Document:

Exhibit 10.34

 

 

Credit
and Security Agreement

 

This Credit and Security Agreement (“Agreement”)
is entered into as of June 24, 2010, by and between RealD Inc., a Delaware corporation (“Borrower”), and City National Bank, a national banking
association (“CNB”).

 

1.             DEFINITIONS.
As used in this Agreement, these terms have the following meanings:

 

1.1           “Account” or
“Accounts” has the meaning given
in the Code, and includes, but is not limited to, any right to payment for
goods sold or leased or for services rendered which is not evidenced by an
instrument or chattel paper from any Person, whether now existing or hereafter
arising or acquired, whether or not it has been earned by performance.

 

1.2           “Account
Debtor” means the Person obligated on an Account.

 

1.3           “Affiliate”
means any Person directly or indirectly controlling, controlled by,
or under common control with Borrower, and includes any employee stock
ownership plan of Borrower or an Affiliate. “Control” (including with
correlative meaning, the terms “controlling,” “controlled by” and “under common
control with”), as applied to any Person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of that Person, whether through the ownership of voting securities, by
contract or otherwise.

 

1.4           “Borrower’s
Loan Account” means the statement of daily balances on the books of CNB
in which will be recorded Loans made by CNB to Borrower, payments made on such
loans, and other appropriate debits and credits as provided by this Agreement.
CNB will provide a statement of account for Borrower’s Loan Account at least
once each month on a date established by CNB, which statement will be accepted
by and conclusively binding upon Borrower unless it notifies CNB in writing to
the contrary, within thirty (30) days of receipt of such statement, or sixty
(60) days after sending of such statement if Borrower does not notify CNB of
its non-receipt of the statement. Statements regarding other credit extended to
Borrower will be provided separately.

 

1.5           “Business
Day” means a day other than a Saturday, Sunday or other day on which
commercial banks in the State of California are authorized or required to
close.

 

1.6           “Code” means
the Uniform Commercial Code of California, as currently in effect and as amended
and replaced from time to time, except where the Uniform Commercial Code of
another state governs the perfection of a security interest in Collateral
located in that state, in which case, “Code” means the Uniform Commercial Code
of such state.

 

1.7           “Collateral”
means all property securing the Obligations, as described in Section 8.

 

1.8           “Contingent
Liabilities” shall mean those liabilities as defined in FASB
Statement No.5, and not otherwise set forth in Borrower’s most recent financial
statements.

 

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1.9           “Covenant
Compliance Certificate” shall be in the form of Exhibit A
attached hereto.

 

1.10         “Debt” means, at any date, the aggregate
amount of, without duplication, (a) all obligations of Borrower or any
Subsidiary for borrowed money, or reimbursement for open letters of credit and
banker’s acceptances, (b) all obligations of Borrower or any Subsidiary
evidenced by bonds, debentures, notes or other similar instruments, (c) all
obligations of Borrower or any Subsidiary to pay the deferred purchase price of
property or services, (d) all capitalized lease obligations of Borrower or
any Subsidiary, (e) all obligations or liabilities of others secured by a
lien on any asset of Borrower or any Subsidiary, whether or not such obligation
or liability is assumed, (f) all obligations guaranteed by Borrower or any
Subsidiary, and (g) all obligations, direct or indirect, for letters of
credit.

 

1.11         “Demand
Deposit Account” means Borrower’s demand deposit account No. 112788964 maintained with CNB.

 

1.12         “Documentation
and Legal Fee” shall be $5,000.00.

 

1.13         “EBITDA” will
be determined on a consolidated basis for Borrower and the Subsidiaries, in
accordance with GAAP, and means the sum of (a) net income after
eliminating extraordinary gains and losses, plus (b) interest expense,
plus (c) provisions for income taxes, plus (d) property taxes and
sales and use taxes not reimbursed to Borrower, plus (e) depreciation and
amortization, plus (f) non-cash stock option expenses, plus (g) restructuring
charges, severance costs and reserves (including restructuring charges relating
to acquisitions and the consolidation of facilities), plus (h) impairment
of long lived assets, plus (i) non-recurring costs and expenses arising
from or relating to Borrower’s initial public stock offering, each of the
foregoing items determined based on the months in the fiscal period ending on
the date of determination.

 

1.14         “Eurocurrency
Reserve Requirement” means, for any Interest Period, the aggregate
(without duplication) of the rates (expressed as a decimal) of reserves
(including, without limitation, any basic, marginal, supplemental, or emergency
reserves) that are required to be maintained by banks during such Interest
Period under any regulations of the Board of Governors of the Federal Reserve
System, or any other governmental authority having jurisdiction with respect
thereto, applicable to funding based on so-called “Eurocurrency Liabilities”,
including Regulation D (12 CFR 224).

 

1.15         “Facility
Fee” is $37,500.

 

1.16         “Fixed
Charges” means, as of the date of determination, the sum (without
duplication) of (a) the aggregate amount of Current Maturity of Long-Term
Debt (“Current Maturity of Long-Term Debt” means that portion Borrower’s
consolidated long-term liabilities, determined in accordance with GAAP for
borrowed money, which will, by the terms thereof, become due and payable within
one (1) year following the date of the balance sheet upon which such calculations
are based; provided, however, that the outstanding principal balance of
the Loans due and payable within such one (1) year period shall not be
included in Fixed Charges), plus (b) all interest incurred on borrowed
money, plus (c) provisions for income taxes, plus (d) all capital
expenditures for maintenance, other than any costs related to (i) the
roll-out of new REAL D 3-D theater systems, (ii) any replacement of Z
Screens with XLs (i.e., upgrades), and (iii) any purchases of Digital Link
Projectors and servers; each of the foregoing items to be determined based on
the number of months elapsed in the fiscal period ending on the date of
determination. The provision for income taxes will specifically exclude sales
and use taxes and property taxes.

 

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1.17         “GAAP” means
generally accepted accounting principles, consistently applied.

 

1.18         “Guarantor(s)”
are ColorLink Inc., a Delaware corporation, and Stereographics
Corporation, a California corporation.

 

1.19         “Inventory” means
goods held for sale or lease in the ordinary course of business, work in
process and any and all raw materials used in connection with the foregoing.

 

1.20         “Interest
Period” means the period commencing on the date that a LIBOR Loan is
made (including the date a Prime Loan is converted to a LIBOR Loan, or a LIBOR
Loan is renewed as a LIBOR Loan, which, in the latter case, will be the last
day of the expiring Interest Period) and ending on the date which is one (1),
two (2), three (3), six (6), nine (9) or twelve (12) months thereafter, as
selected by the Borrower; provided, however, no Interest Period may extend
beyond the Termination Date.

 

1.21         “LIBOR Base
Rate” means the British Banker’s Association definition of the
London InterBank Offered Rates as made available by Bloomberg LP, or such other
information service available to CNB, for the applicable Interest Period upon
which the Interest Period is based for the LIBOR Loan selected by Borrower and
as quoted by CNB on the Business Day Borrower requests a LIBOR Loan or on the
last Business Day of an expiring Interest Period.

 

1.22         “LIBOR
Interest Rate” means, for any Interest Period, the rate per year
(rounded upward to the next one-sixteenth (1/16th) of one percent (0.0625%), if
necessary) determined by CNB to be the quotient of (a) the LIBOR Base Rate
divided by (b) one minus the Eurocurrency Reserve Requirement for the
Interest Period; which is expressed by the following formula:

 

	
   

  	
  LIBOR Base Rate

  	
   

  
	
   

  	
  1-Eurocurrency Reserve Requirement

  	
   

  

 

1.23         “LIBOR Loan”
means any Loan tied to the LIBOR Interest Rate.

 

1.24         “Lien” with
respect to any property or assets, means any mortgage or deed of trust, pledge,
hypothecation, assignment, deposit arrangement, security interest, lien,
charge, easement, encumbrance, preference, priority or other security agreement
or preferential arrangement of any kind or nature whatsoever on or with respect
to such property or assets (including any conditional sale or other title
retention agreement having substantially the same economic effect as any of the
foregoing).

 

1.25         “Loan” or
“Loans” means the loans extended
by CNB to Borrower pursuant to Section 2.

 

1.26         “Loan
Documents” means, individually and collectively, this Agreement, any
note, guaranty, security or pledge agreement, financing statement and all other
contracts, instruments, addenda and documents executed in connection with or
related to extensions of credit under this Agreement.

 

1.27         “Material
Adverse Effect” means an event or occurrence that has had a material
adverse effect on (a) the business, operations, property, assets or
condition (financial or otherwise) of Borrower and its Subsidiaries, taken as a
whole, (b) the ability of any Person to perform and comply with its
material obligations under the Loan Documents to which it is a party, or (c) the
validity or priority of CNB’s security interest in the Collateral.

 

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1.28         “Obligations”
means all present and future liabilities and obligations of Borrower
to CNB under each of the Loan Documents, now existing or hereafter owing,
matured or unmatured, direct or indirect, absolute or contingent, joint or
several, including any extensions and renewals thereof and substitutions
therefor.

 

1.29         “Permitted
Liens” means:

 

1.29.1  Liens existing on the date
hereof and described on Schedule 1.28, and any modifications, renewals or
extensions thereof;

 

1.29.2  Liens arising by operation
of law in favor of materialmen, mechanics, warehousemen, carriers, lessors or
other similar Persons incurred by Borrower or any Subsidiary in the ordinary
course of business which secure its obligations to such Person; provided, however,
that (i) the Borrower or such Subsidiary is not in default with respect to
such payment obligation to such Person, unless the Borrower or such Subsidiary
is in good faith and by appropriate proceedings diligently contesting such
obligation and adequate provision is made for the payment thereof, and (ii) all
such defaults in the aggregate have no Material Adverse Effect;

 

1.29.3  Liens securing taxes,
assessments or governmental charges or levies; provided, however,
that (i) neither the Borrower nor any Subsidiary is in default in respect
of any payment obligation with respect thereto unless the Borrower or such
Subsidiary is in good faith and by appropriate proceedings diligently
contesting such obligation and adequate reserves therefor have been established
on the books of the Borrower or such Subsidiary, as the case may be, in
conformity with GAAP and (ii) all such defaults in the aggregate have no
Material Adverse Effect;

 

1.29.4  Liens incurred or pledges
and deposits made in the ordinary course of business in connection with workers’
compensation, unemployment insurance, old-age pensions and other social
security benefits;

 

1.29.5  Liens securing the
performance of bids, tenders, leases, contracts (other than for the repayment
of borrowed money), statutory obligations, surety and appeal bonds and other
obligations of like nature, incurred as an incident to and in the ordinary
course of business, and judgment liens; provided, however, that
all such Liens in the aggregate have no Material Adverse Effect;

 

1.29.6  Zoning restrictions,
easements, licenses, reservations, restrictions on the use of real property or
minor irregularities incident thereto which do not in the aggregate materially
detract from the value or use of the property or assets of the Borrower or any
Subsidiary or impair, in any material manner, the use of such property for the
purposes for which such property is held by the Borrower or any Subsidiary; and

 

1.29.7  Purchase money liens
securing Debt incurred in connection with the acquisition of equipment or other
capital assets (where such liens have a perfected, first priority security interest
only in the equipment and/or other capital assets being purchased).

