Document:

Exhibit 10.19

 

OPERATING
AGREEMENT

OF

DIGITAL
LINK II, LLC

 

THIS OPERATING AGREEMENT
(this “Agreement”),  is
made and entered into as of March 2, 2007, by Digital Link II, LLC, a
Delaware limited liability company (the “Company”), REAL D, a California
corporation (“REAL D”), and Ballantyne of Omaha, Inc.,
a Delaware corporation (“Ballantyne”).  REAL D and Ballantyne are referred to herein
collectively as the “Members,”
and each individually as a “Member.”

 

A.            The Members formed the
Company for purposes of commercializing certain 3D technology developed and
owned by REAL D.

 

B.             Ballantyne is a manufacturer
and reseller of projectors and other equipment necessary to the deployment of
REAL D’s technology in theatres.

 

C.             REAL D will license certain
of its technology to the Company pursuant to a non-exclusive license agreement,
pursuant to which the Company will have the right to use and sublicense such
technology in connection with the Company’s sale of digital cinema projection
systems (“Cinema Systems”)  to
certain operators of theatre venues (“License”).

 

D.            The Company will purchase
projectors and accessories from Ballantyne at the prices specified in Exhibit A
hereto and servers from [                          ]
at the prices specified in Exhibit A hereto.

 

E.             The Company shall (i) initially
transfer a limited right to use the Cinema Systems to certain theatre venues,
and (ii) install the Cinema Systems against virtual print fees payable by
the studios on such terms and conditions as will be provided in separate
Digital Cinema System Transfer Agreements in substantially the form attached
hereto as Exhibit B (“Transfer Agreement”).

 

F.             Subject to the successful
negotiation of service contracts with the operators of the theatre venues, on
terms acceptable to Ballantyne, Ballantyne will be responsible for the service
and maintenance of such Cinema Systems.

 

G.             REAL D will initially be
responsible for the management and operations of the Company, for which it will
be paid a management fee of ten percent (10%) of the virtual print fees
collected by the Company, not to exceed $2,500 per fiscal year, plus expenses
incurred in connection with such management services, as specified in this
Agreement.

 

In consideration of the
premises and the mutual covenants herein contained and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
and intending to be legally bound the parties hereby agree as follows:

 

 

ARTICLE 1:
DEFINITIONS

 

The following terms have the
following respective meanings (unless the context otherwise requires). The
singular shall include the plural, and the masculine gender shall include the
feminine and neuter, and conversely, as the context requires.

 

1.1          “Act”  means the
Delaware Limited Liability Company Act, codified in Title 6 of the Delaware
Code, Section 18-101 et seq., as amended from time to time.

 

1.2          “Affiliate”
as applied to any Person, means any other Person directly or indirectly
controlling, controlled by, or under common control with, that Person.

 

1.3          “Agreement”
means this Limited Liability Company Operating Agreement, as amended
from time to time.

 

1.4          “Assignee”
means a Person who is a permitted transferee of a Membership Interest in
accordance with Article 10.2 below.

 

1.5          “Available Cash”  means cash and cash equivalents of the Company on
hand from time to time after (i) provision for payment of all outstanding
and unpaid current obligations of the Company as of such time; and (ii) provision
for reserves for working capital expenditures, contingent obligations and other
future requirements in excess of reasonably anticipated revenues, such reserves
equal to such amount as shall be approved by a majority of the Board.

 

1.6          “Board”  means the Board
of Managers of the Company.

 

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

 

1.8          “Capital Account”  means the separate Capital Account maintained by the
Company for each Member in accordance with Regulations Section 1.704-l(b)(2)(iv).

 

1.9          “Chief Executive Officer”  means the Chief Executive
Officer of the Company or such other person as shall be designated by the Board
to serve the function as the Chief Executive Officer for purposes of this
Agreement.

 

1.10        “Code”  means the
Internal Revenue Code of 1986, as amended from time to time. All references
herein to Sections of the Code shall include any corresponding provision or
provisions of succeeding law.

 

1.11        “Company”  has the meaning
set forth in the preamble hereto.

 

1.12        “Confidential Information”  has the meaning assigned to
that term in Section 15.1 hereof.

 

2

 

1.13        “Distribution(s)”  means any cash or property distributed to a Member
(or Members) with respect to such Member’s Membership Interest but does not
include (a) any management or other fees or expense reimbursement paid to
a Member, or (b) the repayment of any loans or interest thereon made by
any Member, or Person or Affiliate to the Company.

 

1.14        “Fiscal Year”  except as provided under the Code, means a twelve
(12) month period ending on December 31st.

 

1.15        “Gross Asset Value”  of any assets contributed to
the Company shall be the gross fair market value of such asset as determined in
good faith by the Board.

 

1.16        “Membership Interest”  means the entire legal and
equitable ownership interest in the Company of a Member at any particular time.

 

1.17        “Manager”  means a member
of the Board.

 

1.18        “Member Loan Minimum Gain”  has the meaning assigned to
the term “partner nonrecourse debt minimum gain” in Regulations Section 1.704-2(i)(2).

