronic chattel paper;
(f) all instruments, including, without limitation, all promissory notes;
(g) all documents;
(h) all deposit accounts;
(i) all letters of credit, banker’s acceptances and similar instruments and
including all letter-of-credit rights;
(j) all supporting obligations and all present and future liens, security
interests, rights, remedies, title and interest in, to and in respect of
Receivables and other Collateral, including (i) rights and remedies under or
relating to guaranties, contracts of suretyship, letters of credit and credit
and other insurance related to the Collateral, (ii) rights of stoppage in
transit, replevin, repossession, reclamation and other rights and remedies of an
unpaid vendor, lienor or secured party, (iii) goods described in invoices,
documents, contracts or instruments with respect to, or otherwise representing
or evidencing, Receivables or other Collateral, including returned, repossessed
and reclaimed goods, and (iv) deposits by and property of account debtors or
other persons securing the obligations of account debtors;
(k) all (i) investment property (including securities, whether certificated or
uncertificated, securities accounts, security entitlements, commodity contracts
or commodity accounts) and (ii) monies, credit balances, deposits and other
property of any Borrower or Guarantor now or hereafter held or received by or in
transit to Agent, any Lender or its Affiliates or at any other depository or
other institution from or for the account of any Borrower or Guarantor, whether
for safekeeping, pledge, custody, transmission, collection or otherwise;
(l) all commercial tort claims, including, without limitation, those identified
in the Information Certificate;
(m) to the extent not otherwise described above, all Receivables;
(n) all Records; and
(o) all products and proceeds of the foregoing, in any form, including insurance
proceeds and all claims against third parties for loss or damage to or
destruction of or other involuntary conversion of any kind or nature of any or
all of the other Collateral.

 

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5.2 Perfection of Security Interests.
(a) Each Borrower and Guarantor irrevocably and unconditionally authorizes Agent
(or its agent) to file at any time and from time to time such financing
statements with respect to the Collateral naming Agent or its designee as the
secured party and such Borrower or Guarantor as debtor, as Agent may require,
and including any other information with respect to such Borrower or Guarantor
or otherwise required by part 5 of Article 9 of the Uniform Commercial Code of
such jurisdiction as Agent may determine, together with any amendment and
continuations with respect thereto, which authorization shall apply to all
financing statements filed on, prior to or after the date hereof. Each Borrower
and Guarantor hereby ratifies and approves all financing statements naming Agent
or its designee as secured party and such Borrower or Guarantor, as the case may
be, as debtor with respect to the Collateral (and any amendments with respect to
such financing statements) filed by or on behalf of Agent prior to the date
hereof and ratifies and confirms the authorization of Agent to file such
financing statements (and amendments, if any). Each Borrower and Guarantor
hereby authorizes Agent to adopt on behalf of such Borrower and Guarantor any
symbol required for authenticating any electronic filing. In the event that the
description of the collateral in any financing statement naming Agent or its
designee as the secured party and any Borrower or Guarantor as debtor includes
assets and properties of such Borrower or Guarantor that do not at any time
constitute Collateral, whether hereunder, under any of the other Financing
Agreements or otherwise, the filing of such financing statement shall
nonetheless be deemed authorized by such Borrower or Guarantor to the extent of
the Collateral included in such description and it shall not render the
financing statement ineffective as to any of the Collateral or otherwise affect
the financing statement as it applies to any of the Collateral. In no event
shall any Borrower or Guarantor at any time file, or permit or cause to be
filed, any correction statement or termination statement with respect to any
financing statement (or amendment or continuation with respect thereto) naming
Agent or its designee as secured party and such Borrower or Guarantor as debtor.
(b) Each Borrower and Guarantor does not have any chattel paper (whether
tangible or electronic) or instruments as of the date hereof, except as set
forth in the Information Certificate. In the event that any Borrower or
Guarantor shall be entitled to or shall receive any chattel paper or instrument
after the date hereof, Borrowers and Guarantors shall promptly notify Agent
thereof in writing. Promptly upon the receipt thereof by or on behalf of any
Borrower or Guarantor (including by any agent or representative), such Borrower
or Guarantor shall deliver, or cause to be delivered to Agent, all tangible
chattel paper and instruments that such Borrower or Guarantor has or may at any
time acquire, accompanied by such instruments of transfer or assignment duly
executed in blank as Agent may from time to time specify, in each case except as
Agent may otherwise agree. At Agent’s option, each Borrower and Guarantor shall,
or Agent may at any time on behalf of any Borrower or Guarantor, cause the
original of any such instrument or chattel paper to be conspicuously marked in a
form and manner acceptable to Agent with the following legend referring to
chattel paper or instruments as applicable: “This [chattel paper][instrument] is
subject to the security interest of Wachovia Capital Finance Corporation and any
sale, transfer, assignment or encumbrance of this [chattel paper][instrument]
violates the rights of such secured party.”

 

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(c) In the event that any Borrower or Guarantor shall at any time hold or
acquire an interest in any electronic chattel paper or any “transferable record”
(as such term is defined in Section 201 of the Federal Electronic Signatures in
Global and National Commerce Act or in Section 16 of the Uniform Electronic
Transactions Act as in effect in any relevant jurisdiction), such Borrower or
Guarantor shall promptly notify Agent thereof in writing. Promptly upon Agent’s
request, such Borrower or Guarantor shall take, or cause to be taken, such
actions as Agent may request to give Agent control of such electronic chattel
paper under Section 9-105 of the UCC and control of such transferable record
under Section 201 of the Federal Electronic Signatures in Global and National
Commerce Act or, as the case may be, Section 16 of the Uniform Electronic
Transactions Act, as in effect in such jurisdiction.
(d) Each Borrower and Guarantor does not have any deposit accounts as of the
date hereof, except as set forth in the Information Certificate. Borrowers and
Guarantors shall not, directly or indirectly, after the date hereof open,
establish or maintain any deposit account unless each of the following
conditions is satisfied: (i) Agent shall have received not less than five (5)
Business Days prior written notice of the intention of any Borrower or Guarantor
to open or establish such account which notice shall specify in reasonable
detail and specificity acceptable to Agent the name of the account, the owner of
the account, the name and address of the bank at which such account is to be
opened or established, the individual at such bank with whom such Borrower or
Guarantor is dealing and the purpose of the account, (ii) the bank where such
account is opened or maintained shall be acceptable to Agent, and (iii) on or
before the opening of such deposit account, such Borrower or Guarantor shall as
Agent may specify either (A) deliver to Agent a Deposit Account Control
Agreement with respect to such deposit account duly authorized, executed and
delivered by such Borrower or Guarantor and the bank at which such deposit
account is opened and maintained or (B) arrange for Agent to become the customer
of the bank with respect to the deposit account on terms and conditions
acceptable to Agent. The terms of this subsection (d) shall not apply to deposit
accounts specifically and exclusively used for payroll, payroll taxes and other
employee wage and benefit payments to or for the benefit of any Borrower’s or
Guarantor’s salaried employees.
(e) No Borrower or Guarantor owns or holds, directly or indirectly, beneficially
or as record owner or both, any investment property, as of the date hereof, or
have any investment account, securities account, commodity account or other
similar account with any bank or other financial institution or other securities
intermediary or commodity intermediary as of the date hereof, in each case
except as set forth in the Information Certificate.
(i) In the event that any Borrower or Guarantor shall be entitled to or shall at
any time after the date hereof hold or acquire any certificated securities, such
Borrower or Guarantor shall promptly endorse, assign and deliver the same to
Agent, accompanied by such instruments of transfer or assignment duly executed
in blank as Agent may from time to time specify. If any securities, now or
hereafter acquired by any Borrower or Guarantor are uncertificated and are
issued to such Borrower or Guarantor or its nominee directly by the issuer
thereof, such Borrower or Guarantor shall immediately notify Agent thereof and
shall as Agent may specify, either (A) cause the issuer to agree to comply with
instructions from Agent as to such securities, without further consent of any
Borrower or Guarantor or such nominee, or (B) arrange for Agent to become the
registered owner of the securities.

 

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(ii) Borrowers and Guarantors shall not, directly or indirectly, after the date
hereof open, establish or maintain any investment account, securities account,
commodity account or any other similar account (other than a deposit account)
with any securities intermediary or commodity intermediary unless each of the
following conditions is satisfied: (A) Agent shall have received not less than
five (5) Business Days prior written notice of the intention of such Borrower or
Guarantor to open or establish such account which notice shall specify in
reasonable detail and specificity acceptable to Agent the name of the account,
the owner of the account, the name and address of the securities intermediary or
commodity intermediary at which such account is to be opened or established, the
individual at such intermediary with whom such Borrower or Guarantor is dealing
and the purpose of the account, (B) the securities intermediary or commodity
intermediary (as the case may be) where such account is opened or maintained
shall be acceptable to Agent, and (C) on or before the opening of such
investment account, securities account or other similar account with a
securities intermediary or commodity intermediary, such Borrower or Guarantor
shall as Agent may specify either (i) execute and deliver, and cause to be
executed and delivered to Agent, an Investment Property Control Agreement with
respect thereto duly authorized, executed and delivered by such Borrower or
Guarantor and such securities intermediary or commodity intermediary or
(ii) arrange for Agent to become the entitlement holder with respect to such
investment property on terms and conditions acceptable to Agent.
(f) Borrowers and Guarantors are not the beneficiary or otherwise entitled to
any right to payment under any letter of credit, banker’s acceptance or similar
instrument as of the date hereof, except as set forth in Schedule 5.2(f) hereto.
In the event that any Borrower or Guarantor shall be entitled to or shall
receive any right to payment under any letter of credit, banker’s acceptance or
any similar instrument, whether as beneficiary thereof or otherwise after the
date hereof, such Borrower or Guarantor shall promptly notify Agent thereof in
writing. Such Borrower or Guarantor shall immediately, as Agent may specify,
either (i) deliver, or cause to be delivered to Agent, with respect to any such
letter of credit, banker’s acceptance or similar instrument, the written
agreement of the issuer and any other nominated person obligated to make any
payment in respect thereof (including any confirming or negotiating bank), in
form and substance satisfactory to Agent, consenting to the assignment of the
proceeds of the letter of credit to Agent by such Borrower or Guarantor and
agreeing to make all payments thereon directly to Agent or as Agent may
otherwise direct or (ii) cause Agent to become, at Borrowers’ expense, the
transferee beneficiary of the letter of credit, banker’s acceptance or similar
instrument (as the case may be).
(g) Borrowers and Guarantors do not have any commercial tort claims as of the
date hereof, except as set forth in the Information Certificate. In the event
that any Borrower or Guarantor shall at any time after the date hereof have any
commercial tort claims, such Borrower or Guarantor shall promptly notify Agent
thereof in writing, which notice shall (i) set forth in reasonable detail the
basis for and nature of such commercial tort claim and (ii) include the express
grant by such Borrower or Guarantor to Agent of a security interest in such
commercial tort claim (and the proceeds thereof). In the event that such notice
does not include such grant of a security interest, the sending thereof by such
Borrower or Guarantor to Agent shall be deemed to constitute such grant to
Agent. Upon the sending of such notice, any commercial tort claim described
therein shall constitute part of the Collateral and shall be deemed included
therein. Without limiting the authorization of Agent provided in Section 5.2(a)
hereof or otherwise arising by the execution by such Borrower or Guarantor of
this Agreement or any of the other Financing Agreements, Agent is hereby
irrevocably authorized from time to time and at any time to file such financing
statements naming Agent or its designee as secured party and such Borrower or
Guarantor as debtor, or any amendments to any financing statements, covering any
such commercial tort claim as Collateral. In addition, each Borrower and
Guarantor shall promptly upon Agent’s request, execute and deliver, or cause to
be executed and delivered, to Agent such other agreements, documents and
instruments as Agent may require in connection with such commercial tort claim.

 

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(h) Borrowers and Guarantors do not have any goods, documents of title or other
Collateral in the custody, control or possession of a third party as of the date
hereof, except as set forth in the Information Certificate and except for goods
located in the United States in transit to a location of a Borrower or Guarantor
permitted herein in the ordinary course of business of such Borrower or
Guarantor in the possession of the carrier transporting such goods. In the event
that any goods, documents of title or other Collateral are at any time after the
date hereof in the custody, control or possession of any other person not
referred to in the Information Certificate or such carriers, Borrowers and
Guarantors shall promptly notify Agent thereof in writing. Promptly upon Agent’s
request, Borrowers and Guarantors shall deliver to Agent a Collateral Access
Agreement duly authorized, executed and delivered by such person and the
Borrower or Guarantor that is the owner of such Collateral.
(i) Borrowers and Guarantors shall take any other actions reasonably requested
by Agent from time to time to cause the attachment, perfection and first
priority of, and the ability of Agent to enforce, the security interest of Agent
in any and all of the Collateral, including, without limitation, (i) executing,
delivering and, where appropriate, filing financing statements and amendments
relating thereto under the UCC or other applicable law, to the extent, if any,
that any Borrower’s or Guarantor’s signature thereon is required therefor,
(ii) causing Agent’s name to be noted as secured party on any certificate of
title for a titled good if such notation is a condition to attachment,
perfection or priority of, or ability of Agent to enforce, the security interest
of Agent in such Collateral, (iii) complying with any provision of any statute,
regulation or treaty of the United States as to any Collateral if compliance
with such provision is a condition to attachment, perfection or priority of, or
ability of Agent to enforce, the security interest of Agent in such Collateral,
(iv) obtaining the consents and approvals of any Governmental Authority or third
party, including, without limitation, any consent of any licensor, lessor or
other person obligated on Collateral, and taking all actions required by any
earlier versions of the UCC or by other law, as applicable in any relevant
jurisdiction.
SECTION 6. COLLECTION AND ADMINISTRATION
6.1 Borrowers’ Loan Accounts. Agent shall maintain one or more loan account(s)
on its books in which shall be recorded (a) all Loans, Letters of Credit and
other Obligations and the Collateral, (b) all payments made by or on behalf of
any Borrower or Guarantor and (c) all other appropriate debits and credits as
provided in this Agreement, including fees, charges, costs, expenses and
interest. All entries in the loan account(s) shall be made in accordance with
Agent’s customary practices as in effect from time to time.
6.2 Statements. Agent shall render to Administrative Borrower each month a
statement setting forth the balance in the Borrowers’ loan account(s) maintained
by Agent for Borrowers pursuant to the provisions of this Agreement, including
principal, interest, fees, costs and expenses. Each such statement shall be
subject to subsequent adjustment by Agent but shall, absent manifest errors or
omissions, be considered correct and deemed accepted by Borrowers and Guarantors
and conclusively binding upon Borrowers and Guarantors as an account stated
except to the extent that Agent receives a written notice from Administrative
Borrower of any specific exceptions of Administrative Borrower thereto within
thirty (30) days after the date such statement has been received by Parent.
Until such time as Agent shall have rendered to Administrative Borrower a
written statement as provided above, the balance in any Borrower’s loan
account(s) shall be presumptive evidence of the amounts due and owing to Agent
and Lenders by Borrowers and Guarantors.

 

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6.3 Collection of Accounts.
(a) Borrowers shall establish and maintain, at their expense, blocked accounts
or lockboxes and related blocked accounts (in either case, “Blocked Accounts”),
as Agent may specify, with such banks as are acceptable to Agent into which
Borrowers shall promptly deposit and direct their respective account debtors to
directly remit all payments on Receivables and all payments constituting
proceeds of Inventory or other Collateral in the identical form in which such
payments are made, whether by cash, check or other manner. Borrowers shall
deliver, or cause to be delivered to Agent a Deposit Account Control Agreement
duly authorized, executed and delivered by each bank where a Blocked Account is
maintained as provided in Section 5.2 hereof or at any time and from time to
time Agent may become the bank’s customer with respect to any of the Blocked
Accounts and promptly upon Agent’s request, Borrowers shall execute and deliver
such agreements and documents as Agent may require in connection therewith. Each
Borrower and Guarantor agrees that all payments made to such Blocked Accounts or
other funds received and collected by Agent or any Lender, whether in respect of
the Receivables, as proceeds of Inventory or other Collateral or otherwise shall
be treated as payments to Agent and Lenders in respect of the Obligations and
therefore shall constitute the property of Agent and Lenders to the extent of
the then outstanding Obligations.
(b) For purposes of calculating the amount of the Loans available to each
Borrower, such payments will be applied (conditional upon final collection) to
the Obligations on the Business Day of receipt by Agent of immediately available
funds in the Agent Payment Account provided such payments and notice thereof are
received in accordance with Agent’s usual and customary practices as in effect
from time to time and within sufficient time to credit such Borrower’s loan
account on such day, and if not, then on the next Business Day. For the purposes
of calculating interest on the Obligations, such payments or other funds
received will be applied (conditional upon final collection) to the Obligations
one (1) Business Day following the date of receipt of immediately available
funds by Agent in the Agent Payment Account provided such payments or other
funds and notice thereof are received in accordance with Agent’s usual and
customary practices as in effect from time to time and within sufficient time to
credit such Borrower’s loan account on such day, and if not, then on the next
Business Day. In the event that at any time or from time to time there are no
Revolving Loans outstanding, Agent shall be entitled to an administrative fee in
an amount calculated based on the Interest Rate for Prime Rate Loans (on a per
annum basis) multiplied by the amount of the funds received in the Blocked
Account for such day as calculated by Agent in accordance with its customary
practice. The economic benefit of the timing in the application of payments (and
the administrative charge with respect thereto, if applicable) shall be for the
sole benefit of Agent.

 

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(c) Each Borrower and Guarantor and their respective employees, agents and
Subsidiaries shall, acting as trustee for Agent, receive, as the property of
Agent, any monies, checks, notes, drafts or any other payment relating to and/or
proceeds of Accounts or other Collateral which come into their possession or
under their control and immediately upon receipt thereof, shall deposit or cause
the same to be deposited in the Blocked Accounts, or remit the same or cause the
same to be remitted, in kind, to Agent. In no event shall the same be commingled
with any Borrower’s or Guarantor’s own funds. Borrowers agree to reimburse Agent
on demand for any amounts owed or paid to any bank or other financial
institution at which a Blocked Account or any other deposit account or
investment account is established or any other bank, financial institution or
other person involved in the transfer of funds to or from the Blocked Accounts
arising out of Agent’s payments to or indemnification of such bank, financial
institution or other person. The obligations of Borrowers to reimburse Agent for
such amounts pursuant to this Section 6.3 shall survive the termination of this
Agreement.
6.4 Payments.
(a) All Obligations shall be payable to the Agent Payment Account as provided in
Section 6.3 or such other place as Agent may designate from time to time.
Subject to the other terms and conditions contained herein, Agent shall apply
payments received or collected from any Borrower or Guarantor or for the account
of any Borrower or Guarantor (including the monetary proceeds of collections or
of realization upon any Collateral) as follows: first, to pay any fees,
indemnities or expense reimbursements then due to Agent, Lenders and Issuing
Bank from any Borrower or Guarantor; second, to pay interest due in respect of
any Loans (and including any Special Agent Advances) or Letter of Credit
Obligations; third, to pay or prepay principal in respect of Special Agent
Advances; fourth, to pay principal due in respect of the Loans and to pay
Obligations then due arising under or pursuant to any Hedge Agreements of a
Borrower or Guarantor with Agent or a Bank Product Provider (up to the amount of
any then effective Reserve established in respect of such Obligations), on a pro
rata basis; fifth, to pay or prepay any other Obligations whether or not then
due, in such order and manner as Agent determines and at any time an Event of
Default exists or has occurred and is continuing, to provide cash collateral for
any Letter of Credit Obligations or other contingent Obligations (but not
including for this purpose any Obligations arising under or pursuant to any Bank
Products); and sixth, to pay or prepay any Obligations arising under or pursuant
to any Bank Products (other than to the extent provided for above) on a pro rata
basis. Notwithstanding anything to the contrary contained in this Agreement,
(i) unless so directed by Administrative Borrower, or unless a Default or an
Event of Default shall exist or have occurred and be continuing, Agent shall not
apply any payments which it receives to any Eurodollar Rate Loans, except (A) on
the expiration date of the Interest Period applicable to any such Eurodollar
Rate Loans or (B) in the event that there are no outstanding Prime Rate Loans
and (ii) to the extent any Borrower uses any proceeds of the Loans or Letters of
Credit to acquire rights in or the use of any Collateral or to repay any
Indebtedness used to acquire rights in or the use of any Collateral, payments in
respect of the Obligations shall be deemed applied first to the Obligations
arising from Loans and Letters of Credit that were not used for such purposes
and second to the Obligations arising from Loans and Letters of Credit the
proceeds of which were used to acquire rights in or the use of any Collateral in
the chronological order in which such Borrower acquired such rights in or the
use of such Collateral.

 

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(b) At Agent’s option, all principal, interest, fees, costs, expenses and other
charges provided for in this Agreement or the other Financing Agreements may be
charged directly to the loan account(s) of any Borrower maintained by Agent. If
after receipt of any payment of, or proceeds of Collateral applied to the
payment of, any of the Obligations, Agent or any Lender is required to surrender
or return such payment or proceeds to any Person for any reason, then the
Obligations intended to be satisfied by such payment or proceeds shall be
reinstated and continue and this Agreement shall continue in full force and
effect as if such payment or proceeds had not been received by Agent or such
Lender. Borrowers and Guarantors shall be liable to pay to Agent, and do hereby
indemnify and hold Agent and Lenders harmless for the amount of any payments or
proceeds surrendered or returned. This Section 6.4(b) shall remain effective
notwithstanding any contrary action which may be taken by Agent or any Lender in
reliance upon such payment or proceeds. This Section 6.4 shall survive the
payment of the Obligations and the termination of this Agreement.
6.5 Taxes.
(a) Any and all payments by or on account of any of the Obligations shall be
made free and clear of and without deduction or withholding for or on account
of, any setoff, counterclaim, defense, duties, taxes, levies, imposts, fees,
deductions, charges, withholdings, liabilities, restrictions or conditions of
any kind, excluding (i) in the case of each Lender and Agent (A) taxes measured
by its net income, and franchise taxes imposed on it, by the jurisdiction (or
any political subdivision thereof) under the laws of which such Lender or Agent
(as the case may be) is organized and (B) any United States withholding taxes
payable with respect to payments under the Financing Agreements under laws
(including any statute, treaty or regulation) in effect on the date hereof (or,
in the case of an Eligible Transferee, the date of the Assignment and
Acceptance) applicable to such Lender or Agent, as the case may be, but not
excluding any United States withholding taxes payable as a result of any change
in such laws occurring after the date hereof (or the date of such Assignment and
Acceptance) and (ii) in the case of each Lender, taxes measured by its net
income, and franchise taxes imposed on it as a result of a present or former
connection between such Lender and the jurisdiction of the Governmental
Authority imposing such tax or any taxing authority thereof or therein (all such
non-excluded taxes, levies, imposts, fees, deductions, charges, withholdings and
liabilities being hereinafter referred to as “Taxes”).
(b) If any Taxes shall be required by law to be deducted from or in respect of
any sum payable in respect of the Obligations to any Lender or Agent (i) the sum
payable shall be increased as may be necessary so that after making all required
deductions (including deductions applicable to additional sums payable under
this Section 6.5), such Lender or Agent (as the case may be) receives an amount
equal to the sum it would have received had no such deductions been made,
(ii) the relevant Borrower or Guarantor shall make such deductions, (iii) the
relevant Borrower or Guarantor shall pay the full amount deducted to the
relevant taxing authority or other authority in accordance with applicable law
and (iv) the relevant Borrower or Guarantor shall deliver to Agent evidence of
such payment.
(c) In addition, each Borrower and Guarantor agrees to pay any present or future
stamp or documentary taxes or any other excise or property taxes, charges or
similar levies of the United States or any political subdivision thereof or any
applicable foreign jurisdiction, and all liabilities with respect thereto, in
each case arising from any payment made hereunder or under any of the other
Financing Agreements or from the execution, delivery or registration of, or
otherwise with respect to, this Agreement or any of the other Financing
Agreements (collectively, “Other Taxes”).

 

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(d) Each Borrower and Guarantor shall indemnify each Lender and Agent for the
full amount of Taxes and Other Taxes (including any Taxes and Other Taxes
imposed by any jurisdiction on amounts payable under this Section 6.5) paid by
such Lender or Agent (as the case may be) and any liability (including for
penalties, interest and expenses) arising therefrom or with respect thereto,
whether or not such Taxes or Other Taxes were correctly or legally asserted.
This indemnification shall be made within thirty (30) days from the date such
Lender or Agent (as the case may be) makes written demand therefor. A
certificate as to the amount of such payment or liability delivered to
Administrative Borrower by a Lender (with a copy to Agent) or by Agent on its
own behalf or on behalf of a Lender, shall be conclusive absent manifest error.
(e) As soon as practicable after any payment of Taxes or Other Taxes by any
Borrower or Guarantor, such Borrower or Guarantor shall furnish to Agent, at its
address referred to herein, the original or a certified copy of a receipt
evidencing payment thereof.
(f) Without prejudice to the survival of any other agreements of any Borrower or
Guarantor hereunder or under any of the other Financing Agreements, the
agreements and obligations of such Borrower or Guarantor contained in this
Section 6.5 shall survive the termination of this Agreement and the payment in
full of the Obligations.
(g) Any Foreign Lender that is entitled to an exemption from or reduction of
withholding tax under the law of the jurisdiction in which the applicable
Borrower is resident for tax purposes, or any treaty to which such jurisdiction
is a party, with respect to payments hereunder or under any of the other
Financing Agreements shall deliver to Administrative Borrower (with a copy to
Agent), at the time or times prescribed by applicable law or reasonably
requested by Administrative Borrower or Agent (in such number of copies as is
reasonably requested by the recipient), whichever of the following is applicable
(but only if such Foreign Lender is legally entitled to do so): (i) duly
completed copies of Internal Revenue Service Form W-8BEN claiming exemption
from, or a reduction to, withholding tax under an income tax treaty, or any
successor form, (ii) duly completed copies of Internal Revenue Service Form
8-8ECI claiming exemption from withholding because the income is effectively
connection with a U.S. trade or business or any successor form, (iii) in the
case of a Foreign Lender claiming the benefits of the exemption for portfolio
interest under Sections 871(h) or 881(c) of the Code, (A) a certificate of the
Lender to the effect that such Lender is not a “bank” within the meaning of
Section 881(c)(3)(A) of the Code, a “10 percent shareholder” of a Borrower
within the meaning of Section 881(c)(3)(B) of the Code or a “controlled foreign
corporation” described and Section 881(c)(3)(C) of the Code and (B) duly
completed copies of Internal Revenue Service Form W-8BEN claiming exemption from
withholding under the portfolio interest exemption or any successor form or
(iv) any other applicable form, certificate or document prescribed by applicable
law as a basis for claiming exemption from or a reduction in United States
withholding tax duly completed together with such supplementary documentation as
may be prescribed by applicable law to permit a Borrower to determine the
withholding or deduction required to be made. Unless Administrative Borrower and
Agent have received forms or other documents satisfactory to them indicating
that payments hereunder or under any of the other Financing Agreements to or for
a Foreign Lender are not subject to United States withholding tax or are subject
to such tax at a rate reduced by an applicable tax treaty, Borrowers or Agent
shall withhold amounts required to be withheld by applicable requirements of law
from such payments at the applicable statutory rate.

 

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(h) Any Lender claiming any additional amounts payable pursuant to this
Section 6.5 shall use its reasonable efforts (consistent with its internal
policy and legal and regulatory restrictions) to change the jurisdiction of its
applicable lending office if the making of such a change would avoid the need
for, or reduce the amount of, any such additional amounts that would be payable
or may thereafter accrue and would not, in the sole determination of such
Lender, be otherwise disadvantageous to such Lender.
6.6 Authorization to Make Loans. Agent and Lenders are authorized to make the
Loans based upon telephonic or other instructions received from anyone
purporting to be an officer of Administrative Borrower or any Borrower or other
authorized person or, at the discretion of Agent, if such Loans are necessary to
satisfy any Obligations. All requests for Loans or Letters of Credit hereunder
shall specify the date on which the requested advance is to be made (which day
shall be a Business Day) and the amount of the requested Loan. Requests received
after 11:00 a.m. California time on any day shall be deemed to have been made as
of the opening of business on the immediately following Business Day. All Loans
and Letters of Credit under this Agreement shall be conclusively presumed to
have been made to, and at the request of and for the benefit of, any Borrower or
Guarantor when deposited to the credit of any Borrower or Guarantor or otherwise
disbursed or established in accordance with the instructions of any Borrower or
Guarantor or in accordance with the terms and conditions of this Agreement.
6.7 Use of Proceeds. Borrowers shall use the initial proceeds of the Loans and
Letters of Credit hereunder only for: (a) payments to each of the persons listed
in the disbursement direction letter furnished by Borrowers to Agent on or about
the date hereof and (b) costs, expenses and fees in connection with the
preparation, negotiation, execution and delivery of this Agreement and the other
Financing Agreements. All other Loans made or Letters of Credit provided to or
for the benefit of any Borrower pursuant to the provisions hereof shall be used
by such Borrower only for general operating, working capital and other proper
corporate purposes of such Borrower not otherwise prohibited by the terms
hereof. None of the proceeds will be used, directly or indirectly, for the
purpose of purchasing or carrying any margin security or for the purposes of
reducing or retiring any indebtedness which was originally incurred to purchase
or carry any margin security or for any other purpose which might cause any of
the Loans to be considered a “purpose credit” within the meaning of Regulation U
of the Board of Governors of the Federal Reserve System, as amended.
6.8 Appointment of Administrative Borrower as Agent for Requesting Loans and
Receipts of Loans and Statements.
(a) Each Borrower hereby irrevocably appoints and constitutes Administrative
Borrower as its agent and attorney-in-fact to request and receive Loans and
Letters of Credit pursuant to this Agreement and the other Financing Agreements
from Agent or any Lender in the name or on behalf of such Borrower. Agent and
Lenders may disburse the Loans to such bank account of Administrative Borrower
or a Borrower or otherwise make such Loans to a Borrower and provide such
Letters of Credit to a Borrower as Administrative Borrower may designate or
direct, without notice to any other Borrower or Guarantor. Notwithstanding
anything to the contrary contained herein, Agent may at any time and from time
to time require that Loans to or for the account of any Borrower be disbursed
directly to an operating account of such Borrower.

 

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(b) Administrative Borrower hereby accepts the appointment by Borrowers to act
as the agent and attorney-in-fact of Borrowers pursuant to this Section 6.8.
Administrative Borrower shall ensure that the disbursement of any Loans to each
Borrower requested by or paid to or for the account of Parent, or the issuance
of any Letter of Credit for a Borrower hereunder, shall be paid to or for the
account of such Borrower.
(c) Each Borrower and other Guarantor hereby irrevocably appoints and
constitutes Administrative Borrower as its agent to receive statements on
account and all other notices from Agent and Lenders with respect to the
Obligations or otherwise under or in connection with this Agreement and the
other Financing Agreements.
(d) Any notice, election, representation, warranty, agreement or undertaking by
or on behalf of any other Borrower or any Guarantor by Administrative Borrower
shall be deemed for all purposes to have been made by such Borrower or
Guarantor, as the case may be, and shall be binding upon and enforceable against
such Borrower or Guarantor to the same extent as if made directly by such
Borrower or Guarantor.
(e) No purported termination of the appointment of Administrative Borrower as
agent as aforesaid shall be effective, except after ten (10) days’ prior written
notice to Agent.
6.9 Pro Rata Treatment. Except to the extent otherwise provided in this
Agreement or as otherwise agreed by Lenders: (a) the making and conversion of
Loans shall be made among the Lenders based on their respective Pro Rata Shares
as to the Loans and (b) each payment on account of any Obligations to or for the
account of one or more of Lenders in respect of any Obligations due on a
particular day shall be allocated among the Lenders entitled to such payments
based on their respective Pro Rata Shares and shall be distributed accordingly.
6.10 Sharing of Payments, Etc.
(a) Each Borrower and Guarantor agrees that, in addition to (and without
limitation of) any right of setoff, banker’s lien or counterclaim Agent or any
Lender may otherwise have, each Lender shall be entitled, at its option (but
subject, as among Agent and Lenders, to the provisions of Section 12.3(b)
hereof), to offset balances held by it for the account of such Borrower or
Guarantor at any of its offices, in dollars or in any other currency, against
any principal of or interest on any Loans owed to such Lender or any other
amount payable to such Lender hereunder, that is not paid when due (regardless
of whether such balances are then due to such Borrower or Guarantor), in which
case it shall promptly notify Administrative Borrower and Agent thereof;
provided, that, such Lender’s failure to give such notice shall not affect the
validity thereof.