 

1.30         “Person” means
any natural person, corporation, limited liability company, trust, joint
venture, association, company, partnership, Governmental Authority or other
entity.

 

1.31         “Potential
Event of Default” means any condition that with the giving of notice
or passage of time or both would, unless cured or waived, become an Event of
Default.

 

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1.32         “Prime Loan”
means any Loan tied to the Prime Rate.

 

1.33         “Prime Rate”
means the rate most recently announced by CNB at its principal
office in Los Angeles, California as its “Prime Rate.” Any change in the
interest rate resulting from a change in the Prime Rate will become effective on
the day on which each change in the Prime Rate is announced by CNB.

 

1.34         “Revolving
Credit Commitment” means CNB’s commitment to make the Revolving
Credit Loans in the aggregate principal amount outstanding at any one time of
up to Fifteen Million Dollars
($15,000,000.00).

 

1.35         “Subordinated
Debt” means Debt of Borrower or any Subsidiary, the repayment of
which is subordinated on terms satisfactory to CNB, to the Obligations.

 

1.36         “Subsidiary”
means any Person, the majority of whose voting interests are at any
time owned, directly or indirectly, by Borrower and/or by one or more
Subsidiaries, other than ColorLink Japan, Ltd.

 

1.37         “Termination
Date” means the earlier to occur of June 30, 2012, unless the term of this Agreement is
renewed by CNB for an additional period under Section 3, or such earlier
date on which CNB elects to accelerate the repayment of the Loans under Section 9.3
upon the occurrence of an Event of Default. Upon any renewal, the Termination
Date will be the renewed maturity date determined by CNB with the consent of
Borrower.

 

1.38         “Unused
Facility Fee” will be equal to one
quarter of one percent (0.25%) of the average daily difference
between the Revolving Credit Commitment and the principal amount of the
outstanding Revolving Credit Loans.

 

2.             THE
CREDIT.

 

2.1           Revolving
Credit Loans. Subject to the terms of this Agreement, CNB agrees to
make loans (“Revolving Credit Loans”) from time to time to Borrower, from the
date of this Agreement up to but not including the Termination Date, at such
times as Borrower may request. The Revolving Credit Loans may be repaid and
reborrowed at any time up to the Termination Date; provided, however, that the
aggregate unpaid principal amount of outstanding Revolving Credit Loans shall
not exceed the Revolving Credit Commitment.

 

2.1.1        Interest. The
Revolving Credit Loans will bear interest from disbursement until due (whether
at stated maturity, by acceleration on otherwise) at an annual rate equal to,
at Borrower’s option, either (a) for a Revolving LIBOR Loan (as defined
below), the greater of (i) three and one half percent (3.50%) per year, or
(ii) the LIBOR Interest Rate plus two and one-half percent (2.50%), or (b) for
a Revolving Prime Loan (as defined below), the greater of (i) three and
one half percent (3.50%) per year, or (ii) the fluctuating Prime Rate per
annum. Interest on the Loans and other charges incurred under this Agreement
will accrue daily and be payable (a) except in respect of a Revolving
LIBOR Loan, quarterly in arrears, commencing on July 1, 2010, and on the
first day of October, January, and April thereafter; (b) if a
Revolving LIBOR Loan, on the last day of each Interest Period therefore (or, if
applicable on the date that is 3 months, 6 months and 9 months after the date
the Libor Loan commences to the extent such Loan has an Interest Period of
greater than 3 months) and upon any prepayment thereof (to the extent accrued
on the amount prepaid); and (c) at the Termination Date. A Revolving
Credit Loan tied to the LIBOR Interest Rate is called a “Revolving LIBOR Loan,”
and a Revolving

 

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Credit Loan tied to the Prime Rate is called
a “Revolving Prime Loan.” A Revolving Credit Loan will be a Revolving Prime
Loan any time that Borrower does not specifically request that such Loan be a
Revolving LIBOR Loan in accordance with Section 2.2.

 

2.2           LIBOR Loan
Terms and Conditions

 

2.2.1        Procedure for
LIBOR Loans. Borrower may request that a Loan be a LIBOR Loan, if
herein allowed (including conversion of a Prime Loan to a LIBOR Loan, or
continuation of a LIBOR Loan as a LIBOR Loan upon the expiration of the
Interest Period). Borrower’s request will be irrevocable, will be made to CNB,
orally or in writing, no earlier than two (2) Business Days before and no
later than 1:00 p.m. Pacific Time on the date the LIBOR Loan is to be
made, and will specify the Interest Period, the amount of the LIBOR Loan, and
such other information as CNB requests. If Borrower fails to select a LIBOR
Loan in accordance herewith, the Loan will be a Prime Loan. Any LIBOR Loan will
be deemed a Prime Loan upon expiration of the Interest Period unless continued
as a LIBOR Loan at Borrower’s request.

 

2.2.2        Availability
of LIBOR Loans. Notwithstanding anything herein to the contrary,
each LIBOR Loan must be in the minimum amount of $500,000.00 and increments of
$100,000.00. Borrower may not have more than five (5) Revolving LIBOR
Loans outstanding at any one time under this Agreement. Borrower may have Prime
Loans and LIBOR Loans outstanding simultaneously.

 

2.2.3        Suspension of
LIBOR Loans. If CNB, on any Business Day, is unable to determine the
LIBOR Base Rate applicable for a new, continued, or converted LIBOR Loan for
any reason, or any law, regulation, or governmental order, rule or
determination, makes it unlawful for CNB to make a LIBOR Loan, Borrower’s right
to select LIBOR Loans will be suspended until CNB is again able to determine
the LIBOR Base Rate or make LIBOR Loans, as the case may be. During such
suspension, new Loans, outstanding Prime Loans, and LIBOR Loans whose Interest
Periods terminate may only be Prime Loans.

 

2.3           Optional
Prepayments. Subject to the provisions of Section 2.6, Borrower
will have the right to prepay, without premium or penalty, all or any portion
of the Loans.

 

2.4           Default
Interest Rate. From and after written notice by CNB to Borrower of
the occurrence of an Event of Default and CNB’s election to charge the interest
at the default rate (and without constituting a waiver of such Event of Default),
the Loans and any other amounts due CNB hereunder (and interest to the extent
permitted by law) will bear additional interest at a fluctuating rate equal to
three percent (3.0%) per year higher than the interest rate as determined in
Sections 2.1.1, until the Event of Default has been cured; provided, however,
for purposes of this Section, a LIBOR Loan will be treated as a Prime Loan upon
the termination of the Interest Period with respect to such LIBOR Loan. All
interest provided for in this Section will be compounded monthly and
payable on demand.

 

2.5           Payments. All
payments will be in United States Dollars and in immediately available funds.
Interest will accrue daily and will be computed (a) in the case of LIBOR
Loans, on the basis of a 360-day year, and (b) in the case of Prime Loans,
on the basis of a 365 or 366-day year, in each case for the actual number of
days elapsed. All payments of principal, interest, fees and other charges
incurred under this Agreement will be made by charging, and Borrower hereby
authorizes CNB to charge, Borrower’s Demand Deposit Account or Borrower’s Loan
Account. All loan disbursements made pursuant to this Agreement shall be made
by direct deposit to Borrower’s Demand Deposit Account.

 

6

 

2.6           Funding
Losses. If Borrower shall (a) repay, prepay or convert any
LIBOR Loans on any day other than the last day of an Interest Period for such
LIBOR Loans, (b) fail to borrow any LIBOR Loans in accordance with a
request therefor delivered to CNB (whether as a result of the failure to
satisfy any applicable conditions or otherwise), or (c) fail to make any
prepayment in accordance with any notice of prepayment delivered to the CNB,
then the Borrower shall, within 10 days of demand by CNB and presentation by
CNB of a certificate setting forth in reasonable detail the basis for and the
amount of costs and losses incurred by CNB for which demand is made (which
certificate shall, in the absence of manifest error, be prima facie evidence as to the amount of
such loss for purposes of this Agreement), reimburse CNB for all out-of-pocket
costs and losses incurred by CNB as a result of such repayment, prepayment or
failure (“Liquidation Costs”). Borrower understands that such costs and losses
may include losses incurred by CNB as a result of funding and other contracts
entered into by CNB to fund LIBOR Loans.

 

2.7           Unused
Facility Fee. Borrower will pay the Unused Facility Fee on the last
day of each calendar quarter; such fee will be non-refundable and fully earned
when paid. Borrower hereby authorizes CNB to charge the Demand Deposit Account
or Borrower’s Loan Account for the amount of each such fee.

 

3.           TERM AND TERMINATION.

 

3.1           Establishment
of Termination Date. The term of this Agreement will begin as of the
date hereof and continue until the Termination Date, unless the term is renewed
for an additional period by CNB giving Borrower prior written notice and
Borrower’s approval of same, in which event the Termination Date will mean the
renewed maturity date set forth in such notice. Notwithstanding the foregoing,
CNB may, at its option, terminate this Agreement pursuant to Section 9.3;
the date of any such termination will become the Termination Date as that term
is used in this Agreement. Upon renewal, Borrower authorizes CNB to charge
Borrower’s Loan Account with the amount of the Facility Fee (prorated for the
length of the term of the renewal period) and any applicable audit fee.

 

3.1.1        Obligations
Upon the Termination Date. Borrower will, upon the Termination Date,
repay the outstanding principal amount of the Loans plus any accrued interest
thereon, and any fees and charges payable under the Loan Documents.

 

3.2           Survival
of Rights. Any termination of this Agreement will not affect the
rights, liabilities and obligations of the parties with respect to any
Obligations outstanding on the date of such termination. Until all Obligations
have been fully repaid, CNB will retain its security interest in all existing
Collateral and Collateral arising thereafter.

