Exhibit 10.2

 

[tlogo.jpg] AMENDED AND RESTATED
LOAN AND SECURITY
AGREEMENT POINT.360,
a California corporation,
as “Borrower”

 

This AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT(this “Agreement”), dated
as of July 13, 2016, is entered into between AUSTIN FINANCIAL SERVICES, INC., a
Delaware corporation (“Lender”), and POINT.360, a California Corporation
(“Borrower”).

 

Summit Financial Resources, L.P., a Hawaii limited partnership (“Assignor”) and
Borrower entered into that certain Agreement dated February 13, 2015, as amended
by that certain First Amendment to Agreement dated September 16, 2015, that
certain Second Amendment to Agreement dated March 28, 2016, and that certain
Third Amendment to Agreement dated April 13, 2016 (as amended, the “Summit Loan
and Security Agreement”), pursuant to which Assignor provided loans and other
financial accommodations to Borrower (the “Financing”).

 

Pursuant to that certain Assignment and Assumption of Financing and Financing
Documents dated July 13, 2016, among Assignor, Borrower and Lender (the
“Assignment Agreement”), Assignor assigned, transferred, and conveyed the
Financing, the Financing Documents (as defined in the Assignment Agreement), and
all of Assignor’s right, title, and interest therein, along with any and all of
Assignor’s claims, demands, actions, causes of action, damages, costs, expenses,
and other rights and interests of any nature whatsoever, whether known or
unknown, arising thereunder or related thereto, to Lender.

 

Borrower has requested that Lender continue to make available the Financing, and
Lender has agreed to do so as provided in this Agreement. This Agreement amends
and restates the Summit Loan and Security Agreement. All indebtedness
outstanding under the Summit Agreement is deemed outstanding under this
Agreement and no cancellation of the Summit Agreement shall be deemed to
evidence the discharge of the indebtedness thereunder.

 

Borrower and Lender desire for Lender to provide secured financing to Borrower
in an amount up to the Total Commitment. In consideration of the mutual promises
set forth in this Agreement, Borrower and Lender hereby agree as follows:

 

ARTICLE 1

 

DEFINED TERMS AND CONSTRUCTION

 

1.1         Defined Terms. All initially capitalized terms used in this
Agreement have the meanings given to such terms in Schedule A attached to this
Agreement and incorporated herein by reference.

 

1.2         UCC Terms. All non-initially capitalized terms used herein that are
defined in the UCC have the meanings given to such terms in the UCC.

 

1.3         Construction. Unless the context of this Agreement clearly requires
otherwise, references to the plural include the singular and to the singular
include the plural, references to any gender include any other gender, the part
includes the whole, the term including is not limiting, and the term or has,
except where otherwise indicated, the inclusive meaning represented by the
phrase and/or. The words hereof, herein, hereby, hereunder, and similar terms in
this Agreement refer to this Agreement as a whole and not to any particular
provision of this Agreement. Article, section, subsection, clause, exhibit and
schedule references are to this Agreement, unless otherwise specified. Any
reference in this Agreement or any of the Loan Documents to this Agreement or
any of the Loan Documents includes any and all permitted alterations,
amendments, changes, extensions, modifications, renewals, or supplements thereto
or thereof, as applicable.

 

 

 

 

1.4         Exhibits and Schedules. All of the exhibits and schedules attached
hereto shall be deemed incorporated herein by reference.

 

ARTICLE 2

 

LOAN FACILITIES

 

2.1         Revolving Advances.

 

(a)          Provided that no Default or Event of Default has occurred and is
continuing and subject to the terms and conditions of this Agreement, Lender
hereby agrees to make revolving Advances to Borrower from time to time up to but
not including the Final Maturity Date. The aggregate amount of Advances
outstanding after giving effect to any proposed new Advance shall not exceed the
lesser of (i) the Line of Credit Commitment, or (ii) the Borrowing Base.
Borrower may repay outstanding Advances and, subject to the terms and conditions
of this Agreement, any amounts so repaid may be reborrowed. On the Final
Maturity Date, Borrower shall pay to Lender the entire unpaid principal balance
of the Advances together with all accrued but unpaid interest thereon. The
Advances, and Borrower’s obligation to repay the same, shall be evidenced by
this Agreement and the books and records of Lender.

 

(b)          Borrower may request one or more Advances on any Business Day.
Concurrent with such request, Borrower shall provide to Lender a duly completed
and signed Daily Availability Report that supports the requested Advance amount.
Provided that the terms and conditions for the requested Advance have been met,
Lender will make the requested Advance available to Borrower on the Business Day
of request; provided that the request is received by 9:30 a.m., Pacific time,
and Borrower has provided to Lender a Daily Availability Report on a daily basis
for the prior 30 days. In all other cases, Lender will make the requested
Advance available to Borrower on the Business Day following the Business Day of
request; provided that the request is received by 12:00 p.m., Pacific time.

 

2.2         Overadvances. If, at any time or for any reason, the amount of
Advances outstanding exceeds the lesser of the Line of Credit Commitment or the
Borrowing Base (an “Overadvance”), Borrower shall immediately pay to Lender,
upon Lender’s election and demand, in cash, the amount of such Overadvance to be
used by Lender to repay outstanding Advances.

 

2.3         Reserved.

 

2.4         Reserved.

 

2.5         Reserved.

 

2.6         Fees. Borrower shall pay to Lender:

 

(a)          Facility Fee. An annual facility fee in the amount set forth in
Section 2.6(a) of Schedule B. Such annual facility fee shall be due and payable
in advance and fully earned by Lender on the date of the initial Advance and
each anniversary of the date of this Agreement.

 

(b)          Unused Line Fee. An unused line fee in an amount equal to the
Unused Line Fee Percentage times the difference between the (i) Line of Credit
Commitment and (ii) the sum of average outstanding Advances during the period
from the first day of the prior month to the date payment is due (the “Unused
Line Fee”). The Unused Line Fee shall be payable monthly in arrears on the first
day of each month and on the Final Maturity Date. The Unused Line Fee shall be
calculated on the basis of a year of 360 days for the actual days elapsed.

 

(c)          Collateral Exam Fees. In connection with any collateral exams,
audits or inspections conducted by or on behalf of Lender at the current rates
established from time to time by Lender as its collateral exam fees (which fees
are currently $850.00 per day per collateral examiner), together with all actual
out-of-pocket costs and expenses incurred in conducting any collateral
examination or inspection.

 

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(d)          Collateral Management Fees. A collateral management fee in an
amount equal to the percentage indicated Section 2.6(d) of Schedule B times the
average outstanding Loans during the prior month, due and payable monthly in
arrears on the first day of the month and on the Final Maturity Date.

 

(e)          Line of Credit Early Termination and/or Reduction Fees. If (i)
Lender terminates the Line of Credit Commitment after the occurrence and during
the continuance of an Event of Default, or if (ii) Borrower terminates the Line
of Credit Commitment pursuant to Section 9.2, or if (iii) Borrower fails to pay
the Obligations in full on the Final Maturity Date, or if (iv) Borrower and
Lender agree to reduce the Line of Credit Commitment without terminating this
Agreement, then Borrower shall pay Lender an early termination or reduction fee
in an amount equal to a percentage of the Line of Credit Commitment (or the
reduction of the Line of Credit Commitment, as the case may be) calculated as
set forth in Section 2.6(e) of Schedule B.

 

(f)          Overadvance Fees. An Overadvance fee in an amount of not less than
two percent (2%) of the average balance of any Overadvances that may exist
during any month, payable monthly in arrears; provided that Lender’s acceptance
of the payment of such fees shall not constitute either consent to the
Overadvance or waiver of the resulting Event of Default.

 

2.7         Interest; Interest Payments.

 

(a)          Interest Rate. Subject to the terms and conditions hereof, all
Loans shall bear interest at the Interest Rate.

 

(b)          Default Rate. Upon the occurrence and during the continuation of an
Event of Default, including Borrower’s breach of Section 9.3, Lender, at its
option, may, as permitted under applicable law, add any unpaid accrued interest,
Fees and Expenses to the principal balance of the Loans. Also, upon the
occurrence and during the continuation of an Event of Default, including
Borrower’s breach of Section 9.3, Lender, at its option, may, as permitted under
applicable law, increase the interest rate on the Loans to the Default Rate.

 

(c)          Minimum Interest. Notwithstanding the other terms of Section 2.7(a)
to the contrary, and except as limited by the usury savings provision of Section
2.7(f), Borrower shall pay Lender at least the Minimum Interest of interest each
calendar month during the term of this Agreement, and Borrower shall pay any
deficiency between the Minimum Interest and the amount of interest otherwise
payable on the first day of each month and on the Final Maturity Date. When
calculating this deficiency, the Default Rate shall be disregarded.

 

(d)          Clearance Days. Payments received by Lender shall be applied to the
Advances as provided in Section 2.8, but the principal amount paid down shall
continue to accrue interest through the end of the number of Business Day
indicated in Section 2.7(d) of Schedule B following the Business Day that the
payment was applied to the Advances.

 

(e)          Computation of Interest. All computations of interest shall be
calculated on the basis of a year of three hundred sixty (360) days for the
actual days elapsed. Interest on each Loan shall accrue from the date such Loan
is made to the date of repayment of such Loan in accordance with the provisions
of this Agreement, subject to Section 2.7(c); provided, however, if a Loan is
repaid on the same day on which it is made, then one (1) day’s interest shall be
paid on that Loan. Any and all interest not paid when due shall thereafter be
deemed to be an Advance made under Section 2.1 and shall bear interest
thereafter as provided for in Section 2.7(b).

 

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(f)          Interest Rate Floor; Maximum Interest Rate.

 

(i)          Under no circumstances shall the Interest Rate on the Advances ever
be less than the Minimum Interest Rate indicated in Section 2.7(f)(i) of
Schedule B; and

 

(ii)         Under no circumstances shall the interest rate and other charges
hereunder exceed the highest rate permissible under any law which a court of
competent jurisdiction shall, in a final determination, deem applicable hereto.
In the event that such a court determines that Lender has received interest and
other charges hereunder in excess of the highest rate applicable hereto, such
excess shall be deemed received on account of, and shall automatically be
applied to reduce the Obligations, other than interest, in the inverse order of
maturity, and the provisions hereof shall be deemed amended to provide for the
highest permissible rate. If there are no Obligations, Lender shall refund to
Borrower such excess.

 

(g)          Payments of Interest. All accrued but unpaid interest on the
Advances, calculated in accordance with this Section 2.7, shall be due and
payable, in arrears, on the first day of each month and on the Final Maturity
Date.

 

2.8         Collection Account and Application to Advances. On a daily basis,
Borrower shall deposit all payments received on the Accounts, and all other
proceeds of Collateral, into the Collection Account. Until deposited, Borrower
shall hold all such payments and proceeds in trust for Lender without
commingling with other funds or property. Lender will withdraw all monies
deposited to the Collection Account and pay down outstanding Advances on the
first Business Day following the Business Day of deposit to the Collection
Account, subject to Section 2.7(d).

 

2.9         Payments Due on Non Business Days. If any payment due hereunder
falls on a day that is not a Business Day, such payment shall be made on the
next Business Day, and interest shall continue to accrue during that time
period.

 

2.10       Monthly Statements. Lender shall render monthly statements to
Borrower, including statements of all principal and interest owing on the Loans,
and all Fees and Expenses owing, and such statements shall be presumed to be
correct and accurate and constitute an account stated between Borrower and
Lender, absent manifest error, unless, within thirty (30) days after receipt
thereof by Borrower, Borrower delivers to Lender written objection thereof
specifying the error or errors, if any, contained in any such statement.

 

2.11       Taxes on Payments. All payments in respect of the Obligations shall
be made free and clear of and without any deduction or withholding for or on
account of any present and future taxes, levies, imposts, deductions, charges,
withholdings, assessments or governmental charges, and all liabilities with
respect thereto, imposed by the United States of America, any foreign
government, or any political subdivision or taxing authority thereof or therein,
excluding any taxes imposed on Lender under the Internal Revenue Code or similar
state and local laws and determined by Lender’s net income, and any franchise
taxes imposed on Lender by any state (or any political subdivision thereof) (all
such non excluded taxes, levies, imposts, deductions, charges, withholdings,
assessments, charges and liabilities being hereinafter referred to as “Taxes”).
If any Taxes are imposed and required by law to be deducted or withheld from any
amount payable to Lender, then Borrower shall (i) increase the amount of such
payment so that Lender will receive a net amount (after deduction of all Taxes)
equal to the amount due hereunder, and (ii) pay such Taxes to the appropriate
taxing authority for the account of Lender prior to the date on which penalties
attach thereto or interest accrues thereon; provided, however, if any such
penalties or interest shall become due, Borrower shall make prompt payment
thereof to the appropriate taxing authority.

 

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ARTICLE 3

 

GRANT OF SECURITY INTEREST

 

3.1         Grant of Security Interest. Borrower hereby grants to Lender a
continuing security interest in all presently existing and hereafter acquired or
arising Collateral in order to secure the prompt payment and performance of all
of the Obligations. Borrower acknowledges and affirms that such security
interest in the Collateral has attached to all Collateral without further act on
the part of Lender or Borrower. Promptly following Lender’s request, Borrower
shall grant Lender a security interest in all commercial tort claims that it may
have against any Person.