 

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(b) If any Lender (including Agent) shall obtain from any Borrower or Guarantor
payment of any principal of or interest on any Loan owing to it or payment of
any other amount under this Agreement or any of the other Financing Agreements
through the exercise of any right of setoff, banker’s lien or counterclaim or
similar right or otherwise (other than from Agent as provided herein), and, as a
result of such payment, such Lender shall have received more than its Pro Rata
Share of the principal of the Loans or more than its share of such other amounts
then due hereunder or thereunder by any Borrower or Guarantor to such Lender
than the percentage thereof received by any other Lender, it shall promptly pay
to Agent, for the benefit of Lenders, the amount of such excess and
simultaneously purchase from such other Lenders a participation in the Loans or
such other amounts, respectively, owing to such other Lenders (or such interest
due thereon, as the case may be) in such amounts, and make such other
adjustments from time to time as shall be equitable, to the end that all Lenders
shall share the benefit of such excess payment (net of any expenses that may be
incurred by such Lender in obtaining or preserving such excess payment) in
accordance with their respective Pro Rata Shares or as otherwise agreed by
Lenders. To such end all Lenders shall make appropriate adjustments among
themselves (by the resale of participation sold or otherwise) if such payment is
rescinded or must otherwise be restored.
(c) Each Borrower and Guarantor agrees that any Lender purchasing a
participation (or direct interest) as provided in this Section may exercise, in
a manner consistent with this Section, all rights of setoff, banker’s lien,
counterclaim or similar rights with respect to such participation as fully as if
such Lender were a direct holder of Loans or other amounts (as the case may be)
owing to such Lender in the amount of such participation.
(d) Nothing contained herein shall require any Lender to exercise any right of
setoff, banker’s lien, counterclaims or similar rights or shall affect the right
of any Lender to exercise, and retain the benefits of exercising, any such right
with respect to any other Indebtedness or obligation of any Borrower or
Guarantor. If, under any applicable bankruptcy, insolvency or other similar law,
any Lender receives a secured claim in lieu of a setoff to which this Section
applies, such Lender shall, to the extent practicable, assign such rights to
Agent for the benefit of Lenders and, in any event, exercise its rights in
respect of such secured claim in a manner consistent with the rights of Lenders
entitled under this Section to share in the benefits of any recovery on such
secured claim.
6.11 Settlement Procedures.
(a) In order to administer the Credit Facility in an efficient manner and to
minimize the transfer of funds between Agent and Lenders, Agent may, at its
option, subject to the terms of this Section, make available, on behalf of
Lenders, the full amount of the Loans requested or charged to any Borrower’s
loan account(s) or otherwise to be advanced by Lenders pursuant to the terms
hereof, without requirement of prior notice to Lenders of the proposed Loans.

 

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(b) With respect to all Loans made by Agent on behalf of Lenders as provided in
this Section, the amount of each Lender’s Pro Rata Share of the outstanding
Loans shall be computed weekly, and shall be adjusted upward or downward on the
basis of the amount of the outstanding Loans as of 5:00 p.m. New York time on
the Business Day immediately preceding the date of each settlement computation;
provided, that, Agent retains the absolute right at any time or from time to
time to make the above described adjustments at intervals more frequent than
weekly, but in no event more than twice in any week. Agent shall deliver to each
of the Lenders after the end of each week, or at such lesser period or periods
as Agent shall determine, a summary statement of the amount of outstanding Loans
for such period (such week or lesser period or periods being hereinafter
referred to as a “Settlement Period”). If the summary statement is sent by Agent
and received by a Lender prior to 12:00 p.m. New York time, then such Lender
shall make the settlement transfer described in this Section by no later than
3:00 p.m. New York time on the same Business Day and if received by a Lender
after 12:00 p.m. New York time, then such Lender shall make the settlement
transfer by not later than 3:00 p.m. New York time on the next Business Day
following the date of receipt. If, as of the end of any Settlement Period, the
amount of a Lender’s Pro Rata Share of the outstanding Loans is more than such
Lender’s Pro Rata Share of the outstanding Loans as of the end of the previous
Settlement Period, then such Lender shall forthwith (but in no event later than
the time set forth in the preceding sentence) transfer to Agent by wire transfer
in immediately available funds the amount of the increase. Alternatively, if the
amount of a Lender’s Pro Rata Share of the outstanding Loans in any Settlement
Period is less than the amount of such Lender’s Pro Rata Share of the
outstanding Loans for the previous Settlement Period, Agent shall forthwith
transfer to such Lender by wire transfer in immediately available funds the
amount of the decrease. The obligation of each of the Lenders to transfer such
funds and effect such settlement shall be irrevocable and unconditional and
without recourse to or warranty by Agent. Agent and each Lender agrees to mark
its books and records at the end of each Settlement Period to show at all times
the dollar amount of its Pro Rata Share of the outstanding Loans and Letters of
Credit. Each Lender shall only be entitled to receive interest on its Pro Rata
Share of the Loans to the extent such Loans have been funded by such Lender.
Because the Agent on behalf of Lenders may be advancing and/or may be repaid
Loans prior to the time when Lenders will actually advance and/or be repaid such
Loans, interest with respect to Loans shall be allocated by Agent in accordance
with the amount of Loans actually advanced by and repaid to each Lender and the
Agent and shall accrue from and including the date such Loans are so advanced to
but excluding the date such Loans are either repaid by Borrowers or actually
settled with the applicable Lender as described in this Section.
(c) To the extent that Agent has made any such amounts available and the
settlement described above shall not yet have occurred, upon repayment of any
Loans by a Borrower, Agent may apply such amounts repaid directly to any amounts
made available by Agent pursuant to this Section. In lieu of weekly or more
frequent settlements, Agent may, at its option, at any time require each Lender
to provide Agent with immediately available funds representing its Pro Rata
Share of each Loan, prior to Agent’s disbursement of such Loan to Borrower. In
such event, all Loans under this Agreement shall be made by the Lenders
simultaneously and proportionately to their Pro Rata Shares. No Lender shall be
responsible for any default by any other Lender in the other Lender’s obligation
to make a Loan requested hereunder nor shall the Commitment of any Lender be
increased or decreased as a result of the default by any other Lender in the
other Lender’s obligation to make a Loan hereunder.

 

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(d) If Agent is not funding a particular Loan to a Borrower (or Administrative
Borrower for the benefit of such Borrower) pursuant to Sections 6.11(a) and
6.11(b) above on any day, but is requiring each Lender to provide Agent with
immediately available funds on the date of such Loan as provided in
Section 6.11(c) above, Agent may assume that each Lender will make available to
Agent such Lender’s Pro Rata Share of the Loan requested or otherwise made on
such day and Agent may, in its discretion, but shall not be obligated to, cause
a corresponding amount to be made available to or for the benefit of such
Borrower on such day. If Agent makes such corresponding amount available to a
Borrower and such corresponding amount is not in fact made available to Agent by
such Lender, Agent shall be entitled to recover such corresponding amount on
demand from such Lender together with interest thereon for each day from the
date such payment was due until the date such amount is paid to Agent at the
Federal Funds Rate for each day during such period (as published by the Federal
Reserve Bank of New York or at Agent’s option based on the arithmetic mean
determined by Agent of the rates for the last transaction in overnight Federal
funds arranged prior to 9:00 a.m. (New York City time) on that day by each of
the three leading brokers of Federal funds transactions in New York City
selected by Agent) and if such amounts are not paid within three (3) days of
Agent’s demand, at the highest Interest Rate provided for in Section 3.1 hereof
applicable to Prime Rate Loans. During the period in which such Lender has not
paid such corresponding amount to Agent, notwithstanding anything to the
contrary contained in this Agreement or any of the other Financing Agreements,
the amount so advanced by Agent to or for the benefit of any Borrower shall, for
all purposes hereof, be a Loan made by Agent for its own account. Upon any such
failure by a Lender to pay Agent, Agent shall promptly thereafter notify
Administrative Borrower of such failure and Borrowers shall pay such
corresponding amount to Agent for its own account within five (5) Business Days
of Administrative Borrower’s receipt of such notice. A Lender who fails to pay
Agent its Pro Rata Share of any Loans made available by the Agent on such
Lender’s behalf, or any Lender who fails to pay any other amount owing by it to
Agent, is a “Defaulting Lender”. Agent shall not be obligated to transfer to a
Defaulting Lender any payments received by Agent for the Defaulting Lender’s
benefit, nor shall a Defaulting Lender be entitled to the sharing of any
payments hereunder (including any principal, interest or fees). Amounts payable
to a Defaulting Lender shall instead be paid to or retained by Agent. Agent may
hold and, in its discretion, relend to a Borrower the amount of all such
payments received or retained by it for the account of such Defaulting Lender.
For purposes of voting or consenting to matters with respect to this Agreement
and the other Financing Agreements and determining Pro Rata Shares, such
Defaulting Lender shall be deemed not to be a “Lender” and such Lender’s
Commitment shall be deemed to be zero (0). This Section shall remain effective
with respect to a Defaulting Lender until such default is cured. The operation
of this Section shall not be construed to increase or otherwise affect the
Commitment of any Lender, or relieve or excuse the performance by any Borrower
or Guarantor of their duties and obligations hereunder.
(e) Nothing in this Section or elsewhere in this Agreement or the other
Financing Agreements shall be deemed to require Agent to advance funds on behalf
of any Lender or to relieve any Lender from its obligation to fulfill its
Commitment hereunder or to prejudice any rights that any Borrower may have
against any Lender as a result of any default by any Lender hereunder in
fulfilling its Commitment.
6.12 Obligations Several; Independent Nature of Lenders’ Rights. The obligation
of each Lender hereunder is several, and no Lender shall be responsible for the
obligation or commitment of any other Lender hereunder. Nothing contained in
this Agreement or any of the other Financing Agreements and no action taken by
the Lenders pursuant hereto or thereto shall be deemed to constitute the Lenders
to be a partnership, an association, a joint venture or any other kind of
entity. The amounts payable at any time hereunder to each Lender shall be a
separate and independent debt, and subject to Section 12.3 hereof, each Lender
shall be entitled to protect and enforce its rights arising out of this
Agreement and it shall not be necessary for any other Lender to be joined as an
additional party in any proceeding for such purpose.

 

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6.13 Bank Products. Borrowers and Guarantors, or any of their Subsidiaries, may
(but no such Person is required to) request that the Bank Product Providers
provide or arrange for such Person to obtain Bank Products from Bank Product
Providers, and each Bank Product Provider may, in its sole discretion, provide
or arrange for such Person to obtain the requested Bank Products. Borrowers and
Guarantors or any of their Subsidiaries that obtains Bank Products shall
indemnify and hold Agent, each Lender and their respective Affiliates harmless
from any and all obligations now or hereafter owing to any other Person by any
Bank Product Provider in connection with any Bank Products other than for gross
negligence or willful misconduct on the part of any such indemnified Person.
This Section 6.13 shall survive the payment of the Obligations and the
termination of this Agreement. Borrower and its Subsidiaries acknowledge and
agree that the obtaining of Bank Products from Bank Product Providers (a) is in
the sole discretion of such Bank Product Provider, and (b) is subject to all
rules and regulations of such Bank Product Provider.
SECTION 7. COLLATERAL REPORTING AND COVENANTS
7.1 Collateral Reporting.
(a) Borrowers shall provide Agent with the following documents in a form
satisfactory to Agent:
(i) on a weekly basis, schedules of sales made, credits issued and cash
received, together with a certificate of the Borrowing Base;
(ii) as soon as possible after the end of each month (but in any event within
ten (10) Business Days after the end thereof), on a monthly basis or more
frequently as Agent may request, (A) agings of accounts receivable (together
with a reconciliation to the previous month’s aging and general ledger) which
shall identify the copyright titles whose sale generated each account receivable
or portion thereof and (B) agings of accounts payable (and including information
indicating the amounts owing to owners and lessors of leased premises,
warehouses, processors and other third parties from time to time in possession
of any Collateral);
(iii) upon Agent’s request, (A) copies of customer statements, purchase orders,
sales invoices, credit memos, remittance advices and reports, and copies of
deposit slips and bank statements, (B) copies of shipping and delivery
documents, (C) copies of purchase orders, invoices and delivery documents for
Inventory and Equipment acquired by any Borrower or Guarantor, (D) perpetual
inventory reports, and (E) inventory reports by location and category (and
including the amounts of Inventory and the value thereof at any leased locations
and at premises of warehouses, processors or other third parties);
(iv) such other reports as to the Collateral as Agent shall request from time to
time.

 

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(b) If any Borrower’s or Guarantor’s records or reports of the Collateral are
prepared or maintained by an accounting service, contractor, shipper or other
agent, such Borrower and Guarantor hereby irrevocably authorizes such service,
contractor, shipper or agent to deliver such records, reports, and related
documents to Agent and to follow Agent’s instructions with respect to further
services at any time that an Event of Default exists or has occurred and is
continuing.
7.2 Accounts Covenants.
(a) Borrowers shall notify Agent promptly of: (i) any material delay in any
Borrower’s performance of any of its material obligations to any account debtor
or the assertion of any material claims, offsets, defenses or counterclaims by
any account debtor, or any material disputes with account debtors, or any
settlement, adjustment or compromise thereof, (ii) all material adverse
information known to any Borrower or Guarantor relating to the financial
condition of any account debtor and (iii) any event or circumstance which, to
the best of any Borrower’s or Guarantor’s knowledge, would cause Agent to
consider any then existing Accounts as no longer constituting Eligible Accounts.
No credit, discount, allowance or extension or agreement for any of the
foregoing shall be granted to any account debtor without Agent’s consent, except
in the ordinary course of a Borrower’s or Guarantor’s business in accordance
with practices and policies previously disclosed in writing to Agent and except
as set forth in the schedules delivered to Agent pursuant to Section 7.1(a)
above. So long as no Event of Default exists or has occurred and is continuing,
Borrowers and Guarantors shall settle, adjust or compromise any claim, offset,
counterclaim or dispute with any account debtor. At any time that an Event of
Default exists or has occurred and is continuing, Agent shall, at its option,
have the exclusive right to settle, adjust or compromise any claim, offset,
counterclaim or dispute with account debtors or grant any credits, discounts or
allowances.
(b) With respect to each Account: (i) the amounts shown on any invoice delivered
to Agent or schedule thereof delivered to Agent shall be true and complete,
(ii) no payments shall be made thereon except payments immediately delivered to
Agent pursuant to the terms of this Agreement, (iii) no credit, discount,
allowance or extension or agreement for any of the foregoing shall be granted to
any account debtor except as reported to Agent in accordance with this Agreement
and except for credits, discounts, allowances or extensions made or given in the
ordinary course of each Borrower’s business in accordance with practices and
policies previously disclosed to Agent, (iv) there shall be no setoffs,
deductions, contras, defenses, counterclaims or disputes existing or asserted
with respect thereto except as reported to Agent in accordance with the terms of
this Agreement, (v) none of the transactions giving rise thereto will violate
any applicable foreign, Federal, State or local laws or regulations, all
documentation relating thereto will be legally sufficient under such laws and
regulations and all such documentation will be legally enforceable in accordance
with its terms.
(c) Agent shall have the right at any time or times, in Agent’s name or in the
name of a nominee of Agent, to verify the validity, amount or any other matter
relating to any Receivables or other Collateral, by mail, telephone, facsimile
transmission or otherwise.

 

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7.3 Inventory Covenants. With respect to the Inventory: (a) each Borrower and
Guarantor shall at all times maintain inventory records reasonably satisfactory
to Agent, keeping correct and accurate records itemizing and describing the
kind, type, quality and quantity of Inventory, such Borrower’s or Guarantor’s
cost therefor and daily withdrawals therefrom and additions thereto;
(b) Borrowers and Guarantors shall conduct a physical count of the Inventory
(either in one count or a series of counts) at least once each year but at any
time or times as Agent may request on or after an Event of Default, and promptly
following such physical inventory shall supply Agent with a report in the form
and with such specificity as may be satisfactory to Agent concerning such
physical count; (c) Borrowers and Guarantors shall not remove any Inventory from
the locations set forth or permitted herein, without the prior written consent
of Agent, except for sales of Inventory in the ordinary course of its business
and except to move Inventory directly from one location set forth or permitted
herein to another such location and except for Inventory shipped from the
manufacturer thereof to such Borrower or Guarantor which is in transit to the
locations set forth or permitted herein; (d) Borrowers shall, at their expense,
at any time or times as Agent may request on or after an Event of Default,
deliver or cause to be delivered to Agent written appraisals as to the Inventory
in form, scope and methodology acceptable to Agent and by an appraiser
acceptable to Agent, addressed to Agent and Lenders and upon which Agent and
Lenders are expressly permitted to rely; (e) Borrowers and Guarantors shall
produce, use, store and maintain the Inventory with all reasonable care and
caution and in accordance with applicable standards of any insurance and in
conformity with applicable laws (including the requirements of the Federal Fair
Labor Standards Act of 1938, as amended and all rules, regulations and orders
related thereto); (f) none of the Inventory or other Collateral constitutes farm
products or the proceeds thereof; (g) each Borrower and Guarantor assumes all
responsibility and liability arising from or relating to the production, use,
sale or other disposition of the Inventory; (h) Borrowers and Guarantors shall
not sell Inventory to any customer on approval, or any other basis which
entitles the customer to return or may obligate any Borrower or Guarantor to
repurchase such Inventory; (i) Borrowers and Guarantors shall keep the Inventory
in good and marketable condition; and (j) Borrowers and Guarantors shall not,
without prior written notice to Agent or the specific identification of such
Inventory in a report with respect thereto provided by Administrative Borrower
to Agent pursuant to Section 7.1(a) hereof, acquire or accept any Inventory on
consignment or approval.
7.4 Equipment and Real Property Covenants. With respect to the Equipment and
Real Property: (a) Borrowers and Guarantors shall, at their expense, at any time
or times as Agent may request on or after an Event of Default, deliver or cause
to be delivered to Agent written appraisals as to the Equipment and/or the Real
Property in form, scope and methodology acceptable to Agent and by an appraiser
acceptable to Agent, addressed to Agent and upon which Agent is expressly
permitted to rely; (b) Borrowers and Guarantors shall keep the Equipment in good
order, repair, running and marketable condition (ordinary wear and tear
excepted); (c) Borrowers and Guarantors shall use the Equipment and Real
Property with all reasonable care and caution and in accordance with applicable
standards of any insurance and in conformity with all applicable laws; (d) the
Equipment is and shall be used in the business of Borrowers and Guarantors and
not for personal, family, household or farming use; (e) Borrowers and Guarantors
shall not remove any Equipment from the locations set forth or permitted herein,
except to the extent necessary to have any Equipment repaired or maintained in
the ordinary course of its business or to move Equipment directly from one
location set forth or permitted herein to another such location and except for
the movement of motor vehicles used by or for the benefit of such Borrower or
Guarantor in the ordinary course of business; (f) the Equipment is now and shall
remain personal property and Borrowers and Guarantors shall not permit any of
the Equipment to be or become a part of or affixed to real property; and
(g) each Borrower and Guarantor assumes all responsibility and liability arising
from the use of the Equipment and Real Property.

 

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7.5 Power of Attorney. Each Borrower and Guarantor hereby irrevocably designates
and appoints Agent (and all persons designated by Agent) as such Borrower’s and
Guarantor’s true and lawful attorney-in-fact, and authorizes Agent, in such
Borrower’s, Guarantor’s or Agent’s name, to: (a) at any time an Event of Default
exists or has occurred and is continuing (i) demand payment on Receivables or
other Collateral, (ii) enforce payment of Receivables by legal proceedings or
otherwise, (iii) exercise all of such Borrower’s or Guarantor’s rights and
remedies to collect any Receivable or other Collateral, (iv) sell or assign any
Receivable upon such terms, for such amount and at such time or times as the
Agent deems advisable, (v) settle, adjust, compromise, extend or renew an
Account, (vi) discharge and release any Receivable, (vii) prepare, file and sign
such Borrower’s or Guarantor’s name on any proof of claim in bankruptcy or other
similar document against an account debtor or other obligor in respect of any
Receivables or other Collateral, (viii) notify the post office authorities to
change the address for delivery of remittances from account debtors or other
obligors in respect of Receivables or other proceeds of Collateral to an address
designated by Agent, and open and dispose of all mail addressed to such Borrower
or Guarantor and handle and store all mail relating to the Collateral; and
(ix) do all acts and things which are necessary, in Agent’s determination, to
fulfill such Borrower’s or Guarantor’s obligations under this Agreement and the
other Financing Agreements and (b) at any time to (i) take control in any manner
of any item of payment in respect of Receivables or constituting Collateral or
otherwise received in or for deposit in the Blocked Accounts or otherwise
received by Agent or any Lender, (ii) have access to any lockbox or postal box
into which remittances from account debtors or other obligors in respect of
Receivables or other proceeds of Collateral are sent or received, (iii) endorse
such Borrower’s or Guarantor’s name upon any items of payment in respect of
Receivables or constituting Collateral or otherwise received by Agent and any
Lender and deposit the same in Agent’s account for application to the
Obligations, (iv) endorse such Borrower’s or Guarantor’s name upon any chattel
paper, document, instrument, invoice, or similar document or agreement relating
to any Receivable or any goods pertaining thereto or any other Collateral,
including any warehouse or other receipts, or bills of lading and other
negotiable or non-negotiable documents, (v) clear Inventory the purchase of
which was financed with a Letter of Credit through U.S. Customs or foreign
export control authorities in such Borrower’s or Guarantor’s name, Agent’s name
or the name of Agent’s designee, and to sign and deliver to customs officials
powers of attorney in such Borrower’s or Guarantor’s name for such purpose, and
to complete in such Borrower’s or Guarantor’s or Agent’s name, any order, sale
or transaction, obtain the necessary documents in connection therewith and
collect the proceeds thereof, and (vi) sign such Borrower’s or Guarantor’s name
on any verification of Receivables and notices thereof to account debtors or any
secondary obligors or other obligors in respect thereof. Each Borrower and
Guarantor hereby releases Agent and Lenders and their respective officers,
employees and designees from any liabilities arising from any act or acts under
this power of attorney and in furtherance thereof, whether of omission or
commission, except as a result of Agent’s or any Lender’s own gross negligence
or wilful misconduct as determined pursuant to a final non-appealable order of a
court of competent jurisdiction.

 

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7.6 Right to Cure. Agent may, at its option, upon notice to Administrative
Borrower, (a) cure any default by any Borrower or Guarantor under any material
agreement with a third party that affects the Collateral, its value or the
ability of Agent to collect, sell or otherwise dispose of the Collateral or the
rights and remedies of Agent or any Lender therein or the ability of any
Borrower or Guarantor to perform its obligations hereunder or under any of the
other Financing Agreements, (b) pay or bond on appeal any judgment entered
against any Borrower or Guarantor, (c) discharge taxes, liens, security
interests or other encumbrances at any time levied on or existing with respect
to the Collateral and (d) pay any amount, incur any expense or perform any act
which, in Agent’s judgment, is necessary or appropriate to preserve, protect,
insure or maintain the Collateral and the rights of Agent and Lenders with
respect thereto. Agent may add any amounts so expended to the Obligations and
charge any Borrower’s account therefor, such amounts to be repayable by
Borrowers on demand. Agent and Lenders shall be under no obligation to effect
such cure, payment or bonding and shall not, by doing so, be deemed to have
assumed any obligation or liability of any Borrower or Guarantor. Any payment
made or other action taken by Agent or any Lender under this Section shall be
without prejudice to any right to assert an Event of Default hereunder and to
proceed accordingly.
7.7 Access to Premises. From time to time as requested by Agent, at the cost and
expense of Borrowers, (a) Agent or its designee shall have complete access to
all of each Borrower’s and Guarantor’s premises during normal business hours and
after notice to Parent, or at any time and without notice to Administrative
Borrower if an Event of Default exists or has occurred and is continuing, for
the purposes of inspecting, verifying and auditing the Collateral and all of
each Borrower’s and Guarantor’s books and records, including the Records, and
(b) each Borrower and Guarantor shall promptly furnish to Agent such copies of
such books and records or extracts therefrom as Agent may request, and Agent or
any Lender or Agent’s designee may use during normal business hours such of any
Borrower’s and Guarantor’s personnel, equipment, supplies and premises as may be
reasonably necessary for the foregoing and if an Event of Default exists or has
occurred and is continuing for the collection of Receivables and realization of
other Collateral.
SECTION 8. REPRESENTATIONS AND WARRANTIES
Each Borrower and Guarantor hereby represents and warrants to Agent and Lenders
the following (which shall survive the execution and delivery of this
Agreement):
8.1 Corporate Existence, Power and Authority. Each Borrower and Guarantor is a
corporation duly organized and in good standing under the laws of its
jurisdiction of organization and is duly qualified as a foreign corporation and
in good standing in all states or other jurisdictions where the nature and
extent of the business transacted by it or the ownership of assets makes such
qualification necessary, except for those jurisdictions in which the failure to
so qualify would not have a material adverse effect on such Borrower’s or
Guarantor’s financial condition, results of operation or business or the rights
of Agent in or to any of the Collateral. The execution, delivery and performance
of this Agreement, the other Financing Agreements and the transactions
contemplated hereunder and thereunder (a) are all within each Borrower’s and
Guarantor’s corporate powers, (b) have been duly authorized, (c) are not in
contravention of law or the terms of any Borrower’s or Guarantor’s certificate
of incorporation, by laws, or other organizational documentation, or any
indenture, agreement or undertaking to which any Borrower or Guarantor is a
party or by which any Borrower or Guarantor or its property are bound and
(d) will not result in the creation or imposition of, or require or give rise to
any obligation to grant, any lien, security interest, charge or other
encumbrance upon any property of any Borrower or Guarantor. This Agreement and
the other Financing Agreements to which any Borrower or Guarantor is a party
constitute legal, valid and binding obligations of such Borrower and Guarantor
enforceable in accordance with their respective terms.

 

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8.2 Name; State of Organization; Chief Executive Office; Collateral Locations.
(a) The exact legal name of each Borrower and Guarantor is as set forth on the
signature page of this Agreement and in the Information Certificate. No Borrower
or Guarantor has, during the five years prior to the date of this Agreement,
been known by or used any other corporate or fictitious name or been a party to
any merger or consolidation, or acquired all or substantially all of the assets
of any Person, or acquired any of its property or assets out of the ordinary
course of business, except as set forth in the Information Certificate.
(b) Each Borrower and Guarantor is an organization of the type and organized in
the jurisdiction set forth in the Information Certificate. The Information
Certificate accurately sets forth the organizational identification number of
each Borrower and Guarantor or accurately states that such Borrower or Guarantor
has none and accurately sets forth the federal employer identification number of
each Borrower and Guarantor.
(c) The chief executive office and mailing address of each Borrower and
Guarantor and each Borrower’s and Guarantor’s Records concerning Accounts are
located only at the address identified as such in the Information Certificate
and its only other places of business and the only other locations of
Collateral, if any, are the addresses set forth in the Information Certificate,
subject to the rights of any Borrower or Guarantor to establish new locations in
accordance with Section 9.2 below. The Information Certificate correctly
identifies any of such locations which are not owned by a Borrower or Guarantor
and sets forth the owners and/or operators thereof.
8.3 Financial Statements; No Material Adverse Change. All financial statements
relating to any Borrower or Guarantor which have been or may hereafter be
delivered by any Borrower or Guarantor to Agent and Lenders have been prepared
in accordance with GAAP (except as to any interim financial statements, to the
extent such statements are subject to normal year-end adjustments and do not
include any notes) and fairly present in all material respects the financial
condition and the results of operation of such Borrower and Guarantor as at the
dates and for the periods set forth therein. Except as disclosed in any interim
financial statements furnished by Borrowers and Guarantors to Agent prior to the
date of this Agreement, there has been no act, condition or event which has had
or is reasonably likely to have a Material Adverse Effect since the date of the
most recent audited financial statements of any Borrower or Guarantor furnished
by any Borrower or Guarantor to Agent prior to the date of this Agreement. The
projections dated March 13, 2007 for the fiscal year ending March 31, 2008 that
have been delivered to Agent or any projections hereafter delivered to Agent
have been prepared in light of the past operations of the businesses of
Borrowers and Guarantors and are based upon estimates and assumptions stated
therein, all of which Borrowers and Guarantors have determined to be reasonable
and fair in light of the then current conditions and current facts and reflect
the good faith and reasonable estimates of Borrowers and Guarantors of the
future financial performance of Parent and its Subsidiaries and of the other
information projected therein for the periods set forth therein.

 

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8.4 Priority of Liens; Title to Properties. The security interests and liens
granted to Agent under this Agreement and the other Financing Agreements
constitute valid and perfected first priority liens and security interests in
and upon the Collateral subject only to the liens indicated on the Information
Certificate and the other liens permitted under Section 9.8 hereof. Each
Borrower and Guarantor has good and marketable fee simple title to or valid
leasehold interests in all of its Real Property and good, valid and merchantable
title to all of its other properties and assets subject to no liens, mortgages,
pledges, security interests, encumbrances or charges of any kind, except those
granted to Agent and such others as are specifically listed on the Information
Certificate or permitted under Section 9.8 hereof.
8.5 Tax Returns. Each Borrower and Guarantor has filed, or caused to be filed,
in a timely manner all tax returns, reports and declarations which are required
to be filed by it. All information in such tax returns, reports and declarations
is complete and accurate in all material respects. Each Borrower and Guarantor
has paid or caused to be paid all taxes due and payable or claimed due and
payable in any assessment received by it, except taxes the validity of which are
being contested in good faith by appropriate proceedings diligently pursued and
available to such Borrower or Guarantor and with respect to which adequate
reserves have been set aside on its books. Adequate provision has been made for
the payment of all accrued and unpaid Federal, State, county, local, foreign and
other taxes whether or not yet due and payable and whether or not disputed.
8.6 Litigation. Except as set forth on the Information Certificate, (a) there is
no investigation by any Governmental Authority pending, or to the best of any
Borrower’s or Guarantor’s knowledge threatened, against or affecting any
Borrower or Guarantor, its or their assets or business and (b) there is no
action, suit, proceeding or claim by any Person pending, or to the best of any
Borrower’s or Guarantor’s knowledge threatened, against any Borrower or
Guarantor or its or their assets or goodwill, or against or affecting any
transactions contemplated by this Agreement, in each case, which if adversely
determined against such Borrower or Guarantor has or could reasonably be
expected to have a Material Adverse Effect.
8.7 Compliance with Other Agreements and Applicable Laws.
(a) Borrowers and Guarantors are not in default in any respect under, or in
violation in any respect of the terms of, any material agreement, contract,
instrument, lease or other commitment to which it is a party or by which it or
any of its assets are bound. Borrowers and Guarantors are in compliance with the
requirements of all applicable laws, rules, regulations and orders of any
Governmental Authority relating to their respective businesses, including,
without limitation, those set forth in or promulgated pursuant to the
Occupational Safety and Health Act of 1970, as amended, the Fair Labor Standards
Act of 1938, as amended, ERISA, the Code, as amended, and the rules and
regulations thereunder, and all Environmental Laws.
(b) Borrowers and Guarantors have obtained all material permits, licenses,
approvals, consents, certificates, orders or authorizations of any Governmental
Authority required for the lawful conduct of its business (the “Permits”). All
of the Permits are valid and subsisting and in full force and effect. There are
no actions, claims or proceedings pending or to the best of any Borrower’s or
Guarantor’s knowledge, threatened that seek the revocation, cancellation,
suspension or modification of any of the Permits.

 

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8.8 Environmental Compliance.
(a) Except as set forth on Schedule 8.8 hereto, Borrowers, Guarantors and any
Subsidiary of any Borrower or Guarantor have not generated, used, stored,
treated, transported, manufactured, handled, produced or disposed of any
Hazardous Materials, on or off its premises (whether or not owned by it) in any
manner which at any time violates in any material respect any applicable
Environmental Law or Permit, and the operations of Borrowers, Guarantors and any
Subsidiary of any Borrower or Guarantor complies in all material respects with
all Environmental Laws and all Permits.
(b) Except as set forth on Schedule 8.8 hereto, there has been no investigation
by any Governmental Authority or any proceeding, complaint, order, directive,
claim, citation or notice by any Governmental Authority or any other person nor
is any pending or to the best of any Borrower’s or Guarantor’s knowledge
threatened, with respect to any non compliance with or violation of the
requirements of any Environmental Law by any Borrower or Guarantor and any
Subsidiary of any Borrower or Guarantor or the release, spill or discharge,
threatened or actual, of any Hazardous Material or the generation, use, storage,
treatment, transportation, manufacture, handling, production or disposal of any
Hazardous Materials or any other environmental, health or safety matter, which
adversely affects or could reasonably be expected to adversely affect in any
material respect any Borrower or Guarantor or its or their business, operations
or assets or any properties at which such Borrower or Guarantor has transported,
stored or disposed of any Hazardous Materials.
(c) Except as set forth on Schedule 8.8 hereto, Borrowers, Guarantors and their
Subsidiaries have no material liability (contingent or otherwise) in connection
with a release, spill or discharge, threatened or actual, of any Hazardous
Materials or the generation, use, storage, treatment, transportation,
manufacture, handling, production or disposal of any Hazardous Materials.
(d) Borrowers, Guarantors and their Subsidiaries have all Permits required to be
obtained or filed in connection with the operations of Borrowers and Guarantors
under any Environmental Law and all of such licenses, certificates, approvals or
similar authorizations and other Permits are valid and in full force and effect.
8.9 Employee Benefits.
(a) Each Plan is in compliance in all material respects with the applicable
provisions of ERISA, the Code and other Federal or State law. Each Plan which is
intended to qualify under Section 401(a) of the Code has received a favorable
determination letter from the Internal Revenue Service and to the best of any
Borrower’s or Guarantor’s knowledge, nothing has occurred which would cause the
loss of such qualification. Each Borrower and its ERISA Affiliates have made all
required contributions to any Plan subject to Section 412 of the Code, and no
application for a funding waiver or an extension of any amortization period
pursuant to Section 412 of the Code has been made with respect to any Plan.
(b) There are no pending, or to the best of any Borrower’s or Guarantor’s
knowledge, threatened claims, actions or lawsuits, or action by any Governmental
Authority, with respect to any Plan. There has been no prohibited transaction or
violation of the fiduciary responsibility rules with respect to any Plan.