 

4.           CONDITIONS PRECEDENT.

 

4.1           Effectiveness
of Agreement. The effectiveness of this Agreement is subject to CNB’s
receipt of each of the following, in form and substance reasonably satisfactory
to CNB, and duly executed as required by CNB:

 

4.1.1        All Loan Documents required by CNB, including
but not limited to this Agreement;

 

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4.1.2        (a) a copy of Borrower’s Articles of
Incorporation; (b) a Resolution of Borrower’s Board of Directors approving
and authorizing the execution, delivery and performance of this Agreement and
any other documents required pursuant to this Agreement, certified by Borrower’s
corporate secretary; and, (c) a copy of the last certificate filed on
behalf of Borrower containing the information required by California
Corporations Code Section 1502(a) or Section 2117(a), as
applicable;

 

4.1.3        (a) a copy of the Certificate of
Incorporation of ColorLink Inc.; (b) a Resolution of the Board of
Directors of ColorLink Inc. approving and authorizing the execution, delivery
and performance of its continuing guaranty, certified by its corporate
secretary; and, (c) a copy of the last annual report filed on behalf of
ColorLink Inc. containing the information required by Delaware Corporation Code
Section 502;

 

4.1.4        (a) a copy of the Articles of
Incorporation of Stereographics Corporation; (b) a Resolution of the Board
of Directors of Stereographics Corporation approving and authorizing the
execution, delivery and performance of its continuing guaranty, certified by
its corporate secretary; and, (c) a copy of the last certificate filed on
behalf of Stereographics Corporation containing the information that is
required by California Corporations Code Section 1502(a) or Section 2117(a),
as applicable;

 

4.1.5        (a) copies (and acknowledgement copies to
the extent reasonably available) of financing statements (Form UCC-1) duly
filed under the Code in all such jurisdictions as are necessary to perfect CNB’s
security interests created under this Agreement; and (b) evidence that all
filings, recordings and other actions that are necessary or advisable, in CNB’s
opinion, to establish, preserve and perfect CNB’s security interests and liens
as legal, valid and enforceable first security interests and liens in the
Collateral have been effected;

 

4.1.6        Evidence that the insurance required by Section 6.5
hereof is in effect;

 

4.1.7        Borrower shall have consummated an initial
public offering of its common stock and CNB shall have received cash proceeds
of such offering sufficient to retire all outstanding debt under The Credit and
Security Agreement dated as of July 26, 2007 by and between Real D, a
California corporation and City National Bank, a national banking association;
and

 

4.1.8        Payment of the Facility Fee and Documentation
and Legal Fee.

 

4.2           Conditions to Each
Extension of Credit. The obligation of CNB to make any Loan or other
extension of credit hereunder will be subject to the fulfillment of each of the
following conditions to CNB’s satisfaction:

 

4.2.1        The representations and warranties of Borrower
set forth in Section 5 will be true and correct in all material respects
on the date of the making of each Loan or other extension of credit with the
same effect as though such representations and warranties had been made on and
as of such date except to the extent that such representations and warranties
specifically refer to an earlier date, in which case they shall be true and
correct in all material respects as of such earlier date;

 

4.2.2        No Guarantor will have revoked his, her or its
guaranty and no such guaranty will have become otherwise unenforceable with
respect to future advances;

 

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4.2.3        No holder of Subordinated Debt will be in
violation of his, her or its Subordination Agreement executed in favor of CNB,
and such Subordination Agreement is enforceable with respect to future
advances;

 

4.2.4        There will be in full force and effect in favor
of CNB a legal, valid and enforceable first priority security interest in, and
a valid and binding first priority lien on the Collateral; and CNB will have
received evidence, in form and substance acceptable to CNB, that all filings,
recordings and other actions that are necessary or advisable, in the opinion of
CNB, in order to establish, protect, preserve and perfect CNB’s security
interests and liens as legal, valid and enforceable first security interests
and liens in the Collateral have been effected;

 

4.2.5        There will have occurred no Event of Default or
Potential Event of Default unless the same has been cured or waived; and

 

4.2.6        All other documents and legal matters in
connection with the transactions described in this Agreement will be reasonably
satisfactory in form and substance to CNB.

 

5.             REPRESENTATIONS AND
WARRANTIES. Borrower makes the following representations and
warranties, which will survive the making and repayment of the Loans and other
extensions of credit:

 

5.1           Corporate Existence, Power
and Authorization. Borrower and each Subsidiary is duly organized,
validly existing and in good standing under the laws of the state of its
organization, and is duly qualified to conduct business in each jurisdiction in
which its business is conducted except where the failure to so qualify would
not reasonably be expected to result in a Material Adverse Effect. The
execution, delivery and performance of all Loan Documents executed by Borrower
are within Borrower’s powers and have been duly authorized by all necessary
corporate action on the part of Borrower.

 

5.2           Binding Agreement.
The Loan Documents constitute the valid and legally binding obligations of
Borrower, enforceable against Borrower in accordance with their terms, except
as such enforceability may be limited by applicable bankruptcy, insolvency,
moratorium, reorganization or other similar laws of general application
affecting the rights of creditors in general.

 

5.3           Ancillary Documents.
To the extent that any security agreement, subordination agreement or guaranty
is required to be executed by a Subsidiary or Affiliate, the representations
and warranties set forth in Sections 5.1 and 5.2 are also true and correct with
respect to such Subsidiary and Affiliate and such document.

 

5.4           Other Agreements.
The execution and performance of the Loan Documents will not violate any
provision of law or regulation (including, without limitation, Regulations X
and U of the Federal Reserve Board) that is applicable to Borrower or any order
of any governmental authority, court or arbitration board that is binding on
Borrower or the Articles of Incorporation or Bylaws of Borrower, or result in
the breach of or a default under any provisions of any agreement to which
Borrower is a party.

 

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5.5           Litigation.
There is no litigation, tax claim, investigation or proceeding
pending, threatened against or affecting Borrower, any Subsidiary or Guarantor,
or any of their respective properties which, if adversely determined, would
reasonably be expected to result in a Material Adverse Effect.

 

5.6           Financial
Condition. The most recent financial statements of Borrower and its Subsidiaries,
copies of which have been delivered to CNB, have been prepared consistent with
prior periods and in accordance with GAAP (except for FASB 123, tax accrual and
purchase accounting) and are true, complete and correct and fairly present, in
all material respects, the financial condition of Borrower and its
Subsidiaries, including operating results, as of the accounting period
referenced therein. There has been no material adverse change in the financial
condition or business of Borrower and its Subsidiary, taken as a whole, since
the date of such financial statements. Neither Borrower nor any Subsidiary has
any material liabilities for taxes or long-term leases or commitments, except
as disclosed in the financial statements.

 

5.7           No
Violations. Borrower is not, nor is any Subsidiary, in violation of
any law, ordinance, rule or regulation to which it or any of its
properties is subject, where such violation would reasonably be expected to
have a Material Adverse Effect.

 

5.8           Collateral.
Borrower owns or otherwise has rights in and has the power to grant
a security interest in the Collateral, and the Collateral is free from liens,
adverse claims and other encumbrances except those in favor of CNB and the
Permitted Liens. No bills of lading, warehouse receipts or other documents or
instruments of title are outstanding with respect any material portion of the
Collateral, in favor of a Person other than Borrower. The office where Borrower
keeps its records concerning all Accounts is 100 No. Crescent Drive, Suite 120,
Beverly Hills, CA 90210.

 

5.9           ERISA. Borrower
is in compliance in all material respects with all applicable provisions of the
Employee Retirement Income Security Act of 1974 (“ERISA”). No “Reportable Event”
(as defined in ERISA and the regulations issued thereunder other than a “Reportable
Event” not subject to the provision for thirty (30) day notice to the Pension
Benefit Guaranty Corporation (“PBGC”) under such regulations) has occurred with
respect to any benefit plan of Borrower nor are there any material unfunded
vested liabilities under any benefit plan of Borrower. Borrower has met its
minimum funding requirements under ERISA with respect to each of its benefit
plans that is governed by ERISA and has not incurred any material liability to
the PBGC in connection with any such plan.

 

5.10         Consents. No
consent, license, permit, or authorization of, exemption by, notice or report
to, or registration, filing or declaration with, any governmental authority or
agency is required in connection with the execution, delivery and performance
by Borrower of this Agreement or the transactions contemplated hereby, except
for those that have been obtained or made.

 

5.11         Use of
Proceeds. The proceeds of the Loans will be used by Borrower solely
for (a) prepayment of outstanding Debt, (b) capital expenditures, (c) working
capital purposes in the normal course of business, and (d) general
corporate purposes.

 

5.12         Regulation
U. Borrower is not engaged principally, or as one of its principal
activities, in the business of extending credit for the purpose of purchasing
or carrying margin stock (within the meaning of Regulations U or X of the
Federal Reserve Board). No part of the proceeds of the Loans will be used by
Borrower to purchase or carry any such margin stock or to extend credit to
others for the purpose of purchasing or carrying such margin stock.

 

10

 

5.13         Environmental
Matters.

 

5.13.1      The operations of Borrower and each Subsidiary
comply in all material respects with all (a) applicable federal, state and
local environmental, health and safety statutes, regulations and ordinances and
(b) terms of all required permits and licenses, in each case where the
failure to so comply would reasonably be expected to have a Material Adverse
Effect.

 

5.13.2      Borrower and each Subsidiary have received no
written notices of threatened or pending governmental or private civil,
criminal or administrative proceeding regarding any environmental or health and
safety statute, regulation or ordinance and have not been subject to any
federal, state or local investigations, inspections or orders regarding any
environmental or health and safety statute, regulation or ordinance, in each
case which would have a Material Adverse Effect.

 

5.13.3      Neither Borrower nor any Subsidiary knows of any
facts or conditions which may exist which may subject Borrower or any
Subsidiary to material liability under any federal, state or local
environmental, health or safety statutes, regulations or ordinances, and
neither Borrower nor any Subsidiary is presently or contingently liable for any
material removal, remedial, response or other costs or damages in connection
with any release into the environment of toxic or hazardous substances or waste
included on any federal, state or local hazardous chemical or substance lists
under any federal, state or local statute, regulation or ordinance.