 

3.2         Notifying Account Debtors; Collection of Collateral. Lender may at
any time (after the occurrence and during the continuance of an Event of
Default) give notice to Account Debtors or other Persons obligated to pay an
Account, a general intangible, or other amount due, that the Account, general
intangible, or other amount due has been assigned to Lender for security and
must be paid directly to Lender. Borrower shall join in giving such notice upon
Lender’s request. After Borrower or Lender gives such notice, Lender may, but
need not, in Lender’s or in Borrower’s name, demand, sue for, collect or receive
any money or property at any time payable or receivable on account of, or
securing, such Account, general intangible, or other amount due, or grant any
extension to, make any compromise or settlement with or otherwise agree to
waive, modify, amend or change the obligations (including collateral
obligations) of any Account Debtor or other obligor. Lender may at any time
(after the occurrence and during the continuance of an Event of Default), in
Lender’s name or in Borrower’s name, as Borrower’s agent and attorney-in-fact,
notify the United States Postal Service to change the address for delivery of
Borrower’s mail to any address designated by Lender, otherwise intercept
Borrower’s mail, and receive, open and dispose of Borrower’s mail, applying all
Collateral as permitted under this Agreement and holding all other mail for
Borrower’s account or forwarding such mail to Borrower’s last known address.

 

3.3         Further Assurances; Power of Attorney.

 

(a)          Borrower shall execute and deliver to Lender from time to time at
the reasonable request of Lender, all security agreements, chattel mortgages,
assignments, and all other documents that Lender may reasonably require, in form
reasonably satisfactory to Lender, to perfect and maintain perfected Lender’s
security interests in the Collateral. Borrower hereby irrevocably makes,
constitutes, and appoints Lender (and Lender’s officers, employees, or agents)
as Borrower’s true and lawful attorney with power to sign the name of Borrower
on any of the above described documents or on any other similar documents which
need to be executed, recorded, or filed, and to do any and all things necessary
in the name and on behalf of Borrower in order to perfect, or continue the
perfection of, Lender’s security interests in the Collateral. Borrower agrees
that neither Lender, nor any of its designees or attorneys-in-fact, will be
liable for any act of commission or omission, or for any error of judgment or
mistake of fact or law with respect to the exercise of the power of attorney
granted under this Section 3.3, other than as a result of its or their gross
negligence or willful misconduct. THE POWER OF ATTORNEY GRANTED UNDER THIS
SECTION 3.3 IS COUPLED WITH AN INTEREST AND SHALL BE IRREVOCABLE UNTIL THE
TERMINATION DATE.

 

(b)          Without limiting the generality of the foregoing Section 3.3(a) or
any of the provisions of this Agreement, Borrower shall appear in and defend any
action or proceeding which may affect Borrower’s title to, or the security
interest of Lender in, any of the Collateral.

 

(c)          With respect to the negotiable instruments among the Collateral
(other than drafts received in the ordinary course of business), Borrower shall,
immediately upon reasonable request by Lender, endorse (where appropriate) and
assign the negotiable instrument over to Lender, and deliver to Lender actual
physical possession of the negotiable instrument to Lender.

 

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(d)          Borrower shall deliver to Lender a duly executed control agreement
in form and substance reasonably satisfactory to Lender with respect to all of
its deposit accounts, electronic chattel paper, investment property, and letter
of credit rights.

 

(e)          Borrower shall promptly notify Lender of any commercial tort claims
it may bring against any Person, including the name and address of each
defendant, a summary of the facts, an estimate of damages, copies of any
complaint or demand letter submitted by Borrower, and in connection therewith,
Borrower and Lender shall enter into an amendment to this Agreement granting a
security interest to Lender in each such commercial tort claim to secure the
Obligations.

 

3.4         Insurance. Borrower shall maintain general liability and product
liability insurance with financially sound and reputable insurance companies or
associations in such amounts and covering such risks as are usually carried by
companies engaged in the same or a similar business and similarly situated. Such
policies shall provide for a minimum thirty (30) days written cancellation
notice to Lender. Upon request, policies or certificates attesting to such
coverage shall be delivered to Lender.

 

3.5         Borrower’s Premises.

 

(a)          [Reserved].

 

(b)          Lender’s Use of Borrower’s Premises. Lender may use all locations
where Borrower conducts its business, including all locations listed in Section
5.2 of Schedule C, or has any rights of possession (the “Premises”) to store,
process, manufacture, sell, use, and liquidate or otherwise dispose of items
that are Collateral, and for any other incidental purposes deemed appropriate by
Lender in good faith.

 

(c)          Borrower’s Obligation to Reimburse Lender. Lender shall not be
obligated to pay rent or other compensation for the possession or use of any
Premises, but if Lender elects to pay rent or other compensation to the owner of
any Premises in order to have access to the Premises, then Borrower shall
promptly reimburse Lender all such amounts, as well as all taxes, fees, charges
and other expenses at any time payable by Lender with respect to the Premises by
reason of the execution, delivery, recordation, performance or enforcement of
any terms of this Agreement.

 

(d)          Collateral Access Agreements. Upon Lender’s request, Borrower shall
promptly deliver to Lender a Collateral Access Agreement with respect to each of
its Premises, or any other locations where any Collateral is in the possession
of a third Person, duly executed by the owner or operator of such Premises or
other location, and otherwise in form and substance satisfactory to Lender.

 

3.6         License. Borrower hereby grants to Lender a non-exclusive, worldwide
and royalty-free license to use or otherwise exploit all intellectual property
of Borrower for the purpose of: (a) completing the manufacture of any in-process
materials so that such materials become saleable Inventory, all in accordance
with the same quality standards previously adopted by Borrower for its own
manufacturing and subject to Borrower’s reasonable exercise of quality control;
and (b) selling, leasing or otherwise disposing of any or all Collateral.

 

3.7         Financing Statements.

 

(a)          Authorization to File. Borrower authorizes Lender to file financing
statements describing Collateral to perfect Lender’s security interest in the
Collateral, and Lender may describe the Collateral as “all personal property” or
“all assets” or describe specific items of Collateral including without
limitation any commercial tort claims.

 

(b)          Termination. On the Termination Date Lender shall, at Borrower’s
expense, release or terminate any filings or other agreements that perfect
Lender’s security interest, upon Lender’s receipt of the following, in form and
content satisfactory to Lender: (i) a release of all claims against Lender by
Borrower relating to Lender’s performance and obligations under the Loan
Documents, and (ii) an agreement by Borrower, and any new lender to Borrower to
indemnify Lender for any payments received by Lender that are applied to the
Obligations as a final payoff that may subsequently be returned or otherwise not
paid for any reason.

 

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ARTICLE 4

 

EFFECTIVENESS OF AGREEMENT; CONDITIONS TO LOANS

 

4.1         Effectiveness of Agreement. This Agreement shall be effective when
it has been duly executed by Borrower and Lender, and accepted by Lender.

 

4.2         Conditions Precedent to All Loans. Lender’s obligation to make any
Loan (including the initial Loans) is subject to and contingent upon the
fulfillment of each of the following conditions to the satisfaction of Lender:
(a) the fact that, both immediately before and immediately after the making of
such Loan, no Default or Event of Default shall have occurred or be continuing;
and (b) the fact that the representations and warranties of Borrower contained
in this Agreement and the Loan Documents shall be true and correct on and as of
the date of making of such Loan, except to the extent that any such
representation or warranty expressly relates to an earlier date.

 

ARTICLE 5

 

REPRESENTATIONS AND WARRANTIES

 

In order to induce Lender to enter into this Agreement and to make Loans,
Borrower represents and warrants to Lender that on the Closing Date and on the
date of making of each Loan:

 

5.1         Legal Status. Borrower is the type of legal entity indicated in the
preamble to this Agreement, and is duly organized and existing under the laws of
the state indicated in Section 5.1 of Schedule C. Borrower has the power and
authority to own its own assets and to transact the business in which it is
engaged, and is properly licensed, qualified to do business and in good standing
in every jurisdiction in which it is doing business where failure to so qualify
could have a Material Adverse Effect. Borrower’s exact legal name, state of
incorporation, FEIN and charter or organizational identification number is as
indicated in Section 5.1 of Schedule C.

 

5.2         Locations of Borrower’s Books and Records, Collateral. The location
of Borrower’s chief executive office, books and records, and all other locations
where Borrower conducts business or Collateral is kept are set forth in Section
5.2 of Schedule C.

 

5.3         Trade Names and Trade Styles. All trade names and trade styles under
which Borrower presently conduct their business operations are set forth below,
and, except as set forth in Section 5.3 of Schedule C, Borrower has not, at any
time during the five years preceding the date of this Agreement: (i) been known
as or used any other corporate, trade or fictitious name; (ii) changed its name;
(iii) been the surviving or resulting corporation in a merger or consolidation;
or (iv) acquired through asset purchase or otherwise any business of any Person.

 

5.4         No Violation; Compliance. The execution, delivery and performance of
this Agreement and the Loan Documents to which Borrower is a party are within
Borrower’s powers, are not in conflict with the terms of the Governing Documents
of Borrower, and do not result in a breach of or constitute a default under any
contract, obligation, indenture or other instrument to which Borrower is a party
or by which Borrower is bound or affected, which breach or default could
reasonably be expected to have a Material Adverse Effect. There is no law, rule
or regulation (including Regulations T, U and X of the Federal Reserve Board),
nor is there any judgment, decree or order of any court or Governmental
Authority binding on Borrower which would be contravened by the execution,
delivery, performance or enforcement of this Agreement and the Loan Documents to
which Borrower is a party.

 

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5.5         Authorization; Enforceability. Borrower has taken all corporate,
partnership or limited liability company, as applicable, action necessary to
authorize the execution and delivery of this Agreement and the Loan Documents to
which Borrower is a party, and the consummation of the transactions contemplated
hereby and thereby. Upon their execution and delivery in accordance with the
terms hereof, this Agreement and the Loan Documents to which Borrower is a party
will constitute legal, valid and binding agreements and obligations of Borrower
enforceable against Borrower in accordance with their respective terms, except
as enforceability may be limited by bankruptcy, insolvency, and similar laws and
equitable principles affecting the enforcement of creditors’ rights generally.

 

5.6         Approvals; Consents. No approval, consent, exemption or other action
by, or notice to or filing with, any Governmental Authority is necessary in
connection with the execution, delivery, performance or enforcement of this
Agreement or the Loan Documents. All requisite Governmental Authorities and
third parties have approved or consented to the transactions contemplated by
this Agreement and the Loan Documents to the extent the failure to obtain such
approval or consent would reasonably be likely to have a Material Adverse
Effect, and all applicable waiting periods have expired and there is no
governmental or judicial action, actual or threatened, that has or could have a
reasonable likelihood of restraining, preventing or imposing burdensome
conditions on the transactions contemplated by this Agreement and/or the Loan
Documents.

 

5.7         Liens. Borrower has good and marketable title to, or valid leasehold
interests in, all of the Collateral, free and clear of all Liens or rights of
others, except for Permitted Liens. Borrower has rights in and the power to
transfer the Collateral.

 

5.8         Indebtedness. Borrower has no indebtedness other than the
Obligations and the indebtedness listed in Section 5.8 of Schedule C.

 

5.9         Financial Condition; No Adverse Change. Borrower has furnished to
Lender its financial statements indicated in Section 5.9 of Schedule B, and
those statements fairly present Borrower’s financial condition as of those dates
and the results of Borrower’s operations and cash flows for the periods then
ended and were prepared in accordance with GAAP. Since the date of the most
recent financial statements, there has been no Material Adverse Effect.

 

5.10       Litigation. Except as set forth in Section 5.10 of Schedule C, there
are no material suits, proceedings, claims or disputes pending or, to the
knowledge of Borrower, threatened, against or affecting Borrower or any of
Borrower’s assets which are not fully covered by applicable insurance and as to
which no reservation of rights has been taken by the insurer thereunder.

 

5.11       No Default. No Default or Event of Default has occurred and is
continuing or would result from the incurring of obligations by Borrower under
this Agreement or the Loan Documents.

 

5.12       Taxes. All tax returns required to be filed by Borrower in any
jurisdiction have in fact been filed, except for such tax returns where the
failure to file would not reasonably be expected to have a Material Adverse
Effect. All material taxes, assessments, fees and other governmental charges
upon Borrower or upon any of its assets, income or franchises, which are due and
payable have been paid, other than such taxes, assessments, fees and other
governmental charges being contested in good faith by appropriate proceedings,
and for which adequate reserves have been set aside with respect thereto as
required by GAAP and, by reason of such contest or nonpayment, no property is
subject to a material risk of loss or forfeiture. The provisions for taxes on
the books of Borrower are adequate for all open years, and for Borrower’s
current fiscal period.

 

5.13       Projections. Any forecasts of future financial performance delivered
by Borrower to Lender have been made in good faith and are based on reasonable
assumptions and investigations by Borrower.

 

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5.14       Other Obligations. Borrower is not in default on any (i) material
indebtedness or (ii) any other lease, commitment, contract, instrument or
obligation which is material to the operation of its business.

 

5.15       Patents, Trademarks, Copyrights, and Intellectual Property, etc.
Borrower has all necessary patents, patent rights, licenses, trademarks,
trademark rights, trade names, trade name rights, copyrights, permits, and
franchises in order for it to conduct its business and to operate its assets,
without known conflict with the rights of third Persons, and all of same are
valid and subsisting. The consummation of the transactions contemplated by this
Agreement will not alter or impair any of such rights of Borrower. Borrower has
not been charged or, to Borrower’s knowledge, threatened to be charged with any
infringement or, after due inquiry, infringed on any, unexpired trademark,
trademark registration, trade name, patent, copyright, copyright registration,
or other proprietary right of any Person.

 

5.16       Environmental Condition. Except as set forth in Section 5.16 of
Schedule C, to Borrower’s knowledge, (i) none of Borrower’s assets has ever been
used by Borrower by previous owners or operators in the disposal of, or to
produce, store, handle, treat, release, or transport, any Hazardous Materials,
except in compliance, in all material respects, with applicable laws; (ii) none
of Borrower’s assets has ever been designated or identified in any manner
pursuant to any environmental protection statute as a Hazardous Materials
disposal site, or a candidate for closure pursuant to any environmental
protection statute; (iii) no Lien arising under any environmental protection
statute has attached to any revenues or to any real or personal property owned
or operated by Borrower; and (iv) Borrower has not received a summons, citation,
notice, or directive from the Environmental Protection Agency or any other
federal or state governmental agency concerning any action or omission by
Borrower resulting in the releasing or disposing of Hazardous Materials into the
environment.