 

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(c) (i) No ERISA Event has occurred or is reasonably expected to occur;
(ii) based on the latest valuation of each Pension Plan and on the actuarial
methods and assumptions employed for such valuation (determined in accordance
with the assumptions used for funding such Pension Plan pursuant to Section 412
of the Code) the aggregate current value of accumulated benefit liabilities of
such Pension Plan under Section 4001(a)(16) of ERISA does not exceed the
aggregate current value of the assets of such Pension Plan; (iii) each Borrower
and Guarantor, and their ERISA Affiliates, have not incurred and do not
reasonably expect to incur, any liability under Title IV of ERISA with respect
to any Plan (other than premiums due and not delinquent under Section 4007 of
ERISA); (iv) each Borrower and Guarantor, and their ERISA Affiliates, have not
incurred and do not reasonably expect to incur, any liability (and no event has
occurred which, with the giving of notice under Section 4219 of ERISA, would
result in such liability) under Section 4201 or 4243 of ERISA with respect to a
Multiemployer Plan; and (v) each Borrower and Guarantor, and their ERISA
Affiliates, have not engaged in a transaction that would be subject to
Section 4069 or 4212(c) of ERISA.
8.10 Bank Accounts. All of the deposit accounts, investment accounts or other
accounts in the name of or used by any Borrower or Guarantor maintained at any
bank or other financial institution are set forth on the Information
Certificate, subject to the right of each Borrower and Guarantor to establish
new accounts in accordance with Section 5.2 hereof.
8.11 Intellectual Property. Each Borrower and Guarantor owns or licenses or
otherwise has the right to use all Intellectual Property necessary for the
operation of its business as presently conducted or proposed to be conducted. As
of the date hereof, Borrowers and Guarantors do not have any Intellectual
Property registered, or subject to pending applications, in the United States
Patent and Trademark Office or any similar office or agency in the United
States, any State thereof, any political subdivision thereof or in any other
country, other than those described in the Information Certificate and has not
granted any licenses with respect thereto other than as set forth in the
Information Certificate. No event has occurred which permits or would permit
after notice or passage of time or both, the revocation, suspension or
termination of such rights. To the best of any Borrower’s and Guarantor’s
knowledge, no slogan or other advertising device, product, process, method,
substance or other Intellectual Property or goods bearing or using any
Intellectual Property presently contemplated to be sold by or employed by any
Borrower or Guarantor infringes any patent, trademark, servicemark, tradename,
copyright, license or other Intellectual Property owned by any other Person
presently and no claim or litigation is pending or threatened against or
affecting any Borrower or Guarantor contesting its right to sell or use any such
Intellectual Property. The Information Certificate sets forth all of the
agreements or other arrangements of each Borrower and Guarantor pursuant to
which such Borrower or Guarantor has a license or other right to use any
trademarks, logos, designs, representations or other Intellectual Property owned
by another person as in effect on the date hereof and the dates of the
expiration of such agreements or other arrangements of such Borrower or
Guarantor as in effect on the date hereof (collectively, together with such
agreements or other arrangements as may be entered into by any Borrower or
Guarantor after the date hereof, collectively, the “License Agreements” and
individually, a “License Agreement”). No trademark, servicemark, copyright or
other Intellectual Property at any time used by any Borrower or Guarantor which
is owned by another person, or owned by such Borrower or Guarantor subject to
any security interest, lien, collateral assignment, pledge or other encumbrance
in favor of any person other than Agent and in or against the rights or interest
of such Borrower or Guarantor, is affixed to any Inventory, except (a) to the
extent permitted under the term of the license agreements listed on the
Information Certificate and (b) to the extent the sale of Inventory to which
such Intellectual Property is affixed is permitted to be sold by such Borrower
or Guarantor under applicable law (including the United States Copyright Act of
1976).

 

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8.12 Subsidiaries; Affiliates; Capitalization; Solvency.
(a) Each Borrower and Guarantor does not have any direct or indirect
Subsidiaries or Affiliates and is not engaged in any joint venture or
partnership except as set forth in the Information Certificate.
(b) Each Borrower and Guarantor is the record and beneficial owner of all of the
issued and outstanding shares of Capital Stock of each of the Subsidiaries
listed on the Information Certificate as being owned by such Borrower or
Guarantor and there are no proxies, irrevocable or otherwise, with respect to
such shares and no equity securities of any of the Subsidiaries are or may
become required to be issued by reason of any options, warrants, rights to
subscribe to, calls or commitments of any kind or nature and there are no
contracts, commitments, understandings or arrangements by which any Subsidiary
is or may become bound to issue additional shares of it Capital Stock or
securities convertible into or exchangeable for such shares.
(c) The issued and outstanding shares of Capital Stock of each Borrower and
Guarantor are directly and beneficially owned and held by the persons indicated
in the Information Certificate, and in each case all of such shares have been
duly authorized and are fully paid and non-assessable, free and clear of all
claims, liens, pledges and encumbrances of any kind, except as disclosed in
writing to Agent prior to the date hereof.
(d) Each Borrower and Guarantor is Solvent and will continue to be Solvent after
the creation of the Obligations, the security interests of Agent and the other
transaction contemplated hereunder.
8.13 Labor Disputes.
(a) Set forth on Schedule 8.13 hereto is a list (including dates of termination)
of all collective bargaining or similar agreements between or applicable to each
Borrower and Guarantor and any union, labor organization or other bargaining
agent in respect of the employees of any Borrower or Guarantor on the date
hereof.

 

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(b) There is (i) no significant unfair labor practice complaint pending against
any Borrower or Guarantor or, to the best of any Borrower’s or Guarantor’s
knowledge, threatened against it, before the National Labor Relations Board, and
no significant grievance or significant arbitration proceeding arising out of or
under any collective bargaining agreement is pending on the date hereof against
any Borrower or Guarantor or, to best of any Borrower’s or Guarantor’s
knowledge, threatened against it, and (ii) no significant strike, labor dispute,
slowdown or stoppage is pending against any Borrower or Guarantor or, to the
best of any Borrower’s or Guarantor’s knowledge, threatened against any Borrower
or Guarantor.
8.14 Restrictions on Subsidiaries. Except for restrictions contained in this
Agreement or any other agreement with respect to Indebtedness of any Borrower or
Guarantor permitted hereunder as in effect on the date hereof, there are no
contractual or consensual restrictions on any Borrower or Guarantor or any of
its Subsidiaries which prohibit or otherwise restrict (a) the transfer of cash
or other assets (i) between any Borrower or Guarantor and any of its or their
Subsidiaries or (ii) between any Subsidiaries of any Borrower or Guarantor or
(b) the ability of any Borrower or Guarantor or any of its or their Subsidiaries
to incur Indebtedness or grant security interests to Agent or any Lender in the
Collateral.
8.15 Material Contracts. Schedule 8.15 hereto sets forth all Material Contracts
to which any Borrower or Guarantor is a party or is bound as of the date hereof.
Borrowers and Guarantors have delivered true, correct and complete copies of
such Material Contracts to Agent on or before the date hereof. Borrowers and
Guarantors are not in breach or in default in any material respect of or under
any Material Contract and have not received any notice of the intention of any
other party thereto to terminate any Material Contract.
8.16 Payable Practices. Each Borrower and Guarantor have not made any material
change in the historical accounts payable practices from those in effect
immediately prior to the date hereof.
8.17 Accuracy and Completeness of Information. All information furnished by or
on behalf of any Borrower or Guarantor in writing to Agent or any Lender in
connection with this Agreement or any of the other Financing Agreements or any
transaction contemplated hereby or thereby, including all information on the
Information Certificate is true and correct in all material respects on the date
as of which such information is dated or certified and does not omit any
material fact necessary in order to make such information not misleading. No
event or circumstance has occurred which has had or could reasonably be expected
to have a Material Adverse Affect, which has not been fully and accurately
disclosed to Agent in writing prior to the date hereof.
8.18 Security Interests of SAG and WGA. With respect to any security interest of
Screen Actors Guild, Inc. (“SAG”) or Writers Guild of America, West, Inc.
(“WGA”) in personal property of Administrative Borrower in connection with the
motion picture titled “Sisters”, Administrative Borrower is not required to
remit any payments on Accounts generated from the sale of such motion picture to
SAG or WGA, and Administrative Borrower is entitled to use such payments. Agent
would not be violating any rights of SAG or WGA in collecting any payments on
such Accounts (it being understood and agreed though that such Accounts will not
be Eligible Accounts hereunder for so long as SAG or WGA hold any security
interest therein).

 

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8.19 Survival of Warranties; Cumulative. All representations and warranties
contained in this Agreement or any of the other Financing Agreements shall
survive the execution and delivery of this Agreement and shall be deemed to have
been made again to Agent and Lenders on the date of each additional borrowing or
other credit accommodation hereunder and shall be conclusively presumed to have
been relied on by Agent and Lenders regardless of any investigation made or
information possessed by Agent or any Lender. The representations and warranties
set forth herein shall be cumulative and in addition to any other
representations or warranties which any Borrower or Guarantor shall now or
hereafter give, or cause to be given, to Agent or any Lender.
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS
9.1 Maintenance of Existence.
(a) Each Borrower and Guarantor shall at all times preserve, renew and keep in
full force and effect its corporate existence and rights and franchises with
respect thereto and maintain in full force and effect all licenses, trademarks,
tradenames, approvals, authorizations, leases, contracts and Permits necessary
to carry on the business as presently or proposed to be conducted, except as to
any Guarantor other than Parent as permitted in Section 9.7 hereto.
(b) No Borrower or Guarantor shall change its name unless each of the following
conditions is satisfied: (i) Agent shall have received not less than thirty
(30) days prior written notice from Administrative Borrower of such proposed
change in its corporate name, which notice shall accurately set forth the new
name; and (ii) Agent shall have received a copy of the amendment to the
Certificate of Incorporation of such Borrower or Guarantor providing for the
name change certified by the Secretary of State of the jurisdiction of
incorporation or organization of such Borrower or Guarantor as soon as it is
available.
(c) No Borrower or Guarantor shall change its chief executive office or its
mailing address or organizational identification number (or if it does not have
one, shall not acquire one) unless Agent shall have received not less than
thirty (30) days’ prior written notice from Administrative Borrower of such
proposed change, which notice shall set forth such information with respect
thereto as Agent may require and Agent shall have received such agreements as
Agent may reasonably require in connection therewith. No Borrower or Guarantor
shall change its type of organization, jurisdiction of organization or other
legal structure.
9.2 New Collateral Locations. Each Borrower and Guarantor may only open any new
location within the continental United States provided such Borrower or
Guarantor (a) gives Agent thirty (30) days prior written notice of the intended
opening of any such new location and (b) executes and delivers, or causes to be
executed and delivered, to Agent such agreements, documents, and instruments as
Agent may deem reasonably necessary or desirable to protect its interests in the
Collateral at such location.

 

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9.3 Compliance with Laws, Regulations, Etc.
(a) Each Borrower and Guarantor shall, and shall cause any Subsidiary to, at all
times, comply in all material respects with all laws, rules, regulations,
licenses, approvals, orders and other Permits applicable to it and duly observe
all requirements of any foreign, Federal, State or local Governmental Authority.
(b) Borrowers and Guarantors shall give written notice to Agent immediately upon
any Borrower’s or Guarantor’s receipt of any notice of, or any Borrower’s or
Guarantor’s otherwise obtaining knowledge of, (i) the occurrence of any event
involving the release, spill or discharge, threatened or actual, of any
Hazardous Material or (ii) any investigation, proceeding, complaint, order,
directive, claims, citation or notice with respect to: (A) any non-compliance
with or violation of any Environmental Law by any Borrower or Guarantor or
(B) the release, spill or discharge, threatened or actual, of any Hazardous
Material other than in the ordinary course of business and other than as
permitted under any applicable Environmental Law. Copies of all environmental
surveys, audits, assessments, feasibility studies and results of remedial
investigations shall be promptly furnished, or caused to be furnished, by such
Borrower or Guarantor to Agent. Each Borrower and Guarantor shall take prompt
action to respond to any material non-compliance with any of the Environmental
Laws and shall regularly report to Agent on such response.
(c) Without limiting the generality of the foregoing, whenever Agent reasonably
determines that there is non-compliance, or any condition which requires any
action by or on behalf of any Borrower or Guarantor in order to avoid any non
compliance, with any Environmental Law, Borrowers shall, at Agent’s request and
Borrowers’ expense: (i) cause an independent environmental engineer reasonably
acceptable to Agent to conduct such tests of the site where non-compliance or
alleged non compliance with such Environmental Laws has occurred as to such
non-compliance and prepare and deliver to Agent a report as to such
non-compliance setting forth the results of such tests, a proposed plan for
responding to any environmental problems described therein, and an estimate of
the costs thereof and (ii) provide to Agent a supplemental report of such
engineer whenever the scope of such non-compliance, or such Borrower’s or
Guarantor’s response thereto or the estimated costs thereof, shall change in any
material respect.
(d) Each Borrower and Guarantor shall indemnify and hold harmless Agent and
Lenders and their respective directors, officers, employees, agents, invitees,
representatives, successors and assigns, from and against any and all losses,
claims, damages, liabilities, costs, and expenses (including reasonable
attorneys’ fees and expenses) directly or indirectly arising out of or
attributable to the use, generation, manufacture, reproduction, storage,
release, threatened release, spill, discharge, disposal or presence of a
Hazardous Material, including the costs of any required or necessary repair,
cleanup or other remedial work with respect to any property of any Borrower or
Guarantor and the preparation and implementation of any closure, remedial or
other required plans. All representations, warranties, covenants and
indemnifications in this Section 9.3 shall survive the payment of the
Obligations and the termination of this Agreement.
9.4 Payment of Taxes and Claims. Each Borrower and Guarantor shall, and shall
cause any Subsidiary to, duly pay and discharge all taxes, assessments,
contributions and governmental charges upon or against it or its properties or
assets, except for taxes, assessments, contributions and governmental charges
not to exceed $25,000 in the aggregate, and except for taxes the validity of
which are being contested in good faith by appropriate proceedings diligently
pursued and available to such Borrower, Guarantor or Subsidiary, as the case may
be, and with respect to which adequate reserves have been set aside on its books
to the extent required by GAAP.

 

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9.5 Insurance. Each Borrower and Guarantor shall, and shall cause any Subsidiary
to, at all times, maintain with financially sound and reputable insurers
insurance with respect to the Collateral against loss or damage and all other
insurance of the kinds and in the amounts customarily insured against or carried
by corporations of established reputation engaged in the same or similar
businesses and similarly situated. Said policies of insurance shall be
reasonably satisfactory to Agent as to form, amount and insurer. Borrowers and
Guarantors shall furnish certificates, policies or endorsements to Agent as
Agent shall reasonably require as proof of such insurance, and, if any Borrower
or Guarantor fails to do so, Agent is authorized, but not required, to obtain
such insurance at the expense of Borrowers. All policies shall provide for at
least thirty (30) days prior written notice to Agent of any cancellation or
reduction of coverage and that Agent may act as attorney for each Borrower and
Guarantor in obtaining, and at any time an Event of Default exists or has
occurred and is continuing, adjusting, settling, amending and canceling such
insurance. Borrowers and Guarantors shall cause Agent to be named as a loss
payee and an additional insured (but without any liability for any premiums)
under such insurance policies and Borrowers and Guarantors shall obtain
non-contributory lender’s loss payable endorsements to all insurance policies in
form and substance satisfactory to Agent. Such lender’s loss payable
endorsements shall specify that the proceeds of such insurance shall be payable
to Agent as its interests may appear and further specify that Agent and Lenders
shall be paid regardless of any act or omission by any Borrower, Guarantor or
any of its or their Affiliates. Without limiting any other rights of Agent or
Lenders, any insurance proceeds received by Agent at any time may be applied to
payment of the Obligations, whether or not then due, in any order and in such
manner as Agent may determine. Upon application of such proceeds to the
Revolving Loans, Revolving Loans may be available subject and pursuant to the
terms hereof to be used for the costs of repair or replacement of the Collateral
lost or damages resulting in the payment of such insurance proceeds.
9.6 Financial Statements and Other Information.
(a) Each Borrower and Guarantor shall, and shall cause any Subsidiary to, keep
proper books and records in which true and complete entries shall be made of all
dealings or transactions of or in relation to the Collateral and the business of
such Borrower, Guarantor and its Subsidiaries in accordance with GAAP. Borrowers
and Guarantors shall promptly furnish to Agent and Lenders all such financial
and other information as Agent shall reasonably request relating to the
Collateral and the assets, business and operations of Borrowers and Guarantors,
and Borrower shall notify the auditors and accountants of Borrowers and
Guarantors that Agent is authorized to obtain such information directly from
them. Without limiting the foregoing, Borrowers shall furnish or cause to be
furnished to Agent, the following:
(i) within thirty-five (35) days after the end of each fiscal month, or if the
fiscal month is the last month of a fiscal quarter, then within forty-five
(45) days after the end thereof, monthly unaudited consolidated financial
statements, and unaudited consolidating financial statements (including in each
case balance sheets, statements of income and loss, and statements of
shareholders’ equity, and where the fiscal month is the last month of a fiscal
quarter, statements of cash flow), all in reasonable detail, fairly presenting
in all material respects the financial position and the results of the
operations of Parent and its Subsidiaries as of the end of and through such
fiscal month, certified to be correct by the chief financial officer of Parent,
subject to normal year-end adjustments and accompanied by a compliance
certificate substantially in the form of Exhibit C hereto, along with a schedule
in a form reasonably satisfactory to Agent of the calculations used in
determining, as of the end of such month, whether Borrowers and Guarantors were
in compliance with the covenants set forth in Sections 9.17 and 9.18 of this
Agreement for such month, and

 

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(ii) within ninety (90) days after the end of each fiscal year, audited
consolidated financial statements and unaudited consolidating financial
statements of Parent and its Subsidiaries (including in each case balance
sheets, statements of income and loss, statements of cash flow, and statements
of shareholders’ equity), and the accompanying notes thereto, all in reasonable
detail, fairly presenting in all material respects the financial position and
the results of the operations of Parent and its Subsidiaries as of the end of
and for such fiscal year, together with the unqualified opinion of independent
certified public accountants with respect to the audited consolidated financial
statements, which accountants shall be an independent accounting firm selected
by Administrative Borrower and acceptable to Agent, that such audited
consolidated financial statements have been prepared in accordance with GAAP,
and present fairly in all material respects the results of operations and
financial condition of Parent and its Subsidiaries as of the end of and for the
fiscal year then ended, and
(iii) at such time as available, but in no event later than forty-five (45) days
prior to the end of each fiscal year (commencing with the fiscal year of
Borrowers ending March 31, 2008), projected consolidated financial statements
(including in each case, forecasted balance sheets and statements of income and
loss, statements of cash flow, and statements of shareholders’ equity) of Parent
and its Subsidiaries for the next fiscal year, all in reasonable detail, and in
a format consistent with the projections delivered by Borrowers to Agent prior
to the date hereof, together with such supporting information as Agent may
reasonably request. Such projected financial statements shall be prepared on a
monthly basis for the next succeeding year. Such projections shall represent the
reasonable best estimate by Borrowers and Guarantors of the future financial
performance of Parent and its Subsidiaries for the periods set forth therein and
shall have been prepared on the basis of the assumptions set forth therein which
Borrowers and Guarantors believe are fair and reasonable as of the date of
preparation in light of current and reasonably foreseeable business conditions
(it being understood that actual results may differ from those set forth in such
projected financial statements). Each year Borrowers shall provide to Agent a
semi-annual update with respect to such projections or at any time a Default or
Event of Default exists or has occurred and is continuing, more frequently as
Agent may require.
(b) Borrowers and Guarantors shall promptly notify Agent in writing of the
details of (i) any loss, damage, investigation, action, suit, proceeding or
claim relating to Collateral having a value of more than $250,000 or which if
adversely determined would result in any material adverse change in any
Borrower’s or Guarantor’s business, properties, assets, goodwill or condition,
financial or otherwise, (ii) any Material Contract being terminated or amended
or any new Material Contract entered into (in which event Borrowers and
Guarantors shall provide Agent with a copy of such Material Contract), (iii) any
order, judgment or decree in excess of $250,000 shall have been entered against
any Borrower or Guarantor any of its or their properties or assets, (iv) any
notification of a material violation of laws or regulations received by any
Borrower or Guarantor, (v) any ERISA Event, and (vi) the occurrence of any
Default or Event of Default.

 

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(c) Promptly after the sending or filing thereof, Borrowers shall send to Agent
copies of (i) all reports which Parent or any of its Subsidiaries sends to its
security holders generally, (ii) if specifically requested by Agent, all reports
and registration statements which Parent or any of its Subsidiaries files with
the Securities Exchange Commission, any national or foreign securities exchange
or the National Association of Securities Dealers, Inc., and such other reports
as Agent may hereafter specifically identify to Administrative Borrower that
Agent will require be provided to Agent, (iii) all press releases and (iv) all
other statements concerning material changes or developments in the business of
a Borrower or Guarantor made available by any Borrower or Guarantor to the
public.
(d) Borrowers and Guarantors shall furnish or cause to be furnished to Agent
such budgets, forecasts, projections and other information respecting the
Collateral and the business of Borrowers and Guarantors, as Agent may, from time
to time, reasonably request. Agent is hereby authorized to deliver a copy of any
financial statement or any other information relating to the business of
Borrowers and Guarantors to any court or other Governmental Authority or to any
Lender or Participant or prospective Lender or Participant or any Affiliate of
any Lender or Participant. Each Borrower and Guarantor hereby irrevocably
authorizes and directs all accountants or auditors to deliver to Agent, at
Borrowers’ expense, copies of the financial statements of any Borrower and
Guarantor and any reports or management letters prepared by such accountants or
auditors on behalf of any Borrower or Guarantor and to disclose to Agent and
Lenders such information as they may have regarding the business of any Borrower
and Guarantor. Any documents, schedules, invoices or other papers delivered to
Agent or any Lender may be destroyed or otherwise disposed of by Agent or such
Lender one (1) year after the same are delivered to Agent or such Lender, except
as otherwise designated by Administrative Borrower to Agent or such Lender in
writing.
9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc. Each Borrower and
Guarantor shall not, and shall not permit any Subsidiary to, directly or
indirectly,
(a) merge into or with or consolidate with any other Person or permit any other
Person to merge into or with or consolidate with it except as provided in that
certain Agreement and Plan of Merger dated as of March 29, 2007 among BTP
Acquisition Company, LLC, IEAC, Inc. and Parent, and except that any
wholly-owned Subsidiary of Parent (other than any Borrower) may merge with and
into or consolidate with any other wholly-owned Subsidiary of Parent (other than
any Borrower), provided, that, each of the following conditions is satisfied as
determined by Agent in good faith: (i) Agent shall have received not less than
ten (10) Business Days’ prior written notice of the intention of such
Subsidiaries to so merge or consolidate, which notice shall set forth in
reasonable detail satisfactory to Agent, the persons that are merging or
consolidating, which person will be the surviving entity, the locations of the
assets of the persons that are merging or consolidating, and the material
agreements and documents relating to such merger or consolidation, (ii) Agent
shall have received such other information with respect to such merger or
consolidation as Agent may reasonably request, (iii) as of the effective date of
the merger or consolidation and after giving effect thereto, no Default or Event
of Default shall exist or have occurred, (iv) Agent shall have received, true,
correct and complete copies of all agreements, documents and instruments
relating to such merger or consolidation, including, but not limited to, the
certificate or certificates of merger to be filed with each appropriate
Secretary of State (with a copy as filed promptly after such filing), (v) the
surviving corporation shall expressly confirm, ratify and assume the Obligations
and the Financing Agreements to which it is a party in writing, in form and
substance satisfactory to Agent, and Borrowers and Guarantors shall execute and
deliver such other agreements, documents and instruments as Agent may request in
connection therewith;

 

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(b) sell, issue, assign, lease, license, transfer, abandon or otherwise dispose
of any Capital Stock or Indebtedness to any other Person or any of its assets to
any other Person, except for
(i) sales of Inventory in the ordinary course of business,
(ii) the sale or other disposition of Equipment (including worn-out or obsolete
Equipment or Equipment no longer used or useful in the business of any Borrower
or Guarantor) so long as such sales or other dispositions do not involve
Equipment having an aggregate fair market value in excess of $100,000 for all
such Equipment disposed of in any fiscal year of Borrowers or as Agent may
otherwise agree, and
(iii) the issuance and sale by any Borrower or Guarantor of Capital Stock of
such Borrower or Guarantor after the date hereof; provided, that, (A) Agent
shall have received not less than ten (10) Business Days’ prior written notice
of such issuance and sale by such Borrower or Guarantor, which notice shall
specify the parties to whom such shares are to be sold, the terms of such sale,
the total amount which it is anticipated will be realized from the issuance and
sale of such stock and the net cash proceeds which it is anticipated will be
received by such Borrower or Guarantor from such sale, (B) such Borrower or
Guarantor shall not be required to pay any cash dividends or repurchase or
redeem such Capital Stock or make any other payments in respect thereof, except
as otherwise permitted in Section 9.11 hereof, (C) the terms of such Capital
Stock, and the terms and conditions of the purchase and sale thereof, shall not
include any terms that include any limitation on the right of any Borrower to
request or receive Loans or Letters of Credit or the right of any Borrower and
Guarantor to amend or modify any of the terms and conditions of this Agreement
or any of the other Financing Agreements or otherwise in any way relate to or
affect the arrangements of Borrowers and Guarantors with Agent and Lenders or
are more restrictive or burdensome to any Borrower or Guarantor than the terms
of any Capital Stock in effect on the date hereof, (D) except as Agent may
otherwise agree in writing, all of the proceeds of the sale and issuance of such
Capital Stock shall be paid to Agent for application to the Obligations in such
order and manner as Agent may determine or at Agent’s option, to be held as cash
collateral for the Obligations and (E) as of the date of such issuance and sale
and after giving effect thereto, no Default or Event of Default shall exist or
have occurred,
(iv) the issuance of Capital Stock of any Borrower or Guarantor consisting of
common stock pursuant to an employee stock option or grant or similar equity
plan or 401(k) plans of such Borrower or Guarantor for the benefit of its
employees, directors and consultants, provided, that, in no event shall such
Borrower or Guarantor be required to issue, or shall such Borrower or Guarantor
issue, Capital Stock pursuant to such stock plans or 401(k) plans which would
result in a Change of Control or other Event of Default,

 

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(c) wind up, liquidate or dissolve except that any Guarantor (other than Parent)
may wind up, liquidate and dissolve, provided, that, each of the following
conditions is satisfied, (i) the winding up, liquidation and dissolution of such
Guarantor shall not violate any law or any order or decree of any court or other
Governmental Authority in any material respect and shall not conflict with or
result in the breach of, or constitute a default under, any indenture, mortgage,
deed of trust, or any other agreement or instrument to which any Borrower or
Guarantor is a party or may be bound, (ii) such winding up, liquidation or
dissolution shall be done in accordance with the requirements of all applicable
laws and regulations, (iii) effective upon such winding up, liquidation or
dissolution, all of the assets and properties of such Guarantor shall be duly
and validly transferred and assigned to a Borrower, free and clear of any liens,
restrictions or encumbrances other than the security interest and liens of Agent
(and Agent shall have received such evidence thereof as Agent may require) and
Agent shall have received such deeds, assignments or other agreements as Agent
may request to evidence and confirm the transfer of such assets to of such
Guarantor to a Borrower, (iv) Agent shall have received all documents and
agreements that any Borrower or Guarantor has filed with any Governmental
Authority or as are otherwise required to effectuate such winding up,
liquidation or dissolution, (v) no Borrower or Guarantor shall assume any
Indebtedness, obligations or liabilities as a result of such winding up,
liquidation or dissolution, or otherwise become liable in respect of any
obligations or liabilities of the entity that is winding up, liquidating or
dissolving, unless such Indebtedness is otherwise expressly permitted hereunder,
(vi) Agent shall have received not less than ten (10) Business Days prior
written notice of the intention of such Guarantor to wind up, liquidate or
dissolve, and (vii) as of the date of such winding up, liquidation or
dissolution and after giving effect thereto, no Default or Event of Default
shall exist or have occurred; or
(d) agree to do any of the foregoing.
9.8 Encumbrances. Each Borrower and Guarantor shall not, and shall not permit
any Subsidiary to, create, incur, assume or suffer to exist any security
interest, mortgage, pledge, lien, charge or other encumbrance of any nature
whatsoever on any of its assets or properties, including the Collateral, or file
or permit the filing of, or permit to remain in effect, any financing statement
or other similar notice of any security interest or lien with respect to any
such assets or properties, except:
(a) the security interests and liens of Agent for itself and the benefit of
Secured Parties;
(b) liens securing the payment of taxes, assessments or other governmental
charges or levies either not yet overdue or the validity of which are being
contested in good faith by appropriate proceedings diligently pursued and
available to such Borrower, or Guarantor or Subsidiary, as the case may be and
with respect to which adequate reserves have been set aside on its books;

 

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(c) non-consensual statutory liens (other than liens securing the payment of
taxes) arising in the ordinary course of such Borrower’s, Guarantor’s or
Subsidiary’s business to the extent: (i) such liens secure Indebtedness which is
not overdue or (ii) such liens secure Indebtedness relating to claims or
liabilities which are fully insured and being defended at the sole cost and
expense and at the sole risk of the insurer or being contested in good faith by
appropriate proceedings diligently pursued and available to such Borrower,
Guarantor or such Subsidiary, in each case prior to the commencement of
foreclosure or other similar proceedings and with respect to which adequate
reserves have been set aside on its books;
(d) zoning restrictions, easements, licenses, covenants and other restrictions
affecting the use of Real Property which do not interfere in any material
respect with the use of such Real Property or ordinary conduct of the business
of such Borrower, Guarantor or such Subsidiary as presently conducted thereon or
materially impair the value of the Real Property which may be subject thereto;
(e) purchase money security interests in Equipment (including Capital Leases)
and purchase money mortgages on Real Property to secure Indebtedness permitted
under Section 9.9(b) hereof;
(f) pledges and deposits of cash by any Borrower or Guarantor after the date
hereof in the ordinary course of business in connection with workers’
compensation, unemployment insurance and other types of social security benefits
consistent with the current practices of such Borrower or Guarantor as of the
date hereof;
(g) pledges and deposits of cash by any Borrower or Guarantor after the date
hereof to secure the performance of tenders, bids, leases, trade contracts
(other than for the repayment of Indebtedness), statutory obligations and other
similar obligations in each case in the ordinary course of business consistent
with the current practices of such Borrower or Guarantor as of the date hereof;
provided, that, in connection with any performance bonds issued by a surety or
other person, the issuer of such bond shall have waived in writing any rights in
or to, or other interest in, any of the Collateral in an agreement, in form and
substance satisfactory to Agent;
(h) liens arising from (i) operating leases and the precautionary UCC financing
statement filings in respect thereof and (ii) equipment or other materials which
are not owned by any Borrower or Guarantor located on the premises of such
Borrower or Guarantor (but not in connection with, or as part of, the financing
thereof) from time to time in the ordinary course of business and consistent
with current practices of such Borrower or Guarantor and the precautionary UCC
financing statement filings in respect thereof;
(i) judgments and other similar liens arising in connection with court
proceedings that do not constitute an Event of Default, provided, that, (i) such
liens are being contested in good faith and by appropriate proceedings
diligently pursued, (ii) adequate reserves or other appropriate provision, if
any, as are required by GAAP have been made therefor, (iii) a stay of
enforcement of any such liens is in effect and (iv) Agent may establish a
Reserve with respect thereto; and
(j) the security interests and liens set forth on the Information Certificate.