 

6.             AFFIRMATIVE
COVENANTS. Borrower agrees that until payment in full of all
Obligations, Borrower will comply with the following covenants:

 

6.1           Collateral.

 

6.1.1        Borrower will, promptly after reasonable
request by CNB, make available to CNB, shipping and delivery receipts
evidencing the shipment of the goods which gave rise to an Account; completion
certificates or other proof of the satisfactory performance of services which
gave rise to an Account; a copy of the invoice for each Account; and Borrower’s
copy of any written contract or order from which an Account arose. Unless
previously requested by Borrower in writing to return such documents, CNB will
be authorized to destroy any such documentation six (6) months after its
receipt by CNB;

 

6.1.2        Borrower will advise CNB within ten (10) days
whenever an Account Debtor refuses to retain, or returns, any goods from the
sale of which an Account arose, when the sale exceeds $100,000.00;

 

6.1.3        Upon the occurrence and during the continuance
of an Event of Default, Borrower will give CNB, upon request, specific
assignments of Accounts after they come into existence, and schedules of
Accounts, the form and content of such assignments and schedules to be
satisfactory to CNB; but, despite this provision for express assignments to
CNB, CNB will have a continuing security interest in all Accounts irrespective
of whether some Accounts are omitted from such assignments or whether any
assignments are ever given; and Borrower will execute and deliver to CNB any
instrument, document, financing statement, assignment or other writing which
CNB may deem necessary or desirable to carry out on the terms of this
Agreement, to perfect CNB’s security interest in the Collateral, or to enable
CNB to enforce its security interest in any of the Collateral;

 

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6.1.4        Borrower will maintain, in accord with sound
accounting practices, accurate records and books of account showing, among
other things, all Inventory and Accounts, the proceeds of the sale or other
disposition thereof and the collections therefrom. Borrower will not change the
accounting method used to determine Borrower’s Inventory cost without CNB’s
prior written approval. Borrower will permit representative(s) of CNB, at
any reasonable time upon prior reasonable notice to Borrower, to inspect,
audit, examine and make extracts or copies from all books, records and other
data relating to the Collateral, to inspect any of Borrower’s properties and to
confirm balances due on Accounts by direct inquiry to Account Debtors, and will
give CNB, promptly upon request, all information regarding the business or
finances of Borrower reasonably requested by CNB;

 

6.1.5        Borrower will, if requested by CNB, mark its
records concerning its Inventory and Accounts in a manner reasonably
satisfactory to CNB to show CNB’s security interest therein;

 

6.1.6        Borrower will, if requested by CNB, provide CNB
with a current physical count of its Inventory in the manner reasonably
specified by CNB;

 

6.1.7        Borrower will, if reasonably requested by CNB,
endorse to the order of and deliver to CNB any negotiable instrument accepted
by Borrower in lieu of payment in accord with the original terms of sale;

 

6.1.8        Borrower will pay CNB, promptly after request
by CNB, the reasonable and documented out-of-pocket costs, including, but not
limited to reasonable attorneys’ fees and expenses (which counsel may be CNB
employees) expended or incurred by CNB (or allocable to CNB’s in-house counsel)
during the continuance of an Event of Default in the collection or enforcement
of any Accounts or other Collateral if CNB itself undertakes such collection or
enforcement, together with all taxes, charges and expenses of every kind or
description paid or incurred by CNB under or with respect to Loans hereunder or
any Collateral therefor and Borrower authorizes CNB to charge the same to the
Demand Deposit Account or Borrower’s Loan Account maintained with CNB;

 

6.1.9        Borrower will maintain the tangible Collateral
in good condition (ordinary wear and tear excepted) and promptly notify CNB of
any event causing material loss or reduction of value of Collateral and the
amount of such loss or reduction; and

 

6.1.10      Borrower will, upon reasonable request by CNB,
deliver to CNB a current list of the names and addresses of all Account
Debtors.

 

6.2           Financial
Statements. Borrower will furnish to CNB on a continuing basis:

 

6.2.1        Within forty-five (45) days after the end of
each quarterly accounting period of each fiscal year, a financial statement consisting
of not less than a balance sheet and income statement, prepared in accordance
with GAAP and accompanied by the following: (a) supporting schedules of
costs of goods sold, operating expenses and other income and expense items, and
(b) Borrower’s certification as to whether any event has occurred which
constitutes an Event of Default or Potential Event of Default, and if so,
stating the facts with respect thereto, which financial statement may be
internally prepared;

 

12

 

6.2.2        Within one hundred fifty (150) days after the
close of Borrower’s fiscal year, a copy of the annual audit report for Borrower
and the Subsidiaries, including therein a balance sheet, income statement,
reconciliation of net worth and statement of cash flows, with notes thereto,
the balance sheet, income statement and statement of cash flows to be audited
by a certified public accounting firm reasonably acceptable to CNB (it being
understood that the accounting firm used by Borrower as of date hereof is
acceptable to CNB, certified by such accounting firm to have been prepared in
accordance with GAAP and accompanied by the following: (a) supporting
schedules of costs of goods sold, operating expenses and other income and
expense items, and (b) Borrower’s certification as to whether any event
has occurred which constitutes an Event of Default or Potential Event of
Default, and if so, stating the facts with respect thereto;

 

6.2.3        Within forty five (45) days after the end of
each quarterly accounting period of each fiscal year, Borrower’s Covenant
Compliance Certificate; and

 

6.2.4        Upon request by CNB, a copy of the Federal
Income Tax Return of Borrower.

 

6.3           Collateral
Reports. Within ten (10) Business Days after CNB’s request,
Borrower will deliver to CNB, a listing and aging by invoice date of all
accounts receivable and accounts payable (together with sales and payment
terms, and detail of outstanding balances due by invoice date from all Account
Debtors).

 

6.4           Taxes and
Premiums. Borrower will, and will cause each Subsidiary to, pay and discharge
all taxes, assessments, governmental charges, and real and personal property
taxes including, but not limited to, federal and state income taxes, employee
withholding taxes and payroll taxes, and all premiums for insurance required
hereunder, prior to the date upon which penalties are attached thereto. CNB may
pay, for the account of Borrower, any of the foregoing which Borrower fails to
pay; any such amounts will be debited to Borrower’s Loan Account and will be
paid by Borrower to CNB, with interest thereon at the rate stated in Section 2.1.1
for Prime Loans, upon demand, unless such taxes, assessments or governmental
charges shall be contested in good faith and by appropriate proceedings and adequate
reserves therefor have been established on the books of Borrower or the
appropriate Subsidiary in conformity with GAAP.

 

6.5          Insurance.

 

6.5.1        Borrower will, and will cause each Subsidiary
to, (a) keep its Inventory, equipment and any other tangible personal
property which is Collateral insured for the benefit of CNB under a standard
lender loss payable endorsement in such amounts, by such companies and against
such risks as may be reasonably satisfactory to CNB; (b) pay the cost of
all such insurance; and (c) deliver certificates evidencing such insurance
to CNB (and copies of policies if requested);

 

6.5.2        In addition to the insurance required above,
Borrower will, and will cause each Subsidiary to, maintain insurance of the
types and in amounts customarily carried in its lines of business, including,
but not limited to, fire, public liability, property damage, business
interruption and worker’s compensation, such insurance to be carried with
companies and in amounts satisfactory to CNB, which approval shall not be
unreasonably withheld, and deliver to CNB, upon request, schedules setting
forth all insurance then in effect; and

 

13

 

6.5.3        If Borrower fails to provide and maintain the
policies of insurance required hereunder, CNB may, but is not obligated to,
procure such insurance, and Borrower will pay all premiums thereon promptly
upon demand by CNB, together with interest thereon at the rate set forth in Section 2.1.1
hereof for Prime Loans from the date of expenditure until reimbursement by
Borrower.

 

6.6           Notice.
Borrower will promptly advise CNB in writing of (a) the opening of any
new, or the closing of any existing, places of business, and any change of
Borrower’s name, trade name or other name under which it does business or of
any such new or additional name; (b) the occurrence of any Event of
Default or Potential Event of Default; (c) any litigation pending or
threatened where the amount or amounts in controversy exceed $100,000.00; (d) any
unpaid taxes which are more than fifteen (15) days delinquent; and (e) any
other matter which might reasonably be expected to materially or adversely
affect Borrower’s and its Subsidiaries’ financial condition, property or
business, taken as a whole.

 

6.7           Fair Labor Standards Act.
Borrower will, and will cause each Subsidiary to, comply in all material
respects with the requirements of, and all regulations promulgated under, the
Fair Labor Standards Act.

 

6.8           Corporate Existence.
Except as permitted in Section 7.9, Borrower will, and will cause each
Subsidiary to, maintain its corporate existence and all of its rights,
privileges and franchises that are necessary for the normal conduct of its
business.

 

6.9           Compliance with Law.
Borrower will, and will cause each Subsidiary to, comply with all requirements
of all applicable laws, rules, regulations (including, but not limited to,
ERISA with respect to each of their benefit plans, and all environmental and
hazardous materials laws), orders of any governmental agency and all material
agreements related thereto to which they are a party, where the failure to so
comply would reasonably be expected to have a Material Adverse Effect.

 

6.10         Financial Tests.
Borrower will maintain:

 

6.10.1      A ratio of EBITDA to Fixed Charges of not less
than 1.25 to 1.00 at all times, with the measurements of EBITDA and Fixed
Charges based on the trailing twelve months ending June 30, 2010 and each
trailing twelve months ending at the end of each fiscal quarter thereafter; and

 

6.10.2      A ratio of Debt to EBITDA of not more than 1.00
to 1.00 at all times with the measurements of EBITDA and Debt based on the
trailing twelve months ending June 30, 2010 and each trailing twelve
months ending at the end of each fiscal quarter thereafter.

 

6.11         Transactions with
Affiliates. All contracts and other transactions between Borrower
and its Affiliates (other than its wholly-owned Subsidiaries) shall be on a
basis no less favorable to Borrower as would be obtained in a comparable arm’s-length
transaction with a Person who is not an Affiliate.

 

7.             NEGATIVE COVENANTS.
Borrower agrees that until payment in full of all the Obligations, Borrower
will not, nor will it permit any Subsidiary to, do any of the following,
without CNB’s prior written consent:

 

14

 

7.1           Borrowing.
Create, incur, assume or permit to exist any Debt except (a) Debt to CNB, (b) Subordinated
Debt, (c) trade Debt in the ordinary course of Borrower’s business, (d) purchase
money Debt incurred by either Digital Link, LLC or Digital Link II, LLC, in
connection with the acquisition of equipment or other capital assets, (e) other
purchase money Debt incurred in connection with the acquisition of equipment or
other capital assets (including capitalized lease expenditures) not to exceed
in the aggregate $1000,000.00 outstanding at any time and (f) with respect
to Debt described in clauses (d) and (e), any modifications, renewals or
extensions thereof.