 

5.17       Solvency. Borrower is solvent. No transfer of property is being made
by Borrower and no obligation is being incurred by Borrower in connection with
the transactions contemplated by this Agreement or the Loan Documents with the
intent to hinder, delay, or defraud either present or future creditors of
Borrower.

 

5.18       Eligible Accounts. Each Account included in the Borrowing Base is an
“Eligible Account” as defined herein, and conforms to the definition thereof.
Without limiting the generality of the foregoing, (a) each Eligible Account
represents valid, binding and enforceable obligations of the Account Debtor
obligated thereon, except as enforceability may be limited by bankruptcy,
insolvency, and similar laws and equitable principles affecting the enforcement
of creditors’ rights generally, representing undisputed, bona fide transactions
completed in accordance with the terms and provisions contained in any documents
related thereto, and is and will be genuine, free from Liens (other than
Permitted Liens), adverse claims, counterclaims, setoffs, defaults, disputes,
defenses, retainages, holdbacks and conditions precedent of any kind of
character, (b) to Borrower’s knowledge, the Account Debtor is solvent and
generally paying its debts as they come due, (c) each Eligible Account complies
with all applicable laws concerning form, content and manner of preparation and
execution, including where applicable any federal and state consumer credit
laws, (d) Borrower has not assigned any of its rights to collect the Accounts
other than to Lender pursuant to this Agreement, (e) all statements made, all
unpaid balances and all other information in Borrower’s books and records and
other documentation relating to the Accounts are true and correct and what they
purport to be, (f) and Borrower has no knowledge of any fact or circumstance
which would materially impair the validity or collectability of any Eligible
Account.

 

5.19       [Reserved].

 

5.20       [Reserved].

 

5.21       Deposit Accounts. The names and addresses of all financial
institutions at which Borrower maintains its deposit accounts, and the account
numbers and account names of such deposit accounts, are set forth Section 5.21
of Schedule C.

 

 9 

 

 

5.22       Securities and Commodities Accounts. The names and addresses of all
brokerages at which Borrower maintains its securities and commodities accounts,
and the account numbers and account names of such accounts, are set forth in
Section 5.22 of Schedule C.

 

5.23       Security Interest. This Agreement creates a security interest which
is enforceable against the Collateral in which Borrower now has rights and will
create a security interest which is enforceable against the Collateral in which
Borrower hereafter acquires rights at the time Borrower acquires any such
rights, and (ii) Lender has a perfected security interest (to the fullest extent
perfection can be obtained by filing, possession or control) and a first
priority security interest in the Collateral in which Borrower now has rights
(subject only to Permitted Liens), and will have a perfected and first priority
security interest (to the fullest extent perfection can be obtained by filing,
possession or control) in the Collateral in which Borrower hereafter acquires
rights at the time Borrower acquires any such rights (subject only to Permitted
Liens), in each case securing the payment and performance of the Obligations.

 

5.24       Other Financing Statements. Other than financing statements in favor
of Lender and financing statements filed in connection with Permitted Liens, to
the knowledge of Borrower, no effective financing statement naming Borrower as
debtor, assignor, lessee, mortgagor, pledgor or the like and covering all or any
part of the Collateral is on file in any filing or recording office in any
jurisdiction.

 

ARTICLE 6

 

AFFIRMATIVE COVENANTS

 

Borrower covenants and agrees that from the Closing Date and thereafter until
the Termination Date, Borrower shall:

 

6.1         Punctual Payments. Punctually pay the interest and principal on the
Loans, the Fees and all Expenses and any other fees and liabilities due under
this Agreement and the Loan Documents at the times and place and in the manner
specified in this Agreement or the Loan Documents.

 

6.2         Books and Records. Keep complete and accurate books and records with
respect to the Collateral and Borrower’s business and financial condition and
any other matters that Lender may request, in accordance with GAAP, including
ledger and account cards and/or computer tapes and computer discs, computer
printouts and computer records pertaining to the Accounts which contain such
information as may from time to time be requested by Lender. Borrower shall keep
its books and records, at all times, at the premises location set forth in
Section 5.2 of Schedule C. Borrower shall permit any employee, attorney,
accountant or other agent of Lender to audit, review, make extracts from and
copy any of its books and records at any time during normal business hours, and
to discuss Borrower’s affairs with any of its directors, officers, employees,
owners or agents. If now or at any time hereafter during the term of this
Agreement, Borrower’s records are prepared or retained by a computer service
company or any accountant or accounting service, Borrower authorizes such
company or individual to deliver to Lender, and grants Lender the absolute and
irrevocable right to inspect, said records, receive duplicate copies of all
information furnished to Borrower and prepared by such company or individual,
and Borrower agrees to furnish such further consents as may be necessary to
effectuate same. Borrower further agrees to promptly notify Lender of the name
and address of any such company or individual and of any change of such company
or individual.

 

6.3         Financial Reports; Collateral Reporting. Furnish to Lender the
following in form and detail satisfactory to Lender:

 

(a)          as soon as available but in any event no later than Friday of each
week, and concurrent with each request for an Advance pursuant to Section 2.1, a
Daily Availability Report covering the period since the date of the last Daily
Availability Report delivered to Lender;

 

 10 

 

 

(b)          as soon as available but in any event no later than Friday of each
week for the prior seven days, daily schedules of sales made, credits issued,
and cash received and deposited with Lender;

 

(c)          as soon as available but in any event no later than 20 days after
the end of each month, or more frequently if required by Lender, (i) an accounts
receivable aging and accounts payable aging as of the end of such month and (ii)
a balance sheet for such month and a year to date income statement;

 

(d)          upon Lender’s request, copies of customer statements, purchase
orders, sales invoices, credit memos, remittance advices and reports, and copies
of deposit slips and bank statements, copies of shipping and delivery documents,
and copies of purchase orders, invoices and delivery documents for inventory;

 

(e)          as soon as available but in any event no later than 30 days after
the end of each month, all financial and operating statements as may be
requested from time to time by Lender for such month;

 

(f)          as soon as available but in any event no later than 120 days after
the end of each fiscal year of Borrower, if requested by Lender, financial and
operating statements for such fiscal year, audited by a Certified Public
Accountant selected by Borrower but acceptable to Lender, and of the type
indicated in Section 6.3(f) of Schedule B;

 

(g)          at such times as Lender may request, all information and
documentation relating to the Collateral certified by an authorized employee of
Borrower as to its accuracy, as Lender may request;

 

(h)          upon Lender’s request, no later than 30 days prior to each fiscal
year end, Borrower’s projected balance sheet and income statement, and statement
of retained earnings and cash flows, for each month of the next fiscal year,
certified as accurate by Borrower’s chief financial officer or like officer, and
accompanied by a statement of assumptions and supporting schedules and
information; and

 

(i)          as soon as available but in any event no later than 30 days after
filing, copies of Borrower’s federal income tax returns (including any Schedule
K-1s) or evidence of any extensions.

 

6.4         Location of Borrower’s Books and Other Collateral. Keep all of
Borrower’s books and records and other Collateral only at the locations set
forth in Section 5.2 of Schedule C.

 

6.5         Existence; Preservation of Licenses; Compliance With Laws. Preserve
and maintain its corporate existence and good standing in the state of its
organization, qualify and remain qualified as a foreign corporation in every
jurisdiction where the failure to be so qualified would reasonably be expected
to have a Material Adverse Effect; and preserve all of its licenses, permits,
governmental approvals, rights, privileges and franchises required for its
operations except where the failure to so preserve would not reasonably be
expected to have a Material Adverse Effect; and comply with the provisions of
its Governing Documents; and comply with the requirements of all applicable
laws, rules, regulations, orders of any Governmental Authority having authority
or jurisdiction over it except where the failure to so comply would not
reasonably be expected to have a Material Adverse Effect; and comply with all
requirements for the maintenance of its business, insurance, licenses, permits,
governmental approvals, rights, privileges and franchises except where the
failure to so comply would not reasonably be expected to have a Material Adverse
Effect.

 

6.6         Collateral Examinations; Inspections. Permit Lender’s employees,
accountants, attorneys or other Persons acting as its agent, to examine and
inspect any Collateral or any other property of Borrower at any time during
ordinary business hours.

 

 11 

 

 

6.7         Account Verification; Payment of Permitted Liens. Permit Lender or
its agents to (a) contact Account Debtors and other obligors at any time to
verify Borrower’s Accounts; and (b) require Borrower to send requests for
verification of Accounts or send notices of assignment of Accounts to Account
Debtors and other obligors. Borrower shall pay when due each account payable due
to any Person holding a Permitted Lien (as a result of such payable) on any
Collateral.

 

6.8         Payment of Taxes and Other Claims. Pay or discharge, when due, (a)
all taxes, assessments and governmental charges levied or imposed upon it or
upon its income or profits, upon any properties belonging to it (including
without limitation the Collateral) or upon or against the creation, perfection
or continuance of Lender’s security interest in the Collateral, prior to the
date on which penalties attach, (b) all federal, state and local taxes required
to be withheld by it, and (c) all lawful claims for labor, materials and
supplies which, if unpaid, might by law become a Lien upon any properties of
Borrower, although Borrower shall not be required to pay any such tax,
assessment, charge or claim whose amount, applicability or validity is being
contested in good faith by appropriate proceedings and for which proper reserves
have been made.

 

6.9         Maintenance of Collateral and Properties. Keep and maintain the
Collateral and all of its other properties necessary or useful in its business
in good condition, repair and working order (normal wear and tear excepted).
Borrower shall defend the Collateral against all Liens, claims and demands of
all third Persons claiming any interest in the Collateral. Borrower shall keep
all Collateral free and clear of all Liens except Permitted Liens.

 

6.10       Insurance. At all times maintain insurance with insurers acceptable
to Lender, in such amounts and on such terms (including deductibles) as Lender
in its sole discretion may require and including, as applicable and without
limitation, business interruption insurance (including force majeure coverage),
hazard coverage on an “all risks” basis for all tangible Collateral. Each policy
of insurance shall contain a clause requiring the insurer to give not less than
ten days’ written notice to Lender in the event of cancellation of the policy
for any reason whatsoever and a clause that the interest of the Lender shall not
be impaired or invalidated by any act or omission of Borrower or the owner of
the property nor by the occupation of the premises wherein such property is
located for purposes more hazardous than are permitted by said policy. If
Borrower fails to provide and pay for such insurance, Lender may procure the
same at Borrower’s expense, but shall not be required to do so. Borrower agrees
to deliver to Lender, promptly as rendered, true copies of all monthly reports
made to insurance companies.

 

6.11       Notice to Lender. Promptly, upon Borrower acquiring knowledge
thereof, give written notice to Lender of:

 

(a)          all litigation affecting Borrower where the amount in controversy
is in excess of $100,000, and thereafter an update on such litigation on a
quarterly basis;

 

(b)          any dispute which may exist between Borrower and any Governmental
Authority;

 

(c)          any labor controversy resulting in or threatening to result in a
strike against Borrower;

 

(d)          any proposal by any Governmental Authority to acquire the assets or
business of Borrower, or to compete with Borrower;

 

(e)          any Default or Event of Default; and

 

(f)          any other matter which has resulted or could reasonably be expected
to result in a Material Adverse Effect.

 

 12 

 

 

6.12       Delivery of Instruments, etc. Upon request by Lender, promptly
deliver to Lender in pledge all instruments, documents and chattel paper
constituting Collateral, endorsed or assigned by Borrower.

 

6.13       Environment. Be and remain, and cause each operator of any of
Borrower’s assets to be and remain, in compliance in all material respects with
the provisions of all federal, state and local environmental, health and safety
laws, codes and ordinances, and all rules and regulations issued thereunder;
notify Lender promptly of any notice of a hazardous discharge or environmental
complaint received from any Governmental Authority or any other Person; notify
Lender promptly of any material hazardous discharge from or affecting its
premises not in compliance in all material respects with applicable laws;
promptly contain and remove the same, in compliance in all material respects
with all applicable laws; promptly pay any fine or penalty assessed in
connection therewith other than such fines or penalties being contested in good
faith by appropriate proceedings, and for which adequate reserves have been set
aside with respect thereto as required by GAAP and, by reason of such contest or
nonpayment, no property is subject to a material risk of loss or forfeiture;
permit Lender to inspect the premises and to inspect all books, correspondence,
and records pertaining thereto; and at Lender’s reasonable request, and at
Borrower’s expense, provide a report of a qualified environmental engineer,
reasonably satisfactory in scope, form and content to Lender, and such other and
further assurances reasonably satisfactory to Lender that the condition has been
corrected.

 

6.14       Returns. Cause returns and allowances, as between Borrower and its
Account Debtors, to be on the same basis and in accordance with the usual
customary practices of Borrower, as they exist at the time of the execution and
delivery of this Agreement.

 

6.15       Bank Accounts. Maintain its cash on hand and cash equivalent
investments solely in deposit accounts held at the financial institutions listed
in Section 5.21 of Schedule C.

 

6.16       Attorney in Fact. To facilitate Lender’s performance or observance of
Borrower’s obligations under this Agreement, Borrower hereby irrevocably
appoints Lender and Lender’s agents, as Borrower’s attorney in fact (which
appointment is coupled with an interest) with the right (but not the duty) to
create, prepare, complete, execute, deliver, endorse or file on behalf of
Borrower any instruments, documents, assignments, security agreements, financing
statements, applications for insurance and any other agreements, instruments or
documents required to be obtained, executed, delivered or endorsed by Borrower
in accordance with the terms of this Agreement.