 

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9.9 Indebtedness. Each Borrower and Guarantor shall not, and shall not permit
any Subsidiary to, incur, create, assume, become or be liable in any manner with
respect to, or permit to exist, any Indebtedness, or guarantee, assume, endorse,
or otherwise become responsible for (directly or indirectly), the Indebtedness,
performance, obligations or dividends of any other Person, except:
(a) the Obligations;
(b) purchase money Indebtedness (including Capital Leases) arising after the
date hereof to the extent secured by purchase money security interests in
Equipment (including Capital Leases) and purchase money mortgages on Real
Property not to exceed $150,000 in the aggregate at any time outstanding so long
as such security interests and mortgages do not apply to any property of such
Borrower, Guarantor or Subsidiary other than the Equipment or Real Property so
acquired, and the Indebtedness secured thereby does not exceed the cost of the
Equipment or Real Property so acquired, as the case may be;
(c) guarantees by any Borrower or Guarantor of the Obligations of the other
Borrowers or Guarantors in favor of Agent for the benefit of Lenders and the
other Secured Parties;
(d) the Indebtedness of any Borrower or Guarantor to any other Borrower or
Guarantor arising after the date hereof pursuant to loans by any Borrower or
Guarantor permitted under Section 9.10(g) hereof;
(e) Indebtedness of any Borrower or Guarantor entered into in the ordinary
course of business pursuant to a Hedge Agreement; provided, that, (i) such
arrangements are with a Bank Product Provider, (ii) such arrangements are not
for speculative purposes, and (iii) such Indebtedness shall be unsecured, except
to the extent such Indebtedness constitutes part of the Obligations arising
under or pursuant to Hedge Agreements with a Bank Product Provider that are
secured under the terms hereof;
(f) unsecured Indebtedness of any Borrower or Guarantor arising after the date
hereof to any third person (but not to any other Borrower or Guarantor),
provided, that, each of the following conditions is satisfied as determined by
Agent: (i) such Indebtedness shall be on terms and conditions acceptable to
Agent and shall be subject and subordinate in right of payment to the right of
Agent and Lenders to receive the prior indefeasible payment and satisfaction in
full payment of all of the Obligations pursuant to the terms of an intercreditor
agreement between Agent and such third party, in form and substance satisfactory
to Agent, (ii) Agent shall have received not less than ten (10) days prior
written notice of the intention of such Borrower or Guarantor to incur such
Indebtedness, which notice shall set forth in reasonable detail satisfactory to
Agent the amount of such Indebtedness, the person or persons to whom such
Indebtedness will be owed, the interest rate, the schedule of repayments and
maturity date with respect thereto and such other information as Agent may
request with respect thereto, (iii) Agent shall have received true, correct and
complete copies of all agreements, documents and instruments evidencing or
otherwise related to such Indebtedness, (iv) except as Agent may otherwise agree
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giving rise to such Indebtedness shall be paid to Agent for application to the
Obligations in such order and manner as Agent may determine or at Agent’s
option, to be held as cash collateral for the Obligations, (v) in no event shall
the aggregate principal amount of such Indebtedness incurred during the term of
this Agreement exceed $150,000, (vi) as of the date of incurring such
Indebtedness and after giving effect thereto, no Default or Event of Default
shall exist or have occurred, (vii) such Borrower and Guarantor shall not,
directly or indirectly, (A) amend, modify, alter or change the terms of such
Indebtedness or any agreement, document or instrument related thereto, except,
that, such Borrower or Guarantor may, after prior written notice to Agent,
amend, modify, alter or change the terms thereof so as to extend the maturity
thereof, or defer the timing of any payments in respect thereof, or to forgive
or cancel any portion of such Indebtedness (other than pursuant to payments
thereof), or to reduce the interest rate or any fees in connection therewith, or
(B) redeem, retire, defease, purchase or otherwise acquire such Indebtedness
(except pursuant to regularly scheduled payments permitted herein), or set aside
or otherwise deposit or invest any sums for such purpose, and (viii) Borrowers
and Guarantors shall furnish to Agent all notices or demands in connection with
such Indebtedness either received by any Borrower or Guarantor or on its behalf
promptly after the receipt thereof, or sent by any Borrower or Guarantor or on
its behalf concurrently with the sending thereof, as the case may be;
(g) the Indebtedness set forth on Schedule 9.9 hereto; provided, that,
(i) except for the payment in full of the Senior Convertible Note dated
August 30, 2006 issued by Parent to the order of Portside Growth and Opportunity
Fund in the original principal amount of $17,000,000, which payment may be made
solely from the funds contributed by BTP Acquisition Company, LLC as provided in
that certain Agreement and Plan of Merger dated as of March 29, 2007 amount BTP
Acquisition Company, LLC, IEAC, Inc. and Parent, Borrowers and Guarantors may
only make regularly scheduled payments of principal and interest in respect of
such Indebtedness in accordance with the terms of the agreement or instrument
evidencing or giving rise to such Indebtedness as in effect on the date hereof,
(ii) Borrowers and Guarantors shall not, directly or indirectly, (A) amend,
modify, alter or change the terms of such Indebtedness or any agreement,
document or instrument related thereto as in effect on the date hereof except,
that, Borrowers and Guarantors may, after prior written notice to Agent, amend,
modify, alter or change the terms thereof so as to extend the maturity thereof,
or defer the timing of any payments in respect thereof, or to forgive or cancel
any portion of such Indebtedness (other than pursuant to payments thereof), or
to reduce the interest rate or any fees in connection therewith, or (B) redeem,
retire, defease, purchase or otherwise acquire such Indebtedness, or set aside
or otherwise deposit or invest any sums for such purpose, and (iii) Borrowers
and Guarantors shall furnish to Agent all notices or demands in connection with
such Indebtedness either received by any Borrower or Guarantor or on its behalf,
promptly after the receipt thereof, or sent by any Borrower or Guarantor or on
its behalf, concurrently with the sending thereof, as the case may be.
9.10 Loans, Investments, Etc. Each Borrower and Guarantor shall not, and shall
not permit any Subsidiary to, directly or indirectly, make any loans or advance
money or property to any person, or invest in (by capital contribution, dividend
or otherwise) or purchase or repurchase the Capital Stock or Indebtedness or all
or a substantial part of the assets or property of any person, or form or
acquire any Subsidiaries, or agree to do any of the foregoing, except:
(a) the endorsement of instruments for collection or deposit in the ordinary
course of business;

 

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(b) investments in cash or Cash Equivalents, provided, that, (i) no Loans are
then outstanding and (ii) the terms and conditions of Section 5.2 hereof shall
have been satisfied with respect to the deposit account, investment account or
other account in which such cash or Cash Equivalents are held;
(c) the existing equity investments of each Borrower and Guarantor as of the
date hereof in its Subsidiaries, provided, that, no Borrower or Guarantor shall
have any further obligations or liabilities to make any capital contributions or
other additional investments or other payments to or in or for the benefit of
any of such Subsidiaries;
(d) loans and advances by any Borrower or Guarantor to employees of such
Borrower or Guarantor not to exceed the principal amount of $500,000 in the
aggregate at any time outstanding for: (i) reasonably and necessary work-related
travel or other ordinary business expenses to be incurred by such employee in
connection with their work for such Borrower or Guarantor and (ii) reasonable
and necessary relocation expenses of such employees (including home mortgage
financing for relocated employees);
(e) stock or obligations issued to any Borrower or Guarantor by any Person (or
the representative of such Person) in respect of Indebtedness of such Person
owing to such Borrower or Guarantor in connection with the insolvency,
bankruptcy, receivership or reorganization of such Person or a composition or
readjustment of the debts of such Person; provided, that, the original of any
such stock or instrument evidencing such obligations shall be promptly delivered
to Agent, upon Agent’s request, together with such stock power, assignment or
endorsement by such Borrower or Guarantor as Agent may request;
(f) obligations of account debtors to any Borrower or Guarantor arising from
Accounts which are past due evidenced by a promissory note made by such account
debtor payable to such Borrower or Guarantor; provided, that, promptly upon the
receipt of the original of any such promissory note by such Borrower or
Guarantor, such promissory note shall be endorsed to the order of Agent by such
Borrower or Guarantor and promptly delivered to Agent as so endorsed;
(g) loans by a Borrower or Guarantor to another Borrower or Guarantor after the
date hereof, provided, that,
(i) as to all of such loans, (A) within thirty (30) days after the end of each
fiscal month, Borrowers shall provide to Agent a report in form and substance
satisfactory to Agent of the outstanding amount of such loans as of the last day
of the immediately preceding month and indicating any loans made and payments
received during the immediately preceding month, (B) the Indebtedness arising
pursuant to any such loan shall not be evidenced by a promissory note or other
instrument, unless the single original of such note or other instrument is
promptly delivered to Agent upon its request to hold as part of the Collateral,
with such endorsement and/or assignment by the payee of such note or other
instrument as Agent may require, (C) as of the date of any such loan and after
giving effect thereto, the Borrower or Guarantor making such loan shall be
Solvent, and (D) as of the date of any such loan and after giving effect
thereto, no Default or Event of Default shall exist or have occurred and be
continuing,

 

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(ii) as to loans by a Guarantor to a Borrower, (A) the Indebtedness arising
pursuant to such loan shall be subject to, and subordinate in right of payment
to, the right of Agent and Lenders to receive the prior final payment and
satisfaction in full of all of the Obligations on terms and conditions
acceptable to Agent, (B) promptly upon Agent’s request, Agent shall have
received a subordination agreement, in form and substance satisfactory to Agent,
providing for the terms of the subordination in right of payment of such
Indebtedness of such Borrower to the prior final payment and satisfaction in
full of all of the Obligations, duly authorized, executed and delivered by such
Guarantor and such Borrower, and (C) such Borrower shall not, directly or
indirectly make, or be required to make, any payments in respect of such
Indebtedness prior to the end of the then current term of this Agreement;
(iii) as to loans by a Borrower to a Guarantor or another Borrower, as of the
date of any such loan and after giving effect thereto, the Excess Availability
of the Borrower making the loan shall be no less than $1,500,000;
(h) Borrowers may make investments in film projects so long as (i) no Default or
Event of Default has occurred and is continuing or would result therefrom,
(ii) the aggregate sum of such investments shall not exceed $3,000,000 during
any fiscal year and $8,000,000 during the entire term of this Agreement (as it
may be renewed or extended) and (iii) the Excess Availability shall be no less
than $1,500,000 both immediately before and after giving effect to any such
investment; and
(i) the loans and advances set forth on Schedule 9.10 hereto; provided, that, as
to such loans and advances, Borrowers and Guarantors shall not, directly or
indirectly, amend, modify, alter or change the terms of such loans and advances
or any agreement, document or instrument related thereto and Borrowers and
Guarantors shall furnish to Agent all notices or demands in connection with such
loans and advances either received by any Borrower or Guarantor or on its
behalf, promptly after the receipt thereof, or sent by any Borrower or Guarantor
or on its behalf, concurrently with the sending thereof, as the case may be.
9.11 Dividends and Redemptions. Each Borrower and Guarantor shall not, directly
or indirectly, declare or pay any dividends on account of any shares of class of
any Capital Stock of such Borrower or Guarantor now or hereafter outstanding, or
set aside or otherwise deposit or invest any sums for such purpose, or redeem,
retire, defease, purchase or otherwise acquire any shares of any class of
Capital Stock (or set aside or otherwise deposit or invest any sums for such
purpose) for any consideration or apply or set apart any sum, or make any other
distribution (by reduction of capital or otherwise) in respect of any such
shares or agree to do any of the foregoing, except that:
(a) any Borrower or Guarantor may declare and pay such dividends or redeem,
retire, defease, purchase or otherwise acquire any shares of any class of
Capital Stock for consideration in the form of shares of common stock (so long
as after giving effect thereto no Change of Control or other Default or Event of
Default shall exist or occur);
(b) Borrowers and Guarantors may pay dividends to the extent permitted in
Section 9.12 below;

 

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(c) any Subsidiary of a Borrower or Guarantor may pay dividends to a Borrower;
(d) Borrowers and Guarantors may repurchase Capital Stock consisting of common
stock held by employees pursuant to any employee stock ownership plan thereof
upon the termination, retirement or death of any such employee in accordance
with the provisions of such plan, provided, that, as to any such repurchase,
each of the following conditions is satisfied: (i) as of the date of the payment
for such repurchase and after giving effect thereto, no Default or Event of
Default shall exist or have occurred and be continuing, (ii) such repurchase
shall be paid with funds legally available therefor, (iii) such repurchase shall
not violate any law or regulation or the terms of any indenture, agreement or
undertaking to which such Borrower or Guarantor is a party or by which such
Borrower or Guarantor or its or their property are bound, and (iv) the aggregate
amount of all payments for such repurchases in any calendar year shall not
exceed $150,000.
9.12 Transactions with Affiliates. Each Borrower and Guarantor shall not,
directly or indirectly:
(a) purchase, acquire or lease any property from, or sell, transfer or lease any
property to, any officer, director or other Affiliate of such Borrower or
Guarantor, except in the ordinary course of and pursuant to the reasonable
requirements of such Borrower’s or Guarantor’s business (as the case may be) and
upon fair and reasonable terms no less favorable to such Borrower or Guarantor
than such Borrower or Guarantor would obtain in a comparable arm’s length
transaction with an unaffiliated person; or
(b) make any payments (whether by dividend, loan or otherwise) of management,
consulting or other fees for management or similar services, or of any
Indebtedness owing to any officer, employee, shareholder, director or any other
Affiliate of such Borrower or Guarantor, except (i) reasonable compensation to
officers, employees and directors for services rendered to such Borrower or
Guarantor in the ordinary course of business, and (ii) payments by any such
Borrower or Guarantor to Parent for actual and necessary reasonable
out-of-pocket legal and accounting, insurance, marketing, payroll and similar
types of services paid for by Parent on behalf of such Borrower or Guarantor, in
the ordinary course of their respective businesses or as the same may be
directly attributable to such Borrower or Guarantor and for the payment of taxes
by or on behalf of Parent.
9.13 Compliance with ERISA. Each Borrower and Guarantor shall, and shall cause
each of its ERISA Affiliates to: (a) maintain each Plan in compliance in all
material respects with the applicable provisions of ERISA, the Code and other
Federal and State law; (b) cause each Plan which is qualified under Section
401(a) of the Code to maintain such qualification; (c) not terminate any Pension
Plan so as to incur any material liability to the Pension Benefit Guaranty
Corporation; (d) not allow or suffer to exist any prohibited transaction
involving any Plan or any trust created thereunder which would subject such
Borrower, Guarantor or such ERISA Affiliate to a material tax or other liability
on prohibited transactions imposed under Section 4975 of the Code or ERISA; (e)
make all required contributions to any Plan which it is obligated to pay under
Section 302 of ERISA, Section 412 of the Code or the terms of such Plan; (f) not
allow or suffer to exist any accumulated funding deficiency, whether or not
waived, with respect to any such Pension Plan; (g) not engage in a transaction
that could be subject to Section 4069 or 4212(c) of ERISA; or (h) not allow or
suffer to exist any occurrence of a reportable event or any other event or
condition which presents a material risk of termination by the Pension Benefit
Guaranty Corporation of any Plan that is a single employer plan, which
termination could result in any material liability to the Pension Benefit
Guaranty Corporation.

 

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9.14 End of Fiscal Years; Fiscal Quarters. Each Borrower and Guarantor shall,
for financial reporting purposes, cause its, and each of its Subsidiaries’
(a) fiscal years to end on March 31 of each year and (b) fiscal quarters to end
on March 31, June 30, September 30, and December 31 of each year.
9.15 Change in Business. Each Borrower and Guarantor shall not engage in any
business other than the business of such Borrower or Guarantor on the date
hereof and any business reasonably related, ancillary or complimentary to the
business in which such Borrower or Guarantor is engaged on the date hereof.
9.16 Limitation of Restrictions Affecting Subsidiaries. Each Borrower and
Guarantor shall not, directly, or indirectly, create or otherwise cause or
suffer to exist any encumbrance or restriction which prohibits or limits the
ability of any Subsidiary of such Borrower or Guarantor to (a) pay dividends or
make other distributions or pay any Indebtedness owed to such Borrower or
Guarantor or any Subsidiary of such Borrower or Guarantor; (b) make loans or
advances to such Borrower or Guarantor or any Subsidiary of such Borrower or
Guarantor, (c) transfer any of its properties or assets to such Borrower or
Guarantor or any Subsidiary of such Borrower or Guarantor; or (d) create, incur,
assume or suffer to exist any lien upon any of its property, assets or revenues,
whether now owned or hereafter acquired, other than encumbrances and
restrictions arising under (i) applicable law, (ii) this Agreement,
(iii) customary provisions restricting subletting or assignment of any lease
governing a leasehold interest of such Borrower or Guarantor or any Subsidiary
of such Borrower or Guarantor, (iv) customary restrictions on dispositions of
real property interests found in reciprocal easement agreements of such Borrower
or Guarantor or any Subsidiary of such Borrower or Guarantor, (v) any agreement
relating to permitted Indebtedness incurred by a Subsidiary of such Borrower or
Guarantor prior to the date on which such Subsidiary was acquired by such
Borrower or such Guarantor and outstanding on such acquisition date, and (vi)
the extension or continuation of contractual obligations in existence on the
date hereof; provided, that, any such encumbrances or restrictions contained in
such extension or continuation are no less favorable to Agent and Lenders than
those encumbrances and restrictions under or pursuant to the contractual
obligations so extended or continued.
9.17 Fixed Charge Coverage Ratio. Borrowers shall maintain:
(a) a Fixed Charge Coverage Ratio of no less than 1.0-to-1.0 during each fiscal
year to date period ending on the last day of any month from April 2007 through
November 2007 (inclusive), provided that the covenant in this Section 9.17(a)
will not be tested as to any particular such period if Borrowers had Excess
Availability hereunder equal to or greater than $2,000,000 at all times during
the thirty (30) days preceding the date on which the financial statements for
the applicable month are furnished to Agent pursuant to Section 9.6(a)(i)
hereof;

 

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(b) a Fixed Charge Coverage Ratio of no less than 0.8-to-1.0 to one during the
nine (9) months ending December 31, 2007 (regardless of Excess Availability);
(c) Excess Availability equal to or greater than $2,000,000 at all times from
December 31, 2007 through and including the date on which the financial
statements for December 2007 are furnished to Agent pursuant to
Section 9.6(a)(i) hereof;
(d) a Fixed Charge Coverage Ratio of no less than 0.8-to-1.0 during each of the
fiscal year to date periods ending on January 31, 2008 and February 29, 2008,
provided that the covenant in this Section 9.17(d) will not be tested as to any
particular such period if Borrowers had Excess Availability hereunder equal to
or greater than $5,000,000 at all times during the thirty (30) days preceding
the date on which the financial statements for the applicable month are
furnished to Agent pursuant to Section 9.6(a)(i) hereof;
(e) a Fixed Charge Coverage Ratio of no less than 1.0-to-1.0 during the fiscal
year ending March 31, 2008, provided that the covenant in this Section 9.17(e)
will not be tested if Borrowers had Excess Availability hereunder equal to or
greater than $5,000,000 at all times during the thirty (30) days preceding the
date on which the financial statements for March 2008 are furnished to Agent
pursuant to Section 9.6(a)(i) hereof; and
(f) for each month after March 2008, a Fixed Charge Coverage Ratio during the
twelve (12) month period ending on the last day of such month of no less than
the minimum ratio determined by Agent for such month (as set forth below),
provided that the covenant in this Section 9.17(f) will not be tested as to any
particular such period if Borrowers had Excess Availability hereunder equal to
or greater than $5,000,000 at all times during the thirty (30) days preceding
the date on which the financial statements for the applicable month are
furnished to Agent pursuant to Section 9.6(a)(i) hereof. Agent will, upon
written notice to Administrative Borrower, establish the minimum ratio for each
month in a fiscal year based upon the projected financial statements for such
fiscal year furnished to Agent pursuant to Section 9.6(a)(iii) hereof (it being
understood that the minimum ratios so established for any fiscal year will be no
less stringent than the minimum ratios established for the prior fiscal year).
9.18 Copyrights. With respect to all titles that any Borrower or Guarantor is
actively manufacturing and distributing copies of as copyright licensee or owner
(collectively, the “Active Licensed/Owned Titles”), Administrative Borrower
shall, during the first ninety (90) day period following the date of this
Agreement, determine which of the Active Licensed/Owned Titles has been
registered with the United States Copyright Office and which of the Active
Licensed/Owned Titles have not been so registered. On or before the ninetieth
(90th) day following the date of this Agreement, Administrative Borrower shall
furnish Agent with a written report identifying (a) those Active Licensed/Owned
Titles that have been registered with the United States Copyright Office,
(b) those Active Licensed/Owned Titles that have not been so registered, and
(c) those titles that any Borrower or Guarantor is actively distributing but is
not manufacturing copies of pursuant to a license and is only purchasing copies
of (collectively, the “Active Non-Licensed/Owned Titles”). During the second
ninety (90) day period following the date of this Agreement, Administrative
Borrower shall use its best efforts to obtain either a copy of the Certificate
of Copyright Registration issued by the United States Copyright Office for each
of the Active Licensed/Owned Titles (“Registration Certificate”) or (to the

 

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extent applicable) written confirmation from the owner or licensor of such
Active Licensed/Owned Title that such Active Licensed/Owned Title has not been
registered with the United States Copyright Office and that no such registration
will be made (“Non-Registration Confirmation”). Administrative Borrower shall,
no later than the one hundred eightieth (180th) day following the date of this
Agreement, furnish Agent with all of the Registration Certificates and
Non-Registration Confirmations so obtained, together with copyright security
agreement(s) duly executed and delivered by each of the applicable Borrowers and
Guarantors in form and substance satisfactory to Agent for recording with the
United States Copyright Office and covering all of the Active Licensed/Owned
Titles for which Registration Certificates are so furnished to Agent (it being
understood that Agent will then and from time to time thereafter conduct
searches, at Borrowers’ expense, of the records of the United States Copyright
Office on selective Active Licensed/Owned Titles). On or before such one hundred
eightieth (180th) day, Administrative Borrower shall also furnish Agent with a
written report (a “Copyright Report”) identifying (c) those Active
Licensed/Owned Titles for which a Registration Certificate or Non-Registration
Confirmation has been furnished to Agent, (d) those Active Licensed/Owned Titles
for which a Registration Certificate or Non-Registration Confirmation has not
been furnished to Agent and (e) the Active Non-Licensed/Owned Titles. As soon as
possible after the end of each month after the one hundred eightieth (180th) day
following the date of this Agreement (but in any event within ten (10) Business
Days after the end thereof), Administrative Borrower shall furnish Agent with a
Registration Certificate or (to the extent applicable) Non-Registration
Confirmation for each Active Licensed/Owned Title obtained by any Borrower or
Guarantor during such month, together with amendment(s) to copyright security
agreement(s) or new copyright security agreement(s) (as applicable) duly
executed and delivered by each of the applicable Borrowers and Guarantors in
form and substance satisfactory to Agent for recording with the United States
Copyright Office and covering all of such Active Licensed/Owned Titles for which
Registration Certificates are so furnished to Agent, and together with a current
Copyright Report. Commencing on the one hundred eightieth (180th) day following
the date of this Agreement, as to any of the Active Licensed/Owned Titles for
which a Registration Certificate or Non-Registration Confirmation and a
copyright security agreement or amendment are not furnished to Agent as set
forth above, any Account (or portion thereof) generated from such Active
Licensed/Owned Titles will not be deemed an Eligible Account. Administrative
Borrower shall provide Agent with such further documents as Agent may request
with respect to the foregoing matters.
9.19 License Agreements.
(a) Each Borrower and Guarantor shall (i) promptly and faithfully observe and
perform all of the material terms, covenants, conditions and provisions of the
material License Agreements to which it is a party to be observed and performed
by it, at the times set forth therein, if any, (ii) not do, permit, suffer or
refrain from doing anything that could reasonably be expected to result in a
default under or breach of any of the terms of any material License Agreement,
(iii) not cancel, surrender, modify, amend, waive or release any material
License Agreement in any material respect or any term, provision or right of the
licensee thereunder in any material respect, or consent to or permit to occur
any of the foregoing; except, that, subject to Section 9.19(b) below, such
Borrower or Guarantor may cancel, surrender or release any material License
Agreement in the ordinary course of the business of such Borrower or Guarantor;
provided, that, such Borrower or Guarantor (as the case may be) shall give Agent

 

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not less than thirty (30) days prior written notice of its intention to so
cancel, surrender and release any such material License Agreement, (iv) give
Agent prompt written notice of any material License Agreement entered into by
such Borrower or Guarantor after the date hereof, together with a true, correct
and complete copy thereof and such other information with respect thereto as
Agent may request, (v) give Agent prompt written notice of any material breach
of any obligation, or any default, by any party under any material License
Agreement, and deliver to Agent (promptly upon the receipt thereof by such
Borrower or Guarantor in the case of a notice to such Borrower or Guarantor and
concurrently with the sending thereof in the case of a notice from such Borrower
or Guarantor) a copy of each notice of default and every other notice and other
communication received or delivered by such Borrower or Guarantor in connection
with any material License Agreement which relates to the right of such Borrower
or Guarantor to continue to use the property subject to such License Agreement,
and (vi) furnish to Agent, promptly upon the request of Agent, such information
and evidence as Agent may reasonably require from time to time concerning the
observance, performance and compliance by such Borrower or Guarantor or the
other party or parties thereto with the material terms, covenants or provisions
of any material License Agreement.
(b) Each Borrower and Guarantor will either exercise any option to renew or
extend the term of each material License Agreement to which it is a party in
such manner as will cause the term of such material License Agreement to be
effectively renewed or extended for the period provided by such option and give
prompt written notice thereof to Agent or give Agent prior written notice that
such Borrower or Guarantor does not intend to renew or extend the term of any
such material License Agreement or that the term thereof shall otherwise be
expiring, not less than sixty (60) days prior to the date of any such
non-renewal or expiration. In the event of the failure of such Borrower or
Guarantor to extend or renew any material License Agreement to which it is a
party, Agent shall have, and is hereby granted, the irrevocable right and
authority, at its option, to renew or extend the term of such material License
Agreement, whether in its own name and behalf, or in the name and behalf of a
designee or nominee of Agent or in the name and behalf of such Borrower or
Guarantor, as Agent shall determine at any time that an Event of Default shall
exist or have occurred and be continuing. Agent may, but shall not be required
to, perform any or all of such obligations of such Borrower or Guarantor under
any of the License Agreements, including, but not limited to, the payment of any
or all sums due from such Borrower or Guarantor thereunder. Any sums so paid by
Agent shall constitute part of the Obligations.
9.20 Foreign Assets Control Regulations, Etc. None of the requesting or
borrowing of the Loans or the requesting or issuance, extension or renewal of
any Letter of Credit or the use of the proceeds of any thereof will violate the
Trading With the Enemy Act (50 USC §1 et seq., as amended) (the “Trading With
the Enemy Act”) or any of the foreign assets control regulations of the United
States Treasury Department (31 C.F.R., Subtitle B, Chapter V, as amended) (the
“Foreign Assets Control Regulations”) or any enabling legislation or executive
order relating thereto (including, but not limited to (a) Executive order 13224
of September 21, 2001 Blocking Property and Prohibiting Transactions With
Persons Who Commit, Threaten to Commit, or Support Terrorism (66 Fed. Reg. 49079
(2001)) (the “Executive Order”) and (b) the Uniting and Strengthening America by
Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of
2001 (Public Law 107-56). None of Borrowers or any of their Subsidiaries or
other Affiliates is or will become a “blocked person” as described in the
Executive Order, the Trading with the Enemy Act or the Foreign Assets Control
Regulations or engages or will engage in any dealings or transactions, or be
otherwise associated, with any such “blocked person”.

 

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9.21 After Acquired Real Property. If any Borrower or Guarantor hereafter
acquires any Real Property or fixtures, then if such Real Property or fixtures
at any location (or series of adjacent, contiguous or related locations, and
regardless of the number of parcels) has a fair market value in an amount equal
to or greater than $150,000 (or if a Default or Event of Default exists, then
regardless of the fair market value of such assets), without limiting any other
rights of Agent or any Lender, or duties or obligations of any Borrower or
Guarantor, promptly upon Agent’s request, such Borrower or Guarantor shall
execute and deliver to Agent a mortgage, deed of trust or deed to secure debt,
as Agent may determine, in form and substance satisfactory to Agent and in form
appropriate for recording in the real estate records of the jurisdiction in
which such Real Property or other property is located granting to Agent a first
and only lien and mortgage on and security interest in such Real Property,
fixtures or other property (except as such Borrower or Guarantor would otherwise
be permitted to incur hereunder or under the Mortgages or as otherwise consented
to in writing by Agent) and such other agreements, documents and instruments as
Agent may require in connection therewith.
9.22 Costs and Expenses. Borrowers and Guarantors shall pay to Agent on demand
all costs, expenses, filing fees and taxes paid or payable in connection with
the preparation, negotiation, execution, delivery, recording, syndication,
administration, collection, liquidation, enforcement and defense of the
Obligations, Agent’s rights in the Collateral, this Agreement, the other
Financing Agreements and all other documents related hereto or thereto,
including any amendments, supplements or consents which may hereafter be
contemplated (whether or not executed) or entered into in respect hereof and
thereof, including: (a) all costs and expenses of filing or recording (including
Uniform Commercial Code financing statement filing taxes and fees, documentary
taxes, intangibles taxes and mortgage recording taxes and fees, if applicable);
(b) costs and expenses and fees for insurance premiums, environmental audits,
title insurance premiums, surveys, assessments, engineering reports and
inspections, appraisal fees and search fees, background checks, costs and
expenses of remitting loan proceeds, collecting checks and other items of
payment, and establishing and maintaining the Blocked Accounts, together with
Agent’s customary charges and fees with respect thereto; (c) charges, fees or
expenses charged by any bank or issuer in connection with any Letter of Credit;
(d) costs and expenses of preserving and protecting the Collateral; (e) costs
and expenses paid or incurred in connection with obtaining payment of the
Obligations, enforcing the security interests and liens of Agent, selling or
otherwise realizing upon the Collateral, and otherwise enforcing the provisions
of this Agreement and the other Financing Agreements or defending any claims
made or threatened against Agent or any Lender arising out of the transactions
contemplated hereby and thereby (including preparations for and consultations
concerning any such matters); (f) all out-of-pocket expenses and costs
heretofore and from time to time hereafter incurred by Agent during the course
of periodic field examinations of the Collateral and such Borrower’s or
Guarantor’s operations, plus a per diem charge at Agent’s then standard rate for
Agent’s examiners in the field and office (which rate as of the date hereof is
$850 per person per day) provided that so long as no Default or Event of Default
has occurred and is continuing, Borrowers and Guarantors will not be charged
with more than $20,000 of such expenses, costs and per diem charges per year for
any such field examinations conducted after the date of this Agreement; and
(g) the fees and disbursements of counsel (including legal assistants) to Agent
in connection with any of the foregoing.