 

7.2           Sale of Assets.
Except in respect of the sale or other disposition of (a) inventory,
servers and projectors in the ordinary course of business, and (b) equipment
which has become obsolete or reached the end of its useful life, sell,
transfer, convey, lease or otherwise dispose of any of its properties or assets
(whether in one transaction or in a series of related transactions) with a fair
value in excess of $200,000.00 in any fiscal year.

 

7.3           Loans. Make
loans or advances to any Person, except (a) intercompany advances made by
Borrower to a Subsidiary or by a Subsidiary to Borrower or another Subsidiary,
and (b) credit extended to officers, directors and employees or to
customers in the ordinary course of business.

 

7.4           Contingent Liabilities.
Assume, guarantee, endorse, contingently agree to purchase or otherwise become
liable for the obligation of any Person, including Borrower, a Subsidiary or
Affiliate, except (a) by the endorsement of negotiable instruments for
deposit or collection or similar transactions in the ordinary course of
business, and (b) Contingent Liabilities in favor of CNB.

 

7.5           Investments.
Purchase or acquire the obligations or stock of, or any other interest in, any partnership,
joint venture, limited liability company or corporation, except (a) direct
or guaranteed obligations of the United States of America; (b) investments
in certificates of deposit issued by, and other deposits with, commercial banks
organized under the United States or a State thereof having capital of at least
One Hundred Million Dollars ($100,000,000.00), (c) bonds and other debt
securities of United States corporations not falling within the definition of “margin
stock” with a credit quality rating of at least A by Standard & Poor’s
or A-2 by Moody’s; (d) commercial paper with a credit quality rating of at
least A-2 by Standard & Poor’s or P-2 by Moody’s; (e) obligations
of any state, territory, municipality or other local governmental subdivision
or entity of the United States, with a credit quality rating of at least A by
Standard & Poor’s or A-2 by Moody’s. (f) investments in
wholly-owned Subsidiaries, and (g) purchases of the equity interests or
assets of ColorLink Japan, Ltd. not currently owned by Borrower.

 

7.6           Mortgages, Liens, etc.
Create or suffer to exist any Lien on any of its property or assets, other than
(a) Liens created under the Loan Documents and (b) Permitted Liens.

 

7.7           Involuntary Liens.
Other than Permitted Liens, permit any involuntary liens to arise with respect
to any property or assets including but not limited to those arising from the
levy of a writ of attachment or execution, or the levy of any state or federal
tax lien which lien will not be removed or bonded against within a period of
thirty (30) days.

 

7.8          Sale and
Leaseback. Enter into any sale-leaseback transaction.

 

15

 

7.9           Mergers and Acquisitions.
Enter into any merger or consolidation, or acquire all or substantially all the
assets of any Person, except (a) that a Subsidiary may be merged into or
consolidated with another Subsidiary or with Borrower and (b) for
investments permitted under Section 7.5.

 

7.10         Event of Default.
Permit a default to occur under any document or instrument evidencing Debt in
an outstanding amount of at least $250,000.00 incurred under any indenture,
agreement or other instrument under which such Debt may be issued, or any event
to occur under any of the foregoing which would permit any holder of the Debt
outstanding thereunder to declare the same due and payable before its stated
maturity, whether or not such acceleration occurs or such default be waived.

 

8.             SECURITY AGREEMENT.

 

8.1           Grant of Security
Interest. To secure all of the Obligations, Borrower hereby grants and
transfers to CNB a continuing security interest in the following property
whether now owned or hereafter acquired:

 

8.1.1        All of Borrower’s Inventory;

 

8.1.2        All of Borrower’s Accounts;

 

8.1.3        All of Borrower’s general intangibles as that
term is defined in the Code; 

 

8.1.4        All of Borrower’s equipment, as that term is
defined in the Code;

 

8.1.5        All of Borrower’s interest in any patents (now
existing or pending), copyrights, trade names, trademarks and service marks
useful to the operation of Borrower’s business;

 

8.1.6        All notes, drafts, acceptances, instruments,
documents of title, policies and certificates of insurance, chattel paper,
guaranties and securities now or hereafter received by Borrower or in which
Borrower has or acquires an interest;

 

8.1.7        All cash and noncash proceeds of the foregoing
property, including, without limitation, proceeds of policies of fire, credit
or other insurance;

 

8.1.8        All of Borrower’s books and records pertaining
to any of the Collateral described in this Section 8.1; and

 

8.1.9        Any other Collateral which CNB and Borrower may
designate as additional security from time to time by separate instruments.

 

8.2           Notification of Account
Debtors. CNB will have the right to notify any Account Debtor to
make payments directly to CNB, take control of the cash and noncash proceeds of
any Account, and settle any Account, which right CNB may exercise at any time
if an Event of Default has occurred whether or not Borrower was theretofore
making collections thereon.

 

16

 

8.3           Attorney-In-Fact.
In the event an Event of Default has occurred, CNB or any of its officers is
hereby irrevocably made the true and lawful attorney for Borrower with full
power of substitution to do the following: (a) endorse the name of
Borrower upon any and all checks, drafts, money orders and other instruments
for the payment of moneys which are payable to Borrower and constitute
collections on Accounts; (b) execute in the name of Borrower any
schedules, assignments, instruments, documents and statements which Borrower is
obligated to give CNB hereunder; (c) receive, open and dispose of all mail
addressed to Borrower; (d) notify the Post Office authorities to change
the address for delivery of mail addressed to Borrower to such address as CNB
will designate; and (e) do such other acts in the name of Borrower which
CNB may deem necessary or desirable to enforce any Account or other Collateral.
The powers granted CNB hereunder are solely to protect its interests in the
Collateral and will not impose any duty upon CNB to exercise any such powers.

 

9.             EVENTS OF DEFAULT AND
PROCEEDINGS UPON DEFAULT.

 

9.1           Events of Default.
After expiration of any applicable cure period set forth in Section 9.1 or
9.2, the following will constitute Events of Default under this Agreement:

 

9.1.1        Failure by Borrower to pay when due any (a) principal
amount of Loans, (b) interest owing in respect of the amount of the Loans
and continuation of such default for three (3) Business Days, or (c) other
amount owing under this Agreement or any other Loan Document, and continuance
of any such default for five (5) Business Days;

 

9.1.2        Borrower or any Subsidiary fails to perform or
observe any of the terms, provisions, covenants, agreements or obligations
under any Loan Document (other than those described in Section 9.1.1);

 

9.1.3        Any financial statement delivered after the
date of this Agreement, representation or warranty made or furnished by
Borrower or any Subsidiary or Guarantor in connection with the Loan Documents
proves to have been incorrect in any material respect when made;

 

9.1.4        The filing by Borrower or any Subsidiary of a
voluntary petition under the United States Bankruptcy Code; the filing of an
involuntary petition against Borrower or any Subsidiary under the United States
Bankruptcy Code and the failure of such petition to be dismissed within sixty
(60) days after it is filed; the filing of a voluntary or involuntary action
for dissolution with respect to Borrower or any Subsidiary; the appointment of
a receiver, trustee, custodian or liquidator of or for any material portion of
the assets or property of Borrower or any Subsidiary; or Borrower or any
Subsidiary makes a general assignment for the benefit of creditors;

 

9.1.5        CNB’s security interest in or lien on any
material portion of the Collateral (other than the Accounts) becomes impaired
or otherwise unenforceable;

 

9.1.6        Any Person obtains an order or decree in any
court of competent jurisdiction enjoining or prohibiting Borrower or CNB from
performing this Agreement, and such proceedings are not dismissed or such
decree is not vacated within thirty (30) days after the granting thereof;

 

17

 

9.1.7        Borrower or any Subsidiary neglects, fails or
refuses to keep in full force and effect any governmental permit, license or
approval which is necessary to the operation of its business unless the failure
to do so would not reasonably be expected to result in a Material Adverse
Effect;

 

9.1.8        All or substantially all of the property of
Borrower or any Guarantor or Subsidiary is condemned, seized or otherwise
appropriated;

 

9.1.9        The occurrence of (a) a Reportable Event
(as defined in ERISA) which CNB determines in good faith constitutes grounds
for the institution of proceedings to terminate any pension plan by the PBGC, (b) an
appointment of a trustee to administer any pension plan of Borrower, or (c) any
other event or condition which constitutes grounds under ERISA for the
involuntary termination of any pension plan of Borrower, where such event set
forth in (a), (b) or (c) would reasonably be expected to result in a
Material Adverse Effect;

 

9.1.10      Any obligee of Subordinated Debt fails to comply
with the provisions of the documents evidencing such Subordinated Debt that
provide for the subordination of such Subordinated Debt to CNB or any
Subordination Agreement applicable to such Subordinated Debt; or

 

9.1.11      Any Guarantor revokes its Guaranty, or such
Guaranty becomes otherwise unenforceable with respect to future advances.

 

9.2           Notice of
Default and Cure of Potential Events of Default. Except with respect
to the Events of Default specified in Sections 9.1.1, 9.1.4, or 9.1.5 above,
and subject to the provisions of Section 9.4, CNB will give Borrower at
least thirty (30) days’ written notice of any event which constitutes, or with
the lapse of time would become, an Event of Default, during which time Borrower
will be entitled to cure same.

 

9.3           CNB’s
Remedies. Upon the occurrence of an Event of Default, at the sole
and exclusive option of CNB, and upon written notice to Borrower, CNB may (a) declare
the principal of and accrued interest on the Loans immediately due and payable
in full, whereupon the same will immediately become due and payable; (b) terminate
the obligation of CNB to make additional Loans hereunder; and/or (c) exercise
its rights and remedies under the Loan Documents and all rights and remedies of
a secured party under the Code and other applicable laws with respect to the
Collateral (it being understood that Borrower does not hereby consent or
stipulate to the granting of any such injunctive relief or appointment of a
receiver).

 

9.4           Additional
Remedies. Notwithstanding any other provision of this Agreement,
upon the occurrence of any event, action or inaction by Borrower, or if any
action or inaction is threatened which CNB reasonably believes will materially
and negatively affect the value of the Collateral, CNB may take such legal
actions as it deems necessary to protect the Collateral, including, but not
limited to, seeking injunctive relief and the appointment of a receiver,
whether an Event of Default or Potential Event of Default has occurred under
this Agreement.