 

ARTICLE 7

 

NEGATIVE COVENANTS

 

Borrower covenants and agrees that from the Closing Date and thereafter until
the Termination Date, Borrower shall not:

 

7.1         Use of Proceeds of Loans; Margin Regulation.

 

(a)          Use any proceeds of the Loans for any purpose other than for
working capital and general corporate purposes; or

 

(b)          Use any portion of the proceeds of the Loans in any manner which
might cause the Loans, the application of the proceeds thereof, or the
transactions contemplated by this Agreement to violate Regulation T, U, or X of
the Board of Governors of the Federal Reserve System, or any other regulation of
such board, or to violate the Securities and Exchange Act of 1934, as amended or
supplemented.

 

7.2         Indebtedness. Create, incur, assume or suffer to exist any
indebtedness except the Obligations, and the indebtedness listed in Section 5.8
of Schedule C.

 

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7.3         Liens. Create, incur, assume or suffer to exist any Lien (including
the lien of an attachment, judgment or execution) on any of its assets, whether
now owned or hereafter acquired, except Permitted Liens; or authorize to file
under the UCC as adopted in any jurisdiction a financing statement which names
Borrower as a debtor, except with respect to Permitted Liens.

 

7.4         Merger, Consolidation, Transfer of Assets. Wind up, liquidate or
dissolve, reorganize, reincorporate, merge or consolidate with or into any other
Person, or acquire all or substantially all of the assets or the business of any
other Person unless approved by Lender.

 

7.5         Sales and Leasebacks. Sell, transfer, or otherwise dispose of any
real or personal property to any Person, and thereafter directly or indirectly
leaseback the same or similar property unless approved by Lender.

 

7.6         Asset Sales. Conduct any asset sale other than (a) sales or other
dispositions in the ordinary course of business of equipment that is
substantially worn, damaged, or obsolete or no longer useful, and (b) sales of
Inventory to buyers in the ordinary course of business.

 

7.7         Investments and Subsidiaries. Make or permit to exist any loans or
advances to, or make any investment or acquire any interest whatsoever in, any
Person, including without limitation any partnership or joint venture, nor
purchase or hold beneficially any stock or other securities or evidence of
indebtedness of any Person, except:

 

(a)          Investments in direct obligations of the United States of America
or any of its political subdivisions whose obligations constitute the full faith
and credit obligations of the United States of America and have a maturity of
one year or less, commercial paper issued by U.S. corporations rated “A 1” or “A
2” by Standard & Poor’s Ratings Services or “P 1” or “P 2” by Moody’s Investors
Service or certificates of deposit or bankers’ acceptances having a maturity of
one year or less issued by members of the Federal Reserve System having deposits
in excess of $100,000,000 (which certificates of deposit or bankers’ acceptances
are fully insured by the Federal Deposit Insurance Corporation);

 

(b)          Loans to Borrower’s officers and employees not exceeding at any one
time an aggregate of $50,000, or $10,000 for any single advance or loan;

 

(c)          Prepaid rent or security deposits; and

 

(d)          Current investments in Borrower’s subsidiaries in existence on the
date of this Agreement.

 

(e)          As permitted in Section 7.4 of this Agreement.

 

7.8         Character of Business. Engage in any business activities or
operations substantially different from or unrelated to its present business
activities and operations.

 

7.9         Dividends and Distributions.

 

(a)          Except as otherwise permitted in Sections 7.9(b), (c) and (d),
declare or pay any dividends (other than dividends payable solely in stock of
Borrower) on any class of its stock, or make any payment on account of the
purchase, redemption or retirement of any shares of its stock, or other
securities or evidence of its indebtedness or make any distribution regarding
its stock, either directly or indirectly.

 

(b)          If, and only if, Borrower is a “pass-through” tax entity for United
States federal income tax purposes, and after first providing such supporting
documentation as Lender may request (including the personal state and federal
tax returns (and all related schedules) of each owner of Borrower net of any
prior year loss carry-forward, Borrower may pay Tax Distributions.

 

 14 

 

 

(c)          Borrower may declare and pay cash dividends to its owners in an
amount not to exceed 50% of Borrower’s after-tax net income if, and only if, on
the date of any such payment, (1) no Default or Event of Default has occurred
and is continuing or will result from such payment, (2) both immediately before
and immediately after giving effect to such payment, availability under Section
2.1 is at least 10% of the lesser of (i) the Line of Credit Commitment, or (ii)
the Borrowing Base, and (3) all of Borrower’s accounts payable are paid within
60 days of terms.

 

(d)          Borrower may issue securities pursuant to shareholder approved
stock option plans.

 

7.10      [Reserved.]

 

7.11       Guaranty. Assume, guaranty, endorse (other than checks and drafts
received by Borrower in the ordinary course of business), or otherwise be or
become directly or contingently responsible or liable for the obligations of any
other Person; or pledge or hypothecate any of its Assets as security for any
liabilities or obligations of any other Person.

 

7.12       Transactions with Affiliates. Enter into any transaction, including
borrowing or lending and the purchase, sale, or exchange of property or the
rendering of any service (including management services), with any affiliate of
Borrower, other than in the ordinary course of and pursuant to the reasonable
requirements of Borrower’s business and upon fair and reasonable terms no less
favorable to Borrower than would obtain in a comparable arm’s length transaction
with a Person not an affiliate.

 

7.13       Accounting. Adopt any material change in accounting principles except
as permitted by GAAP, consistently applied. Borrower shall not change its fiscal
year.

 

7.14       Discounts, etc. After notice from Lender, not grant any discount,
credit or allowance to any customer of Borrower or accept any return of goods
sold. Borrower shall not at any time modify, amend, subordinate, cancel or
terminate any Account.

 

7.15       Constituent Documents; S Corporation Status; Change of Name. Not
amend its Governing Documents. Borrower shall not change its legal name or
change the state of its incorporation or formation. If Borrower is an S
Corporation, Borrower shall not change or rescind its status as an S
Corporation. If Borrower is not an S Corporation, Borrower shall not become an S
Corporation.

 

ARTICLE 8

 

EVENTS OF DEFAULT AND REMEDIES

 

8.1         Events of Default. The occurrence of any one or more of the
following events, acts or occurrences shall constitute an event of default (an
“Event of Default”) hereunder:

 

(a)          Borrower fails to pay when due any payment of principal or interest
due on the Loans, the Fees, any Expenses, or any other amount payable hereunder
or under any Loan Document;

 

(b)          Borrower fails to observe or perform any of the covenants and
agreements set forth in Section 6.3, or any Section within Article 7;

 

(c)          Borrower fails to observe or perform any covenant or agreement set
forth in this Agreement or the Loan Documents (other than those covenants and
agreements described in Sections 8.1(a) and 8.1(b)), and such failure continues
for five (5) days after the earlier to occur of (i) Borrower obtaining knowledge
of such failure or (ii) Lender’s dispatch of notice to Borrower of such failure;

 

(d)          Any representation, warranty or certification made by Borrower or
any officer or employee of Borrower or any Guarantor in this Agreement or any
Loan Document, in any certificate, financial statement or other document
delivered pursuant to this Agreement or any Loan Document proves to have been
misleading or untrue in any material respect when made or if any such
representation, warranty or certification is withdrawn;

 

 15 

 

 

(e)          Borrower fails to pay when due any payment in respect of its
indebtedness (other than under this Agreement);

 

(f)          Any event or condition occurs that: (i) results in the acceleration
of the maturity of any of Borrower’s indebtedness described in Section 8.1(e);
or (ii) permits (or, with the giving of notice or lapse of time or both, would
permit) the holder or holders of such indebtedness or any Person acting on
behalf of such holder or holders to accelerate the maturity thereof;

 

(g)          Borrower commences a voluntary Insolvency Proceeding seeking
liquidation, reorganization or other relief with respect to itself or its
indebtedness or seeking the appointment of a trustee, receiver, liquidator,
custodian or other similar official over it or any substantial part of its
property, or consents to any such relief or to the appointment of or taking
possession by any such official in an involuntary Insolvency Proceeding or fails
generally to pay its indebtedness as it becomes due, or takes any action to
authorize any of the foregoing;

 

(h)          An involuntary Insolvency Proceeding is commenced against Borrower
seeking liquidation, reorganization or other relief with respect to it or its
Debt or seeking the appointment of a trustee, receiver, liquidator, custodian or
other similar official of it or any substantial part of its property and any of
the following events occur: (i) the petition commencing the Insolvency
Proceeding is not timely controverted; (ii) the petition commencing the
Insolvency Proceeding is not dismissed within 30 calendar days of the date of
the filing thereof; (iii) an interim trustee is appointed to take possession of
all or a substantial portion of the assets of, or to operate all or any
substantial portion of the business of, Borrower; or (iv) an order for relief
shall have been issued or entered therein;

 

(i)          Borrower suffers (i) one or more money judgments over applicable
insurance coverage (including any reasonable deductible) or (ii) one or more
writs, warrants of attachment, or similar process;

 

(j)          A judgment creditor obtains possession of any of the assets of
Borrower;

 

(k)          Any order, judgment or decree is entered decreeing the dissolution
of Borrower Borrower is enjoined, restrained or in any way prevented by court
order from continuing to conduct all or any material part of its business
affairs;

 

(l)          A notice of lien, levy or assessment is filed of record with
respect to any or all of Borrower’s assets by any Governmental Authority, or any
taxes or debts owing at any time hereafter to any Governmental Authority becomes
a Lien, whether inchoate or otherwise, upon any or all of Borrower’s or any
Guarantor’s assets and the same is not paid on the payment date thereof;

 

(m)          Borrower makes any payment on account of any subordinated debt
except as otherwise permitted under the terms of any applicable subordination
agreement;

 

(n)          Any Change of Control occurs without Lender’s approval, which
approval will not be unreasonably withheld;

 

(o)          Any of the Loan Documents fails to be in full force and effect for
any reason, or Lender, fails to have a perfected, first priority Lien in and
upon all of the Collateral, or a breach, default or an event of default occurs
under any Loan Document;

 

 16 

 

 

(p)          Any loss, theft, substantial damage, destruction, or
misappropriation of any Collateral or other assets or property of Borrower that
is not fully covered (subject to applicable reasonable deductibles or
retentions) by insurance;

 

(q)          Any misappropriation, conversion, diversion or fraud as to Lender
or its interests;

 

(r)          Lender shall, at any time, deem itself insecure or unsafe or shall
fear diminution, removal or waste of the Collateral;

 

(s)          The indictment of Borrower by any governmental authority under any
criminal statute or the commencement of any civil proceedings by any
governmental authority against Borrower where the remedies sought or available
include the forfeiture of any property of Borrower; or

 

(t)          Any other Material Adverse Effect occurs.

 

8.2         Termination of Commitments; Acceleration. Upon the occurrence of any
Event of Default described in Section 8.1(g) or 8.1(h), Lender’s obligation
hereunder to make Loans to Borrower shall immediately terminate and the
Obligations shall become immediately due and payable without any election or
action on the part of Lender without presentment, demand, protest or notice of
any kind, all of which Borrower hereby expressly waives. Upon the occurrence and
continuance of any other Event of Default, either or both of the following
actions may be taken: (i) Lender may, without notice of its election and without
demand, immediately terminate its obligation to make Loans to Borrower; and (ii)
Lender may, without notice of its election and without demand, declare the
Obligations to be due and payable, whereupon the Obligations shall become
immediately due and payable, without presentment, demand, protest or notice of
any kind, all of which Borrower hereby expressly waives.

 

8.3         Rights Against Collateral. Upon the occurrence of any Event of
Default, Lender may, without notice or demand, do any one or more of the
following, all of which are authorized by Borrower, and all of which Borrower
agrees are commercially reasonable:

 

(a)          Lender may proceed directly against Borrower to collect the
Obligations without prior recourse to any of the Collateral.

 

(b)          Lender may require Borrower to assemble the Collateral and make it
available to Lender at a place to be designated by Lender which is reasonably
convenient to both parties, and Lender shall have the right to take immediate
possession of the Collateral and may enter any of the premises of Borrower or
wherever the Collateral shall be located with or without process of law wherever
the Collateral may be and to keep and store the same on said premises until
sold, and if said premises be the property of Borrower, Borrower agrees not to
charge Lender for storage thereof. Borrower and Lender agree that ten days’
notice to Borrower of any public or private sale or other disposition of
Collateral shall be reasonable notice thereof, and any such public sale shall be
at such location(s) as Lender shall designate in said notice. Lender shall have
the right to bid at any such public sale on its own behalf. Out of proceeds
arising from such sale, Lender shall retain all costs and charges, including
attorneys’ fees for advice, counsel or other legal services or for pursuing,
reclaiming, seeking to reclaim, taking, keeping, removing, storing and
advertising the Collateral for sale, selling and any and all other charges and
expenses in connection therewith and any prior liens thereon, and any balance
shall be applied upon the Obligations of Borrower to Lender. Borrower shall
remain liable to Lender for any deficiency. In the event of any surplus, such
surplus shall be paid to Borrower or such other person as may be legally
entitled thereto. If any of the Collateral is sold or leased by Lender upon
credit terms or for future delivery, the Obligations shall not be reduced as a
result thereof until payment in cash therefor is finally collected by Lender. In
the event Lender institutes an action to recover any Collateral or seeks
recovery of any Collateral by way of prejudgment remedy, Borrower waives the
posting of any bond which might otherwise be required.