 

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9.23 Further Assurances. At the request of Agent at any time and from time to
time, Borrowers and Guarantors shall, at their expense, duly execute and
deliver, or cause to be duly executed and delivered, such further agreements,
documents and instruments, and do or cause to be done such further acts as may
be necessary or proper to evidence, perfect, maintain and enforce the security
interests and the priority thereof in the Collateral and to otherwise effectuate
the provisions or purposes of this Agreement or any of the other Financing
Agreements. Agent may at any time and from time to time request a certificate
from an officer of any Borrower or Guarantor representing that all conditions
precedent to the making of Loans and providing Letters of Credit contained
herein are satisfied. In the event of such request by Agent, Agent and Lenders
may, at Agent’s option, cease to make any further Loans or provide any further
Letters of Credit until Agent has received such certificate and, in addition,
Agent has determined that such conditions are satisfied.
SECTION 10. EVENTS OF DEFAULT AND REMEDIES
10.1 Events of Default. The occurrence or existence of any one or more of the
following events are referred to herein individually as an “Event of Default”,
and collectively as “Events of Default”:
(a) (i) any Borrower fails to pay any of the Obligations when due or (ii) any
Borrower or Guarantor fails to perform any of the covenants contained in
Sections 9.3, 9.4, 9.13, 9.14, 9.15, and 9.16 of this Agreement and such failure
shall continue for ten (10) days; provided, that, such ten (10) day period shall
not apply in the case of: (A) any failure to observe any such covenant which is
not capable of being cured at all or within such ten (10) day period or which
has been the subject of a prior failure within a six (6) month period or (B) an
intentional breach by any Borrower or Guarantor of any such covenant or
(iii) any Borrower or Guarantor fails to perform any of the terms, covenants,
conditions or provisions contained in this Agreement or any of the other
Financing Agreements other than those described in Sections 10.1(a)(i) and
10.1(a)(ii) above;
(b) any representation, warranty or statement of fact made by any Borrower or
Guarantor to Agent in this Agreement, the other Financing Agreements or any
other written agreement, schedule, confirmatory assignment or otherwise shall
when made or deemed made be false or misleading in any material respect;
(c) any Guarantor revokes or terminates or purports to revoke or terminate or
fails to perform any of the terms, covenants, conditions or provisions of any
guarantee, endorsement or other agreement of such party in favor of Agent or any
Lender;
(d) any judgment for the payment of money is rendered against any Borrower or
Guarantor in excess of $250,000 in any one case or in excess of $500,000 in the
aggregate (to the extent not covered by insurance where the insurer has assumed
responsibility in writing for such judgment) and shall remain undischarged or
unvacated for a period in excess of thirty (30) days or execution shall at any
time not be effectively stayed, or any judgment other than for the payment of
money, or injunction, attachment, garnishment or execution is rendered against
any Borrower or Guarantor or any of the Collateral having a value in excess of
$250,000;

 

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(e) any Guarantor (being a natural person or a general partner of an Guarantor
which is a partnership) dies or any Borrower or Guarantor, which is a
partnership, limited liability company, limited liability partnership or a
corporation, dissolves or suspends or discontinues doing business;
(f) any Borrower or Guarantor makes an assignment for the benefit of creditors,
makes or sends notice of a bulk transfer or calls a meeting of its creditors or
principal creditors in connection with a moratorium or adjustment of the
Indebtedness due to them;
(g) a case or proceeding under the bankruptcy laws of the United States of
America now or hereafter in effect or under any insolvency, reorganization,
receivership, readjustment of debt, dissolution or liquidation law or statute of
any jurisdiction now or hereafter in effect (whether at law or in equity) is
filed against any Borrower or Guarantor or all or any part of its properties and
such petition or application is not dismissed within thirty (30) days after the
date of its filing or any Borrower or Guarantor shall file any answer admitting
or not contesting such petition or application or indicates its consent to,
acquiescence in or approval of, any such action or proceeding or the relief
requested is granted sooner;
(h) a case or proceeding under the bankruptcy laws of the United States of
America now or hereafter in effect or under any insolvency, reorganization,
receivership, readjustment of debt, dissolution or liquidation law or statute of
any jurisdiction now or hereafter in effect (whether at a law or equity) is
filed by any Borrower or Guarantor or for all or any part of its property;
(i) any default in respect of any Indebtedness of any Borrower or Guarantor
(other than Indebtedness owing to Agent and Lenders hereunder), in any case in
an amount in excess of $250,000, which default continues for more than the
applicable cure period, if any, with respect thereto, or any default by any
Borrower or Guarantor under any Material Contract, which default continues for
more than the applicable cure period, if any, with respect thereto and/or is not
waived in writing by the other parties thereto, or any breach by Parent of that
certain Agreement and Plan of Merger dated as of March 29, 2007 among BTP
Acquisition Company, LLC, IEAC, Inc. and Parent, or Parent otherwise becomes
liable thereunder for the “Termination Fee” or “Fiduciary Fee” as defined
therein;
(j) any material provision hereof or of any of the other Financing Agreements
shall for any reason cease to be valid, binding and enforceable with respect to
any party hereto or thereto (other than Agent) in accordance with its terms, or
any such party shall challenge the enforceability hereof or thereof, or shall
assert in writing, or take any action or fail to take any action based on the
assertion that any provision hereof or of any of the other Financing Agreements
has ceased to be or is otherwise not valid, binding or enforceable in accordance
with its terms, or any security interest provided for herein or in any of the
other Financing Agreements shall cease to be a valid and perfected first
priority security interest in any of the Collateral purported to be subject
thereto (except as otherwise permitted herein or therein);

 

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(k) an ERISA Event shall occur which results in or could reasonably be expected
to result in liability of any Borrower in an aggregate amount in excess of
$250,000;
(l) any Change of Control, provided that the Change in Control resulting
directly from the transactions contemplated in that certain Agreement and Plan
of Merger dated as of March 29, 2007 among BTP Acquisition Company, LLC, IEAC,
Inc. and Parent shall not constitute a Default or Event of Default;
(m) the indictment by any Governmental Authority, or as Agent may reasonably and
in good faith determine, the threatened indictment by any Governmental Authority
of any Borrower or Guarantor of which any Borrower, Guarantor or Agent receives
notice, in either case, as to which there is a reasonable possibility of an
adverse determination, in the good faith determination of Agent, under any
criminal statute, or commencement or threatened commencement of criminal or
civil proceedings against such Borrower or Guarantor, pursuant to which statute
or proceedings the penalties or remedies sought or available include forfeiture
of (i) any of the Collateral having a value in excess of $50,000 or (ii) any
other property of any Borrower or Guarantor which is necessary or material to
the conduct of its business;
(n) there shall be a material adverse change in the business, assets or
prospects of any Borrower or Guarantor after the date hereof; or
(o) there shall be an event of default under any of the other Financing
Agreements.
10.2 Remedies.
(a) At any time an Event of Default exists or has occurred and is continuing,
Agent and Lenders shall have all rights and remedies provided in this Agreement,
the other Financing Agreements, the UCC and other applicable law, all of which
rights and remedies may be exercised without notice to or consent by any
Borrower or Guarantor, except as such notice or consent is expressly provided
for hereunder or required by applicable law. All rights, remedies and powers
granted to Agent and Lenders hereunder, under any of the other Financing
Agreements, the UCC or other applicable law, are cumulative, not exclusive and
enforceable, in Agent’s discretion, alternatively, successively, or concurrently
on any one or more occasions, and shall include, without limitation, the right
to apply to a court of equity for an injunction to restrain a breach or
threatened breach by any Borrower or Guarantor of this Agreement or any of the
other Financing Agreements. Subject to Section 12 hereof, Agent may, and at the
direction of the Required Lenders shall, at any time or times, proceed directly
against any Borrower or Guarantor to collect the Obligations without prior
recourse to the Collateral.

 

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(b) Without limiting the generality of the foregoing, at any time an Event of
Default exists or has occurred and is continuing, Agent may, at its option and
shall upon the direction of the Required Lenders, (i) upon notice to
Administrative Borrower, accelerate the payment of all Obligations and demand
immediate payment thereof to Agent for itself and the benefit of Lenders
(provided, that, upon the occurrence of any Event of Default described in
Sections 10.1(g) and 10.1(h), all Obligations shall automatically become
immediately due and payable), and (ii) terminate the Commitments whereupon the
obligation of each Lender to make any Loan and an issuer to issue any Letter of
Credit shall immediately terminate (provided, that, upon the occurrence of any
Event of Default described in Sections 10.1(g) and 10.1(h), the Commitments and
any other obligation of the Agent or a Lender hereunder shall automatically
terminate).
(c) Without limiting the foregoing, at any time an Event of Default exists or
has occurred and is continuing, Agent may, in its discretion (i) with or without
judicial process or the aid or assistance of others, enter upon any premises on
or in which any of the Collateral may be located and take possession of the
Collateral or complete processing, manufacturing and repair of all or any
portion of the Collateral, (ii) require any Borrower or Guarantor, at Borrowers’
expense, to assemble and make available to Agent any part or all of the
Collateral at any place and time designated by Agent, (iii) collect, foreclose,
receive, appropriate, setoff and realize upon any and all Collateral,
(iv) remove any or all of the Collateral from any premises on or in which the
same may be located for the purpose of effecting the sale, foreclosure or other
disposition thereof or for any other purpose, (v) sell, lease, transfer, assign,
deliver or otherwise dispose of any and all Collateral (including entering into
contracts with respect thereto, public or private sales at any exchange,
broker’s board, at any office of Agent or elsewhere) at such prices or terms as
Agent may deem reasonable, for cash, upon credit or for future delivery, with
the Agent having the right to purchase the whole or any part of the Collateral
at any such public sale, all of the foregoing being free from any right or
equity of redemption of any Borrower or Guarantor, which right or equity of
redemption is hereby expressly waived and released by Borrowers and Guarantors
and/or (vi) terminate this Agreement. If any of the Collateral is sold or leased
by Agent upon credit terms or for future delivery, the Obligations shall not be
reduced as a result thereof until payment therefor is finally collected by
Agent. If notice of disposition of Collateral is required by law, ten (10) days
prior notice by Agent to Administrative Borrower designating the time and place
of any public sale or the time after which any private sale or other intended
disposition of Collateral is to be made, shall be deemed to be reasonable notice
thereof and Borrowers and Guarantors waive any other notice. In the event Agent
institutes an action to recover any Collateral or seeks recovery of any
Collateral by way of prejudgment remedy, each Borrower and Guarantor waives the
posting of any bond which might otherwise be required. At any time an Event of
Default exists or has occurred and is continuing, upon Agent’s request,
Borrowers will either, as Agent shall specify, furnish cash collateral to the
issuer to be used to secure and fund the reimbursement obligations to the issuer
in connection with any Letter of Credit Obligations or furnish cash collateral
to Agent for the Letter of Credit Obligations. Such cash collateral shall be in
the amount equal to one hundred ten (110%) percent of the amount of the Letter
of Credit Obligations plus the amount of any fees and expenses payable in
connection therewith through the end of the latest expiration date of the
Letters of Credit giving rise to such Letter of Credit Obligations.

 

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(d) At any time or times that an Event of Default exists or has occurred and is
continuing, Agent may, in its discretion, enforce the rights of any Borrower or
Guarantor against any account debtor, secondary obligor or other obligor in
respect of any of the Accounts or other Receivables. Without limiting the
generality of the foregoing, Agent may, in its discretion, at such time or times
(i) notify any or all account debtors, secondary obligors or other obligors in
respect thereof that the Receivables have been assigned to Agent and that Agent
has a security interest therein and Agent may direct any or all account debtors,
secondary obligors and other obligors to make payment of Receivables directly to
Agent, (ii) extend the time of payment of, compromise, settle or adjust for
cash, credit, return of merchandise or otherwise, and upon any terms or
conditions, any and all Receivables or other obligations included in the
Collateral and thereby discharge or release the account debtor or any secondary
obligors or other obligors in respect thereof without affecting any of the
Obligations, (iii) demand, collect or enforce payment of any Receivables or such
other obligations, but without any duty to do so, and Agent and Lenders shall
not be liable for any failure to collect or enforce the payment thereof nor for
the negligence of its agents or attorneys with respect thereto and (iv) take
whatever other action Agent may deem necessary or desirable for the protection
of its interests and the interests of Lenders. At any time that an Event of
Default exists or has occurred and is continuing, at Agent’s request, all
invoices and statements sent to any account debtor shall state that the Accounts
and such other obligations have been assigned to Agent and are payable directly
and only to Agent and Borrowers and Guarantors shall deliver to Agent such
originals of documents evidencing the sale and delivery of goods or the
performance of services giving rise to any Accounts as Agent may require. In the
event any account debtor returns Inventory when an Event of Default exists or
has occurred and is continuing, Borrowers shall, upon Agent’s request, hold the
returned Inventory in trust for Agent, segregate all returned Inventory from all
of its other property, dispose of the returned Inventory solely according to
Agent’s instructions, and not issue any credits, discounts or allowances with
respect thereto without Agent’s prior written consent.
(e) To the extent that applicable law imposes duties on Agent or any Lender to
exercise remedies in a commercially reasonable manner (which duties cannot be
waived under such law), each Borrower and Guarantor acknowledges and agrees that
it is not commercially unreasonable for Agent or any Lender (i) to fail to incur
expenses reasonably deemed significant by Agent or any Lender to prepare
Collateral for disposition or otherwise to complete raw material or work in
process into finished goods or other finished products for disposition, (ii) to
fail to obtain third party consents for access to Collateral to be disposed of,
or to obtain or, if not required by other law, to fail to obtain consents of any
Governmental Authority or other third party for the collection or disposition of
Collateral to be collected or disposed of, (iii) to fail to exercise collection
remedies against account debtors, secondary obligors or other persons obligated
on Collateral or to remove liens or encumbrances on or any adverse claims
against Collateral, (iv) to exercise collection remedies against account debtors
and other persons obligated on Collateral directly or through the use of
collection agencies and other collection specialists, (v) to advertise
dispositions of Collateral through publications or media of general circulation,
whether or not the Collateral is of a specialized nature, (vi) to contact other
persons, whether or not in the same business as any Borrower or Guarantor, for
expressions of interest in acquiring all or any portion of the Collateral,
(vii) to hire one or more professional auctioneers to assist in the disposition
of Collateral, whether or not the collateral is of a specialized nature,
(viii) to dispose of Collateral by utilizing Internet sites that provide for the
auction of assets of the types included in the Collateral or that have the
reasonable capability of doing so, or that match buyers and sellers of assets,
(ix) to dispose of assets in wholesale rather than retail markets, (x) to
disclaim disposition warranties, (xi) to purchase insurance or credit
enhancements to insure Agent or Lenders against risks of loss, collection or
disposition of Collateral or to provide to Agent or Lenders a guaranteed return
from the collection or disposition of Collateral, or (xii) to the extent deemed
appropriate by Agent, to obtain the services of other brokers, investment
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Agent in the collection or disposition of any of the Collateral. Each Borrower
and Guarantor acknowledges that the purpose of this Section is to provide
non-exhaustive indications of what actions or omissions by Agent or any Lender
would not be commercially unreasonable in the exercise by Agent or any Lender of
remedies against the Collateral and that other actions or omissions by Agent or
any Lender shall not be deemed commercially unreasonable solely on account of
not being indicated in this Section. Without limitation of the foregoing,
nothing contained in this Section shall be construed to grant any rights to any
Borrower or Guarantor or to impose any duties on Agent or Lenders that would not
have been granted or imposed by this Agreement or by applicable law in the
absence of this Section.
(f) For the purpose of enabling Agent to exercise the rights and remedies
hereunder, each Borrower and Guarantor hereby grants to Agent, to the extent
assignable, an irrevocable, non-exclusive license (exercisable at any time an
Event of Default shall exist or have occurred and for so long as the same is
continuing) without payment of royalty or other compensation to any Borrower or
Guarantor, to use, assign, license or sublicense any of the trademarks,
service-marks, trade names, business names, trade styles, designs, logos and
other source of business identifiers and other Intellectual Property and general
intangibles now owned or hereafter acquired by any Borrower or Guarantor,
wherever the same maybe located, including in such license reasonable access to
all media in which any of the licensed items may be recorded or stored and to
all computer programs used for the compilation or printout thereof.
(g) At any time an Event of Default exists or has occurred and is continuing,
Agent may apply the cash proceeds of Collateral actually received by Agent from
any sale, lease, foreclosure or other disposition of the Collateral to payment
of the Obligations, in whole or in part and in accordance with the terms hereof,
whether or not then due or may hold such proceeds as cash collateral for the
Obligations. Borrowers and Guarantors shall remain liable to Agent and Lenders
for the payment of any deficiency with interest at the highest rate provided for
herein and all costs and expenses of collection or enforcement, including
attorneys’ fees and expenses.
(h) Without limiting the foregoing, upon the occurrence of a Default or an Event
of Default, (i) Agent and Lenders may, at Agent’s option, and upon the
occurrence of an Event of Default at the direction of the Required Lenders,
Agent and Lenders shall, without notice, (A) cease making Loans or arranging for
Letters of Credit or reduce the lending formulas or amounts of Loans and Letters
of Credit available to Borrowers and/or (B) terminate any provision of this
Agreement providing for any future Loans or Letters of Credit to be made by
Agent and Lenders to Borrowers and (ii) Agent may, at its option, establish such
Reserves as Agent determines, without limitation or restriction, notwithstanding
anything to the contrary contained herein.

 

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SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS; GOVERNING LAW
11.1 Governing Law; Choice of Forum; Service of Process; Jury Trial Waiver.
(a) The validity, interpretation and enforcement of this Agreement and the other
Financing Agreements (except as otherwise provided therein) and any dispute
arising out of the relationship between the parties hereto, whether in contract,
tort, equity or otherwise, shall be governed by the internal laws of the State
of California but excluding any principles of conflicts of law or other rule of
law that would cause the application of the law of any jurisdiction other than
the laws of the State of California.
(b) Borrowers, Guarantors, Agent and Lenders irrevocably consent and submit to
the non-exclusive jurisdiction of the Superior Court of the State of California
for the County of Los Angeles and the United States District Court for the
Central District of California, whichever Agent may elect, and waive any
objection based on venue or forum non conveniens with respect to any action
instituted therein arising under this Agreement or any of the other Financing
Agreements or in any way connected with or related or incidental to the dealings
of the parties hereto in respect of this Agreement or any of the other Financing
Agreements or the transactions related hereto or thereto, in each case whether
now existing or hereafter arising, and whether in contract, tort, equity or
otherwise, and agree that any dispute with respect to any such matters shall be
heard only in the courts described above (except that Agent and Lenders shall
have the right to bring any action or proceeding against any Borrower or
Guarantor or its or their property in the courts of any other jurisdiction which
Agent deems necessary or appropriate in order to realize on the Collateral or to
otherwise enforce its rights against any Borrower or Guarantor or its or their
property).
(c) Each Borrower and Guarantor hereby waives personal service of any and all
process upon it and consents that all such service of process may be made by
certified mail (return receipt requested) directed to its address set forth
herein and service so made shall be deemed to be completed five (5) days after
the same shall have been so deposited in the U.S. mails, or, at Agent’s option,
by service upon any Borrower or Guarantor (or Administrative Borrower on behalf
of such Borrower or Guarantor) in any other manner provided under the rules of
any such courts. Within thirty (30) days after such service, such Borrower or
Guarantor shall appear in answer to such process, failing which such Borrower or
Guarantor shall be deemed in default and judgment may be entered by Agent
against such Borrower or Guarantor for the amount of the claim and other relief
requested.
(d) BORROWERS, GUARANTORS, AGENT AND LENDERS EACH HEREBY WAIVES ANY RIGHT TO
TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING UNDER THIS
AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR IN ANY WAY CONNECTED WITH
OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO IN RESPECT OF
THIS AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR THE TRANSACTIONS
RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER
ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. BORROWERS,
GUARANTORS, AGENT AND LENDERS EACH HEREBY AGREES AND CONSENTS THAT ANY SUCH
CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT
A JURY AND THAT ANY BORROWER, ANY GUARANTOR, AGENT OR ANY LENDER MAY FILE AN
ORIGINAL COUNTERPART OF A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN
EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO
TRIAL BY JURY.

 

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(e) If any action or proceeding is filed in a court of the State of California
by or against any party hereto in connection with any of the transactions
contemplated by this Agreement or any document related hereto, (a) the court
shall, and is hereby directed to, make a general reference pursuant to
California Code of Civil Procedure Section 638 to a referee or referees to hear
and determine all of the issues in such action or proceeding (whether of fact or
law) and to report a statement of decision, provided that at the option of
Agent, any such issues pertaining to a “provisional remedy” as defined in
California Code of Civil Procedure Section 1281.8 shall be heard and determined
by the court, (b) any arbitrator of JAMS shall be deemed qualified as a referee
in such action or proceeding for the purpose of subdivision (a) of Section 641
of the California Code of Civil Procedure, and (c) Borrowers shall be solely
responsible to pay all fees and expenses of any referee appointed in such action
or proceeding.
(f) Agent and Lenders shall not have any liability to any Borrower or Guarantor
(whether in tort, contract, equity or otherwise) for losses suffered by such
Borrower or Guarantor in connection with, arising out of, or in any way related
to the transactions or relationships contemplated by this Agreement, or any act,
omission or event occurring in connection herewith, unless it is determined by a
final and non-appealable judgment or court order binding on Agent and such
Lender, that the losses were the result of acts or omissions constituting gross
negligence or willful misconduct. In any such litigation, Agent and Lenders
shall be entitled to the benefit of the rebuttable presumption that it acted in
good faith and with the exercise of ordinary care in the performance by it of
the terms of this Agreement. Each Borrower and Guarantor: (i) certifies that
neither Agent, any Lender nor any representative, agent or attorney acting for
or on behalf of Agent or any Lender has represented, expressly or otherwise,
that Agent and Lenders would not, in the event of litigation, seek to enforce
any of the waivers provided for in this Agreement or any of the other Financing
Agreements and (ii) acknowledges that in entering into this Agreement and the
other Financing Agreements, Agent and Lenders are relying upon, among other
things, the waivers and certifications set forth in this Section 11.1 and
elsewhere herein and therein.
11.2 Waiver of Notices. Each Borrower and Guarantor hereby expressly waives
demand, presentment, protest and notice of protest and notice of dishonor with
respect to any and all instruments and chattel paper, included in or evidencing
any of the Obligations or the Collateral, and any and all other demands and
notices of any kind or nature whatsoever with respect to the Obligations, the
Collateral and this Agreement, except such as are expressly provided for herein.
No notice to or demand on any Borrower or Guarantor which Agent or any Lender
may elect to give shall entitle such Borrower or Guarantor to any other or
further notice or demand in the same, similar or other circumstances.

 

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11.3 Amendments and Waivers.
(a) Neither this Agreement nor any other Financing Agreement nor any terms
hereof or thereof may be amended, waived, discharged or terminated unless such
amendment, waiver, discharge or termination is in writing signed by Agent and
the Required Lenders or at Agent’s option, by Agent with the authorization or
consent of the Required Lenders, and as to amendments to any of the Financing
Agreements (other than with respect to any provision of Section 12 hereof), by
any Borrower and such amendment, waiver, discharger or termination shall be
effective and binding as to all Lenders only in the specific instance and for
the specific purpose for which given; except, that, no such amendment, waiver,
discharge or termination shall:
(i) reduce the interest rate or any fees or extend the time of payment of
principal, interest or any fees or reduce the principal amount of any Loan or
Letters of Credit, in each case without the consent of each Lender directly
affected thereby,
(ii) increase the Commitment of any Lender over the amount thereof then in
effect or provided hereunder, in each case without the consent of the Lender
directly affected thereby,
(iii) release any Collateral (except as expressly required hereunder or under
any of the other Financing Agreements or applicable law and except as permitted
under Section 12.11(b) hereof), without the consent of Agent and all of Lenders,
(iv) reduce any percentage specified in the definition of Required Lenders,
without the consent of Agent and all of Lenders,
(v) consent to the assignment or transfer by any Borrower or Guarantor of any of
their rights and obligations under this Agreement, without the consent of Agent
and all of Lenders,
(vi) amend, modify or waive any terms of this Section 11.3 hereof, without the
consent of Agent and all of Lenders, or
(vii) increase the advance rate constituting part of the Borrowing Base or
increase the Letter of Credit Limit, without the consent of Agent and all of
Lenders.
(b) Agent and Lenders shall not, by any act, delay, omission or otherwise be
deemed to have expressly or impliedly waived any of its or their rights, powers
and/or remedies unless such waiver shall be in writing and signed as provided
herein. Any such waiver shall be enforceable only to the extent specifically set
forth therein. A waiver by Agent or any Lender of any right, power and/or remedy
on any one occasion shall not be construed as a bar to or waiver of any such
right, power and/or remedy which Agent or any Lender would otherwise have on any
future occasion, whether similar in kind or otherwise.

 

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(c) Notwithstanding anything to the contrary contained in Section 11.3(a) above,
in connection with any amendment, waiver, discharge or termination, in the event
that any Lender whose consent thereto is required shall fail to consent or fail
to consent in a timely manner (such Lender being referred to herein as a
“Non-Consenting Lender”), but the consent of any other Lenders to such
amendment, waiver, discharge or termination that is required are obtained, if
any, then Wachovia shall have the right, but not the obligation, at any time
thereafter, and upon the exercise by Wachovia of such right, such Non-Consenting
Lender shall have the obligation, to sell, assign and transfer to Wachovia or
such Eligible Transferee as Wachovia may specify, the Commitment of such
Non-Consenting Lender and all rights and interests of such Non-Consenting Lender
pursuant thereto. Wachovia shall provide the Non-Consenting Lender with prior
written notice of its intent to exercise its right under this Section, which
notice shall specify on date on which such purchase and sale shall occur. Such
purchase and sale shall be pursuant to the terms of an Assignment and Acceptance
(whether or not executed by the Non-Consenting Lender), except that on the date
of such purchase and sale, Wachovia, or such Eligible Transferee specified by
Wachovia, shall pay to the Non-Consenting Lender (except as Wachovia and such
Non-Consenting Lender may otherwise agree) the amount equal to: (i) the
principal balance of the Loans held by the Non-Consenting Lender outstanding as
of the close of business on the business day immediately preceding the effective
date of such purchase and sale, plus (ii) amounts accrued and unpaid in respect
of interest and fees payable to the Non-Consenting Lender to the effective date
of the purchase (but in no event shall the Non-Consenting Lender be deemed
entitled to any early termination fee), minus (iii) the amount of the closing
fee received by the Non-Consenting Lender pursuant to the terms hereof or of any
of the other Financing Agreements multiplied by the fraction, the numerator of
which is the number of months remaining in the then current term of the Credit
Facility and the denominator of which is the number of months in the then
current term thereof. Such purchase and sale shall be effective on the date of
the payment of such amount to the Non-Consenting Lender and the Commitment of
the Non-Consenting Lender shall terminate on such date.
(d) The consent of Agent shall be required for any amendment, waiver or consent
affecting the rights or duties of Agent hereunder or under any of the other
Financing Agreements, in addition to the consent of the Lenders otherwise
required by this Section and the exercise by Agent of any of its rights
hereunder with respect to Reserves or Eligible Accounts shall not be deemed an
amendment to the advance rates provided for in this Section 11.3.
Notwithstanding anything to the contrary contained in Section 11.3(a) above,
(i) in the event that Agent shall agree that any items otherwise required to be
delivered to Agent as a condition of the initial Loans and Letters of Credit
hereunder may be delivered after the date hereof, Agent may, in its discretion,
agree to extend the date for delivery of such items or take such other action as
Agent may deem appropriate as a result of the failure to receive such items as
Agent may determine or may waive any Event of Default as a result of the failure
to receive such items, in each case without the consent of any Lender and
(ii) Agent may consent to any change in the type of organization, jurisdiction
of organization or other legal structure of any Borrower, Guarantor or any of
their Subsidiaries and amend the terms hereof or of any of the other Financing
Agreements as may be necessary or desirable to reflect any such change, in each
case without the approval of any Lender.
(e) The consent of Agent and a Bank Product Provider that is providing Bank
Products and has outstanding any such Bank Products at such time that are
secured hereunder shall be required for any amendment to the priority of payment
of Obligations arising under or pursuant to any Hedge Agreements of a Borrower
or Guarantor or other Bank Products as set forth in Section 6.4(a) hereof.
11.4 Waiver of Counterclaims. Each Borrower and Guarantor waives all rights to
interpose any claims, deductions, setoffs or counterclaims of any nature (other
then compulsory counterclaims) in any action or proceeding with respect to this
Agreement, the Obligations, the Collateral or any matter arising therefrom or
relating hereto or thereto.

 

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11.5 Indemnification. Each Borrower and Guarantor shall, jointly and severally,
indemnify and hold Agent and each Lender, and their respective officers,
directors, agents, employees, advisors and counsel and their respective
Affiliates (each such person being an “Indemnitee”), harmless from and against
any and all losses, claims, damages, liabilities, costs or expenses (including
attorneys’ fees and expenses) imposed on, incurred by or asserted against any of
them in connection with any litigation, investigation, claim or proceeding
commenced or threatened related to the negotiation, preparation, execution,
delivery, enforcement, performance or administration of this Agreement, any
other Financing Agreements, or any undertaking or proceeding related to any of
the transactions contemplated hereby or any act, omission, event or transaction
related or attendant thereto, including amounts paid in settlement, court costs,
and the fees and expenses of counsel except that Borrowers and Guarantors shall
not have any obligation under this Section 11.5 to indemnify an Indemnitee with
respect to a matter covered hereby resulting from the gross negligence or wilful
misconduct of such Indemnitee as determined pursuant to a final, non-appealable
order of a court of competent jurisdiction (but without limiting the obligations
of Borrowers or Guarantors as to any other Indemnitee). To the extent that the
undertaking to indemnify, pay and hold harmless set forth in this Section may be
unenforceable because it violates any law or public policy, Borrowers and
Guarantors shall pay the maximum portion which it is permitted to pay under
applicable law to Agent and Lenders in satisfaction of indemnified matters under
this Section. To the extent permitted by applicable law, no Borrower or
Guarantor shall assert, and each Borrower and Guarantor hereby waives, any claim
against any Indemnitee, on any theory of 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 Agreement, any of
the other Financing Agreements or any undertaking or transaction contemplated
hereby. No Indemnitee referred to above shall be liable for any damages arising
from the use by unintended recipients of any information or other materials
distributed by it through telecommunications, electronic or other information
transmission systems in connection with this Agreement or any of the other
Financing Agreements or the transaction contemplated hereby or thereby. All
amounts due under this Section shall be payable upon demand. The foregoing
indemnity shall survive the payment of the Obligations and the termination or
non-renewal of this Agreement.
SECTION 12. THE AGENT
12.1 Appointment, Powers and Immunities. Each Lender irrevocably designates,
appoints and authorizes Wachovia to act as Agent hereunder and under the other
Financing Agreements with such powers as are specifically delegated to Agent by
the terms of this Agreement and of the other Financing Agreements, together with
such other powers as are reasonably incidental thereto. Agent (a) shall have no
duties or responsibilities except those expressly set forth in this Agreement
and in the other Financing Agreements, and shall not by reason of this Agreement
or any other Financing Agreement be a trustee or fiduciary for any Lender;
(b) shall not be responsible to Lenders for any recitals, statements,
representations or warranties contained in this Agreement or in any of the other
Financing Agreements, or in any certificate or other document referred to or
provided for in, or received by any of them under, this Agreement or any other
Financing Agreement, or for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement or any other Financing Agreement
or any other document referred to or provided for herein or therein or for any
failure by any Borrower or any Guarantor or any other Person to perform any of
its obligations hereunder or thereunder; and (c) shall not be responsible to
Lenders for any action taken or omitted to be taken by it hereunder or under any
other Financing Agreement or under any other document or instrument referred to
or provided for herein or therein or in connection herewith or therewith, except
for its own gross negligence or willful misconduct as determined by a final
non-appealable judgment of a court of competent jurisdiction. Agent may employ
agents and attorneys in fact and shall not be responsible for the negligence or
misconduct of any such agents or attorneys in fact selected by it in good faith.
Agent may deem and treat the payee of any note as the holder thereof for all
purposes hereof unless and until the assignment thereof pursuant to an agreement
(if and to the extent permitted herein) in form and substance satisfactory to
Agent shall have been delivered to and acknowledged by Agent.

 

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12.2 Reliance by Agent. Agent shall be entitled to rely upon any certification,
notice or other communication (including any thereof by telephone, telecopy,
telex, telegram or cable) believed by it to be genuine and correct and to have
been signed or sent by or on behalf of the proper Person or Persons, and upon
advice and statements of legal counsel, independent accountants and other
experts selected by Agent. As to any matters not expressly provided for by this
Agreement or any other Financing Agreement, Agent shall in all cases be fully
protected in acting, or in refraining from acting, hereunder or thereunder in
accordance with instructions given by the Required Lenders or all of Lenders as
is required in such circumstance, and such instructions of such Agents and any
action taken or failure to act pursuant thereto shall be binding on all Lenders.
12.3 Events of Default.
(a) Agent shall not be deemed to have knowledge or notice of the occurrence of a
Default or an Event of Default or other failure of a condition precedent to the
Loans and Letters of Credit hereunder, unless and until Agent has received
written notice from a Lender, or Borrower specifying such Event of Default or
any unfulfilled condition precedent, and stating that such notice is a “Notice
of Default or Failure of Condition”. In the event that Agent receives such a
Notice of Default or Failure of Condition, Agent shall give prompt notice
thereof to the Lenders. Agent shall (subject to Section 12.7) take such action
with respect to any such Event of Default or failure of condition precedent as
shall be directed by the Required Lenders to the extent provided for herein;
provided, that, unless and until Agent shall have received such directions,
Agent may (but shall not be obligated to) take such action, or refrain from
taking such action, with respect to or by reason of such Event of Default or
failure of condition precedent, as it shall deem advisable in the best interest
of Lenders. Without limiting the foregoing, and notwithstanding the existence or
occurrence and continuance of an Event of Default or any other failure to
satisfy any of the conditions precedent set forth in Section 4 of this Agreement
to the contrary, unless and until otherwise directed by the Required Lenders,
Agent may, but shall have no obligation to, continue to make Loans and issue or
cause to be issued any Letter of Credit for the ratable account and risk of
Lenders from time to time if Agent believes making such Loans or issuing or
causing to be issued such Letter of Credit is in the best interests of Lenders.
(b) Except with the prior written consent of Agent, no Lender may assert or
exercise any enforcement right or remedy in respect of the Loans, Letter of
Credit Obligations or other Obligations, as against any Borrower or Guarantor or
any of the Collateral or other property of any Borrower or Guarantor.

 

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12.4 Wachovia in its Individual Capacity. With respect to its Commitment and the
Loans made and Letters of Credit issued or caused to be issued by it (and any
successor acting as Agent), so long as Wachovia shall be a Lender hereunder, it
shall have the same rights and powers hereunder as any other Lender and may
exercise the same as though it were not acting as Agent, and the term “Lender”
or “Lenders” shall, unless the context otherwise indicates, include Wachovia in
its individual capacity as Lender hereunder. Wachovia (and any successor acting
as Agent) and its Affiliates may (without having to account therefor to any
Lender) lend money to, make investments in and generally engage in any kind of
business with Borrowers (and any of its Subsidiaries or Affiliates) as if it
were not acting as Agent, and Wachovia and its Affiliates may accept fees and
other consideration from any Borrower or Guarantor and any of its Subsidiaries
and Affiliates for services in connection with this Agreement or otherwise
without having to account for the same to Lenders.
12.5 Indemnification. Lenders agree to indemnify Agent (to the extent not
reimbursed by Borrowers hereunder and without limiting any obligations of
Borrowers hereunder) ratably, in accordance with their Pro Rata Shares, for any
and all claims of any kind and nature whatsoever that may be imposed on,
incurred by or asserted against Agent (including by any Lender) arising out of
or by reason of any investigation in or in any way relating to or arising out of
this Agreement or any other Financing Agreement or any other documents
contemplated by or referred to herein or therein or the transactions
contemplated hereby or thereby (including the costs and expenses that Agent is
obligated to pay hereunder) or the enforcement of any of the terms hereof or
thereof or of any such other documents, provided, that, no Lender shall be
liable for any of the foregoing to the extent it arises from the gross
negligence or willful misconduct of the party to be indemnified as determined by
a final non-appealable judgment of a court of competent jurisdiction. The
foregoing indemnity shall survive the payment of the Obligations and the
termination or non-renewal of this Agreement.
12.6 Non-Reliance on Agent and Other Lenders. Each Lender agrees that it has,
independently and without reliance on Agent or other Lender, and based on such
documents and information as it has deemed appropriate, made its own credit
analysis of Borrowers and Guarantors and has made its own decision to enter into
this Agreement and that it will, independently and without reliance upon 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 analysis and decisions in
taking or not taking action under this Agreement or any of the other Financing
Agreements. Agent shall not be required to keep itself informed as to the
performance or observance by any Borrower or Guarantor of any term or provision
of this Agreement or any of the other Financing Agreements or any other document
referred to or provided for herein or therein or to inspect the properties or
books of any Borrower or Guarantor. Agent will use reasonable efforts to provide
Lenders with any information received by Agent from any Borrower or Guarantor
which is required to be provided to Lenders or deemed to be requested by Lenders
hereunder and with a copy of any Notice of Default or Failure of Condition
received by Agent from any Borrower or any Lender; provided, that, Agent shall
not be liable to any Lender for any failure to do so, except to the extent that
such failure is attributable to Agent’s own gross negligence or willful
misconduct as determined by a final non-appealable judgment of a court of
competent jurisdiction. Except for notices, reports and other documents
expressly required to be furnished to Lenders by Agent or deemed requested by
Lenders hereunder, Agent shall not have any duty or responsibility to provide
any Lender with any other credit or other information concerning the affairs,
financial condition or business of any Borrower or Guarantor that may come into
the possession of Agent.