 

18

 

10.           MISCELLANEOUS.

 

10.1         Reimbursement
of Costs and Expenses. Borrower will reimburse CNB for all reasonable
and documented out-of-pocket costs and expenses relating to this Agreement
including, but not limited to, filing, recording or search fees, audit or
verification fees, appraisals of the Collateral and other out-of-pocket
expenses, and reasonable attorneys’ fees and expenses expended or incurred by
CNB (or allocable to CNB’s in-house counsel) in documenting or administering
the Loan Documents or collecting any sum which becomes due CNB under the Loan
Documents, irrespective of whether suit is filed, or in the protection,
perfection, preservation or enforcement of any and all rights of CNB in
connection with the Loan Documents, including, without limitation, the fees and
costs incurred in any out-of-court workout or a bankruptcy or reorganization
proceeding. Notwithstanding the foregoing, Borrower shall not be required to
reimburse CNB for its costs and expenses incurred in connection with the
documentation and closing of this Agreement in an amount in excess of
$20,000.00.

 

10.2         Dispute
Resolution.

 

10.2.1      Mandatory
Arbitration. At the request of CNB or Borrower, any dispute, claim
or controversy of any kind (whether in contract or tort, statutory or common
law, legal or equitable) now existing or hereafter arising between CNB and
Borrower and in any way arising out of, pertaining to or in connection with:
(1) this Agreement, and/or any renewals, extensions, or amendments
thereto; (2) any of the Loan Documents; (3) any violation of this
Agreement or the Loan Documents; (4) any incidents, omissions, acts, practices
or occurrences arising out of or related to this Agreement or the Loan
Documents causing injury to either party whereby the other party or its agents,
employees or representatives may be liable, in whole or in part, or (5) any
aspect of the present or future relationships of the parties, will be resolved
through final and binding arbitration conducted at a location determined by the
arbitrator in Los Angeles County, California, and administered by the American
Arbitration Association (“AAA”) in accordance with the California Arbitration
Act (Title 9, California Code of Civil Procedure Section 1280 et. seq.)
and the then existing Commercial Rules of the AAA. Judgment upon any award
rendered by the arbitrator(s) may be entered in any state or federal court
having jurisdiction thereof.

 

10.2.2      Real Property
Collateral. Notwithstanding the provisions of Section 10.2.1,
no controversy or claim will be submitted to arbitration without the consent of
all the parties if, at the time of the proposed submission, such controversy or
claim arises from or relates to an obligation owed to CNB which is secured in
whole or in part by real property collateral. If all parties do not consent to
submission of such a controversy or claim to arbitration, the controversy or claim
will be determined as provided in Section 10.2.3.

 

10.2.3      Judicial
Reference. At the request of any party, a controversy or claim which
is not submitted to arbitration as provided and limited in Sections 10.2.1 and
10.2.2 will be determined by a reference in accordance with California Code of
Civil Procedure Sections 638 et. seq. If such an election is made, the parties
will designate to the court a referee or referees selected under the auspices
of the AAA in the same manner as arbitrators are selected in AAA-sponsored
proceedings. The presiding referee of the panel, or the referee if there is a
single referee, will be an active attorney or retired judge. Judgment upon the
award rendered by such referee or referees will be entered in the court in which
such proceeding was commenced in accordance with California Code of Civil
Procedure Sections 644 and 645.

 

19

 

 

10.2.4      Provisional Remedies, Self Help and Foreclosure. No provision
of this Agreement will limit the right of any party to: (1) foreclose
against any real property collateral by the exercise of a power of sale under a
deed of trust, mortgage or other security agreement or instrument, or
applicable law, (2) exercise any rights or remedies as a secured party
against any personal property collateral pursuant to the terms of a security
agreement or pledge agreement, or applicable law, (3) exercise self help
remedies such as setoff, or (4) obtain provisional or ancillary remedies
such as injunctive relief or the appointment of a receiver from a court having
jurisdiction before, during or after the pendency of any arbitration or
referral. The institution and maintenance of an action for judicial relief or
pursuit of provisional or ancillary remedies, or exercise of self help remedies
will not constitute a waiver of the right of any party, including the
plaintiff, to submit any dispute to arbitration or judicial reference.

 

10.2.5      Powers and
Qualifications of Arbitrators. The arbitrator(s) will give
effect to statutes of limitation, waiver and estoppel and other affirmative
defenses in determining any claim. Any controversy concerning whether an issue
is arbitratable will be determined by the arbitrator(s). The laws of the State
of California will govern. The arbitration award may include equitable and
declaratory relief. All arbitrator(s) selected will be required to be a
practicing attorney or retired judge licensed to practice law in the State of
California and will be required to be experienced and knowledgeable in the
substantive laws applicable to the subject matter of the controversy or claim
at issue.

 

10.2.6      Discovery. The
provisions of California Code of Civil Procedure Section 1283.05 or its
successor section(s) are incorporated herein and made a part of this
Agreement. Depositions may be taken and discovery may be obtained in any
arbitration under this Agreement in accordance with said section(s).

 

10.2.7      Miscellaneous. The
arbitrator(s) will determine which is the prevailing party and will
include in the award that party’s reasonable attorneys’ fees and costs
(including allocated costs of in-house legal counsel). Each party agrees to
keep all controversies and claims and the arbitration proceedings strictly
confidential, except for disclosures of information required in the ordinary
course of business of the parties or by applicable law or regulation.

 

10.3         Cumulative
Rights and No Waiver. All rights and remedies granted to CNB under
the Loan Documents are cumulative and no one such right or remedy is exclusive
of any other. No failure or delay on the part of CNB in exercising any right or
remedy will operate as a waiver thereof, and no single or partial exercise or
waiver by CNB of any such right or remedy will preclude any further exercise
thereof or the exercise of any other right or remedy.

 

10.4         Applicable
Law. This Agreement will be governed by California law.

 

10.5         Lien and
Right of Set-off. If an Event of Default shall have occurred and be
continuing, CNB is hereby authorized at any time and from time to time, without
notice to Borrower or any other Person, to the fullest extent permitted by law,
to setoff and apply any and all deposits (general or specific, time or savings
or demand, provisional or final) at any time held and any other Debt at any
time owing by CNB to or for the credit or the account of Borrower against any
and all of the Obligations of Borrower now or hereafter existing under the
Agreement and the other Loan Documents, irrespective of whether or not CNB
shall have made any demand under this Agreement or such other Loan Documents
and although such obligations may be unmatured. The rights of CNB under this
Section are in addition to other rights and remedies (including other
rights of setoff) which CNB may have under applicable law.

 

20

 

 

10.6         Notices.  Any
notice required or permitted under any Loan Document will be given in writing
and will be deemed to have been given when personally delivered or when sent by
the U.S. mail, postage prepaid, certified, return receipt requested, properly addressed.
For the purposes hereof, the addresses of the parties will, until further
notice given as herein provided, be as follows:

 

	
  CNB:

  	
   

  	
  City National Bank

  555 South Flower Street, 24th Floor

  Los Angeles, California 90071

  Attention: Aaron Cohen, Senior Vice President

  
	
   

  	
   

  	
   

  
	
  with copy to:

  	
   

  	
  City National Bank, Legal Department 

  555 South Flower Street, 18th Floor

  Los Angeles, California 90071

  Attention: Managing Counsel, Credit Unit

  
	
   

  	
   

  	
   

  
	
  Borrower:

  	
   

  	
  RealD Inc.

  100 N. Crescent Drive, Suite 120

  Beverly Hills, California 90210

  Attention: Andrew Skarupa, Chief Financial
  Officer

  

 

10.7         Assignments.
 The provisions of this
Agreement are hereby made applicable to and will inure to the benefit of CNB’s
successors and assigns and Borrower’s successors and assigns; provided,
however, that Borrower may not assign or transfer its rights or obligations
under this Agreement without the prior written consent of CNB. CNB reserves the
right to sell, assign, transfer, negotiate, or grant participations in all or
any part of, or any interest in, CNB’s rights and benefits hereunder, but only
with the prior written consent of Borrower; provided,
however, no such consent shall be required if (i) any such
sale, assignment, transfer, negotiation or participation is to an Affiliate of
CNB (in which circumstances, however, a written notice will be provided to
Borrower of such sale, assignment, transfer, negotiation or participation), or
(ii) an Event of Default has occurred and is continuing.

 

10.8         Confidentiality.
 CNB agrees to keep this
Agreement and information obtained by it pursuant hereto and the other Loan
Documents confidential in accordance with CNB’s customary practices and agrees
it will only use such information in connection with the transactions
contemplated by this Agreement and the other Loan Documents, and not disclose
any of such information other than (a) to CNB’s employees, attorneys,
representatives, agents, directors or other Persons who are, or are expected to
be, involved in the evaluation of such information in connection with, and the
administration and servicing of, the transactions contemplated by this
Agreement and who are advised of the confidential nature of such information,
(b) to the extent such information presently is or hereafter becomes
available to CNB on a non-confidential basis from a source other than Borrower,
(c) to the extent disclosure is required by law, regulation or judicial
order or requested or required by applicable regulators or auditors, or (d) to
assignees, participants or other transferees or potential assignees,
participants or other transferees who agree to be bound by the provisions of
this sentence.

 

21

 

10.9         Indemnification.

 

10.9.1      Borrower will, at all times, defend and indemnify
and hold CNB (which for purposes of this Section 10.9 includes CNB’s
parent company and subsidiaries and all of their respective shareholders,
directors, officers, employees, agents, representatives, successors, attorneys
and assigns) harmless from and against any and all liabilities, claims,
demands, causes of action, losses, damages, expenses (including without
limitation reasonable attorneys’ fees, which attorneys may be employees of CNB,
or may be outside counsel), costs, settlements, judgments or recoveries arising
out of or resulting from (a) any breach of the representations,
warranties, agreements or covenants made by Borrower herein; (b) any suit
or proceeding of any kind or nature whatsoever against CNB arising from or
connected with the transactions contemplated by this Agreement, the Loan
Documents or any of the rights and properties assigned to CNB hereunder; and/or
(c) any suit or proceeding that CNB may deem necessary to institute, in
the name of CNB, Borrower or both, against any other Person, for any reason
whatsoever to protect any material rights of CNB hereunder or under any of the
documents, instruments or agreements executed or to be executed pursuant
hereto, including reasonable and documented attorneys’ fees and court costs and
all other reasonable and documented out-of-pocket costs and expenses incurred
by CNB (or allocable to CNB’s in-house counsel), all of which will be charged
to and paid by Borrower and will be secured by the Collateral. Any obligation
or liability of Borrower to CNB under this Section will survive the
Termination Date and the repayment of all Obligations of Borrower to CNB.