 

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(c)          Lender may enforce Borrower’s rights against any Account Debtor,
secondary obligor or other obligor in respect of any of the Accounts. Without
limiting the generality of the foregoing, Lender may at such time or times, (i)
notify any or all Account Debtors, secondary obligors or other obligors in
respect thereof that the Accounts have been assigned to Lender and that Lender
has a security interest therein, and Lender may direct any or all Account
Debtors, secondary obligors and other obligors to make payment of the Accounts
directly to Lender, (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 Lender shall not be liable
for its 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 Lender may deem necessary or desirable for the protection of its
interests. At Lender’s request, all invoices and statements sent to any Account
Debtor shall state that the Accounts and such other obligations have been
assigned to Lender and are payable directly and only to Lender and Borrower
shall deliver to Lender such originals of documents evidencing the sale and
delivery of goods or the performance of services giving rise to any Accounts as
Lender may require. Lender shall not be required (i) to incur expenses 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.

 

(d)          Lender shall not be required (i) to incur expenses to prepare
Collateral for disposition, (ii) to obtain third party consents for access to
Collateral to be disposed of, or to obtain consents of any governmental
authority or other third party for the collection or disposition of Collateral
to be collected or disposed of, or (iii) to exercise collection remedies against
Account Debtors, secondary obligors or other persons obligated on Collateral or
to remove liens or encumbrances on any adverse claims against Collateral.

 

(e)          Lender may (i) exercise collection remedies against Account Debtors
and other persons obligated on Collateral directly or through the use of
collection agencies and other collection specialists, (ii) advertise
dispositions of Collateral through publications or media of general circulation,
whether or not the Collateral is of a specialized nature, (iii) contact other
persons, whether or not in the same business as Borrower for expressions of
interest in acquiring all or any portion of the Collateral, (iv) hire one or
more professional auctioneers to assist in the disposition of Collateral,
whether or not the collateral is of a specialized nature, (v) 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, (vi) dispose of assets in
wholesale rather than retail markets, (vii) disclaim any warranties of title or
like disposition warranties, (viii) purchase insurance or credit enhancements to
insure Lender against risks of loss, collection or disposition of Collateral or
to provide to Lender a guaranteed return from the collection or disposition of
Collateral, or (iv) to the extent deemed appropriate by Lender, obtain the
services of other brokers, investment bankers, consultants and other
professionals to assist Lender in the collection or disposition of any of the
Collateral.

 

(f)          For the purpose of enabling Lender to exercise the rights and
remedies hereunder, Borrower hereby grants to Lender, to the extent assignable,
an irrevocable, non-exclusive license 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 Borrower,
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)          All expenses of protecting, storing, warehousing, insuring,
handling and shipping the Collateral, any and all excise, property, sales and
use taxes imposed by any state, federal or local authority on any of the
Collateral or in respect of the sale thereof, shall be Expenses and if Borrower
fails to promptly pay any thereof when due, Lender may, as its option, but shall
not be required to, pay the same and charge Borrower’s account thereof.

 

 18 

 

 

(h)        Lender shall not be liable or responsible in any way for the
safekeeping of any of the Collateral or for any loss or damage thereto or for
any diminution in the value thereof, or for any act or default of any
warehouseman, carrier, forwarding agency or other person whomsoever, but the
same shall be at Borrower’s sole risk.

 

(i)          Lender may terminate the authority of Borrower to collect
Collateral, including without limitation Accounts, at any time whereupon Lender
is authorized, without further act, to notify any and all Account Debtors and
other obligors to make payment thereon directly to Lender, and to take
possession of all proceeds from the Collateral, and to take any action which
Borrower might or could take to collect the Collateral, including without
limitation the right to make any compromise, discharge, or extension. Upon
request of Lender, Borrower shall execute and deliver to Lender a notice to
Account Debtors and other obligors instructing such obligors to pay Lender.
Borrower further agrees to execute and deliver to Lender, all other notices and
similar documents requested by Lender to facilitate collection of the
Collateral. All costs of collection of the Collateral, if any, including,
without limitation, attorneys’ fees and legal expenses, shall be borne solely by
Borrower, whether such costs are incurred by or for Borrower or Lender. Borrower
agrees to deliver to Lender, if so requested, all books, records, and documents
in Borrower’s possession or under its control as may relate to the Collateral or
as may be helpful to facilitate such collection. Lender shall have no obligation
to cause an attorney’s demand letter to be sent, to file any lawsuit, or to take
any other legal action in collection of the Collateral. It is agreed that
collection of the Collateral in a commercially reasonable manner does not
require that any such legal action be taken.

 

(j)          Borrower does hereby make, constitute, and appoint Lender and its
designees as Borrower’s true and lawful attorney in fact, with full power of
substitution, such power to be exercised only upon an Event of Default and in
the following manner: (i) Lender may receive and open all mail addressed to
Borrower and remove therefrom any payments of the Collateral, if any; (ii)
Lender may cause mail relating to the Collateral to be delivered to a designated
address of Lender where Lender may open all such mail and remove therefrom any
payments of the Collateral; (iii) Lender may endorse Borrower’s name upon notes,
checks, acceptances, drafts, money orders, or other forms of payment of the
Collateral; (iv) Lender may settle or adjust disputes or claims in respect to
the Collateral for amounts and upon such terms as Lender, in its sole discretion
and in good faith, deems to be advisable, in such case crediting Borrower with
only the proceeds received and collected by Lender after deduction of Lender’s
costs, including, without limitation, reasonable attorneys’ fees and legal
expenses; and (v) Lender may do any and all other things necessary or proper to
carry out the intent of this Agreement and to perfect and protect the liens and
rights of Lender created under this Loan and Security Agreement. This power of
attorney is irrevocable and coupled with an interest.

 

(k)         Lender shall have all the rights and remedies available under the
UCC.

 

(l)          Lender shall have the right to enter upon any premises where the
Collateral or records relating thereto may be and take possession of the
Collateral and such records.

 

(m)        Upon request of Lender, Borrower shall, at the expense of Borrower,
assemble the Collateral and records relating thereto at a place designated by
Lender and tender the Collateral and such records to Lender.

 

(n)         Lender may sell, lease or otherwise dispose of any or all of the
Collateral and, after deducting the Liquidation Costs, apply the remainder to
pay, or to hold as a reserve against, the obligations secured by this Loan and
Security Agreement.

 

(o)         Lender may credit bid at any UCC, bankruptcy, trustee or other sale,
including, without limitation, any sale under Section 363 of the United States
Bankruptcy Code.

 

(p)         Borrower shall be liable for all deficiencies owing on any
obligations secured by this Agreement after liquidation of the Collateral.
Lender shall not have any obligation to clean-up or otherwise prepare any
Collateral for sale, lease, or other disposition.

 

 19 

 

 

8.4         Delinquent Taxes. Upon the occurrence of an Event of Default or upon
notification from any taxing authority, or if any notice is received by Lender
with respect to delinquent taxes outstanding, Borrower shall furnish Lender as
requested with proof satisfactory of Borrower’s making payment or deposit of
F.I.C.A. withholding and other taxes required of it by applicable law. Such
proof shall be furnished within five days after the due date for each such
payment or deposit. If Borrower fails to make any such payment or deposit when
due or furnish such proof when due, Lender may, in its sole discretion, and
without notice to Borrower (a) make payment of same or any part thereof, or (b)
set up such additional reserves in Borrower’s account as may be necessary to
satisfy the liability therefor. Each amount so paid or deposited by Lender shall
constitute an Advance under this Agreement. The setting up of a reserve for
making payment shall not constitute a waiver of any default under the terms of
this Agreement, nor shall Lender be obligated to make such payments or set up
reserves in the future.

 

8.5         Appointment of Receiver or Trustee. Borrower hereby irrevocably
agrees that Lender has the right under this Agreement, upon the occurrence of an
Event of Default, to seek the appointment of a receiver, trustee or similar
official over Borrower to effect the transactions contemplated by this
Agreement, and that Lender is entitled to seek such relief. Borrower hereby
irrevocably agrees not to object to such appointment on any grounds.

 

8.6         Remedies Cumulative. The rights and remedies of Lender herein and in
the Loan Documents are cumulative, and are not exclusive of any other rights,
powers, privileges, or remedies, now or hereafter existing, at law, in equity or
otherwise. The failure or delay of Lender to exercise or enforce any rights,
liens, powers or remedies hereunder or under any of the aforesaid agreements or
other document or security or collateral shall not operate as a waiver of such
liens, powers and remedies, but all such liens, rights, powers and remedies
shall continue in full force and effect until all loans and advances and all
other Obligations owing or to become owing from Borrower to Lender shall have
been fully satisfied, and all liens, rights, powers and remedies herein provided
are cumulative and none is exclusive. All acts by Lender or its designee are
hereby ratified and approved, and neither Lender nor its designee shall be
liable for any acts or omissions, nor for any error of judgment or mistake of
fact or law other than for gross negligence or willful misconduct by Lender.

 

ARTICLE 9

 

TERMINATION

 

9.1         Initial Maturity Date; Final Maturity Date. Except as provided in
Section 9.2, this Agreement shall continue in full force and effect until 12:00
p.m., Pacific time, on the Initial Maturity Date. Unless either Borrower or
Lender has sent to the other party a written notice, not less than 60 days prior
to the Initial Maturity Date, of such party’s intention to terminate this
Agreement on the Initial Maturity Date, this Agreement will continue in full
force and effect after the Initial Maturity Date on a year-to-year basis unless
and until either Borrower or Lender has sent to the other party a written
notice, not less than 60 days prior to the next anniversary of the Initial
Maturity Date, of such party’s intention to terminate this Agreement on such
anniversary of the Initial Maturity Date, in which event this Agreement shall
terminate on 12:00 p.m., Pacific time, on such anniversary of the Initial
Maturity Date. The Initial Maturity Date, or any applicable anniversary thereof
so designated by Borrower or Lender as the date this Agreement shall terminate,
or any date this Agreement is terminated pursuant to Section 9.2, is herein
referred to as the “Final Maturity Date”. Notwithstanding any such termination,
all of Lender’s rights and remedies hereunder and under the Loan Documents, at
law and at equity, Lender’s security interest in the Collateral granted by
Borrower hereunder and under the Loan Documents, and all of Borrower’s
obligations, agreements and covenants hereunder and under the Loan Documents,
shall continue in full force and effect until the Obligations have been paid in
full, in cash and Lender has terminated its UCC-1 financing statement. Borrower
further agrees that to the extent either Borrower or any Guarantor makes a
payment or payments to Lender, which payment or payments or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside
and/or required to be repaid to a trustee, receiver or any other party under any
bankruptcy act, state or federal law, common law or equitable cause, then, to
the extent of such payment or repayment, the obligation or part thereof intended
to be satisfied shall be revived and continue in full force and effect as if
said payment had not been made.

 

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9.2          Early Termination. Notwithstanding Section 9.1, either Borrower or
Lender may terminate this Agreement at any time upon sixty days’ prior written
notice. In the event of such termination by Borrower pursuant to this Section
9.2, or in the event of a termination by Lender following an Event of Default,
or in the event this Agreement is terminated in accordance with Section 9.1 but
Borrower fails to pay the Obligations in full on the Final Maturity Date,
Borrower shall pay to Lender the Early Termination Fee set forth in Section
2.6(e).

 

9.3          Obligations Due and Payable on Final Maturity Date. On the Final
Maturity Date Borrower shall pay to Lender the outstanding principal balance of
the Loans, all accrued but unpaid interest thereon, all Fees and Expenses, and
all other Obligations, in full, in cash.

 

9.4          Revival and Reinstatement of Obligations. If the incurrence or
payment of the Obligations by Borrower or the transfer to Lender of any property
should for any reason subsequently be asserted, or declared, to be void or
voidable under any state or federal law relating to creditors’ rights, including
provisions of the Bankruptcy Code relating to fraudulent conveyances,
preferences, or other voidable or recoverable payments of money or transfers of
property (each, a “Voidable Transfer”), and if Lender is required to repay or
restore, in whole or in part, any such Voidable Transfer, or elects to do so
upon the reasonable advice of its counsel, then, as to any such Voidable
Transfer, or the amount thereof that Lender is required or elects to repay or
restore, and as to all reasonable costs, expenses, and attorneys fees of Lender
related thereto, the liability of Borrower or Guarantors automatically shall be
revived, reinstated, and restored and shall exist as though such Voidable
Transfer had never been made.

 

ARTICLE 10

 

MISCELLANEOUS

 

10.1        Notices. All notices, requests and other communications to any party
hereunder shall be in writing (including facsimile transmission or similar
writing) and shall be given to such party at its address or facsimile number set
forth on the signature pages hereof or such other address or facsimile number as
such party may hereafter specify by notice to the other party in accordance with
this Section 10.1. Each such notice, request or other communication shall be
effective (a) if delivered in person, when delivered, (b) if delivered by
facsimile transmission, on the date of transmission if transmitted on a Business
Day before 4:00 p.m., Pacific time, otherwise on the next Business Day, (c) if
delivered electronically, upon receipt thereof by the recipient; (d) if
delivered by overnight courier, one Business Day after delivery to the courier
properly addressed, and (e) if mailed, upon the third Business Day after the
date deposited into the U.S. Mail, certified or registered; provided that actual
notice, however and from whomever given or received, shall always be effective
on receipt; provided further that notices sent by Lender in connection with
Lender’s exercise of its enforcement rights against any Collateral shall be
deemed given when deposited in the mail or personally delivered, or, where
permitted by law, transmitted by facsimile.

 

10.2       Expenses; Documentary Taxes; Indemnification.

 

(a)          Borrower shall pay all Expenses on demand.

 

(b)          Borrower shall pay all and indemnify Lender against any and all
transfer taxes, documentary taxes, assessments, or charges made by any
Governmental Authority and imposed by reason of the execution and delivery of
this Agreement, any of the Loan Documents, or any other document, instrument or
agreement entered into in connection herewith.