 

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12.7 Failure to Act. Except for action expressly required of Agent hereunder and
under the other Financing Agreements, Agent shall in all cases be fully
justified in failing or refusing to act hereunder and thereunder unless it shall
receive further assurances to its satisfaction from Lenders of their
indemnification obligations under Section 12.5 hereof against any and all
liability and expense that may be incurred by it by reason of taking or
continuing to take any such action.
12.8 Additional Loans. Agent shall not make any Revolving Loans or provide any
Letter of Credit to any Borrower on behalf of Lenders intentionally and with
actual knowledge that such Revolving Loans or Letter of Credit would cause the
aggregate amount of the total outstanding Revolving Loans and Letters of Credit
to such Borrower to exceed the Borrowing Base of such Borrower, without the
prior consent of all Lenders, except, that, Agent may make such additional
Revolving Loans or provide such additional Letter of Credit on behalf of
Lenders, intentionally and with actual knowledge that such Revolving Loans or
Letter of Credit will cause the total outstanding Revolving Loans and Letters of
Credit to such Borrower to exceed the Borrowing Base of such Borrower, as Agent
may deem necessary or advisable in its discretion, provided, that: (a) the total
principal amount of the additional Revolving Loans or additional Letters of
Credit to any Borrower which Agent may make or provide after obtaining such
actual knowledge that the aggregate principal amount of the Revolving Loans
equal or exceed the Borrowing Bases of Borrowers, plus the amount of Special
Agent Advances made pursuant to Section 12.11(a)(ii) hereof then outstanding,
shall not exceed the aggregate amount equal to ten (10%) percent of the
aggregate sum of the Revolving Loan Limits for all Borrowers and shall not cause
the total principal amount of the Revolving Loans and Letters of Credit to
exceed the aggregate sum of the Revolving Loan Limits for all Borrowers and
(b) no such additional Revolving Loan or Letter of Credit shall be outstanding
more than ninety (90) days after the date such additional Revolving Loan or
Letter of Credit is made or issued (as the case may be), except as the Required
Lenders may otherwise agree. Each Lender shall be obligated to pay Agent the
amount of its Pro Rata Share of any such additional Revolving Loans or Letters
of Credit.
12.9 Concerning the Collateral and the Related Financing Agreements. Each Lender
authorizes and directs Agent to enter into this Agreement and the other
Financing Agreements. Each Lender agrees that any action taken by Agent or
Required Lenders in accordance with the terms of this Agreement or the other
Financing Agreements and the exercise by Agent or Required Lenders of their
respective powers set forth therein or herein, together with such other powers
that are reasonably incidental thereto, shall be binding upon all of the
Lenders.
12.10 Field Audit, Examination Reports and other Information; Disclaimer by
Lenders. By signing this Agreement, each Lender:
(a) is deemed to have requested that Agent furnish such Lender, promptly after
it becomes available, a copy of each field audit or examination report and
report with respect to the Borrowing Base prepared or received by Agent (each
field audit or examination report and report with respect to the Borrowing Base
being referred to herein as a “Report” and collectively, “Reports”), appraisals
with respect to the Collateral and financial statements with respect Parent and
its Subsidiaries received by Agent;

 

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(b) expressly agrees and acknowledges that Agent (i) does not make any
representation or warranty as to the accuracy of any Report, appraisal or
financial statement or (ii) shall not be liable for any information contained in
any Report, appraisal or financial statement;
(c) expressly agrees and acknowledges that the Reports are not comprehensive
audits or examinations, that Agent or any other party performing any audit or
examination will inspect only specific information regarding Borrowers and
Guarantors and will rely significantly upon Borrowers’ and Guarantors’ books and
records, as well as on representations of Borrowers’ and Guarantors’ personnel;
and
(d) agrees to keep all Reports confidential and strictly for its internal use in
accordance with the terms of Section 13.5 hereof, and not to distribute or use
any Report in any other manner.
12.11 Collateral Matters.
(a) Agent may, at its option, from time to time, at any time on or after an
Event of Default and for so long as the same is continuing or upon any other
failure of a condition precedent to the Loans and Letters of Credit hereunder,
make such disbursements and advances (“Special Agent Advances”) which Agent, in
its sole discretion, (i) deems necessary or desirable either to preserve or
protect the Collateral or any portion thereof or (ii) to enhance the likelihood
or maximize the amount of repayment by Borrowers and Guarantors of the Loans and
other Obligations, provided, that, (A) the aggregate principal amount of the
Special Agent Advances pursuant to this clause (ii) outstanding at any time,
plus the then outstanding principal amount of the additional Loans and Letters
of Credit which Agent may make or provide as set forth in Section 12.8 hereof,
shall not exceed the amount equal to ten (10%) percent of the aggregate sum of
the Revolving Loan Limits for all Borrowers and (B) the aggregate principal
amount of the Special Agent Advances pursuant to this clause (ii) outstanding at
any time, plus the then outstanding principal amount of the Loans, shall not
exceed the aggregate sum of the Revolving Loan Limits for all Borrowers, except
at Agent’s option, provided, that, to the extent that the aggregate principal
amount of Special Agent Advances plus the then outstanding principal amount of
the Loans exceed the aggregate sum of the Revolving Loan Limits for all
Borrowers, the Special Agent Advances that are in excess of the aggregate sum of
the Revolving Loan Limits for all Borrowers shall be for the sole account and
risk of Agent and notwithstanding anything to the contrary set forth below, no
Lender shall have any obligation to provide its share of such Special Agent
Advances in excess of the aggregate sum of the Revolving Loan Limits for all
Borrowers, or (iii) to pay any other amount chargeable to any Borrower or
Guarantor pursuant to the terms of this Agreement or any of the other Financing
Agreements consisting of (A) costs, fees and expenses and (B) payments to
Issuing Bank in respect of any Letter of Credit Obligations. The Special Agent
Advances shall be repayable on demand and together with all interest thereon
shall constitute Obligations secured by the Collateral. Special Agent Advances
shall not constitute Loans but shall otherwise constitute Obligations hereunder.
Interest on Special Agent Advances shall be payable at the Interest Rate then
applicable to Prime Rate Loans and shall be payable on demand. Without
limitation of its obligations pursuant to Section 6.11, each Lender agrees that
it shall make available to Agent, upon Agent’s demand, in immediately available
funds, the amount equal to such Lender’s Pro Rata Share of each such Special
Agent Advance. If such funds are not made available to Agent by such Lender,
such Lender shall be deemed a Defaulting Lender and Agent shall be entitled to
recover such funds, on demand from such Lender together with interest thereon
for each day from the date such payment was due until the date such amount is
paid to Agent at the Federal Funds Rate for each day during such period (as
published by the Federal Reserve Bank of New York or at Agent’s option based on
the arithmetic mean determined by Agent of the rates for the last transaction in
overnight Federal funds arranged prior to 9:00 a.m. (New York City time) on that
day by each of the three leading brokers of Federal funds transactions in New
York City selected by Agent) and if such amounts are not paid within three
(3) days of Agent’s demand, at the highest Interest Rate provided for in
Section 3.1 hereof applicable to Prime Rate Loans.

 

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(b) Lenders hereby irrevocably authorize Agent, at its option and in its
discretion to release any security interest in, mortgage or lien upon, any of
the Collateral (i) upon termination of the Commitments and payment and
satisfaction of all of the Obligations and delivery of cash collateral to the
extent required under Section 13.1 below, or (ii) constituting property being
sold or disposed of if Administrative Borrower or any Borrower or Guarantor
certifies to Agent that the sale or disposition is made in compliance with
Section 9.7 hereof (and Agent may rely conclusively on any such certificate,
without further inquiry), or (iii) constituting property in which any Borrower
or Guarantor did not own an interest at the time the security interest, mortgage
or lien was granted or at any time thereafter, or (iv) having a value in the
aggregate in any twelve (12) month period of less than $500,000, and to the
extent Agent may release its security interest in and lien upon any such
Collateral pursuant to the sale or other disposition thereof, such sale or other
disposition shall be deemed consented to by Lenders, or (v) if required or
permitted under the terms of any of the other Financing Agreements, including
any intercreditor agreement, or (vi) approved, authorized or ratified in writing
by all of Lenders. Except as provided above, Agent will not release any security
interest in, mortgage or lien upon, any of the Collateral without the prior
written authorization of all of Lenders. Upon request by Agent at any time,
Lenders will promptly confirm in writing Agent’s authority to release particular
types or items of Collateral pursuant to this Section.
(c) Without any manner limiting Agent’s authority to act without any specific or
further authorization or consent by the Required Lenders, each Lender agrees to
confirm in writing, upon request by Agent, the authority to release Collateral
conferred upon Agent under this Section. Agent shall (and is hereby irrevocably
authorized by Lenders to) execute such documents as may be necessary to evidence
the release of the security interest, mortgage or liens granted to Agent upon
any Collateral to the extent set forth above; provided, that, (i) Agent shall
not be required to execute any such document on terms which, in Agent’s opinion,
would expose Agent to liability or create any obligations or entail any
consequence other than the release of such security interest, mortgage or liens
without recourse or warranty and (ii) such release shall not in any manner
discharge, affect or impair the Obligations or any security interest, mortgage
or lien upon (or obligations of any Borrower or Guarantor in respect of) the
Collateral retained by such Borrower or Guarantor.

 

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(d) Agent shall have no obligation whatsoever to any Lender or any other Person
to investigate, confirm or assure that the Collateral exists or is owned by any
Borrower or Guarantor or is cared for, protected or insured or has been
encumbered, or that any particular items of Collateral meet the eligibility
criteria applicable in respect of the Loans or Letters of Credit hereunder, or
whether any particular reserves are appropriate, or that the liens and security
interests granted to Agent pursuant hereto or any of the Financing Agreements or
otherwise have been properly or sufficiently or lawfully created, perfected,
protected or enforced or are entitled to any particular priority, or to exercise
at all or in any particular manner or under any duty of care, disclosure or
fidelity, or to continue exercising, any of the rights, authorities and powers
granted or available to Agent in this Agreement or in any of the other Financing
Agreements, it being understood and agreed that in respect of the Collateral, or
any act, omission or event related thereto, subject to the other terms and
conditions contained herein, Agent may act in any manner it may deem
appropriate, in its discretion, given Agent’s own interest in the Collateral as
a Lender and that Agent shall have no duty or liability whatsoever to any other
Lender.
12.12 Agency for Perfection. Each Lender hereby appoints Agent and each other
Lender as agent and bailee for the purpose of perfecting the security interests
in and liens upon the Collateral of Agent in assets which, in accordance with
Article 9 of the UCC can be perfected only by possession (or where the security
interest of a secured party with possession has priority over the security
interest of another secured party) and Agent and each Lender hereby acknowledges
that it holds possession of any such Collateral for the benefit of Agent as
secured party. Should any Lender obtain possession of any such Collateral, such
Lender shall notify Agent thereof, and, promptly upon Agent’s request therefor
shall deliver such Collateral to Agent or in accordance with Agent’s
instructions.
12.13 Successor Agent. Agent may resign as Agent upon thirty (30) days’ notice
to Lenders and Parent. If Agent resigns under this Agreement, the Required
Lenders shall appoint from among the Lenders a successor agent for Lenders. If
no successor agent is appointed prior to the effective date of the resignation
of Agent, Agent may appoint, after consulting with Lenders and Parent, a
successor agent from among Lenders. Upon the acceptance by the Lender so
selected of its appointment as successor agent hereunder, such successor agent
shall succeed to all of the rights, powers and duties of the retiring Agent and
the term “Agent” as used herein and in the other Financing Agreements shall mean
such successor agent and the retiring Agent’s appointment, powers and duties as
Agent shall be terminated. After any retiring Agent’s resignation hereunder as
Agent, the provisions of this Section 12 shall inure to its benefit as to any
actions taken or omitted by it while it was Agent under this Agreement. If no
successor agent has accepted appointment as Agent by the date which is thirty
(30) days after the date of a retiring Agent’s notice of resignation, the
retiring Agent’s resignation shall nonetheless thereupon become effective and
Lenders shall perform all of the duties of Agent hereunder until such time, if
any, as the Required Lenders appoint a successor agent as provided for above.
12.14 Other Agent Designations. Agent may at any time and from time to time
determine that a Lender may, in addition, be a “Co-Agent”, “Syndication Agent”,
“Documentation Agent” or similar designation hereunder and enter into an
agreement with such Lender to have it so identified for purposes of this
Agreement. Any such designation shall be effective upon written notice by Agent
to Administrative Borrower of any such designation. Any Lender that is so
designated as a Co-Agent, Syndication Agent, Documentation Agent or such similar
designation by Agent shall have no right, power, obligation, liability,
responsibility or duty under this Agreement or any of the other Financing
Agreements other than those applicable to all Lenders as such. Without limiting
the foregoing, the Lenders so identified shall not have or be deemed to have any
fiduciary relationship with any Lender and no Lender shall be deemed to have
relied, nor shall any Lender rely, on a Lender so identified as a Co-Agent,
Syndication Agent, Documentation Agent or such similar designation in deciding
to enter into this Agreement or in taking or not taking action hereunder.

 

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SECTION 13. TERM OF AGREEMENT; MISCELLANEOUS
13.1 Term.
(a) This Agreement and the other Financing Agreements shall become effective as
of the date set forth on the first page hereof and shall continue in full force
and effect for a term ending on the date three (3) years from the date hereof
(the “Renewal Date”), and from year to year thereafter, unless sooner terminated
pursuant to the terms hereof. Agent may, at its option (or shall at the
direction of any Lender in writing received by Agent at least ninety (90) days
prior to the Renewal Date or the anniversary of any Renewal Date, as the case
may be), terminate this Agreement and the other Financing Agreements, or
Administrative Borrower or any Borrower may terminate this Agreement and the
other Financing Agreements, each case, effective on the Renewal Date or on the
anniversary of the Renewal Date in any year by giving to the other party at
least sixty (60) days prior written notice; provided, that, this Agreement and
all other Financing Agreements must be terminated simultaneously. In addition,
Borrowers may terminate this Agreement at any time upon ten (10) days prior
written notice to Agent (which notice shall be irrevocable) and Agent may, at
its option, and shall at the direction of Required Lenders, terminate this
Agreement at any time on or after an Event of Default. Upon the Renewal Date or
any other effective date of termination of the Financing Agreements, Borrowers
shall pay to Agent all outstanding and unpaid Obligations and shall furnish cash
collateral to Agent (or at Agent’s option, a letter of credit issued for the
account of Borrowers and at Borrowers’ expense, in form and substance
satisfactory to Agent, by an issuer acceptable to Agent and payable to Agent as
beneficiary) in such amounts as Agent determines are reasonably necessary to
secure Agent, Lenders and Issuing Bank from loss, cost, damage or expense,
including attorneys’ fees and expenses, in connection with any contingent
Obligations, including issued and outstanding Letter of Credit Obligations and
checks or other payments provisionally credited to the Obligations and/or as to
which Agent or any Lender has not yet received final and indefeasible payment
and any continuing obligations of Agent or any Lender pursuant to any Deposit
Account Control Agreement and for any of the Obligations arising under or in
connection with any Bank Products in such amounts as the Bank Product Provider
providing such Bank Products may require (unless such Obligations arising under
or in connection with any Bank Products are paid in full in cash and terminated
in a manner satisfactory to such Bank Product Provider). The amount of such cash
collateral (or letter of credit, as Agent may determine) as to any Letter of
Credit Obligations shall be in the amount equal to one hundred ten (110%)
percent of the amount of the Letter of Credit Obligations plus the amount of any
fees and expenses payable in connection therewith through the end of the latest
expiration date of the Letters of Credit giving rise to such Letter of Credit
Obligations. Such payments in respect of the Obligations and cash collateral
shall be remitted by wire transfer in Federal funds to the Agent Payment Account
or such other bank account of Agent, as Agent may, in its discretion, designate
in writing to Administrative Borrower for such purpose. Interest shall be due
until and including the next Business Day, if the amounts so paid by Borrowers
to the Agent Payment Account or other bank account designated by Agent are
received in such bank account later than 12:00 noon, California time.

 

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(b) No termination of the Commitments, this Agreement or any of the other
Financing Agreements shall relieve or discharge any Borrower or Guarantor of its
respective duties, obligations and covenants under this Agreement or any of the
other Financing Agreements until all Obligations have been fully and finally
discharged and paid, and Agent’s continuing security interest in the Collateral
and the rights and remedies of Agent and Lenders hereunder, under the other
Financing Agreements and applicable law, shall remain in effect until all such
Obligations have been fully and finally discharged and paid. Accordingly, each
Borrower and Guarantor waives any rights it may have under the UCC to demand the
filing of termination statements with respect to the Collateral and Agent shall
not be required to send such termination statements to Borrowers or Guarantors,
or to file them with any filing office, unless and until this Agreement shall
have been terminated in accordance with its terms and all Obligations paid and
satisfied in full in immediately available funds.
(c) If for any reason this Agreement is terminated prior to the Renewal Date, in
view of the impracticality and extreme difficulty of ascertaining actual damages
and by mutual agreement of the parties as to a reasonable calculation of Agent’s
and each Lender’s lost profits as a result thereof, Borrowers agree to pay to
Agent, for the benefit of Lenders, upon the effective date of such termination,
an early termination fee in the amount equal to the applicable percentage set
forth below of the aggregate sum of the Revolving Loan Limits for all Borrowers,
based upon the period in which the effective date of termination occurs:

      Amount   Period
 
   
1.0% of such aggregate sum
  From the date hereof to and including the first anniversary of the date
hereof.
 
   
0.75% of such aggregate sum
  From and after the first anniversary of the date hereof to but not including
the third anniversary of the date hereof or if the term of this Agreement is
extended, at any time prior to the end of the then current term.

Such early termination fee shall be presumed to be the amount of damages
sustained by Agent and Lenders as a result of such early termination and
Borrowers and Guarantors agree that it is reasonable under the circumstances
currently existing (including, but not limited to, the borrowings that are
reasonably expected by Borrowers hereunder and the interest, fees and other
charges that are reasonably expected to be received by Agent and Lenders
pursuant to the Credit Facility). In addition, Agent and Lenders shall be
entitled to such early termination fee upon the occurrence of any Event of
Default described in Sections 10.1(g) and 10.1(h) hereof, even if Agent and
Lenders do not exercise the right to terminate this Agreement, but elect, at
their option, to provide financing to any Borrower or permit the use of cash
collateral under the United States Bankruptcy Code. The early termination fee
provided for in this Section 13.1 shall be deemed included in the Obligations.

 

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13.2 Interpretative Provisions.
(a) All terms used herein which are defined in Article 1, Article 8 or Article 9
of the UCC shall have the meanings given therein unless otherwise defined in
this Agreement.
(b) All references to the plural herein shall also mean the singular and to the
singular shall also mean the plural unless the context otherwise requires.
(c) All references to any Borrower, Guarantor, Agent and Lenders pursuant to the
definitions set forth in the recitals hereto, or to any other person herein,
shall include their respective successors and assigns.
(d) The words “hereof”, “herein”, “hereunder”, “this Agreement” and words of
similar import when used in this Agreement shall refer to this Agreement as a
whole and not any particular provision of this Agreement and as this Agreement
now exists or may hereafter be amended, modified, supplemented, extended,
renewed, restated or replaced.
(e) The word “including” when used in this Agreement shall mean “including,
without limitation” and the word “will” when used in this Agreement shall be
construed to have the same meaning and effect as the word “shall”.
(f) An Event of Default shall exist or continue or be continuing until such
Event of Default is waived in accordance with Section 11.3 or is cured in a
manner satisfactory to Agent, if such Event of Default is capable of being cured
as determined by Agent.
(g) All references to the term “good faith” used herein when applicable to Agent
or any Lender shall mean, notwithstanding anything to the contrary contained
herein or in the UCC, honesty in fact in the conduct or transaction concerned.
Borrowers and Guarantors shall have the burden of proving any lack of good faith
on the part of Agent or any Lender alleged by any Borrower or Guarantor at any
time.
(h) Any accounting term used in this Agreement shall have, unless otherwise
specifically provided herein, the meaning customarily given in accordance with
GAAP, and all financial computations hereunder shall be computed unless
otherwise specifically provided herein, in accordance with GAAP as consistently
applied and using the same method for inventory valuation as used in the
preparation of the financial statements of Parent most recently received by
Agent prior to the date hereof. Notwithstanding anything to the contrary
contained in GAAP or any interpretations or other pronouncements by the
Financial Accounting Standards Board or otherwise, the term “unqualified
opinion” as used herein to refer to opinions or reports provided by accountants
shall mean an opinion or report that is unqualified and also does not include
any explanation, supplemental comment or other comment concerning the ability of
the applicable person to continue as a going concern or the scope of the audit.
(i) In the computation of periods of time from a specified date to a later
specified date, the word “from” means “from and including”, the words “to” and
“until” each mean “to but excluding” and the word “through” means “to and
including”.

 

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(j) Unless otherwise expressly provided herein, (i) references herein to any
agreement, document or instrument shall be deemed to include all subsequent
amendments, modifications, supplements, extensions, renewals, restatements or
replacements with respect thereto, but only to the extent the same are not
prohibited by the terms hereof or of any other Financing Agreement, and
(ii) references to any statute or regulation are to be construed as including
all statutory and regulatory provisions consolidating, amending, replacing,
recodifying, supplementing or interpreting the statute or regulation.
(k) The captions and headings of this Agreement are for convenience of reference
only and shall not affect the interpretation of this Agreement.
(l) This Agreement and other Financing Agreements may use several different
limitations, tests or measurements to regulate the same or similar matters. All
such limitations, tests and measurements are cumulative and shall each be
performed in accordance with their terms.
(m) This Agreement and the other Financing Agreements are the result of
negotiations among and have been reviewed by counsel to Agent and the other
parties, and are the products of all parties. Accordingly, this Agreement and
the other Financing Agreements shall not be construed against Agent or Lenders
merely because of Agent’s or any Lender’s involvement in their preparation.
13.3 Notices.
(a) All notices, requests and demands hereunder shall be in writing and deemed
to have been given or made: if delivered in person, immediately upon delivery;
if by telex, telegram or facsimile transmission, immediately upon sending and
upon confirmation of receipt; if by nationally recognized overnight courier
service with instructions to deliver the next Business Day, one (1) Business Day
after sending; and if by certified mail, return receipt requested, five (5) days
after mailing. Notices delivered through electronic communications shall be
effective to the extent set forth in Section 13.3(b) below. All notices,
requests and demands upon the parties are to be given to the following addresses
(or to such other address as any party may designate by notice in accordance
with this Section):

         
 
  If to any Borrower or Guarantor:   Image Entertainment, Inc.
 
      20525 Nordhoff Street, Suite 200
 
      Chatsworth, CA 91311-6104
 
      Attention: Chief Financial Officer
 
      Telephone No.: (818) 534-9299
 
      Telecopy No.: (818) 407-9151

 

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  with a copy to:   Dreier Stein & Kahan LLP
 
      1620 26th Street, 6th Floor, North Tower
 
      Santa Monica, CA 90404
 
      Attention: Steve Peden, Esq.
 
      Telephone No.: (310) 828-9050
 
      Telecopy No.: (310) 828-9101
 
       
 
      Wachovia Capital Finance Corporation
 
      (Western)
 
      251 S. Lake Avenue, Suite 900
 
      Pasadena, CA 91101
 
      Attention: Portfolio Manager
 
      Telephone No.: (626) 304-4900
 
      Telecopy No.: (626) 304-4949

(b) Notices and other communications to Lenders Bank hereunder may be delivered
or furnished by electronic communication (including e-mail and Internet or
intranet websites) pursuant to procedures approved by Agent or as otherwise
determined by Agent, provided, that, the foregoing shall not apply to notices to
any Lender pursuant to Section 2 hereof if such Lender, as applicable, has
notified Agent that it is incapable of receiving notices under such Section by
electronic communication. Unless Agent otherwise requires, (i) notices and other
communications sent to an e-mail address shall be deemed received upon the
sender’s receipt of an acknowledgement from the intended recipient (such as by
the “return receipt requested” function, as available, return e-mail or other
written acknowledgement), provided, that, if such notice or other communication
is not given during the normal business hours of the recipient, such notice
shall be deemed to have been sent at the opening of business on the next
Business Day for the recipient, and (ii) notices or communications posted to an
Internet or intranet website shall be deemed received upon the deemed receipt by
the intended recipient at its e-mail address as described in the foregoing
clause (i) of notification that such notice or communications is available and
identifying the website address therefor.
13.4 Partial Invalidity. If any provision of this Agreement is held to be
invalid or unenforceable, such invalidity or unenforceability shall not
invalidate this Agreement as a whole, but this Agreement shall be construed as
though it did not contain the particular provision held to be invalid or
unenforceable and the rights and obligations of the parties shall be construed
and enforced only to such extent as shall be permitted by applicable law.
13.5 Confidentiality.
(a) Agent and each Lender shall use all reasonable efforts to keep confidential,
in accordance with its customary procedures for handling confidential
information and safe and sound lending practices, any non-public information
supplied to it by any Borrower pursuant to this Agreement which is clearly and
conspicuously marked as confidential at the time such information is furnished
by such Borrower to Agent or such Lender, provided, that, nothing contained
herein shall limit the disclosure of any such information: (i) to the extent
required by statute, rule, regulation, subpoena or court order, (ii) to bank
examiners and other regulators, auditors and/or accountants, in connection with
any litigation to which Agent or such Lender is a party, (iii) to any Lender or
Participant (or prospective Lender or Participant) or to any Affiliate of any
Lender so long as such Lender or Participant (or prospective Lender or
Participant) or Affiliate shall have been instructed to treat such information
as confidential in accordance with this Section 13.5, or (iv) to counsel for
Agent or any Lender or Participant (or prospective Lender or Participant).

 

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(b) In the event that Agent or any Lender receives a request or demand to
disclose any confidential information pursuant to any subpoena or court order,
Agent or such Lender, as the case may be, agrees (i) to the extent permitted by
applicable law or if permitted by applicable law, to the extent Agent or such
Lender determines in good faith that it will not create any risk of liability to
Agent or such Lender, Agent or such Lender will promptly notify Administrative
Borrower of such request so that Administrative Borrower may seek a protective
order or other appropriate relief or remedy and (ii) if disclosure of such
information is required, disclose such information and, subject to reimbursement
by Borrowers of Agent’s or such Lender’s expenses, cooperate with Administrative
Borrower in the reasonable efforts to obtain an order or other reliable
assurance that confidential treatment will be accorded to such portion of the
disclosed information which Administrative Borrower so designates, to the extent
permitted by applicable law or if permitted by applicable law, to the extent
Agent or such Lender determines in good faith that it will not create any risk
of liability to Agent or such Lender.
(c) In no event shall this Section 13.5 or any other provision of this
Agreement, any of the other Financing Agreements or applicable law be deemed:
(i) to apply to or restrict disclosure of information that has been or is made
public by any Borrower, Guarantor or any third party or otherwise becomes
generally available to the public other than as a result of a disclosure in
violation hereof, (ii) to apply to or restrict disclosure of information that
was or becomes available to Agent or any Lender (or any Affiliate of any Lender)
on a non-confidential basis from a person other than a Borrower or Guarantor,
(iii) to require Agent or any Lender to return any materials furnished by a
Borrower or Guarantor to Agent or a Lender or prevent Agent or a Lender from
responding to routine informational requests in accordance with the Code of
Ethics for the Exchange of Credit Information promulgated by The Robert Morris
Associates or other applicable industry standards relating to the exchange of
credit information. The obligations of Agent and Lenders under this Section 13.5
shall supersede and replace the obligations of Agent and Lenders under any
confidentiality letter signed prior to the date hereof or any other arrangements
concerning the confidentiality of information provided by any Borrower or
Guarantor to Agent or any Lender. In addition, Agent and Lenders may disclose
information relating to the Credit Facility to Gold Sheets and other similar
bank trade publications, with such information to consist of deal terms and
other information customarily found in such publications.
13.6 Successors. This Agreement, the other Financing Agreements and any other
document referred to herein or therein shall be binding upon and inure to the
benefit of and be enforceable by Agent, Lenders, Borrowers, Guarantors and their
respective successors and assigns, except that Borrower may not assign its
rights under this Agreement, the other Financing Agreements and any other
document referred to herein or therein without the prior written consent of
Agent and Lenders. Any such purported assignment without such express prior
written consent shall be void. No Lender may assign its rights and obligations
under this Agreement without the prior written consent of Agent, except as
provided in Section 13.7 below. The terms and provisions of this Agreement and
the other Financing Agreements are for the purpose of defining the relative
rights and obligations of Borrowers, Guarantors, Agent and Lenders with respect
to the transactions contemplated hereby and there shall be no third party
beneficiaries of any of the terms and provisions of this Agreement or any of the
other Financing Agreements.

 

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13.7 Assignments; Participations.
(a) Each Lender may, with the prior written consent of Agent, assign all or, if
less than all, a portion equal to at least $5,000,000 in the aggregate for the
assigning Lender, of such rights and obligations under this Agreement to one or
more Eligible Transferees (but not including for this purpose any assignments in
the form of a participation), each of which assignees shall become a party to
this Agreement as a Lender by execution of an Assignment and Acceptance;
provided, that, (i) such transfer or assignment will not be effective until
recorded by Agent on the Register and (ii) Agent shall have received for its
sole account payment of a processing fee from the assigning Lender or the
assignee in the amount of $5,000.
(b) Agent shall maintain a register of the names and addresses of Lenders, their
Commitments and the principal amount of their Loans (the “Register”). Agent
shall also maintain a copy of each Assignment and Acceptance delivered to and
accepted by it and shall modify the Register to give effect to each Assignment
and Acceptance. The entries in the Register shall be conclusive and binding for
all purposes, absent manifest error, and any Borrowers, Guarantors, Agent and
Lenders may treat each Person whose name is recorded in the Register as a Lender
hereunder for all purposes of this Agreement. The Register shall be available
for inspection by Administrative Borrower and any Lender at any reasonable time
and from time to time upon reasonable prior notice.
(c) Upon such execution, delivery, acceptance and recording, from and after the
effective date specified in each Assignment and Acceptance, the assignee
thereunder shall be a party hereto and to the other Financing Agreements and, to
the extent that rights and obligations hereunder have been assigned to it
pursuant to such Assignment and Acceptance, have the rights and obligations
(including, without limitation, the obligation to participate in Letter of
Credit Obligations) of a Lender hereunder and thereunder and the assigning
Lender shall, to the extent that rights and obligations hereunder have been
assigned by it pursuant to such Assignment and Acceptance, relinquish its rights
and be released from its obligations under this Agreement.
(d) By execution and delivery of an Assignment and Acceptance, the assignor and
assignee thereunder confirm to and agree with each other and the other parties
hereto as follows: (i) other than as provided in such Assignment and Acceptance,
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 Agreement or any of the other Financing
Agreements or the execution, legality, enforceability, genuineness, sufficiency
or value of this Agreement or any of the other Financing Agreements furnished
pursuant hereto, (ii) the assigning Lender makes no representation or warranty
and assumes no responsibility with respect to the

 

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financial condition of any Borrower, Guarantor or any of their Subsidiaries or
the performance or observance by any Borrower or Guarantor of any of the
Obligations; (iii) such assignee confirms that it has received a copy of this
Agreement and the other Financing Agreements, together with such other documents
and information it has deemed appropriate to make its own credit analysis and
decision to enter into such Assignment and Acceptance, (iv) such assignee will,
independently and without reliance upon the assigning Lender, Agent 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 Agreement and the other Financing Agreements, (v) such assignee appoints
and authorizes Agent to take such action as agent on its behalf and to exercise
such powers under this Agreement and the other Financing Agreements as are
delegated to Agent by the terms hereof and thereof, together with such powers as
are reasonably incidental thereto, and (vi) such assignee agrees that it will
perform in accordance with their terms all of the obligations which by the terms
of this Agreement and the other Financing Agreements are required to be
performed by it as a Lender. Agent and Lenders may furnish any information
concerning any Borrower or Guarantor in the possession of Agent or any Lender
from time to time to assignees and Participants.
(e) Each Lender may sell participations to one or more banks or other entities
in or to all or a portion of its rights and obligations under this Agreement and
the other Financing Agreements (including, without limitation, all or a portion
of its Commitments and the Loans owing to it and its participation in the Letter
of Credit Obligations, without the consent of Agent or the other Lenders);
provided, that, (i) such Lender’s obligations under this Agreement (including,
without limitation, its Commitment hereunder) and the other Financing Agreements
shall remain unchanged, (ii) such Lender shall remain solely responsible to the
other parties hereto for the performance of such obligations, and Borrowers,
Guarantors, the other Lenders and Agent shall continue to deal solely and
directly with such Lender in connection with such Lender’s rights and
obligations under this Agreement and the other Financing Agreements, and
(iii) the Participant shall not have any rights under this Agreement or any of
the other Financing Agreements (the Participant’s rights against such Lender in
respect of such participation to be those set forth in the agreement executed by
such Lender in favor of the Participant relating thereto) and all amounts
payable by any Borrower or Guarantor hereunder shall be determined as if such
Lender had not sold such participation.
(f) Nothing in this Agreement shall prevent or prohibit any Lender from pledging
its Loans hereunder to a Federal Reserve Bank in support of borrowings made by
such Lenders from such Federal Reserve Bank; provided, that, no such pledge
shall release such Lender from any of its obligations hereunder or substitute
any such pledgee for such Lender as a party hereto.
(g) Borrowers and Guarantors shall assist Agent or any Lender permitted to sell
assignments or participations under this Section 13.7 in whatever manner
reasonably necessary in order to enable or effect any such assignment or
participation, including (but not limited to) the execution and delivery of any
and all agreements, notes and other documents and instruments as shall be
requested and the delivery of informational materials, appraisals or other
documents for, and the participation of relevant management in meetings and
conference calls with, potential Lenders or Participants. Borrowers shall
certify the correctness, completeness and accuracy, in all material respects, of
all descriptions of Borrowers and Guarantors and their affairs provided,
prepared or reviewed by any Borrower or Guarantor that are contained in any
selling materials and all other information provided by it and included in such
materials.