 

10.9.2      Borrower will, at all times, indemnify and hold
CNB harmless from and against any liabilities, claims, demands, causes of
action, losses, damages, expenses (including without limitation reasonable
attorneys’ fees, which attorneys may be employees of CNB, or may be outside
counsel), costs, settlements, judgments or recoveries directly or indirectly
arising out of or attributable to the use, generation, manufacture, production,
storage, release, threatened release, discharge, disposal or presence of a
hazardous substance on, under, or about Borrower’s property or operations or
property leased to or used by Borrower. For these purposes, the term “hazardous
substances” means any substance which is or becomes designated as “hazardous”
or “toxic” under any Federal, state, or local law. This indemnity will survive
the Termination Date and the repayment of all Obligations of Borrower to CNB.

 

10.10       Complete Agreement.
This Agreement, together with the other Loan Documents, constitutes the entire
agreement of the parties and supersedes any prior or contemporaneous oral or
written agreements or understandings, if any, which are merged into this Agreement.
This Agreement may be amended only in a writing signed by Borrower and CNB.

 

10.11       Headings.
Section headings in this Agreement are included for convenience of
reference only and do not constitute a part of the Agreement for any purpose.

 

10.12       Accounting Terms.
Except as otherwise stated in this Agreement, all accounting terms and
financial covenants and information will be construed in conformity with, and
all financial data required to be submitted will be prepared in conformity
with, GAAP as in effect on the date hereof.

 

10.13       Severability. Any
provision of the Loan Documents which is prohibited or unenforceable in any
jurisdiction, will be, only as to such jurisdiction, ineffective to the extent
of such prohibition or unenforceability, but all the remaining provisions of
the Loan Documents will remain valid.

 

22

 

10.14 Counterparts. This Agreement may be signed
in any number of counterparts which, when taken together, will constitute but
one agreement.

 

IN WITNESS WHEREOF, CNB and Borrower have
caused this Agreement to be executed as of the date first specified at the
beginning of this Agreement.

 

	
  Borrower

  	
   

  	
  RealD Inc., a

  
	
   

  	
   

  	
  Delaware corporation

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Michael V. Lewis

  
	
   

  	
   

  	
   

  	
  Michael V. Lewis

  
	
   

  	
   

  	
   

  	
  Chairman and Chief Executive Officer

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  CNB

  	
   

  	
  City National Bank, a
  national

  
	
   

  	
   

  	
  banking association

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Aaron Cohen

  
	
   

  	
   

  	
   

  	
  Aaron Cohen

  
	
   

  	
   

  	
   

  	
  Senior Vice President

  

 

23

 

Schedule
1.28

Existing Liens

(no financing statement filings noted)

 

24

 

EXHIBIT A

 

COVENANT
COMPLIANCE CERTIFICATE

 

The undersigned,                                          ,
the                              of
RealD Inc., a Delaware corporation
(“Borrower”) delivers this certificate pursuant to the Credit and Security
Agreement (the “Credit Agreement”) dated as of June 8, 2010, between
Borrower and City National Bank (“CNB”),
as amended. Terms and Section numbers used herein shall have the same
meaning as the Credit Agreement.

 

The undersigned certifies the accuracy of this Certificate as of
                           ,
(the “Effective Date”).

 

	
  1.

  	
  Ratio of EBITDA  to Fixed Charges (Section 6.10.1)

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  1.1

  	
  EBITDA:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  1.1.1

  	
  Net income (after eliminating extraordinary
  gains and losses):

  	
   

  	
  $

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  1.1.2

  	
  All interest on Debt:

  	
   

  	
  $

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  1.1.3

  	
  Cash paid for income taxes (including
  property taxes sales and use taxes not reimbursed to Borrower):

  	
   

  	
  $

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  1.1.4

  	
  Depreciation and Amortization:

  	
   

  	
  $

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  1.1.5

  	
  Non-cash stock option expenses:

  	
   

  	
  $

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  1.1.6

  	
  Restructuring Charges, severance costs and
  reserves (including restructuring charges relate to acquisitions and the
  consolidation of facilities):

  	
   

  	
  $

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  1.1.7

  	
  Impairment of long lived assets:

  	
   

  	
  $

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  1.1.8

  	
  Non-recurring costs and expenses arising
  from or relating to Borrower’s initial public stock offering:

  	
   

  	
  $

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  1.1.9

  	
  1.1.1, 1.1.2, 1.1.3, 1.1.4, 1.1.5, 1.1.6,
  1.1.7 plus 1.1.8

  	
   

  	
  $

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  1.2

  	
  Fixed Charges:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  1.2.1

  	
  Current Maturity of Long Term Debt:

  	
   

  	
  $

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  1.2.2

  	
  Interest incurred on borrowed money:

  	
   

  	
  $

  

 

1

 

	
   

  	
   

  	
  1.2.3

  	
  Cash paid for income taxes (excluding
  property and sales and use taxes not reimbursed to Borrower):

  	
   

  	
  $

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  1.2.4

  	
  Maintenance capital expenditures (excluding
  (a) any  replacement of Z Screens
  with XLs (i.e. upgrades), (b) purchases of Digital Link projectors and
  servers and (c) any costs related to the roll-out of new REAL D 3-D
  theater systems):

  	
   

  	
  $

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  1.2.5

  	
  Total of 1.2.1, 1.2.2, 1.2.3, plus 1.2.4:

  	
   

  	
  $

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  1.3

  	
  Ratio of 1.1.9 to 1.2.5:

  	
   

  	
                to
  1.0

  

 

Required: At least
1.25 to 1.0 for the twelve months ending with the end of each fiscal quarter
commencing with the fiscal quarter ending June 30, 2010.

 

2.     Ratio of Debt to EBITDA (Section 6.10.2):

 

	
   

  	
  2.1

  	
  Debt:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  2.1.1      Obligations
  for borrowed money, or reimbursement for open letters of credit and banker’s
  acceptances:

  	
   

  	
  $

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  2.1.2      Obligations
  evidenced by bonds, debentures, notes or other similar instruments:

  	
   

  	
  $

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  2.1.3      Obligations
  to pay the deferred purchase price of property or services:

  	
   

  	
  $

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  2.1.4      Capitalized
  lease obligations:

  	
   

  	
  $

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  2.1.5      Obligations
  or liabilities of others secured by a lien on any asset of Borrower or any
  Subsidiary, whether or not such obligation or liability is assumed:

  	
   

  	
  $

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  2.1.6      Obligations
  guaranteed:

  	
   

  	
  $

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  2.1.7      Obligations,
  direct or indirect, for letters of credit:

  	
   

  	
  $

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  2.1.8      Total
  of 2.1.1 through 2.1.7:

  	
   

  	
  $

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  2.2

  	
  EBITDA (from 1.1.9 above):

  	
   

  	
  $

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  2.3

  	
  Ratio of 2.1.8 to 2.2:

  	
   

  	
                to
  1.0

  
						

 

2

 

Required: No greater
than 1.00 to 1.0 for the twelve months ending with the end of each fiscal
quarter commencing with the fiscal quarter ending June 30, 2010.

 

CERTIFICATION:

 

Each of the above stated information is true
and correct as of the date hereof and Borrower has met each of the Conditions
set forth in Section 4.2 of the Credit Agreement, and no Events of Default
or Potential Events of Default presently exist.

 

I declare under penalty of perjury that the
foregoing is true and correct.

 

	
  Date:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  (Signature and Title)

  

 

3Exhibit 10.35

 

REAL D

100 N. Crescent Drive., Suite 120

Beverly Hills, CA 90210

 

September 1,
2007

 

Andrew A. Skarupa

1518 Alta Park Lane

La Canada, CA 91011

 

	
  Re:

  	
  Amended and Restated
  Agreement of Employment by and between

  	
   

  
	
   

  	
  REAL D and Andrew
  Skarupa

  	
   

  

 

This Amended and Restated
Agreement of Employment by and between REAL D (“REAL D”, or the “Company”)  and
Andrew Skarupa (this “Agreement”)  amends
and restates the terms contained in that certain Offer of Employment by REAL D
dated December 17, 2004, previously agreed to by you and REAL D (the “Employment
Offer”). You shall report directly to the
Chief Executive Officer, and your title shall be Chief Financial Officer. The
terms of our offer, and the benefits to be provided by the Company, each to be
effective as of September 1, 2007, are as follows:

 

1.                                       Base Salary. Your base salary will be $225,000 per
annum, effective as of September 1, 2007. Your base salary shall increase
to $250,000 per annum once the installed base commitment exceeds 4,000 REAL D
systems, and the installed base exceeds 1,500 REAL D systems.

 

2.                                       Term. Unless sooner terminated as hereinafter
provided, the term of your employment hereunder shall continue for a period of
four (4) years from the date hereof (the “Term”).

 

3.                                       Benefits. The Company shall provide you with
standard medical benefits comparable in coverage to the medical benefits
customarily provided to senior executives of the Company. For each full
calendar year during the period that you are employed by the Company, you shall
be entitled to three (3) paid weeks vacation (each week consisting of five
(5) business days). In addition, you will be eligible to receive certain
other employee benefits pursuant to the Company’s standard benefit plans that
the Company generally provides to its senior executives, including, for
example, Company paid holidays. Finally, the Company will reimburse you for the
reasonable and necessary costs of DSL, phone and office expenses; provided,
that such expenses are approved in advance by the Company in writing.

 

4.                                       Bonuses. Throughout the Term, you shall be eligible to
receive a bonus, payable within sixty (60) days of the end of each fiscal year
during which you remain employed by the Company, in an amount equal to 1.2% of
the Company’s Annual Free Cash Flow. In addition, you shall be eligible to
receive an additional (i) one-time bonus equal to 15% of the base salary
that you are then being paid if the Company exceeds its plan for the fiscal
year ending March 31, 2008, and (ii) one-time bonus equal to 30% of
the base salary that you are then being paid if the Company exceeds its plan
for the fiscal year ending March 31, 2009, each such bonus to be

 

 

payable within sixty (60)
calendar days of the end of the fiscal year during the Term in which the applicable
milestone is achieved. You must be employed at the end of a fiscal year to
receive a bonus that would otherwise be payable for that fiscal year; provided,
however, that in the event your employment is terminated by the Company
without “Cause”, or is voluntarily terminated by you for “Good Reason” (each as
defined in Section 9 below), you shall be entitled to receive a pro rated
share of the bonus that would otherwise be payable to you within sixty (60)
days of the end of the applicable fiscal year. For purposes of this Agreement, “Annual
Free Cash Flow” shall mean the Company’s cash flow provided by operations, less
all capital expenditures, for the fiscal year in question.