 

 21 

 

 

(c)          Borrower shall and hereby agrees to indemnify, protect, defend and
hold harmless Lender and its directors, officers, agents, employees and
attorneys (collectively, the “Indemnified Persons” and individually, an
“Indemnified Person”) from and against (i) any and all losses, claims, damages,
liabilities, deficiencies, judgments, costs and expenses (including reasonable
attorneys’ fees and reasonable attorneys’ fees incurred pursuant to Insolvency
Proceedings) incurred by any Indemnified Person (except to the extent that it is
finally judicially determined to have resulted from the gross negligence or
willful misconduct of any Indemnified Person) arising out of or by reason of any
litigations, investigations, claims or proceedings (whether administrative,
judicial or otherwise), including discovery, whether or not Lender is designated
a party thereto, which arise out of or are in any way related to (1) this
Agreement, the Loan Documents or the transactions contemplated hereby or
thereby, (2) any actual or proposed use by Borrower of the proceeds of the
Loans, or (3) Lender’s entering into this Agreement, the Loan Documents or any
other agreements and documents relating hereto; (ii) any such losses, claims,
damages, liabilities, deficiencies, judgments, costs and expenses arising out of
or by reason of the use, generation, manufacture, production, storage, release,
threatened release, discharge, disposal or presence on, under or about
Borrower’s operations or property or property leased by Borrower of any
material, substance or waste which is or becomes designated as Hazardous
Materials; (iii) any such losses, claims, damages, liabilities, deficiencies,
judgments, costs and expenses incurred in connection with any remedial or other
action taken by Borrower or Lender in connection with compliance by Borrower
with any federal, state or local environmental laws, acts, rules, regulations,
orders, directions, ordinances, criteria or guidelines (except to the extent
that it is finally judicially determined to have resulted from the gross
negligence or willful misconduct of any Indemnified Person). If and to the
extent that the obligations of Borrower hereunder are unenforceable for any
reason, Borrower hereby agrees to make the maximum contribution to the payment
and satisfaction of such obligations to Lender which is permissible under
applicable law.

 

(d)          Borrower’s obligations under this Section 10.2 shall survive the
Termination Date, and the payment in full of the Obligations, and are in
addition to, and not in substitution of, any other of its obligations set forth
in this Agreement.

 

10.3        Amendments and Waivers. Neither this Agreement nor any Loan
Document, nor any terms hereof or thereof may be amended, supplemented or
modified except in accordance with the provisions of this Section 10.3. Lender
may from time to time, (a) enter into with Borrower or any other Person written
amendments, supplements or modifications hereto and to the Loan Documents or (b)
waive, on such terms and conditions as Lender may specify in such instrument,
any of the requirements of this Agreement or the Loan Documents or any Event
Default and its consequences, if, but only if, such amendment, supplement,
modification or waiver is in writing and is signed by the party asserted to be
bound thereby, and then such amendment, supplement, modification or waiver shall
be effective only in the specific instance and specific purpose for which given.

 

10.4       Successors and Assigns; Participations; Disclosure.

 

(a)          This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns, except that
Borrower may not assign or transfer any of their rights or obligations under
this Agreement without the prior written consent of Lender and any such
prohibited assignment or transfer by Borrower shall be void.

 

(b)          Lender may, at its own expense, assign all or a portion of its
rights (including voting rights) and obligations under this Agreement and the
Loan Documents. In the event of any such assignment by Lender pursuant to this
Section 10.4(b), Lender’s obligations under this Agreement arising after the
effective date of such assignment shall be released and concurrently therewith,
transferred to and assumed by Lender’s assignee to the extent provided for in
the document evidencing such assignment.

 

(c)          Lender may at any time sell to one or more banks or other financial
institutions (each a “Participant”) participating interests in the Loans, and in
any other interest of Lender hereunder. In the event of any such sale by Lender
of a participating interest to a Participant, Lender’s obligations under this
Agreement shall remain unchanged, Lender shall remain solely responsible for the
performance thereof, and Borrower shall continue to deal solely and directly
with Lender in connection with Lender’s rights and obligations under this
Agreement. Borrower agrees that each Participant shall, to the extent provided
in its participation agreement, be entitled to the benefits of Section 2.11 with
respect to its participating interest.

 

 22 

 

 

(d)          Borrower authorizes Lender to disclose to any assignee under
Section 10.4(b) or any Participant (either, a “Transferee”) and any prospective
Transferee any and all financial information in Lender’s possession concerning
Borrower which has been delivered to Lender by Borrower pursuant to this
Agreement or which has been delivered to Lender by Borrower in connection with
Lender’s credit evaluation prior to entering into this Agreement.

 

10.5        Counterparts; Effectiveness; Integration. This Agreement may be
signed in any number of counterparts, each of which shall be an original, with
the same effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement shall be effective when executed by each of the
parties hereto. This Agreement constitutes the entire agreement and
understanding among the parties hereto and supersedes any and all prior
agreements and understandings, oral or written, relating to the subject matter
hereof.

 

10.6        Severability. The provisions of this Agreement are severable. The
invalidity, in whole or in part, of any provision of this Agreement shall not
affect the validity or enforceability of any other of its provisions. If one or
more provisions hereof shall be declared invalid or unenforceable, the remaining
provisions shall remain in full force and effect and shall be construed in the
broadest possible manner to effectuate the purposes hereof.

 

10.7        Additional Waivers.

 

(a)          Borrower agrees that checks and other instruments received by
Lender in payment or on account of the Obligations constitute only conditional
payment until such items are actually paid to Lender and Borrower waives the
right to direct the application of any and all payments at any time or times
hereafter received by Lender on account of the Obligations, and Borrower agrees
that Lender shall have the continuing exclusive right to apply and reapply such
payments in any manner as Lender may deem advisable, notwithstanding any entry
by Lender upon its books.

 

(b)          Borrower waives demand, protest, notice of protest, notice of
default or dishonor, notice of payment and nonpayment, notice of any default,
nonpayment at maturity, release, compromise, settlement, extension or renewal of
any or all commercial paper, accounts, documents, instruments, chattel paper,
and guarantees at any time held by Lender on which Borrower may in any way be
liable.

 

(c)          Lender shall not in any way or manner be liable or responsible for
(a) the safekeeping of Collateral; (b) any loss or damage thereto occurring or
arising in any manner or fashion from any cause; (c) any diminution in the value
thereof; or (d) any act or default of any carrier, warehouseman, bailee,
forwarding agency or other person whomsoever. All risk of loss, damage or
destruction of Inventory shall be borne by Borrower.

 

(d)          Borrower waives the right and the right to assert a confidential
relationship, if any, it may have with any accountant, accounting firm and/or
service bureau or consultant in connection with any information requested by
Lender pursuant to or in accordance with this Agreement, and agrees that an
Lender may contact directly any such accountants, accounting firm and/or service
bureau or consultant in order to obtain such information.

 

(e)          Borrower waives all rights to interpose any claims, deductions,
setoffs or counterclaims of any nature (other than 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.

 

10.8        Destruction of Borrower’s Documents. Any documents, schedules,
invoices or other papers delivered to Lender may be destroyed or otherwise
disposed of by Lender six months after they are delivered to or received by
Lender, unless Borrower requests, in writing, the return of the said documents,
schedules, invoices or other papers and makes arrangements, at Borrower’s
expense, for their return.

 

 23 

 

 

10.9       CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.

 

(a)          THE VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (UNLESS
EXPRESSLY PROVIDED TO THE CONTRARY IN ANOTHER LOAN DOCUMENT IN RESPECT OF SUCH
OTHER LOAN DOCUMENT), THE CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF
AND THEREOF, AND THE RIGHTS OF THE PARTIES HERETO AND THERETO WITH RESPECT TO
ALL MATTERS ARISING HEREUNDER OR THEREUNDER OR RELATED HERETO OR THERETO SHALL
BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL
LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD FOR PRINCIPLES OF CONFLICTS OF
LAWS.

 

(b)          THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN
CONNECTION WITH THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE TRIED AND
LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF LOS
ANGELES, STATE OF CALIFORNIA, PROVIDED, HOWEVER, THAT ANY SUIT SEEKING
ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT LENDER’S
OPTION, IN THE COURTS OF ANY JURISDICTION WHERE LENDER ELECTS TO BRING SUCH
ACTION OR WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. BORROWER AND
LENDER WAIVE, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY
HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE
EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 10.9(b).

 

(c)          BORROWER AND LENDER EACH HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A
JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS
AGREEMENT OR ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED
HEREIN OR THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY
CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. BORROWER AND LENDER
REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY
WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE
EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT
TO A TRIAL BY THE COURT.

 

10.10     Reference Provision. In the event the Jury Trial Waiver set forth
above is not enforceable, the parties elect to proceed under this Judicial
Reference Provision.

 

(a)          With the exception of the items specified in clause (b) below, any
controversy, dispute or claim (each, a “Claim”) between the parties arising out
of or relating to this Agreement or any other Loan Document will be resolved by
a reference proceeding in California in accordance with the provisions of
Sections 638 et seq. of the California Code of Civil Procedure (“CCP”), or their
successor sections, which shall constitute the exclusive remedy for the
resolution of any Claim, including whether the Claim is subject to the reference
proceeding. Except as otherwise provided in the Loan Documents, venue for the
reference proceeding will be in the state or federal court in the county or
district where the real property involved in the action, if any, is located or
in the state or federal court in the county or district where venue is otherwise
appropriate under applicable law (the “Court”).

 

(b)          The matters that shall not be subject to a reference are the
following: (i) nonjudicial foreclosure of any security interests in real or
personal property, (ii) exercise of self-help remedies (including, without
limitation, set-off), (iii) appointment of a receiver and (iv) temporary,
provisional or ancillary remedies (including, without limitation, writs of
attachment, writs of possession, temporary restraining orders or preliminary
injunctions). This reference provision does not limit the right of any party to
exercise or oppose any of the rights and remedies described in clauses (i) and
(ii) or to seek or oppose from a court of competent jurisdiction any of the
items described in clauses (iii) and (iv). The exercise of, or opposition to,
any of those items does not waive the right of any party to a reference pursuant
to this reference provision as provided herein.

 

 24 

 

 

(c)          The referee shall be a retired judge or justice selected by mutual
written agreement of the parties. If the parties do not agree within ten (10)
days of a written request to do so by any party, then, upon request of any
party, the referee shall be selected by the Presiding Judge of the Court (or his
or her representative). A request for appointment of a referee may be heard on
an ex parte or expedited basis, and the parties agree that irreparable harm
would result if ex parte relief is not granted. Pursuant to CCP § 170.6, each
party shall have one peremptory challenge to the referee selected by the
Presiding Judge of the Court (or his or her representative).

 

(d)          The parties agree that time is of the essence in conducting the
reference proceedings. Accordingly, the referee shall be requested, subject to
change in the time periods specified herein for good cause shown, to (i) set the
matter for a status and trial-setting conference within fifteen (15) days after
the date of selection of the referee, (ii) if practicable, try all issues of law
or fact within one hundred twenty (120) days after the date of the conference
and (iii) report a statement of decision within twenty (20) days after the
matter has been submitted for decision.

 

(e)          The referee will have power to expand or limit the amount and
duration of discovery. The referee may set or extend discovery deadlines or
cutoffs for good cause, including a party’s failure to provide requested
discovery for any reason whatsoever. Unless otherwise ordered based upon good
cause shown, no party shall be entitled to “priority” in conducting discovery,
depositions may be taken by either party upon seven (7) days written notice, and
all other discovery shall be responded to within fifteen (15) days after
service. All disputes relating to discovery which cannot be resolved by the
parties shall be submitted to the referee whose decision shall be final and
binding.

 

(f)          Except as expressly set forth herein, the referee shall determine
the manner in which the reference proceeding is conducted including the time and
place of hearings, the order of presentation of evidence, and all other
questions that arise with respect to the course of the reference proceeding. All
proceedings and hearings conducted before the referee, except for trial, shall
be conducted without a court reporter, except that when any party so requests, a
court reporter will be used at any hearing conducted before the referee, and the
referee will be provided a courtesy copy of the transcript. The party making
such a request shall have the obligation to arrange for and pay the court
reporter. Subject to the referee’s power to award costs to the prevailing party,
the parties will equally share the cost of the referee and the court reporter at
trial.

 

(g)          The referee shall be required to determine all issues in accordance
with existing case law and the statutory laws of the State of California. The
rules of evidence applicable to proceedings at law in the State of California
will be applicable to the reference proceeding. The referee shall be empowered
to enter equitable as well as legal relief, enter equitable orders that will be
binding on the parties and rule on any motion which would be authorized in a
court proceeding, including without limitation motions for summary judgment or
summary adjudication. The referee shall issue a decision at the close of the
reference proceeding which disposes of all claims of the parties that are the
subject of the reference. Pursuant to CCP § 644, such decision shall be entered
by the Court as a judgment or an order in the same manner as if the action had
been tried by the Court and any such decision will be final, binding and
conclusive. The parties reserve the right to appeal from the final judgment or
order or from any appealable decision or order entered by the referee. The
parties reserve the right to findings of fact, conclusions of laws, a written
statement of decision, and the right to move for a new trial or a different
judgment, which new trial, if granted, is also to be a reference proceeding
under this provision.

 

(h)          If the enabling legislation which provides for appointment of a
referee is repealed (and no successor statute is enacted), any dispute between
the parties that would otherwise be determined by reference procedure will be
resolved and determined by arbitration. The arbitration will be conducted by a
retired judge or justice, in accordance with the California Arbitration Act
§1280 through §1294.2 of the CCP as amended from time to time. The limitations
with respect to discovery set forth above shall apply to any such arbitration
proceeding.