 

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13.8 Entire Agreement. This Agreement, the other Financing Agreements, any
supplements hereto or thereto, and any instruments or documents delivered or to
be delivered in connection herewith or therewith represents the entire agreement
and understanding concerning the subject matter hereof and thereof between the
parties hereto, and supersede all other prior agreements, understandings,
negotiations and discussions, representations, warranties, commitments,
proposals, offers and contracts concerning the subject matter hereof, whether
oral or written. In the event of any inconsistency between the terms of this
Agreement and any schedule or exhibit hereto, the terms of this Agreement shall
govern.
13.9 USA Patriot Act. Each Lender subject to the USA PATRIOT Act (Title III of
Pub.L. 107-56 (signed into law October 26, 2001) (the “Act”) hereby notifies
Borrowers and Guarantors that pursuant to the requirements of the Act, it is
required to obtain, verify and record information that identifies each person or
corporation who opens an account and/or enters into a business relationship with
it, which information includes the name and address of Borrowers and Guarantors
and other information that will allow such Lender to identify such person in
accordance with the Act and any other applicable law. Borrowers and Guarantors
are hereby advised that any Loans or Letters of Credit hereunder are subject to
satisfactory results of such verification.
13.10 Counterparts, Etc. This Agreement or any of the other Financing Agreements
may be executed in any number of counterparts, each of which shall be an
original, but all of which taken together shall constitute one and the same
agreement. Delivery of an executed counterpart of this Agreement or any of the
other Financing Agreements by telefacsimile or other electronic method of
transmission shall have the same force and effect as the delivery of an original
executed counterpart of this Agreement or any of such other Financing
Agreements. Any party delivering an executed counterpart of any such agreement
by telefacsimile or other electronic method of transmission shall also deliver
an original executed counterpart, but the failure to do so shall not affect the
validity, enforceability or binding effect of such agreement.

 

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IN WITNESS WHEREOF, Agent, Lenders, Borrower and Guarantors have caused these
presents to be duly executed as of the day and year first above written.

                          AGENT           BORROWER
 
                        WACHOVIA CAPITAL FINANCE
CORPORATION (WESTERN), as Agent       IMAGE ENTERTAINMENT, INC.
 
                        By:   /s/ JAMES E. CAMPBELL       By:   /s/ JEFF M.
FRAMER                  
 
  Title:   DIRECTOR           Title:   CHIEF FINANCIAL OFFICER
 
                        LENDER                    
 
                        WACHOVIA CAPITAL FINANCE
CORPORATION (WESTERN)                
 
                        By:   /s/ JAMES E. CAMPBELL                            
         
 
  Title:   DIRECTOR                
 
                        Commitment: $15,000,000 or if the aggregate sum of the
Revolving Loan Limits is increased, then $20,000,000                
 
                        GUARANTORS                
 
                        EGAMI MEDIA, INC.       HOME VISION ENTERTAINMENT, INC.
 
                        By:   /s/ JEFF M. FRAMER       By:   /s/ JEFF M. FRAMER
                 
 
  Title:   CHIEF FINANCIAL OFFICER           Title:   CHIEF FINANCIAL OFFICER
 
                        IMAGE ENTERTAINMENT (UK), INC.                
 
                        By:   /s/ JEFF M. FRAMER                                
     
 
  Title:   CHIEF FINANCIAL OFFICER                

 

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EXHIBIT A
to
LOAN AND SECURITY AGREEMENT
ASSIGNMENT AND ACCEPTANCE AGREEMENT
This ASSIGNMENT AND ACCEPTANCE AGREEMENT (this “Assignment and Acceptance”)
dated as of                     , 200_____  is made between
                                         (the “Assignor”) and
                                         (the “Assignee”).
W I T N E S S E T H:
WHEREAS, Wachovia Capital Finance Corporation (Western), in its capacity as
agent pursuant to the Loan Agreement (as hereinafter defined) acting for and on
behalf of the financial institutions which are parties thereto as lenders (in
such capacity, “Agent”), and the financial institutions which are parties to the
Loan Agreement as lenders (individually, each a “Lender” and collectively,
“Lenders”) have entered or are about to enter into financing arrangements
pursuant to which Agent and Lenders may make loans and advances and provide
other financial accommodations to Image Entertainment, Inc., (“Administrative
Borrower”) as set forth in the Loan and Security Agreement, dated May 4, 2007,
by and among Administrative Borrower, certain of its affiliates, Agent and
Lenders (as the same now exists or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced, the “Loan Agreement”),
and the other agreements, documents and instruments referred to therein or at
any time executed and/or delivered in connection therewith or related thereto
(all of the foregoing, together with the Loan Agreement, as the same now exist
or may hereafter be amended, modified, supplemented, extended, renewed, restated
or replaced, being collectively referred to herein as the “Financing
Agreements”);
WHEREAS, as provided under the Loan Agreement, Assignor committed to making
Loans (the “Committed Loans”) to Borrowers in an aggregate amount not to exceed
$                     (the “Commitment”);
WHEREAS, Assignor wishes to assign to Assignee [part of the] [all] rights and
obligations of Assignor under the Loan Agreement in respect of its Commitment in
an amount equal to $                     (the “Assigned Commitment Amount”) on
the terms and subject to the conditions set forth herein and Assignee wishes to
accept assignment of such rights and to assume such obligations from Assignor on
such terms and subject to such conditions;

 

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NOW, THEREFORE, in consideration of the foregoing and the mutual agreements
contained herein, the parties hereto agree as follows:
1. Assignment and Acceptance.
(a) Subject to the terms and conditions of this Assignment and Acceptance,
Assignor hereby sells, transfers and assigns to Assignee, and Assignee hereby
purchases, assumes and undertakes from Assignor, without recourse and without
representation or warranty (except as provided in this Assignment and
Acceptance) an interest in (i) the Commitment and each of the Committed Loans of
Assignor and (ii) all related rights, benefits, obligations, liabilities and
indemnities of the Assignor under and in connection with the Loan Agreement and
the other Financing Agreements, so that after giving effect thereto, the
Commitment of Assignee shall be as set forth below and the Pro Rata Share of
Assignee shall be  _____ (_____%) percent.
(b) With effect on and after the Effective Date (as defined in Section 5
hereof), Assignee shall be a party to the Loan Agreement and succeed to all of
the rights and be obligated to perform all of the obligations of a Lender under
the Loan Agreement, including the requirements concerning confidentiality and
the payment of indemnification, with a Commitment in an amount equal to the
Assigned Commitment Amount. Assignee agrees that it will perform in accordance
with their terms all of the obligations which by the terms of the Loan Agreement
are required to be performed by it as a Lender. It is the intent of the parties
hereto that the Commitment of Assignor shall, as of the Effective Date, be
reduced by an amount equal to the Assigned Commitment Amount and Assignor shall
relinquish its rights and be released from its obligations under the Loan
Agreement to the extent such obligations have been assumed by Assignee;
provided, that, Assignor shall not relinquish its rights under Sections 2.2,
6.4, 6.9, 11.5 and 12.5 of the Loan Agreement to the extent such rights relate
to the time prior to the Effective Date.
(c) After giving effect to the assignment and assumption set forth herein, on
the Effective Date Assignee’s Commitment will be $                    .
(d) After giving effect to the assignment and assumption set forth herein, on
the Effective Date Assignor’s Commitment will be $                     (as such
amount may be further reduced by any other assignments by Assignor on or after
the date hereof).
2. Payments.
(a) As consideration for the sale, assignment and transfer contemplated in
Section 1 hereof, Assignee shall pay to Assignor on the Effective Date in
immediately available funds an amount equal to $                    ,
representing Assignee’s Pro Rata Share of the principal amount of all Committed
Loans.
(b) Assignee shall pay to Agent the processing fee in the amount specified in
Section 13.7(a) of the Loan Agreement.
3. Reallocation of Payments. Any interest, fees and other payments accrued to
the Effective Date with respect to the Commitment, Committed Loans and
outstanding Letters of Credit shall be for the account of Assignor. Any
interest, fees and other payments accrued on and after the Effective Date with
respect to the Assigned Commitment Amount shall be for the account of Assignee.
Each of Assignor and Assignee agrees that it will hold in trust for the other
party any interest, fees and other amounts which it may receive to which the
other party is entitled pursuant to the preceding sentence and pay to the other
party any such amounts which it may receive promptly upon receipt.

 

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4. Independent Credit Decision. Assignee acknowledges that it has received a
copy of the Loan Agreement and the Schedules and Exhibits thereto, together with
copies of the most recent financial statements of Parent and its Subsidiaries,
and such other documents and information as it has deemed appropriate to make
its own credit and legal analysis and decision to enter into this Assignment and
Acceptance and agrees that it will, independently and without reliance upon
Assignor, Agent or any Lender and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit and legal
decisions in taking or not taking action under the Loan Agreement.
5. Effective Date; Notices.
(a) As between Assignor and Assignee, the effective date for this Assignment and
Acceptance shall be                     , 200_____  (the “Effective Date”);
provided, that, the following conditions precedent have been satisfied on or
before the Effective Date:
(i) this Assignment and Acceptance shall be executed and delivered by Assignor
and Assignee;
(ii) the consent of Agent as required for an effective assignment of the
Assigned Commitment Amount by Assignor to Assignee shall have been duly obtained
and shall be in full force and effect as of the Effective Date;
(iii) written notice of such assignment, together with payment instructions,
addresses and related information with respect to Assignee, shall have been
given to Administrative Borrower and Agent;
(iv) Assignee shall pay to Assignor all amounts due to Assignor under this
Assignment and Acceptance; and
(v) the processing fee referred to in Section 2(b) hereof shall have been paid
to Agent.
(b) the execution of this Assignment and Acceptance, Assignor shall deliver to
Administrative Borrower and Agent for acknowledgment by Agent, a Notice of
Assignment in the form attached hereto as Schedule 1.
6. Agent. [INCLUDE ONLY IF ASSIGNOR IS AN AGENT]
(a) Assignee hereby appoints and authorizes Assignor in its capacity as Agent to
take such action as agent on its behalf to exercise such powers under the Loan
Agreement as are delegated to Agent by Lenders pursuant to the terms of the Loan
Agreement.
(b) Assignee shall assume no duties or obligations held by Assignor in its
capacity as Agent under the Loan Agreement.]

 

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7. Withholding Tax. Assignee (a) represents and warrants to Assignor, Agent and
Borrowers that under applicable law and treaties no tax will be required to be
withheld by Assignee, Agent or Borrowers with respect to any payments to be made
to Assignee hereunder or under any of the Financing Agreements, (b) agrees to
furnish (if it is organized under the laws of any jurisdiction other than the
United States or any State thereof) to Agent and Borrowers prior to the time
that Agent or Borrowers are required to make any payment of principal, interest
or fees hereunder, duplicate executed originals of either U.S. Internal Revenue
Service Form W-8BEN or W-8ECI, as applicable (wherein Assignee claims
entitlement to the benefits of a tax treaty that provides for a complete
exemption from U.S. federal income withholding tax on all payments hereunder)
and agrees to provide new such forms upon the expiration of any previously
delivered form or comparable statements in accordance with applicable U.S. law
and regulations and amendments thereto, duly executed and completed by Assignee,
and (c) agrees to comply with all applicable U.S. laws and regulations with
regard to such withholding tax exemption.
8. Representations and Warranties.
(a) Assignor represents and warrants that (i) it is the legal and beneficial
owner of the interest being assigned by it hereunder and that such interest is
free and clear of any security interest, lien, encumbrance or other adverse
claim, (ii) it is duly organized and existing and it has the full power and
authority to take, and has taken, all action necessary to execute and deliver
this Assignment and Acceptance and any other documents required or permitted to
be executed or delivered by it in connection with this Assignment and Acceptance
and to fulfill its obligations hereunder, (iii) no notices to, or consents,
authorizations or approvals of, any Person are required (other than any already
given or obtained) for its due execution, delivery and performance of this
Assignment and Acceptance, and apart from any agreements or undertakings or
filings required by the Loan Agreement, no further action by, or notice to, or
filing with, any Person is required of it for such execution, delivery or
performance, and (iv) this Assignment and Acceptance has been duly executed and
delivered by it and constitutes the legal, valid and binding obligation of
Assignor, enforceable against Assignor in accordance with the terms hereof,
subject, as to enforcement, to bankruptcy, insolvency, moratorium,
reorganization and other laws of general application relating to or affecting
creditors’ rights and to general equitable principles.
(b) Assignor makes no representation or warranty and assumes no responsibility
with respect to any statements, warranties or representations made in or in
connection with the Loan Agreement or any of the other Financing Agreements or
the execution, legality, validity, enforceability, genuineness, sufficiency or
value of the Loan Agreement or any other instrument or document furnished
pursuant thereto. Assignor makes no representation or warranty in connection
with, and assumes no responsibility with respect to, the solvency, financial
condition or statements of Borrowers, Guarantors or any of their respective
Affiliates, or the performance or observance by Borrowers, Guarantors or any
other Person, of any of its respective obligations under the Loan Agreement or
any other instrument or document furnished in connection therewith.
(c) Assignee represents and warrants that (i) it is duly organized and existing
and it has full power and authority to take, and has taken, all action necessary
to execute and deliver this Assignment and Acceptance and any other documents
required or permitted to be executed or delivered by it in connection with this
Assignment and Acceptance, and to fulfill its obligations hereunder, (ii) no
notices to, or consents, authorizations or approvals of, any Person are required
(other than any already given or obtained) for its due execution, delivery and
performance of this Assignment and Acceptance, and apart from any agreements or
undertakings or filings required by the Loan Agreement, no further action by, or
notice to, or filing with, any Person is required of it for such execution,
delivery or performance; and (iii) this Assignment and Acceptance has been duly
executed and delivered by it and constitutes the legal, valid and binding
obligation of Assignee, enforceable against Assignee in accordance with the
terms hereof, subject, as to enforcement, to bankruptcy, insolvency, moratorium,
reorganization and other laws of general application relating to or affecting
creditors’ rights to general equitable principles.

 

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9. Further Assurances. Assignor and Assignee each hereby agree to execute and
deliver such other instruments, and take such other action, as either party may
reasonably request in connection with the transactions contemplated by this
Assignment and Acceptance, including the delivery of any notices or other
documents or instruments to Borrowers or Agent, which may be required in
connection with the assignment and assumption contemplated hereby.
10. Miscellaneous.
(a) Any amendment or waiver of any provision of this Assignment and Acceptance
shall be in writing and signed by the parties hereto. No failure or delay by
either party hereto in exercising any right, power or privilege hereunder shall
operate as a waiver thereof and any waiver of any breach of the provisions of
this Assignment and Acceptance shall be without prejudice to any rights with
respect to any other for further breach thereof.
(b) All payments made hereunder shall be made without any set-off or
counterclaim.
(c) Assignor and Assignee shall each pay its own costs and expenses incurred in
connection with the negotiation, preparation, execution and performance of this
Assignment and Acceptance.
(d) This Assignment and Acceptance may be executed in any number of counterparts
and all of such counterparts taken together shall be deemed to constitute one
and the same instrument.
(e) THIS ASSIGNMENT AND ACCEPTANCE SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAW OF THE STATE OF CALIFORNIA. Assignor and Assignee each
irrevocably submits to the non-exclusive jurisdiction of any State or Federal
court sitting in Los Angeles County, California over any suit, action or
proceeding arising out of or relating to this Assignment and Acceptance and
irrevocably agrees that all claims in respect of such action or proceeding may
be heard and determined in such State or Federal court. Each party to this
Assignment and Acceptance hereby irrevocably waives, to the fullest extent it
may effectively do so, the defense of an inconvenient forum to the maintenance
of such action or proceeding.
(f) ASSIGNOR AND ASSIGNEE EACH HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY
WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION
BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH THIS ASSIGNMENT
AND ACCEPTANCE, THE LOAN AGREEMENT, ANY OF THE OTHER FINANCING AGREEMENTS OR ANY
RELATED DOCUMENTS AND AGREEMENTS OR ANY COURSE OF CONDUCT, COURSE OF DEALING, OR
STATEMENTS (WHETHER ORAL OR WRITTEN).

 

A-5

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IN WITNESS WHEREOF, Assignor and Assignee have caused this Assignment and
Acceptance to be executed and delivered by their duly authorized officers as of
the date first above written.

           
[ASSIGNOR]
      By:           Title:                  [ASSIGNEE]
      By:           Title:     

 

A-6

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SCHEDULE 1

NOTICE OF ASSIGNMENT AND ACCEPTANCE
                    , 20__

               
 
             
 
             
Attn.:
       
 
 
 
   

Re:                                                            
Ladies and Gentlemen:
Wachovia Capital Finance Corporation (Western), in its capacity as agent
pursuant to the Loan Agreement (as hereinafter defined) acting for and on behalf
of the financial institutions which are parties thereto as lenders (in such
capacity, “Agent”), and the financial institutions which are parties to the Loan
Agreement as lenders (individually, each a “Lender” and collectively, “Lenders”)
have entered or are about to enter into financing arrangements pursuant to which
Agent and Lenders may make loans and advances and provide other financial
accommodations to Image Entertainment, Inc. (“Administrative Borrower”) as set
forth in the Loan and Security Agreement, dated May 7, 2007, by and among
Administrative Borrower, certain of its affiliates, Agent and Lenders (as the
same now exists or may hereafter be amended, modified, supplemented, extended,
renewed, restated or replaced, the “Loan Agreement”), and the other agreements,
documents and instruments referred to therein or at any time executed and/or
delivered in connection therewith or related thereto (all of the foregoing,
together with the Loan Agreement, as the same now exist or may hereafter be
amended, modified, supplemented, extended, renewed, restated or replaced, being
collectively referred to herein as the “Financing Agreements”). Capitalized
terms not otherwise defined herein shall have the respective meanings ascribed
thereto in the Loan Agreement.
1. We hereby give you notice of, and request your consent to, the assignment by
                                         (the “Assignor”) to
                                          (the “Assignee”) such that after
giving effect to the assignment Assignee shall have an interest equal to
                     (_____%) percent of the total Commitments pursuant to the
Assignment and Acceptance Agreement attached hereto (the “Assignment and
Acceptance”). We understand that the Assignor’s Commitment shall be reduced by
$                    , as the same may be further reduced by other assignments
on or after the date hereof.
2. Assignee agrees that, upon receiving the consent of Agent to such assignment,
Assignee will be bound by the terms of the Loan Agreement as fully and to the
same extent as if the Assignee were the Lender originally holding such interest
under the Loan Agreement.

 

A-7

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3. The following administrative details apply to Assignee:

                 
 
  (A)   Notice address:        
 
               
 
      Assignee name:        
 
      Address:  
 
   
 
      Attention:  
 
   
 
      Telephone:  
 
   
 
      Telecopier:  
 
   
 
         
 
   
 
  (B)   Payment instructions:    
 
               
 
      Account No.:        
 
      At:  
 
   
 
      Reference:  
 
   
 
      Attention:  
 
   
 
         
 
   

4. You are entitled to rely upon the representations, warranties and covenants
of each of Assignor and Assignee contained in the Assignment and Acceptance.

 

A-8

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IN WITNESS WHEREOF, Assignor and Assignee have caused this Notice of Assignment
and Acceptance to be executed by their respective duly authorized officials,
officers or agents as of the date first above mentioned.

            Very truly yours,

[NAME OF ASSIGNOR]
      By:           Title:       
[NAME OF ASSIGNEE]
      By:           Title:             

            ACKNOWLEDGED AND ASSIGNMENT
CONSENTED TO:

WACHOVIA CAPITAL FINANCE
CORPORATION (WESTERN), as Agent
      By:           Title:             

 

A-9

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EXHIBIT B
to
LOAN AND SECURITY AGREEMENT
INFORMATION CERTIFICATE

 

 

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GUIDELINES FOR PREPARATION OF INFORMATION CERTIFICATE
The attached document is a form of Information Certificate, which you should
complete carefully, completely and accurately.
Please note:
1. You should consult your attorneys and accountants in order to complete the
Information Certificate.
2. Prepare a separate information certificate for each entity that is a proposed
borrower or guarantor.
3. If there is insufficient space provided in the Information Certificate for a
response to any question, please include additional pages as exhibits to the
certificate.
4. Return the Information Certificate to us as soon as possible. The information
in it is necessary for us to prepare the loan documentation.
5. We will rely on the information you give us in the Information Certificate
and it may be incorporated into the Loan and Security Agreement between us. You
should consider your responses to have the importance of your representations in
the Loan Agreement.
If you have any questions in connection with the preparation of the Information
Certificate, please let us know.
Thank you for your cooperation. We look forward to working with you.
WACHOVIA CAPITAL FINANCE
CORPORATION (WESTERN)

 

 

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

 

INFORMATION CERTIFICATE
OF
IMAGE ENTERTAINMENT, INC.
Dated: March 6, 2007
Wachovia Capital Finance Corporation (Western)
251 South Lake Avenue, Suite 900
Pasadena, California 91101
In order to assist you in the evaluation of the financing you are considering of
Image Entertainment, Inc. (the “Company”), to expedite the preparation of
required documentation, and to induce you to provide financing to the Company,
we represent and warrant to you the following information about the Company, its
organizational structure and other matters of interest to you:

1.   The Company has been formed by filing the following document with the
Secretary of State of the State of Delaware:

  þ   Certificate/Articles of Incorporation     o   Certificate/Articles of
Organization     o   Other [specify]                                         

The date of formation of the Company by the filing of the document specified
above with the Secretary of State was August 1, 2005.

2.   The Company was not formed by filing a document with any Secretary of
State. The Company is organized as a [specify type of organization, (e.g.,
general partnership, sole proprietorship, etc.)] N/A. The Company’s governing
document is a [name legal document, if one exists, (e.g., partnership agreement,
etc.]                     .

3.   The full and exact name of the Company as set forth in the document
specified in Item 1 or 2, or (if no document is specified in Item 1 or 2) the
full and exact legal name used in the Company’s business, is: Image
Entertainment, Inc.

4.   The Company uses and owns the following trade name(s) in the operation of
its business (e.g. billing, advertising, etc.; note: do not include names which
are product names only): N/A       [Check one of the boxes below.]

  o     We have attached a blank sample of every invoice that uses a tradename.
    þ     We do not use any tradename on any invoices.

 

 

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

 

5.   The Company maintains offices, leases or owns real estate, has employees,
pays taxes, or otherwise conducts business in the following States (including
the State of its organization): California, Nevada, Delaware, Illinois, Texas,
and New Jersey

6.   The Company has filed the necessary documents with the Secretary of State
to qualify as a foreign corporation in the following States: California and
Nevada

7.   The Company’s authority to do business has been revoked or suspended, or
the Company is otherwise not in good standing in the following States: N/A

8.   The Company is the owner of the following licenses and permits, issued by
the federal, state or local agency or authority indicated opposite thereto:

      Type of License   Issuing Agency or Authority       Tax Registration
Certificate   City of Los Angeles Police Commission Permit   City of Los Angeles

9.   In conducting its business activities, the Company is subject to regulation
by federal, state or local agencies or authorities (e.g., FDA, EPA, state or
municipal liquor licensing agencies, federal or state carrier commissions, etc.)
as follows:

              Type of Activity   Regulatory Agency or Authority
 
       
 
  Status as a public company   Securities & Exchange Commission, NASD
 
  Taxes   Internal Revenue Service, Franchise Tax
 
      Board (CA), other states as needed

10.   The Company has never been involved in a bankruptcy or reorganization
except: [explain] N/A

11.   Between the date the Company was formed and now, the Company has used
other names as set forth below: N/A

      Period of Time   Prior Name       From                      to
                               From                      to                     
         

 

 

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

 

12.   Between the date the Company was formed and now, the Company has made or
entered into mergers or acquisitions with other companies as set forth below:

          Approximate Date   Other Entity   Description of Transaction
 
       
August 1, 2005
  Public Media, Inc.   Acquisition/Changed name to
 
      Home Vision Entertainment, Inc.

13.   The chief executive office of the Company is located at the street address
set forth below, which is in Los Angeles County, in the State of California:

20525 Nordhoff Street, Suite 200
Chatsworth, CA 91311

14.   The books and records of the Company pertaining to accounts, contract
rights, inventory, etc. are located at the following street address:

20525 Nordhoff Street, Suite 200
Chatsworth, CA 91311

 

 

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

 

15.   In addition to the chief executive office, the Company has inventory,
equipment or other assets located at the addresses set forth below. In each
case, we have noted whether the location is owned, leased or operated by third
parties and the names and addresses of any mortgagee, lessor or third party
operator:

                  Name and Address of Third         Party with Interest in
Street Address with County   Company’s Interest   Location     (e.g., owner,
lessee or bailee)   (e.g., mortgagee, lessor         or warehouseman)
 
       
20525 Nordhoff St.
  Lessee   Amiscope Properties
Suite 200
  (Los Angeles County)   8730 Wilshire Blvd. #300
Chatsworth, CA 91311
      Beverly Hills, CA 90211
(corporate headquarters)
      (Lessor)
 
       
6650 S. Spencer St.*
  Lessee   Spencer Street Investors LLC
Las Vegas, NV 89119
  (Clark County)   10900 Wilshire Blvd. #1500
(primary warehouse)
      Los Angeles, CA 90024
 
      (Lessor)
 
       
6295 S. Pearl St.**
  Lessee   Arrowhead 11&12 Prop.LLC
Suites 800 & 900
  (Clark County)   9061 Santa Monica Blvd.
Las Vegas, NV 89120
      Los Angeles, CA 90069
(storage facility #1)
      (Lessor)
 
       
5275 S. Arville St.**
  Lessee   5275 Arville St. LLC
Suites 152 & 364
  (Clark County)   10900 Wilshire Blvd. #1500
Las Vegas, NV 89119
      Los Angeles, CA 90024
(storage facility #2)
      (Lessor)
 
       
77 Oxford St. #213-214
  Lessee   MWB Business Exchange
London W1D 2ES UK
  (United Kingdom)   1 West Garden Place
(UK office-ends 8/07)
      Kendal Street
 
      London W2 2AQ UK
 
      (Lessor)
 
       
Sonopress
  Distributor for Image   Sonopress — John Pierce
11500 80th Ave.
      108 Monticello Rd.
Pleasant Prairie, WI 53158
      Weaverville, NC 28787

      *   90% of inventory at this location will be transferred to the Pleasant
Prairie location of Sonopress by end of June 2007, remaining 10% will be
transferred by end of July 2007. All IT assets will be transferred back to
corporate headquarters by end of August 2007.   **   Ancillary storage
facilities in Las Vegas will be closed by end of April 2007.

 

 

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

 

16.   In the course of its business, the Company’s inventory and/or other assets
are handled by the following customs brokers and/or freight forwarders:

          Name   Address   Type of Service/Assets Handled
 
       
UPS
  335 E. Arby Lane   Freight/Product
 
  Las Vegas, NV 89119    
 
       
Pilot Air Freight
  6175 S. Sandhill Rd.   Freight/Product
 
  Las Vegas, NV 89120    
 
       
Senderex
  10425 La Cienga Blvd.   Freight/Product
 
  Los Angeles, CA 90045    
 
       
Friesen X
  4800 Eastgate Parkway   Freight/Product
 
  Mississauga, ON    
 
  L4W 3W6 Canada    

 

 

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

 

17.   The places of business or other locations of any assets used by the
Company during the last four (4) months other than those listed above are as
follows:

                      State & Zip     Street Address   City   Code   County
 
           
PRIMARY Replicator:
           
Sonopress (replication)
           
108 Monticello Road
  Weaverville   NC 28787   Buncombe
Sonopress (packaging)
           
4600 Commerce
           
Crossings Dr.
  Louisville   KY 40229   Jefferson
Sonopress (pkg & dist)
           
11500 80th Ave.
  Pleasant Prairie   WI 53158   Kenosha
 
           
Smaller Replicators:
           
Sony DADC
           
1800 N. Fruitridge Ave.
  Terre Haute   IN 47804   Vigo
 
           
U-Tech Media
           
2880 E. Philadelphia St.
  Ontario   CA 91761   San Bernardino
 
           
Cinram
           
1200 Lackawanna
  Olyphant   PA 18448   Lackawanna
 
           
L&M Optical West
           
24865 Ave. Rockefeller
  Valencia   CA 91355   Los Angeles
 
           
Allied Vaughn
           
1200 Thorndale Avenue
  Elk Grove   IL 60007   Cook

 

 

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

 

18.   The Company is affiliated with, or has ownership in, the following
entities (including subsidiaries):

                      Chief Executive       Ownership     Office   Jurisdiction
of   Percentage or Name of Entity   (same for all)   Incorporation  
Relationship
 
               
Egami Media, Inc.
  c/o Image   Delaware     100 %
(subsidiary)
  Entertainment, Inc.            
Home Vision
               
Entertainment, Inc.
  20525 Nordhoff St.   Delaware     100 %
(subsidiary)
  Suite 200            
Image Entertainment
               
(UK), Inc.
  Chatsworth, CA   Delaware     100 %
(subsidiary)
  91311            

19.   The Federal Employer Identification Number of the Company is 84-0685613 .

20.   Under the Company’s charter documents, and under the laws of the State in
which the Company is organized, the shareholders, members or other equity
holders do not have to consent in order for the Company to borrow money, incur
debt or obligations, pledge or mortgage the property of the Company, grant a
security interest in the property of the Company or guaranty the debt of
obligations of another person or entity.

         
 
  þ True o Incorrect [explain]:
 
       
 
       
 
       

The power to take the foregoing actions is vested exclusively in the Board of
Directors
[name the body (e.g. Board of Directors) or person (e.g. general partner, sole
Manager) that has such authority].

21.   The officers of the Company (or people performing similar functions) and
their respective titles are as follows:

      Title   Name
Chief Executive Officer
  Martin W. Greenwald
Chief Operating Officer
  David Borshell
Chief Financial Officer
  Jeff M. Framer
Chief Marketing Officer
  Jeff Fink
Corporate Secretary
  Dennis Hohn Cho

 

 

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The following people will have signatory powers as to all your of transactions
with the Company:
Martin W. Greenwald, David Borshell, Jeff M. Framer, Dennis Hohn Cho

22.   With respect to the officers noted above, such officers are affiliated
with or have ownership in the following corporations (indicate name and address
of affiliated companies, type of operations, ownership percentage or other
relationship):
N/A

23.   The Company is governed by Board of Directors [insert name of governing
body or person (e.g. Board of Directors, sole Manager, General Partner)]. The
members of such governing body of the Company are:

Martin W. Greenwald (Chairman), David Coriat, Ira Epstein, Gary Haber,
M. Trevenen Huxley, Robert J. McCloskey

24.   The name of the stockholders, members, partners or other equity holders of
the Company and their equity holdings are as follows (if equity interests are
widely held indicate only equity owners with 10% or more of the equity
interests):

                      Ownership Name   No. of Shares or Units   Percentage
Image Investors Co.
  6,069,767     28 %
 
  (includes 100,000 shares        
 
  underlying a warrant)        

25.   There are no judgments or litigation pending by or against the Company,
its subsidiaries and/or affiliates or any of its officers/principals, except as
follows: See attached litigation schedule.

26.   At the present time, there are no delinquent taxes due (including, but not
limited to, all payroll taxes, personal property taxes, real estate taxes or
income taxes) except as follows:

No delinquent taxes. The Company owes taxes to the State of Texas in the amount
of $15,212.67 for tax year ended March 31, 2006, which amount is due by May 15,
2007.