 

5.                                       Option Grant. In addition to the options to purchase
shares of Common Stock of the Company that were previously granted to you, if
and when the audited net income of the Company for any fiscal year exceeds
$1,000,000, and provided that you are employed by the Company as of the actual
date that this milestone is achieved (if at all), you will be granted an option
to purchase 50,000 shares of Common Stock of the Company, pursuant to the
Company’s 2004 Amended and Restated Stock Incentive Plan (the “Plan”), and
with an exercise price equal to the fair market value of the Company’s Common
Stock, as determined by the Board of Directors of the Company (the “Board”), on
the date of grant. If and when granted, 12,500 of the shares subject to the
option shall vest and become exercisable on the one (1) year anniversary
of the date of grant, and 37,500 of the shares subject to the options shall
vest and become exercisable monthly thereafter over the next three (3) years,
with all of the options vesting in full upon the four (4) year anniversary
of the date of grant. Further details on the Plan and any specific vesting and
option grants to you will be provided upon final approval of such grants by the
Board. Copies of the Plan and the Company’s standard form of option grant
notice and stock option agreement will be made available to you upon request.

 

6.                                       Travel. You shall also be entitled to
reimbursement, in accordance with the Company’s travel and entertainment
policy, for all expenses incurred in travel pursuant to the normal course of
business.

 

7.                                       Acceleration of
Vesting. In
accordance with the terms of the Plan, all of the then unvested shares subject
to any unvested options that you then hold shall accelerate, vest and become
exercisable (i) immediately prior to the consummation of a “Company Transaction”  (as
defined in the Plan), in the event the options are not assumed, converted or
substituted for by the successor company, or (ii) immediately, in the
event your employment hereunder should terminate (a) in connection with
the Company Transaction, or (b) subsequently within one (1) year following
such Company Transaction, or (iii) at such time as you no longer hold the
title of Chief Financial Officer, or (iv) ten (10) business days
following notice to us of either a change in your responsibilities that, in
your reasonable judgment, represents a substantial reduction in your
responsibilities as in effect immediately prior thereto, or the assignment to
you of any duties or responsibilities that, in your reasonable judgment, are
materially inconsistent with your status, title, position or responsibilities; provided,
however, that no acceleration shall occur in connection with a
termination of your employment for “Cause”, or by you voluntarily other
than for “Good Reason”  (each as defined in Section 9 below).

 

2

 

8.                                       Confidentiality. As an employee of the Company, you will
have access to certain confidential information of the Company and you may,
during the course of your employment, develop certain information or inventions
which will be the property of the Company. To protect the interests of the
Company, you have previously executed the Company’s standard “Employee
Invention Assignment and Confidentiality Agreement” as a condition of your
employment. During the period that you render services to the Company, you (a) agree
to not engage in any employment, business or activity that is in any way
competitive with the 3-D cinema business then conducted or then proposed to be
conducted by the Company, (b) will disclose to the Company in writing any
other gainful employment, business or activity that you are currently
associated with or participate in that competes with the Company, and (c) will
not assist any other person or organization in competing with the Company’s 3-D
cinema business or in preparing to engage in competition with the 3-D cinema
business or proposed 3-D cinema business of the Company. You represent that
your execution of this Agreement, agreement(s) concerning stock options
granted to you, if any, under the Plan, and the Company’s Employee Invention
Assignment and Confidentiality Agreement, and your continuation of employment
with the Company, will not violate any agreement currently in place between
yourself and current or past employers.

 

9.                                  Severance. Notwithstanding anything to the contrary
set forth herein, in the event your employment hereunder is terminated by the
Company without “Cause”  or
by you for “Good Reason”  (each as defined in this Section 9), at any
time during the Term, you shall immediately receive a cash payment equivalent
to one-half (1/2) of the base salary per annum then being paid to you, and
payable in a lump sum amount (less required withholding).

 

For purposes of your
employment and any option grants to be made pursuant to the terms of this
Agreement, “Cause”  shall
mean your: (i) conviction of any crime which constitutes a felony
involving moral turpitude or which impairs your ability to perform your duties
with the Company; (ii) commitment of any act of dishonesty or fraud
against the Company, or its affiliates, or the misappropriation of funds of the
Company, or its affiliates; (iii) failure to follow the reasonable
policies or directions of the Board or failure to substantially perform your
duties to the Company, in either case which failure is not cured within thirty
(30) days of the Company’s written notice to you; or (iv) breach of any
terms of your employment hereunder or your Employee Invention Assignment and
Confidentiality Agreement, which breach is not cured within thirty (30) days of
the Company’s written notice to you.

 

For purposes of your
employment and any Option grants to be made pursuant to the terms of this
Agreement, “Good Reason,”  shall mean the occurrence of any of the
following events or conditions, and the failure of the Company or, in the case
that a “Company Transaction”  has occurred (as defined in
the Plan), the “Successor Company”  (as defined in the Plan), to
cure such event or condition within thirty (30) days after receipt of written
notice from you:

 

(a)                                  a change in your status, title, position
or responsibilities (including reporting responsibilities) that, in your
reasonable judgment, represents a substantial reduction in

 

3

 

your status, title,
position or responsibilities as in effect immediately prior thereto; the
assignment to you of any duties or responsibilities that, in your reasonable
judgment, are materially inconsistent with your status, title, position or
responsibilities; or your removal from or any failure to reappoint or reelect
you to any of such positions, except in connection with the termination of your
employment for Cause, as a result of your “Disability”  (as defined in the Plan), or
death, or by you other than for Good Reason;

 

(b)                                 a reduction in your base annual salary;

 

(c)                                  the Company’s or the Successor Company’s
requiring you (without your consent) to be based at any place outside a 25-mile
radius of your place of employment on the date of this Agreement, except for
reasonably required travel on the Company’s or the Successor Company’s business
that is not materially greater than such travel requirements as historically
required;

 

(d)                                 the Company’s or the Successor Company’s
failure to (i) continue in effect any material compensation or benefit
plan (or the substantial equivalent thereof) in which you were participating as
of the date of this Agreement, or at the time of a Company Transaction, as
applicable, and including, but not limited to, the Plan, or (ii) provide
you with compensation and benefits substantially equivalent (in terms of
benefit levels and/or reward opportunities) to those provided for under each
material employee benefit plan, program and practice as in effect as of the
date of this Agreement, or immediately prior to the Company Transaction, as applicable;

 

(e)                                  any material breach by the Company or
Successor Company of its obligations to you under the Plan or any substantially
equivalent plan of the Company or the Successor Company;

 

(f)                                    any purported termination of your
employment or service relationship for Cause by the Company or the Successor
Company that is not in accordance with the definition of Cause contained in
this Section 9; or

 

(g)                                 any change in your reporting relationship
relative to Michael V. Lewis.

 

10.                                 Entire
Agreement; No Modification. This Agreement, your Employee Invention Assignment
and Confidentiality Agreement, and the Plan, shall constitute the entire
agreement between the parties hereto relating to the subject matter hereof, and
supersede all prior oral or written agreements, understandings, representations
and courses of conduct and dealing between the parties relating to the subject
matter hereof, including without limitation the Employment Offer. This
Agreement may not be amended or modified except in a writing executed by both
parties hereto. This Agreement may be executed in counterparts, each of which
shall constitute an original, and all of which will constitute one and the same
instrument.

 

4

 

11.                            At-Will
Employment. You will continue to be an at-will employee of the Company, which
means the employment relationship can be terminated by either of us for any
reason, or no reason, and at any time, with or without notice. Any statements
or representations to the contrary (and, indeed, any statements contradicting
any provision in this letter) should be regarded by you as ineffective.
Further, your participation in any stock option or benefit program is not to be
regarded as assuring you of continuing employment for any particular period of
time.

 

12.                                 Miscellaneous.

 

(a)                                  All payments to be made pursuant to this
Agreement shall be made, in US Dollars, in accordance with normal payroll
practices, and shall be subject to withholding of such amounts as is required
under applicable law.

 

(b)                                 This Agreement shall be governed by and
construed under the laws of the State of California without regard to
principles of conflict of laws. The parties irrevocably consent to the
jurisdiction and venue of the state and federal courts located in Los Angeles
County, California in connection with any action relating to this Agreement.

 

(c)                                  Any and all notices required or permitted
to be given to you or the Company pursuant to the provisions of this Agreement
will be in writing and will be effective and deemed to provide such party
sufficient notice hereunder on the earliest of the following: (i) at the
time of personal delivery, if delivery is in person; (ii) one (1) business
day after deposit with an express overnight courier for United States deliveries,
or two (2) business days after such deposit for deliveries outside of the
United States; (iii) three (3) business days after deposit in the
United States mail by certified mail (return receipt requested) for United
States deliveries. All notices not delivered personally will be sent with
postage and/or other charges prepaid and properly addressed to the party to be
notified at the address set forth in this Agreement for such party, or at such
other address as such party may designate by one of the indicated means of
notice herein to the other party hereto.

 

5

 

Could
you please sign the enclosed copy of this Agreement in the space indicated
below and return it to me. Your signature will acknowledge that you have read
and understood and agreed to the terms and conditions of this Agreement and the
Employee Invention Assignment and Confidentiality Agreement previously executed
by you.

 

 

	
   

  	
  Very
  truly yours,

  
	
   

  	
   

  
	
   

  	
  /s/
  Michael V. Lewis

  
	
   

  	
  Michael
  V. Lewis,

  
	
   

  	
  Chief
  Executive Officer

  

 

 

Acceptance

 

I
have read and understand the Employment Terms, and hereby acknowledge that I accept and agree to the terms as set forth
above, and further acknowledge that no other commitments were made to me as
part of my employment except as specifically set forth herein.

 

 

	
  /s/
  Andrew A. Skarupa

  	
   

  	
  9/1/2007

  
	
  Andrew
  A. Skarupa

  	
   

  	
  Date
  Signed

  

 

6

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