 

 25 

 

 

(i)          THE PARTIES RECOGNIZE AND AGREE THAT ALL CONTROVERSIES, DISPUTES
AND CLAIMS RESOLVED UNDER THIS REFERENCE PROVISION WILL BE DECIDED BY A REFEREE
AND NOT BY A JURY. AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT)
WITH COUNSEL OF ITS, HIS OR HER OWN CHOICE, EACH PARTY KNOWINGLY AND
VOLUNTARILY, AND FOR THE MUTUAL BENEFIT OF ALL PARTIES, AGREES THAT THIS
REFERENCE PROVISION WILL APPLY TO ANY CONTROVERSY, DISPUTE OR CLAIM BETWEEN OR
AMONG THEM ARISING OUT OF OR IN ANY WAY RELATED TO, THIS AGREEMENT OR THE OTHER
LOAN DOCUMENTS.

 

10.11     Patriot Act Notification. Lender is subject to the USA Patriot Act,
Title III of Pub. L. 107-56, signed into law October 26, 2001 (the “Patriot
Act”) and hereby notifies Borrower that pursuant to the requirements of the
Patriot Act, Lender is required to obtain, verify and record information that
identifies Borrower, which information includes the names and addresses of
Borrower and other information that will allow Lender to identify Borrower in
accordance with the Patriot Act.

 

[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

 

 26 

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective authorized officers as of the day and year first
above written.

 

AUSTIN FINANCIAL SERVICES, INC.   POINT.360 a Delaware corporation  
a California corporation       By:   /s/ Donald Caskey   By:   /s/ Alan Steel
Name: Donald Caskey   Name: Alan R. Steel Its: Senior Vice President   Its:
Chief Financial Officer       Address for notices:   Address for notices:      
Austin Financial Services, Inc.   Point.360 11111 Santa Monica Blvd. Suite 900  
2701 Media Center Drive Los Angeles, CA 90025-9823   Los Angeles, CA  90065
Attn:  Donald Caskey   Attn:  Alan Steel Telephone:  (310) 444-7939  
Telephone: 323-987-9444 Facsimile:  (310) 444-7959   Facsimile:  818-847-2503

 

 S-1
Loan And Security Agreement 

 

 

Schedule A
TO
LOAN AND SECURITY AGREEMENT

 

DEFINED TERMS

 

 

Schedule A

 

 

 

[tlogo.jpg]

schedule a
to
AMENDED AND RESTATED
LOAN AND SECURITY
AGREEMENT

 

DEFINED TERMS

POINT.360,
a California corporation,
as “Borrower”

 

As used in the Amended and Restated Loan and Security Agreement to which this
Schedule A is attached, the following terms shall have the meanings indicated:

 

“Account” and “Account Debtor” are defined in the UCC.

 

“Accounts Advance Rate” is defined in Section 2.1 of Schedule B.

 

“Advance” means the revolving advances extended to Borrower by Lender pursuant
to Section 2.1.

 

“Assignment Agreement” is defined in the Recitals to the Agreement.

 

“Assignor” is defined in the Recitals to the Agreement.

 

“Bankruptcy Code” means the United States Bankruptcy Code (11 U.S.C. Sections
101 et seq.).

 

“Borrower” is defined in the Preamble.

 

“Borrowing Base” means the sum of: (a) up to the Accounts Advance Rate or such
lesser percentage of the Net Amount of Eligible Accounts as Lender in its sole
discretion may deem appropriate if it determines that there has been a Material
Adverse Effect; less a dilution reserve as determined by Lender in its sole
discretion, plus (b) the lesser of (i) up to the Inventory Advance Rate or such
lesser percentage of Eligible Inventory as Lender in its sole discretion may
deem appropriate if it determines that there has been a Material Adverse Effect,
or (ii) the Inventory Sublimit, minus (c) the Borrowing Base Reserve.

 

“Borrowing Base Reserve” means, as of any date of determination, an amount or a
percent of a specified category or item that Lender establishes in its sole
discretion from time to time to reduce availability under the Borrowing Base (a)
to reflect events, conditions, contingencies or risks which affect the assets,
business or prospects of Borrower, or the Collateral or its value, or the
enforceability, perfection or priority of Lender’s security interest in the
Collateral, as the term “Collateral” is defined in this Agreement, or (b) to
reflect Lender’s judgment that any collateral report or financial information
relating to Borrower and furnished to Lender may be incomplete, inaccurate or
misleading in any material respect.

 

“Business Day” means any day other than a Saturday, a Sunday, or a day on which
commercial banks in the City of Los Angeles, State of California, are authorized
or required by law or executive order or decree to close.

 

“Change of Control” means (a) if there shall be a sale or sales in the aggregate
of more than 49% of the issued and outstanding shares of capital stock or other
equity interests of Borrower held by Haig S. Bagerdjian (or related entity) and
his successors and his assigns, (b) any of the individuals performing the
functions of the Chief Executive Officer, President or Chief Financial Officer,
respectively, on the Closing Date shall cease for any reason to perform such
functions, whether by reason of death, disability, resignation, action by the
Board of Directors or shareholders of Borrower, or otherwise.

 

 1 

 

 

“Closing Date” means the date of the assignment of the Financing and the
“Financing Documents” (defined in the Assignment Agreement) by Assignor to
Lender pursuant to that certain Assignment Agreement.

 

“Collateral” means the following personal property of Borrower, wherever
located, now owned or existing or hereafter acquired or created, all additions
and accessions thereto, all replacements, insurance or condemnation proceeds,
all documents covering any of the Collateral, all leases of any of the
Collateral, all rents, revenues, issues, profits and proceeds arising from the
sale, lease, license, encumbrance, collection, or any other temporary or
permanent disposition of any of the Collateral or any interest therein, all
amendments, modifications, renewals, extensions, and replacements thereof, and
all products and proceeds thereof: (a) all lnventory; (b) all Accounts; (c) all
equipment, goods and motor vehicles (collectively, the "Equipment"); (d) all
general intangibles, including, without limitation, any and all patents,
trademarks and copyrights (registered or unregistered}, trade secrets, domain
names and addresses, and intellectual property licenses; (e) any and all
promissory notes and instruments payable to or owing to Borrower or held by
Borrower; any and all leases under which Borrower is the lessor; any and all
chattel paper in favor of, owing to, or held by Borrower, including, without
limitation, any and all conditional sale contracts or other sale agreements,
whether Borrower is the original party or the assignee; and any and all security
agreements, collateral and titles to motor vehicles which secure any of the
foregoing obligations; all deposit accounts, including, without limitation, all
interest, dividends or distributions accrued or to accrue thereon, whether or
not due; all investment property, including, without limitation, all interest,
dividends or distributions accrued or to accrue thereon, whether or not due, all
documents; all letter-of-credit rights; and all other Obligations; and (f) all
balances, deposits, debts or any other amounts or obligations of Lender owing to
Borrower, including, without limitation, any reserve, whether or not due.

 

“Collateral Access Agreement” means a landlord waiver, mortgagee waiver, bailee
letter, or acknowledgement agreement of any warehouseman, processor, lessor,
consignee, or other Person in possession of, having a Lien upon, or having
rights or interests in the Collateral, in each case, in form and substance
satisfactory to Lender.

 

“Collection Account” means Lender’s deposit account for purposes or receiving
payments from Borrower.

 

“Daily Availability Report” means Lender’s standard form of Daily Availability
Report.

 

“Default” means any condition or event which with the giving of notice or lapse
of time or both would, unless cured or waived, become an Event of Default.

 

“Default Rate” means the sum of the Interest Rate plus three (3.0) percentage
points.

 

“Dollars” and “$” means lawful currency of the United States of America.

 

“Eligible Accounts” means those Accounts created by Borrower in the ordinary
course of business, that arise out of Borrower’s sale of goods or rendition of
services, that strictly comply with each and all of the representations and
warranties respecting Accounts made by Borrower to Lender in this Agreement, and
that are and at all times continue to be acceptable to Lender in all respects;
provided, however, that standards of eligibility may be fixed and revised from
time to time by Lender in Lender’s sole and absolute discretion. In determining
the amount to be included, Eligible Accounts shall be calculated net of customer
deposits and unapplied cash remitted to Borrower. Eligible Accounts shall not
include the following:

 

(i)          Accounts that the Account Debtor has failed to pay within 90 days
of invoice date or Accounts with selling terms of more than 60 days;

 

 2 

 

 

(ii)         Accounts owed by an Account Debtor or its affiliates where 30% or
more of all Accounts owed by that Account Debtor (or its affiliates) are deemed
ineligible under clause (i) above;

 

(iii)        Accounts with respect to which the Account Debtor is an officer,
director, shareholder, employee, affiliate, or agent of Borrower;

 

(iv)        Accounts with respect to which goods are placed on consignment,
guaranteed sale, sale or return, sale on approval, bill and hold, or other terms
by reason of which the payment by the Account Debtor may be conditional;

 

(v)         Accounts that are not payable in Dollars or with respect to which
the Account Debtor: (i) does not maintain its chief executive office in the
United States or Canada, or (ii) is not organized under the laws of the United
States or any state thereof, or (iii) is the government of any foreign country
or sovereign state, or of any state, province, municipality, or other political
subdivision thereof, or of any department, agency, public corporation, or other
instrumentality thereof, unless (y) the Account is supported by an irrevocable
letter of credit satisfactory to Lender (as to form, substance, and issuer or
domestic confirming bank) that has been delivered to Lender and is directly
drawable by Lender;

 

(vi)        Accounts with respect to which the Account Debtor is either (i) the
United States or any department, agency, or instrumentality of the United States
(exclusive, however, of Accounts with respect to which Borrower has complied, to
the reasonable satisfaction of Lender, with the Assignment of Claims Act, 31 USC
§ 3727), or (ii) any state of the United States (exclusive, however, of (y)
Accounts owed by any state that does not have a statutory counterpart to the
Assignment of Claims Act, or (z) Accounts owed by any state that does have a
statutory counterpart to the Assignment of Claims Act as to which Borrower has
complied to Lender’s satisfaction);

 

(vii)       Accounts with respect to which the Account Debtor is a creditor of
Borrower, has or has asserted a right of setoff, has disputed its liability, or
has made any claim with respect to the Account, to the extent of such setoff,
dispute or claim;

 

(viii)      Accounts with respect to the Account Debtor whose total obligations
owing to Borrower exceed 30% of all Eligible Accounts (except as otherwise
provided in Section B of Schedule B), to the extent of the obligations owing by
such Account Debtor in excess of such percentage;

 

(ix)         Accounts with respect to which the Account Debtor is subject to an
Insolvency Proceeding, is not solvent, has gone out of business, or as to which
Borrower has received notice of an imminent Insolvency Proceeding or a material
impairment of the financial condition of such Account Debtor, or whose credit
standing is unacceptable to Lender;

 

(x)          Accounts the collection of which Lender, in its sole and absolute
discretion, believes to be doubtful by reason of the Account Debtor’s financial
condition;

 

(xi)         Accounts not supported by any written contract;

 

(xii)        Accounts which are in default or collection;

 

(xiii)       Accounts on C.O.D. terms;

 

(xiv)      Accounts with respect to which the goods giving rise to such Account
have not been shipped and billed to the Account Debtor, the services giving rise
to such Account have not been performed and accepted by the Account Debtor, or
the Account otherwise does not represent a final sale;

 

 3 

 

 

(xv)       Accounts that are not subject to a valid and perfected first priority
Lien in favor of Lender;

 

(xvi)      Accounts with respect to which the Account Debtor is located in the
states of New Jersey, Minnesota, Indiana, or West Virginia (or any other state
that requires a creditor to file a Business Activity Report or similar document
in order to bring suit or otherwise enforce its remedies against such Account
Debtor in the courts or through any judicial process of such state), unless
Borrower has qualified to do business in New Jersey, Minnesota, Indiana, West
Virginia, or such other states, or has filed a Notice of Business Activities
Report with the applicable division of taxation, the department of revenue, or
with such other state offices, as appropriate, for the then-current year, or is
exempt from such filing requirement;

 

(xvii)     Accounts that represent progress payments or other advance billings
that are due prior to the completion of performance by Borrower of the subject
contract for goods or services;

 

(xviii)    Accounts evidenced by chattel paper or an instrument (as such terms
are defined in the UCC) unless such chattel paper or instrument has been duly
assigned and delivered to Lender; and

 

(xix)       Any other Accounts that Lender in its sole discretion deems
ineligible.

 

“Event of Default” is defined in Section 8.1.

 

“Expenses” means (i) all reasonable expenses of Lender paid or incurred in
connection with their due diligence and investigation of Borrower, including
appraisal, filing, recording, documentation, publication and search fees and
other such expenses, and all reasonable attorneys’ fees and expenses (including
reasonable attorneys’ fees incurred pursuant to proceedings arising under the
Bankruptcy Code) incurred in connection with the structuring, negotiation,
drafting, preparation, execution and delivery of this Agreement, the Loan
Documents, and any and all other documents, instruments and agreements entered
into in connection herewith; (ii) all reasonable expenses of Lender, including
reasonable attorneys’ fees and expenses (including reasonable attorneys’ fees
incurred pursuant to proceedings arising under the Bankruptcy Code) paid or
incurred in connection with the negotiation, preparation, execution and delivery
of any waiver, forbearance, consent, amendment or addition to this Agreement or
any Loan Document, or the termination hereof and thereof; (iii) all costs or
reasonable expenses paid or advanced by Lender which are required to be paid by
Borrower under this Agreement or the Loan Documents, including taxes and
insurance premiums of every nature and kind of Lender; and (iv) if an Event of
Default occurs, all expenses paid or incurred by Lender, including reasonable
attorneys’ fees and expenses (including reasonable attorneys’ fees incurred
pursuant to proceedings arising under the Bankruptcy Code), costs of collection,
suit, arbitration, judicial reference and other enforcement proceedings, and any
other out-of-pocket expenses incurred in connection therewith or resulting
therefrom, whether or not suit is brought, (v) all reasonable expenses paid or
incurred by Lender or in connection with any refinancing or restructuring of the
Obligations, any of the Loan Documents, or any other document, instrument or
agreement entered into in connection herewith in the nature of a workout, (vi)
the reasonable costs and expenses incurred if Lender shall hire or pay someone
else to help enforce this Agreement and/or the Loan Documents; and (vii) all
court costs and such additional fees as may be directed by the court.