The Company also received an Illinois Department of Revenue (IDR) BTR-76
Taxpayer Notification, assessing a late-payment penalty for the tax year ended
March 31, 2006. According to the notification, the Company owes $12,657.89,
which amount is due by April 19, 2007. The Company’s tax accountants, KPMG,
believe these taxes are not due and have written to IDR explaining such on
April 18, 2007. We have not received a response yet.

 

 

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

 

The Company received an IRS Audit Notification Letter received for Public Media,
Inc. (“PMI”) (former name of subsidiary Home Vision Entertainment, Inc.) for the
tax year ended December 31, 2004 (covering a period prior to Image’s acquisition
of Home Vision Entertainment, Inc.). The Company’s tax accountants, KPMG LLP,
have been administering the audit on PMI’s behalf. KPMG representatives believe
that there will not be a material adjustment. Based on the slow pace of the
audit and requests made so far, they believe the audit will not conclude within
the next month. The IRS audit has not raised any issues. The Company is
indemnified by the former shareholders of PMI and has not yet released the
remaining funds in the PMI escrow account totaling $291,093. This amount is not
reflected as cash on the Company’s financial statements and will be released to
the former shareholders of PMI upon conclusion of the audit.

27.   The Company’s assets are owned and held free and clear of any security
interests, liens or attachments, except as follows:

                  Amount of Lienholder   Assets Pledged   Debt Secured
 
       
Wells Fargo Foothill
  All assets & stock of subsidiaries   N/A
Sonopress LLC
  Manufactured inventory — subordinated to Foothill    
Portside Growth &
       
Opportuntity Fund/Ramius
  All assets — subordinated to Foothill    
HP Financing (UCC-1)
  IT equipment financed    
Writers Guild of America,
       
West, Inc.
  Receivables generated by Sisters title    
Screen Actors Guild, Inc.
  Receivables generated by Sisters title    
Marlin Leasing Corp
(UCC-1)
  Leased equipment    
Citicapital Technology
       
Finance, Inc. (UCC-1)
  Leased equipment    
IOS Capital (UCC-1)
  Leased equipment    

 

 

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

 

28.   The Company has not guaranteed and is not otherwise liable for the
obligations of others, except as follows:

                  Amount of Debtor   Creditor   Obligation  
Beach Boulevard Center
(store lease for DVDPlanet)
  DVDPlanet (previously our subsidiary — now owned by Infinity Resources — Image
is guarantor on lease until 12/31 should Infinity not satisfy their obligations)
  $104,125.00
(as of 2/28/07)

29.   The Company does not own or license any trademarks, patents, copyrights or
other intellectual property, except as follows (indicate type of intellectual
property and whether owned or licensed, registration number, date of
registration, and, if licensed, the name and address of the licensor):

                  Registration             Number and Date   Owned or   Name and
Address Type of Intellectual Property   of Registration   Licensed   of Licensor
(all Registered Marks)            
 
           
Image
  1588570 — 3/27/90,   Owned — Image   N/A
 
  renewed 11/17/00        
Image Entertainment
  2627964 — 10/1/02   Owned — Image   N/A
Image Entertainment
  2665836 — 12/24/02   Owned — Image   N/A
Image Music Group
  2901782 — 11/9/04   Owned — Image   N/A
Egami Media, a subsidiary of Image
           
Entertainment
  78542865 — 1/5/05   Owned — Egami   N/A
HVE
  3000209 — 9/27/05   Owned — PMI   N/A
Home Vision
Entertainment
  77132881 — Pending   Owned — Image   N/A

Please also see the attached Distribution Rights Schedule.

30.   The Company owns or uses the following materials (e.g., software, film
footage, scripts, etc.) that are subject to registration with the United States
Copyright Office, though at present copyright registrations have not been filed
with respect to such materials: Video, audio and computer software

 

 

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

 

31.   The Company does not have any deposit or investment accounts with any
bank, savings and loan or other financial institution, except as follows, for
the purposes and of the types indicated:

                      Contact Person and         Bank Name and Branch Address  
Phone Number   Account No.   Purpose/Type
Union Bank of Calif.
  Greg Melidonian     0700495507     Lockbox
San Fernando Valley
  (213) 236-4008     3030148974     General Oper.
Corporate Deposits 303
  Jose Duenes     9080005994     Controlled Dist.
P.O. Box 513840
  (213) 236-6421     3030148982     Payroll
Los Angeles, CA 90051
        3030156748     International
 
        3030162179     Egami
 
 
HSBC Bank plc
  Karen Swaden     01359002     Gen-ImageUK
City of London
               
Commercial Centre
20 Eastcheap
  +4402076996940            
London EC3M 1ED UK
               

32.   The Company has no processing arrangements for credit card payments or
payments made by check (e.g. Telecheck) except as follows:

              Contact Person     Processor Name and Address   and Phone Number  
Account No.
 
       
None
       
 
         
 
         
 
       

33.   The Company owns or has registered to it the following motor vehicles, the
original title certificates for which shall be delivered to Lender prior to
closing:

                  Name of Registrant             as it appears on the      
Year, Make and State Where Titled and, if different, Registered   Title
Certificate   VIN   Model
 
           
Not Applicable
           
 
             
 
             
 
           

34.   With regard to any pension or profit sharing plan:

  (a)   A determination as to qualification has been issued.
    (b)   Funding is on a current basis and in compliance with established
requirements.

35.   The Company’s fiscal year ends: March 31.

 

 

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36.   Certified Public Accountants for the Company is the firm of:

         
 
  Name:   BDO Seidman LLP
 
  Address:   1900 Avenue of the Stars, 11th Floor, Los Angeles, CA 90067
 
  Telephone:   (310) 577-0300
 
  Facsimile:   (310) 577-1777
 
  E-Mail:   bpowell@bdo.com     Partner Handling Relationship: Bill Powell
Were statements uncertified for any fiscal year? No

37.   The Company’s counsel with respect to the proposed loan transaction is the
firm of:

         
 
  Name:   Dreier Stein & Kahan LLP
 
  Address:   1620 26th St., 6th Floor, North Tower, Santa Monica, CA 90404
 
  Telephone:   (310) 828-9108
 
  Facsimile:   (424) 202-6208
 
  E-Mail:   speden@dskllp.com     Partner Handling Relationship: Steve Peden,
Esq.

38.   The Company’s counsel with respect to matters other than the proposed loan
transaction, if different, is the firm of:

         
 
  Name:   Image Entertainment, Inc.
 
  Address:   20525 Nordhoff St., Suite 200, Chatsworth, CA 91311
 
  Telephone:   (818) 534-9262
 
  Facsimile:   (818) 407-9331
 
  E-Mail:   dcho@image-entertainment.com     Partner Handling Relationship:
Dennis Hohn Cho, Esq.
 
       
 
  Name:   Foley & Lardner LLP (SEC Matters)
 
  Address:   2029 Century Park E., Suite 3500, Los Angeles, CA 90067
 
  Telephone:   (310) 975-7912
 
  Facsimile:   (310) 557-8475
 
  E-Mail:   dnanda@foley.com     Partner Handling Relationship: Deepak Nanda,
Esq.

 

 

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We agree to give you prompt written notice of any change or amendment with
respect to any of the foregoing information. Until you receive such notice, you
will be entitled to rely in all respects on the foregoing information.

            Very truly yours,

IMAGE ENTERTAINMENT, INC.
      By:   /s/ JEFF M. FRAMER         Title:   Chief Financial Officer         
  By:   /s/ DENNIS HOHN CHO         Title:   SVP, Business Affairs & General
Counsel     

 

 

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SCHEDULE 8.6
Litigation

1.   Ayub Bey v. Playboy Entertainment Group, Inc. et al. (Case# CV-3583 in the
United States District Court, Southern District of New York): This case is for
copyright infringement for an allegedly unlicensed musical composition that is
allegedly included within a certain Playboy video program. The Company has a
full indemnity from Playboy, who produced the titles at issue. Playboy carries
errors and omissions insurance in the amount of at least $1,000,000 per
occurrence. The lawsuits have been tendered to Playboy’s insurance carrier, who
is defending the lawsuits on the defendants’ behalf. In the event the plaintiff
wins this case, the Company should be liable in this dispute only to the extent
the judgment exceeds $1,000,000 and to the extent that Playboy (which as of the
date of this letter has a market cap of approximately $300 million) is unable to
pay the judgment.

2.   Dear Cinestudi S.p.A. v. International Media Films, Inc. et al. (Case#
03-CIV-3038(RMB) in the United States District Court, Southern District of New
York): This case is for copyright infringement for a program to which our
licensor, International Media Films and/or Alfredo Leone, allegedly does not
have the rights. The Company has a full indemnity from our licensor, who
licensed us the title at issue.

3.   Russian Entertainment Wholesale, Inc. dba St. Petersburg Publishing House
v. Close-Up International, Inc. et al. (Case# CV-05 4073(DGT)(JMA) in the United
States District Court, Eastern District of New York): This case is for copyright
infringement for programs to which our licensor, Widnes Enterprises and/or Roman
Dikhtyar, allegedly does not have the rights. The Company has a full indemnity
from our licensor, who licensed us the titles at issue.

4.   Niche Entertainment, Inc. v. Image Entertainment, Inc. (Case# BC366644 in
the Superior Court for the State of California for the County of Los Angeles):
This case is for breach of contract and related claims on a distribution
agreement for a program called “Tha Westside” brought by our licensor on the
program. The Company believes this claim is meritless and frivolous.

5.   General Home Systems, Inc. v. Image Entertainment, Inc. (Case# A535844 in
the District Court of Clark County, Nevada): This case is for breach of contract
and related claims on clean-up work for a flood that occurred at the Company’s
Las Vegas warehouse. The claim is for $10,000 plus interest, service charges,
costs and attorneys’ fees. The Company carries commercial general liability
insurance in the amount of at least $1,000,000 per occurrence.

6.   Image Entertainment, Inc. v. Xyion LLC et al. (Arbitration# 1220035821 at
JAMS Los Angeles): This cross-complaint is for breach of contract and related
claims on a license agreement for programs titled Floss Angeles and Import
Flavas 1-5. When the Company sued the licensor for non-delivery and breach of
contract, the licensor filed his cross-complaint. The Company believes this
claim is meritless and frivolous.

 

 

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

 

7.   Potential Guild Claim regarding The Twilight Zone: There is a potential
guild claim for residuals on The Twilight Zone which has been prepared for
arbitration, but CBS is in negotiations to settle this matter. We have a full
indemnity from CBS.

8.   Potential Unauthorized Use Claim regarding La Dolce Vita/The Magic of
Fellini: There is a potential claim alleging unauthorized use of a portion of La
Dolce Vita within the program The Magic of Fellini. We have a full indemnity
from our licensor, Piccini Productions, and E&O insurance is also available. The
Company has not sold this title since September of 2004.

9.   Potential Copyright Infringement Claim regarding From Beyond the Grave:
There is a potential claim alleging copyright infringement of From Beyond the
Grave. We have a full indemnity from our licensor, Retromedia. The Company has
advised the claimant that this program was never released by the Company and
does not believe this is a threat.

10.   Potential Photo Use Claim regarding Ella Fitzgerald: First Lady of Song:
There is a potential photo use claim on Ella Fitzgerald: First Lady of Song. An
agency claims they own the rights to the photo of Ella Fitzgerald that we used
on our packaging. The program is scheduled for release on April 17, 2007. We
have a full indemnity from our licensor, Lucy II Productions, and E&O insurance
is also available. Our licensor has advised us that they possess all their
releases, including for the photo, and that in their view, the claim is without
merit.

11.   Potential Breach of Contract Claim regarding John Entwhistle: An Ox Tale:
There is a potential breach of contract claim on John Entwhistle: An Ox Tale
between our licensor, Icon Television Music, Inc. dba Act 1 Entertainment, and a
third party, Bleeding Edge Music. Both parties claim the other party breached
their agreement (which we are not a party to). Our licensor refuses to pay the
balance of the money under the contract to Bleeding Edge Music until it cures
its alleged breach. We have maintained that the dispute is between our licensor
and Bleeding Edge Music, and that the Company is not a party to their contract
and therefore should not be involved, but Bleeding Edge Music may still attempt
to draw us into their dispute. We have a full indemnity from our licensor, and
E&O insurance is also available.

12.   Potential Copyright Infringement Claim regarding Devil’s Nightmare: There
is a potential claim alleging copyright infringement of Devil’s Nightmare. We
have a full indemnity from our licensor, Salvation Films. Salvation Films is
currently in discussions to resolve this dispute.

13.   Potential Reclamation Claim: There is a potential reclamation claim by a
licensor who we overpaid for music publishing payments. After we discovered the
error, we withheld the overpayments from ongoing quarterly royalty payments to
the licensor, RM Associates. During this time, the licensor went into
receivership (a procedure for bankruptcy in the United Kingdom), and was
purchased by Digital Classics. Digital Classics now claims that we did not have
the right to deduct the overpayments, and we dispute their claim. We have an
ongoing relationship with Digital Classics, and are in discussions to resolve
this dispute.

 

 

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

 

14.   Potential Rights Dispute regarding Langrishe Go Down: There is a potential
claim alleging copyright infringement on the title Langrishe Go Down. The
Company has a full indemnity from its licensor, Castle Hill Productions, and E&O
insurance is also available.

15.   Potential Rights Dispute regarding Max Ernst: There is a potential claim
alleging copyright infringement on the title Max Ernst. The Company has a full
indemnity from its licensor, RM Associates. This title went into sell-off on
December 31, 2006. The Company currently carries no inventory of the title, and
all distribution has been placed on hold.

16.   Cindy Henzel, et al. v. Image Entertainment, Inc. et al. (Case# BC369249
in the Court for the State of California for the County of Los Angeles): On
April 10, 2007, this purported class action shareholder complaint was filed
against Image and certain of its officers and members of its board of directors
in the Superior Court of the State of California, County of Los Angeles. The
named plaintiff proposes to represent a class of the Company’s stockholders and
claims, among other things, that in connection with the proposed business
combination transaction with BTP the directors breached their fiduciary duties
of due care, good faith and loyalty by failing to maximize stockholder value and
by creating deterrents to third party offers. Among other things, the complaint
seeks class action status, and a court order enjoining the consummation of the
merger and directing the defendants to take appropriate steps to maximize
stockholder value. While the lawsuit is in its preliminary stage, the Company
believes that the claims in the lawsuit are without merit and intends to
vigorously defend it.

17.   Potential Copyright Infringement Claim regarding Die Entfuhrung Aus Dem
Serail: There is a potential claim alleging copyright infringement of Die
Entfuhrung Aus Dem Serail. We have a full indemnity from our licensor, Digital
Classics (formerly RM Associates). The Company is no longer selling the Program.

18.   Screen Actors Guild v. Elder & Image Entertainment (Arbitration# TM2441):
This claim is based on our licensor Vanskie Elder’s alleged failure to upgrade
his SAG agreements from an experimental film to a home video release for the
program “Issues.” The claim is for additional SAG residuals and contributions to
pension and health plans, and for failure to obtain an assumption agreement from
the distributor. Elder was advised by SAG of these issues in May of 2006, but
failed to notify the Company who subsequently released the program. The Company
has advised SAG that it is not responsible under its agreement with Elder for
any of these monies, nor is the Company responsible for any SAG agreements. The
Company has further requested to be removed from the arbitration. The Company
has tendered the claim to Elder who represented and warranted that the Program
was fully cleared for distribution, and that he was responsible for all guild
and union fees. This program carries E&O insurance, although a claim has not yet
been tendered to the provider.

19.   Potential Copyright Infringement Claim regarding “Man of Aran” and
Potentially “Nanook” and “Lousiana Story”: There is a potential claim that
excerpts from an apparently unlicensed program entitled “Francis Flaherty:
Hidden and Seeking” are contained within the bonus features of certain films
distributed by the Company. The Company has a full indemnity from our licensors,
who licensed us the titles at issue.

 

 

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

 

20.   Potential Preference Claim by Musicland: On April 2, 2007, the Company
received a letter from the winddown officer for Musicland, seeking to negotiate
a settlement of an alleged preference claim. The amount claimed as preferential
transfers was $1,539,468.52, and the amount conceded as valid defenses was
$1,097,769.75, resulting in an alleged “net preference” amount of $441,698.77.
The winddown officer has offered to settle the preference claim for 90% of
$441,698.77, or $397,528.89. The Company believes we have additional defenses
and is in the process of hiring outside bankruptcy counsel to represent it.

21.   Various Collections Matters with Image as Plaintiff: The Company
occasionally initiates collections lawsuits against licensors who have failed to
deliver product per their contractual obligations. These lawsuits are filed in
the ordinary course of business, and do not constitute a material liability.

22.   Various Rights Disputes with Image as Plaintiff: The Company occasionally
initiates lawsuits against third party who have allegedly infringed on product
under Image’s control. These lawsuits are filed in the ordinary course of
business, and do not constitute a material liability.

 

 

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

 

EXHIBIT C
TO
LOAN AND SECURITY AGREEMENT
Compliance Certificate

To:   Wachovia Capital Finance Corporation (Western), as Agent
251 S. Lake Avenue, Suite 900
Pasadena, CA 91101

Ladies and Gentlemen:
I hereby certify to you pursuant to Section 9.6 of the Loan Agreement (as
defined below) as follows:
1. I am the duly elected Chief Financial Officer of Image Entertainment, Inc., a
Delaware corporation (“Administrative Borrower”). Capitalized terms used herein
without definition shall have the meanings given to such terms in the Loan and
Security Agreement, dated May 4, 2007, by and among Wachovia Capital Finance
Corporation (Western) as agent for the financial institutions party thereto as
lenders (in such capacity, “Agent”) and the financial institutions party thereto
as lenders (collectively, “Lenders”), Administrative Borrower and certain of its
affiliates (as such Loan and Security Agreement is amended, modified or
supplemented, from time to time, the “Loan Agreement”).
2. I have reviewed the terms of the Loan Agreement, and have made, or have
caused to be made under my supervision, a review in reasonable detail of the
transactions and the financial condition of Borrowers and Guarantors, during the
immediately preceding fiscal month.
3. The review described in Section 2 above did not disclose the existence during
or at the end of such fiscal month, and I have no knowledge of the existence and
continuance on the date hereof, of any condition or event which constitutes a
Default or an Event of Default, except as set forth on Schedule I attached
hereto. Described on Schedule I attached hereto are the exceptions, if any, to
this Section 3 listing, in detail, the nature of the condition or event, the
period during which it has existed and the action which any Borrower or
Guarantor has taken, is taking, or proposes to take with respect to such
condition or event.
4. I further certify that, based on the review described in Section 2 above, no
Borrower or Guarantor has not at any time during or at the end of such fiscal
month, except as specifically described on Schedule II attached hereto or as
permitted by the Loan Agreement, done any of the following:
(a) Changed its respective corporate name, or transacted business under any
trade name, style, or fictitious name, other than those previously described to
you and set forth in the Financing Agreements.
(b) Changed the location of its chief executive office, changed its jurisdiction
of incorporation, changed its type of organization or changed the location of or
disposed of any of its properties or assets (other than pursuant to the sale of
Inventory in the ordinary course of its business or as otherwise permitted by
Section 9.7 of the Loan Agreement), or established any new asset locations.

 

C-1

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

 

(c) Materially changed the terms upon which it sells goods (including sales on
consignment) or provides services, nor has any vendor or trade supplier to any
Borrower or Guarantor during or at the end of such period materially adversely
changed the terms upon which it supplies goods to any Borrower or Guarantor.
(d) Permitted or suffered to exist any security interest in or liens on any of
its properties, whether real or personal, other than as specifically permitted
in the Financing Agreements.
(e) Received any notice of, or obtained knowledge of any of the following not
previously disclosed to Agent: (i) the occurrence of any event involving the
release, spill or discharge of any Hazardous Material in violation of applicable
Environmental Law in a material respect or (ii) any investigation, proceeding,
complaint, order, directive, claims, citation or notice with respect to: (A) any
non-compliance with or violation of any applicable Environmental Law by any
Borrower or Guarantor in any material respect or (B) the release, spill or
discharge of any Hazardous Material in violation of applicable Environmental Law
in a material respect or (C) the generation, use, storage, treatment,
transportation, manufacture, handling, production or disposal of any Hazardous
Materials in violation of applicable Environmental Laws in a material respect or
(D) any other environmental, health or safety matter, which has a material
adverse effect on any Borrower or Guarantor or its business, operations or
assets or any properties at which such Borrower or Guarantor transported, stored
or disposed of any Hazardous Materials.
(f) Become aware of, obtained knowledge of, or received notification of, any
breach or violation of any material covenant contained in any instrument or
agreement in respect of Indebtedness for money borrowed by any Borrower or
Guarantor.
5. Attached hereto as Schedule III are the calculations used in determining, as
of the end of the fiscal month ended                     , 20 _____, whether
Borrowers and Guarantors are in compliance with the covenants set forth in
Section 9.17 of the Loan Agreement for such fiscal month.
The foregoing certifications are made and delivered this day of
                    , 20_.

                      Very truly yours,    
 
                    IMAGE ENTERTAINMENT, INC.    
 
               
 
  By:                          
 
      Title:        
 
         
 
   

 

C-2

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SCHEDULE 1.41
Existing Letters of Credit
None

 

 

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

 

SCHEDULE 1.76
Permitted Holders
None

 

 

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

 

SCHEDULE 5.2(F)
Beneficial Letters of Credit
None

 

 

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

 

SCHEDULE 8.8
Environmental Compliance
None

 

 

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

 

SCHEDULE 8.13
Labor Disputes
None

 

 

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

 

SCHEDULE 8.15
Material Contracts

1.   Exclusive Distribution Agreement, dated as of August 1, 2005, by and
between the Company and The Criterion Collection.

2.   Co-Financing Agreement, dated as of June 13, 2003, by and between the
Company and Deluxe Global Media Services, LLC.

3.   Letter Agreement, dated as of November 9, 2005, by and between the Company
and Ron White, Inc., as amended on November 9, 2005 and August 2, 2006.

4.   Carrier Agreement, dated as of October 25, 2004, by and between the Company
and United Parcel Service Inc.

5.   Video and DVD Distribution Agreement, dated as of April 8, 2003, by and
between Home Vision Entertainment/Public Media, Inc., subsidiary of the Company,
and BBC Worldwide Americas Inc.

6.   Home Video License Agreement, dated as of August 17, 1999, by and between
Public Media, Inc., subsidiary of the Company, and BBC Worldwide Americas, Inc.,
as amended on October 8, 2001, March 19, 2002, and October 29, 2002.

7.   Home Video License Agreement, dated as of February 22, 2000, by and between
Public Media, Inc., subsidiary of the Company, and BBC Worldwide Americas, Inc.

8.   Home Video License Agreement, dated as of March 31, 1998, by and between
Public Media, Inc., subsidiary of the Company, and BBC Worldwide Americas Inc.,
as amended on April 23, 1999, May 25, 2000, and October 8, 2001.

9.   Video and DVD Distribution Agreement, dated as of November 11, 2004, by and
between Public Media, Inc., d/b/a Home Vision Entertainment, subsidiary of the
Company, and BBC Worldwide Americas Inc., as amended on May 10, 2005.

10.   Letter Agreement, dated as of May 27, 2004, by and between the Company and
Dark Horse Entertainment, as amended on September 17, 2004, October 21, 2004,
February 17, 2005, February 18, 2005, May 10, 2005, June 14, 2005, July 29,
2005, January 30, 2006, and February 3, 2006.

11.   Short Form License, dated as of March 14, 2006, by and between the Company
and Milwaukie Productions, LLC.

12.   Exclusive License Agreement, dated as of August 7, 2006, by and between
the Company and Yanni, Inc.

13.   Completion Guarantee Agreement, dated as of March 6, 2006, by and between
the Company and Film Finances Canada (1998) Ltd. (for production called
“Sisters”).

14.   Co-Financing/Co-Production Agreement, dated as of December 31, 2005, by
and between the Company and Sisters Wooster Inc.

15.   Standard Multi-Tenant Office Lease — Gross and Addendum, dated as of
January 7, 2004, by and between the Company and Amiscope Properties.

16.   Exclusive Distribution Agreement, dated as of December 5, 2005, by and
between the Company and Bandai Visual USA Inc.

17.   Assignment of The Twilight Zone, dated as of July 1, 1999, by and between
the Company CBS Video, CBS Enterprises and Matsushita Electric Corporation of
America, as amended on October 3, 2002 and August 31, 2004.

 

 

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

 

18.   Health Net PPO Group Insurance Policy for California employees, dated as
of August 1, 2004, by and between the Company and Health Net.

19.   Health Net PPO Group Insurance Policy for out-of-state employees, dated as
of August 1, 2004, by and between the Company and Health Net.

20.   Group Hospital and Professional Service Agreement, dated as of August 1,
2004, by and between the Company and Health Net.

21.   Letter Agreement, dated as of October 2, 2003, by and between the Company,
Git R Done Productions Inc. and Parallel Entertainment, Inc., as amended on
June 17, 2004.

22.   Exclusive Distribution & License Agreement, dated as of August 25, 2004,
by and between the Company and QD3 Entertainment.

23.   Exclusive Distribution & License Agreement, dated as of August 7, 2001, by
and between the Company and QD3 Entertainment, as amended on November 19, 2001,
July 14, 2002, October 2, 2002, October 30, 2002, April 17, 2003, August 14,
2003, October 22, 2003, December 19, 2003, May 11, 2004, August 2, 2004,
January 20, 2005, June 21, 2005, June 23, 2005, June 24, 2005, May 17, 2006 and
June 26, 2006.

24.   Exclusive Audio Distribution Agreement, dated as of July 16, 2002, by and
between the Company and QD3 Entertainment.

25.   Exclusive Distribution Agreement, dated as of November 2, 2005, by and
between the Company and QD3 Entertainment Inc.

26.   Exclusive Distribution Agreement, dated as of November 2, 2005, by and
between the Company and QD3 Entertainment Inc.

27.   Exclusive License Agreement, dated as of October 1, 2005, by and between
Playboy Entertainment Group, Inc.

28.   Replication Agreement, dated as of June 30, 2006, by and between the
Company and Sonopress LLC.

29.   Standard Industrial/Commercial Single-Tenant Lease, dated as of
November 4, 2002, by and between the Company and Spencer Street Investors, LLC.

30.   Home Video Distribution Agreement, dated as of September 1, 2006, by and
between the Company and Discovery Licensing, Inc.

31. Company Convertible Note.

32.   Stock Purchase Agreement, dated as of August 30, 2006, by and between the
Company and Portside Growth and Opportunity Fund.

33.   Registration Rights Agreement, dated as of August 30, 2006, by and between
the Company and Portside Growth and Opportunity Fund.

34. The Portside Warrant.

35.   Amendment and Exchange Agreement, dated as of November 10 , 2006, by and
between the Company and Portside Growth and Opportunity Fund.

36.   License and Distribution Agreement, dated as of June 12, 2006, by and
between the Company and NBC Universal Television Distribution.

37.   Letter Agreement, dated as of October 21, 2005, by and between the Company
and NBC Universal Television Distribution.

38.   Letter Agreement, dated as of May 10, 2006, by and between the Company,
Bass Productions, Ltd. and Zomba Recording, LLC.

39.   Exclusive Distribution Agreement, dated as of July 26, 2006, by and
between the Company and Plus 1 LLC.

 

 

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

 

40.   Exclusive Distribution Agreement, dated as of May 6, 2002, by and between
the Company and Producers Sales Organization, as amended on February 7, 2003 and
March 3, 2005. This agreement contains a key man clause which provides that if
Martin Greenwald is no longer employed by the Company, the distribution
agreement term is shortened to the earlier of May 5, 2010, or one year after
Martin Greenwald’s departure, plus a six month sell-off.

41.   Exclusive Output License Agreement, dated as of October 14, 2005, by and
between the Company and Clear Channel Entertainment Television Holdings, Inc.

42.   Exclusive License Agreement, dated as of December 7, 2005, by and between
the Company and On A Stick Productions.

43.   Exclusive License Agreement, dated as of August 8, 2006, by and between
the Company and Sofa Entertainment, Inc.

44.   Exclusive License Agreement, dated as of September 14, 2000, by and
between the Company and Delilah Films Inc.

45.   Exclusive License Agreement, dated as of May 29, 2002, by and between the
Company and Delilah Films Inc.

46.   License Agreement Term Sheet, dated as of August 16, 2004, by and between
the Company and Delilah Films Inc.

47.   Exclusive License Agreement, dated as of March 1, 2002, by and between the
Company and Delilah Films Inc.

48.   Exclusive Output Distribution Agreement, dated as of December 14, 2005, by
and between the Company and Bigger and Better Media, Ltd.

49.   License Agreement, dated as of July 20, 1999, by and between the Company,
Cable Entertainment Distribution Company, Inc. and General Media Entertainment,
Inc.

50.   Output License Agreement, dated as of June 1, 1999, by and between the
Company, Cable Entertainment Distribution Company, Inc. and General Media
Entertainment, Inc.

51.   Exclusive Output License Agreement, dated as of July 25, 2000, by and
between the Company and General Media Entertainment, Inc., as amended on
June 20, 2002.

52.   Statement of Work (replicating pricing), dated as of September 1, 2005, by
and between the Company and Sony DADC.

53.   DVD Replication Agreement, dated as of July 21, 2006, by and between the
Company and U-Tech Media USA.

54.   Property Insurance Policy No. TE-853, dated as of April 1, 2006, by and
between the Company and Affiliated FM Insurance Company, as brokered by Marsh
Risk and Insurance Services.

55.   Workers’ Compensation Insurance Policy No. N0030000279-01, dated as of
April 1, 2006, by and between the Company and Clarendon National Insurance
Company, as brokered by Marsh Risk and Insurance Services.

56.   Commercial Package General Liability and Crime Insurance Policy
No. 7954-9944, dated as of June 1, 2006, by and between the Company and Vigilant
Insurance Company, as brokered by Marsh Risk and Insurance Services.

57.   Automobile Liability and Physical Damage Insurance Policy No. 7954-9945,
dated as of June 1, 2006, by and between the Company and Federal Insurance
Company, as brokered by Marsh Risk and Insurance Services.

58.   Umbrella Liability Insurance Policy No. 7954-9946, dated as of June 1,
2006, by and between the Company and Federal Insurance Company, as brokered by
Marsh Risk and Insurance Services.

 

 

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

 

59.   Foreign Package Property, General Liability, Non-Owned Hired Auto,
Workers’ Compensation Insurance Policy No. PHFD36920014, dated as of June 1,
2006, by and between the Company and Ace American Insurance Company, as brokered
by Marsh Risk and Insurance Services.

60.   Errors & Omissions Media Liability Insurance Policy No. 9802-7717, dated
as of June 1, 2006, by and between the Company and Executive Risk, as brokered
by Marsh Risk and Insurance Services.

61.   Employed Lawyers Liability Insurance Policy No. 009655332, dated as of
November 15, 2006, by and between the Company and American International
Specialty Lines Insurance Company, as brokered by DLD Insurance Brokers, Inc.

62.   Directors and Officers Liability ($5 Million Primary) Insurance Policy
No. DONG23633036001, dated as of December 10, 2006, by and between the Company
and ACE American Insurance Company, as brokered by Arthur J. Gallagher and
Company and related Premium Finance Statement, Disclosure Statement and Security
Agreement.

63.   Directors and Officers Liability ($10 Million Excess $5 Million) Insurance
Policy No. 9658301, dated as of December 10, 2006, by and between the Company
and National Union Fire Insurance Company of Pennsylvania, as brokered by Arthur
J. Gallagher and Company and related Premium Finance Statement, Disclosure
Statement and Security Agreement.

64.   Directors and Officers Liability ($5 Million Excess $15 Million — Side A
DIC) Insurance Policy No. 00MM023728206, dated as of December 10, 2006, by and
between the Company and Hartford — Nutmeg Insurance Company, as brokered by
Arthur J. Gallagher and Company and related Premium Finance Statement,
Disclosure Statement and Security Agreement.

65.   Employment Practices Liability Insurance Policy No. EOC904491401, dated as
of December 10, 2006, by and between the Company and Zurich American Insurance
Company, as brokered by Arthur J. Gallagher and Company.

66.   Master Lease and Financing Agreement, dated as of January 2, 2004, by and
between the Company and Hewlett-Packard Financial Services Company, as amended
on January 13, 2004, June 29, 2006, July 24, 2006, and December 21, 2006.

67.   Exclusive Sublicense and Subdistribution Agreement, dated as of January 1,
2005, by and between the Company and Egami Media, Inc., the Company’s
subsidiary.

68.   Pricing memo, dated as of January 5, 2005, by and between the Company and
Shorewood Packaging, as amended January 20, 2005, February 15, 2006, July 13,
2006, and August 1, 2006.

69.   Freight pricing memos, dated as of July 2, 1999, February 15, 2001,
August 24, 2004 and February 1, 2006, by and between the Company and Senderex.

70.   Freight Pricing Memo, dated as of March 1, 2004, by and between the
Company and Pilot Air Freight.

 

 

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

 

SCHEDULE 9.9
Indebtedness
As of March 31, 2007
Image Entertainment, Inc.
Sonopress LLC
$9,541,559.50
Portside Growth and Opportunity Fund
$17,000,000.00
HP Financial Services
$277,493.06
Egami Media, Inc.
None
Image Entertainment (UK), Inc.
None
Home Vision Entertainment, Inc. (formerly Public Media, Inc.)
None

 

 

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

 

SCHEDULE 9.10(h)
Loans and Advances
None