 

“Fees” means the various fees owing by Borrower to Lender set forth in
Section 2.6.

 

“Financing” is defined in the Recitals to the Agreement.

 

 4 

 

 

“Final Maturity Date” is defined in Section 9.1.

 

“GAAP” means generally accepted accounting principles in the United States of
America, consistently applied, which are in effect as of the date of this
Agreement.

 

“Governing Documents” means the certificate or articles or certificate of
incorporation, by-laws, articles or certificate of organization, operating
agreement, or other organizational or governing documents of any Person.

 

“Governmental Authority” means any federal, state, local or other governmental
department, commission, board, bureau, agency, central bank, court, tribunal or
other instrumentality or authority or subdivision thereof, domestic or foreign,
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.

 

“Initial Maturity Date” is defined in Section 9.1 of Schedule B.

 

“Insolvency Proceeding” means any proceeding commenced by or against any Person,
under any provision of the Bankruptcy Code, or under any other bankruptcy or
insolvency law, including, but not limited to, assignments for the benefit of
creditors, formal or informal moratoriums, compositions, or extensions with some
or all creditors.

 

“Interest Rate” is defined in Section 2.7(a) of Schedule B.

 

“Inventory” is defined in the UCC.

 

“Lender” is defined in the Preamble.

 

“Lien” means any mortgage, deed of trust, pledge, security interest,
hypothecation, assignment, deposit arrangement or other preferential
arrangement, charge or encumbrance (including, any conditional sale or other
title retention agreement, or finance lease) of any kind.

 

“Line of Credit Commitment” is defined in Section 2.1 of Schedule B.

 

“Loans” means the Advances and any other loans or extensions of credit that
Lender, in its sole discretion, may determine to provide to Borrower (each, a
“Loan”).

 

“Loan Documents” means this Agreement, any Guarantees, together with every other
agreement, note, document, contract or instrument to which Borrower now or in
the future may be a party and which may be required by Lender in connection
with, or as a condition to, the execution of this Agreement.

 

“Material Adverse Effect” means a material adverse effect on (i) the business,
Assets, condition (financial or otherwise), or results of operations of
Borrower; (ii) the ability of Borrower to perform its obligations under this
Agreement and the Loan Documents to which it is a party (including, without
limitation, repayment of the Obligations as they come due), or the ability of
any Guarantor to perform its obligations under the Loan Documents to which it is
a party, (iii) the validity or enforceability of this Agreement, the Loan
Documents, or the rights or remedies of Lender hereunder and thereunder, (iv)
the value of the Collateral, or (v) the priority of Lender’s Liens in the
Collateral.

 

“Minimum Interest” is defined in Section 2.7(c) of Schedule B.

 

“Minimum Interest Rate” is defined in Section 2.7(f) of Schedule B.

 

“Net Amount of Eligible Accounts” means the gross amount of the Eligible
Accounts less returns, discounts, credits or offsets of any nature.

 

 5 

 

 

“Obligations” means any and all indebtedness, liabilities, and obligations of
Borrower owing to Lender, and to its successors and assigns, previously, now, or
hereafter incurred, and howsoever evidenced, whether direct or indirect,
absolute or contingent, joint or several, liquidated or unliquidated, voluntary
or involuntary, due or not due, legal or equitable, whether incurred before,
during, or after any Insolvency Proceeding and whether recovery thereof is or
becomes barred by a statute of limitations or is or becomes otherwise
unenforceable or unallowable as claims in any Insolvency Proceeding, together
with all interest thereupon (including interest accruing at the Default Rate)
and including any interest that, but for the provisions of the Bankruptcy Code,
would have accrued during the pendency of an Insolvency Proceeding. The
Obligations shall include, without limiting the generality of the foregoing, all
principal and interest and other payment obligations owing under the Loans, all
Expenses, the Fees, any other fees and expenses due hereunder and under the Loan
Documents (including any fees or expenses that, but for the provisions of the
Bankruptcy Code, would have accrued during the pendency of an Insolvency
Proceeding), and all other indebtedness evidenced by this Agreement and/or the
Loan Documents.

 

“Overadvance” is defined in Section 2.2.

 

“Owner” means each Person having legal or beneficial title to an ownership
interest in Borrower, or a right to acquire such an interest.

 

“Permitted Liens” means (i) Liens for current taxes, assessments or other
governmental charges which are not delinquent or remain payable without any
penalty, or are being contested in good faith by appropriate proceedings,
provided that, if delinquent, adequate reserves have been set aside with respect
thereto as required by GAAP and, by reason of nonpayment, no property is subject
to a material risk of loss or forfeiture; (ii) Liens in favor of Lender, in
accordance with the Loan Documents, (iii) statutory Liens, such as inchoate
mechanics’, inchoate materialmen’s, landlord’s, warehousemen’s, and carriers’
liens, and other similar liens, other than those described in clause (i) above,
arising in the ordinary course of business with respect to obligations which are
not delinquent or are being contested in good faith by appropriate proceedings,
provided that, if delinquent, adequate reserves have been set aside with respect
thereto as required by GAAP and, by reason of nonpayment, no property is subject
to a material risk of loss or forfeiture, (iv) a Lien in favor of Bank of the
West on Collateral consisting of certain real property located at 1133 and 1122
N. Hollywood Way, Burbank CA 91505, (v) a Lien in favor of Medley Capital
Corporation and Medley Opportunity Fund II, LP pursuant to that Term Loan
Agreement dated as of July 8, 2015, and (vi) Liens pursuant to certain capital
lease financing agreements relating to specific equipment not financed, in whole
or in part, by funds loaned or provided by Lender.

 

“Person” means and includes natural persons, corporations, limited partnerships,
general partnerships, limited liability companies, limited liability
partnerships, joint stock companies, joint ventures, associations, companies,
trusts, banks, trust companies, land trusts, business trusts, or other
organizations, irrespective of whether they are legal entities, and governments
and agencies and political subdivisions thereof.

 

“Premises” is defined in Section 3.5(a).

 

“Prime Rate” means that variable interest rate which is subject to change from
time to time based upon changes in the independent index which is the Prime Rate
as published in the Money Rates Section of the Western Edition of the Wall
Street Journal (the “Index”). The Index is not necessarily the lowest rate
charged by Lender on its commercial loans. If the Index becomes unavailable
during the term of this loan, Lender may designate a substitute index after
notice to Borrower. Lender will advise Borrower of the current Index rate upon
request. The Prime Rate shall be rounded to the closest ¼th of 1% with no
adjustments to be made in the rate for changes of less than ¼th of 1%. All
adjustments will be made on the last day of each month based on the highest
Prime Rate announced at any time during that month.

 

 6 

 

 

“Summit Loan and Security Agreement” is defined in the Recitals to the
Agreement.

 

“Tax Distributions” means distributions declared and paid by Borrower to its
Owners, or which could have been declared and paid by Company, in an amount not
to exceed the lesser of 40% of Company’s Pre-Tax Distribution Net Income,
determined as at the end of each fiscal year of Company, or the Pass-Through Tax
Liabilities.

 

“Termination Date” means the date when this Agreement has been terminated and
Lender has received the payment, performance and satisfaction in full in cash of
the Obligations.

 

“Total Commitment” is defined in Section A of Schedule B.

 

“UCC” means the California Uniform Commercial Code, as amended or supplemented
from time to time.

 

“Unused Line Fee” is defined in Section 2.6(b).

 

“Unused Line Fee Percentage” is defined in Section 2.6(b) of Schedule B.

 

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Schedule B
TO
LOAN AND SECURITY AGREEMENT

 

CERTAIN CREDIT TERMS

 

 

Schedule B

 

 

 

[tlogo.jpg]

schedule B
to
AMENDED AND RESTATED
LOAN AND SECURITY
AGREEMENT

 

CERTAIN CREDIT TERMS

POINT.360,
a California corporation,
as “Borrower”

 

Amended and Restated Loan and
Security Agreement Section

 

Credit Terms Section A – Total Commitment

$4,000,000

 

Section B – Exceptions to Concentration Limit:

Concentration limits for certain Account Debtors:

(a) Disney: 50%

(b) Warner Bros.: 50%

(c) Twentieth Century Fox: 50%

Section 2.1 – Line of Credit Commitment:

$4,000,000.00

 

Section 2.1 – Accounts Advance Rate:

80% of Eligible Accounts Receivable

 

Section 2.6(a) – Annual Facility Fee:

An amount equal to one-half percent (0.50%) of the Line of Credit Commitment as
of the Closing Date;

 

One-half percent (0.50%) of the Line of Credit Commitment upon renewal at the
first anniversary date after the Closing Date; and

 

Four-tenths of one percent (0.40%) of the Line of Credit Commitment upon renewal
at the second anniversary date after the Closing Date and each anniversary date
thereafter.

 

Section 2.6(b) – Unused Line Fee Percentage:

 

0.00%

Section 2.6(d) – Collateral Management Fee Percentage:

 

Forty-two hundredths of one percent (0.42%) Section 2.6(e) – Line of Credit
Termination and/or Reduction Fees:

Two percent (2.00%) if the termination or reduction occurs on or before the
first anniversary of the Closing Date;

 

One percent (1.00%) if the termination or reduction occurs after the first
anniversary of the Closing Date, but on or before the second anniversary of the
Closing Date; and

 

The lesser of (i) One-half percent (0.50%) or (ii) the product of the number of
months remaining prior to the Final Maturity Date multiplied by the minimum
monthly charge.

 

Section 2.7(a) – Interest Rate: 

 

The Interest Rate for all Advances shall be the sum of the Prime Rate plus one
percent (1.0%).

 

 

1 

 

 

Amended and Restated Loan and
Security Agreement Section

 

Credit Terms

Section 2.7(c) – Minimum Interest:

 

$3,000.00, inclusive of interest and fees earned on the Line of Credit.

 

Section 2.7(d) – Clearance Days:

 

Four (4) Business Days

Section 2.7(f)(i) – Minimum Interest Rate for Advances:

 

Four and one-half percent (4.50%) per annum

 

Section 5.9 Financial Statements Delivered at Closing:

Audited financial statements for its fiscal year ended June 30, 2015, and
Borrower prepared financial statements for the fiscal-year-to-date period ended
March 31, 2016.

 

Section 6.3(f) – Annual Financial Statements:

Audited

 

Section 9.1 – Initial Maturity Date:

July 13, 2019

 

 

 

2 

 

 

Schedule C
TO
LOAN AND SECURITY AGREEMENT

 

DISCLOSURE SCHEDULE

 

 

Schedule C

 

 

 

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schedule C
to
LOAN AND SECURITY
AGREEMENT

 

DISCLOSURE SCHEDULE

POINT.360,
a California corporation,
as “Borrower

 

Section 5.1 – Legal Status:

 

Borrower’s Exact
Legal Name

Jurisdiction of
Organization or Formation

 

Organizational
Identification
Number

 

FEIN Point.360 CA 2967825 01-0893376

 

Section 5.2 – Locations of Chief Executive Office, Books and Records,
Collateral:

 

Location of Borrower’s Chief
Executive Office Location of Books and
Records

Other Locations Where
Collateral is Kept

 

2701 Media Center Drive, Los Angeles, CA 90065 2701 Media Center Drive, Los
Angeles, CA 90065     1133 N. Hollywood Way, Burbank, CA 91505     2300 Empire
Avenue, Burbank, CA 91505  

 

Section 5.3 – Trade Names; Trade Styles:

 

Trade Names, Fictitious Business Names

Point.360

Digital Film Labs

Visual Sound Closed Captioning Services, Inc.

Eden FX

Movie >Q

International Video Conversions, Inc.

DVDs on the Run, Inc.

Modern VideoFilm

 

Section 5.8 – Indebtedness:

 

Other Indebtedness (a) a debt owed to Bank of the West in the principal amount
of $4,716,800, secured by a Lien on Collateral consisting of certain real
property located at 1133 and 1122 N. Hollywood Way, Burbank, CA 91505 (b) a debt
not to exceed the sum of a principal amount of $6,000,000.00 and PIK owed to
Medley Capital Corporation and Medley Opportunity Fund II, LP pursuant to that
Term Loan Agreement dated as of July 8, 2015 (c) certain debt pursuant to
certain capital lease financing agreements relating to leases of or secured by
liens encumbering specific equipment financed by such agreements and not
financed, in whole or in part, by funds loaned or provided by Lender

 

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(d) trade accounts payable of Borrower incurred in the ordinary course of
Borrower’s business and consisting of customary terms in the industry and to the
extent not secured by a lien or security interest in favor of such credit    

 

Section 5.10 – Litigation:

 

Litigation

POINT.360 vs CA-COLORADO CENTER, LLC

Los Angeles County Superior Court Case # BC595088

       

 

Section 5.16 – Environmental Condition:

 

Environmental Condition None        

 

Section 5.21 – Deposit Accounts:

 

Bank Name and Address Account Number(s)

BANK OF THE WEST

1977 Saturn St., Monterey Park, CA 91755

ROUTING# 121100782

SWIFT: BWSTUS66

POINT.360

ACCT.# 028287375

ACCT.# 028287474 (payroll)

 

       

 

Section 5.22 – Securities and Commodities Accounts:

 

Brokerage Name and Address Account Number(s) None          

 

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