 

1.19        “Member Loan Nonrecourse Debt”  has the meaning assigned to
the term “Partner Nonrecourse Debt” in Regulations Section 1.704-2(b)(4).

 

1.20        “Member Loan Nonrecourse Deduction”  has the meaning assigned to
the term “Partner Nonrecourse Deduction” in Regulations Section 1.704-2(i)(2).

 

1.21        “Members”  means
Ballantyne and/or REAL D, and their Assignees.

 

1.22        “Minimum Gain”  has the meaning set forth in Regulations Sections
1.704-2(b)(2) and 1.704-2(d).

 

1.23        “Nonrecourse Deduction”  has the meaning set forth in
Regulations Section 1.704-2(b)(l).

 

1.24        “Nonrecourse Liability”  has the meaning set forth in
Regulations Section 1.704-2(b)(3).

 

1.25        “Offeree”  has the meaning
assigned to that term in Section 10.3 hereof.

 

1.26        “Person”  means any
individual, partnership, joint venture, corporation, limited liability company,
trust, or other association or entity.

 

1.27        “Regulations”  means the regulations promulgated by the United
States Department of the Treasury pursuant to and in respect of provisions of
the Code. All references herein to Sections of the Regulations shall include
any corresponding provision or provisions of succeeding, similar, substitute,
proposed or final Regulations.

 

1.28        “Securities Act” means the
Securities Act of 1933, as amended from time to time.

 

3

 

ARTICLE 2:
ORGANIZATION AND FORMATION

 

2.1           Formation.   Ballantyne and REAL D hereby form the
Company as a limited liability company under the Act.

 

2.2           Certificate of Formation. In
furtherance of the foregoing, the Members shall promptly cause a certificate of
formation substantially in the form of Exhibit C hereto (as amended
from time to time, the “Certificate”) to be filed with the
Secretary of State of Delaware as required by the Act.

 

2.3           Name of the Company. The name of
the Company shall be Digital Link II, LLC, and all business and affairs of the
Company shall be conducted under such name.

 

2.4           Principal Office of the
Company. The Company’s principal office shall be at such place as the Board
shall from time to time designate.

 

2.5           Business of the Company. The Company
is being formed for the purpose of (i) marketing and selling the Systems
and related products to operators of theatre venues, and the provision of
related products and services (activities described in this clause (i) being
referred to as the “Business”),  (ii) performing any and all other activities
which may be necessary, incidental or convenient to carry on the Business, and (iii) engaging
in any other business which it is lawful for a limited liability company to
engage pursuant to the Act. This Agreement shall not be deemed to create a
partnership or joint venture between the Members, for any purposes other than
federal, state and local tax purposes.

 

2.6           Term. The term of
the Company shall commence effective as of the close of business on the date of
filing of the Certificate with the Secretary of State of Delaware and shall
have perpetual existence, unless terminated as provided in this Agreement or by
the Act. No Member shall have the right, and each Member hereby agrees not to
withdraw from the Company, nor to dissolve, terminate or liquidate, or to petition
a court for the dissolution, termination or liquidation of the Company, except
as expressly permitted in this Agreement, and no Member at any time shall have
the right, without the consent of the Company, to petition or to take any
action to subject the Company assets, or any part thereof, to the authority of
any court of bankruptcy, insolvency, receivership or similar proceeding.

 

2.7           Registered Agent and Office. The
registered agent for the Company in the State of Delaware shall be Corporation
Trust Center, or such other Person as the Board may designate. The registered
office of the Company shall be 1209 Orange Street, Wilmington, County of New
Castle, or such other place as the Board shall designate.

 

ARTICLE 3:
MEMBERS

 

3.1           Members. Ballantyne and REAL D
shall be the initial Members. As of the date of this Agreement, there are no
other Members of the Company and no other Person has any right to take part in
the ownership of the Company. Additional members of the Company may be added (i) pursuant
to Section 3.6 below in connection with the transfer of any Membership
Interest, or (ii) as determined by the Board and approved by the Members
pursuant to Section 3.6 below.

 

4

 

3.2          Membership Interests. The Membership
Interest of each Member in and to the Company and its assets, including each
Member’s interest in the income, gains, deductions, credits, allowances,
expenses, profits, losses and distributions realized or incurred from the
operation of the Company, and the initial Capital Account of each initial
Member, shall be based on the value of the business or other assets contributed
by or on behalf of each Member as follows:

 

	
   

  	
   

  	
  Membership Interest

  	
   

  	
  Initial Capital Account

  	
   

  
	
  Ballantyne

  	
   

  	
  44.4

  	
  %

  	
  $

  	
  39,000

  	
   

  
	
  REAL D

  	
   

  	
  55.6

  	
  %

  	
  $

  	
  49,000

  	
   

  
	
  TOTAL

  	
   

  	
  100

  	
  %

  	
  $

  	
  88,000

  	
   

  

 

Upon the admission of a new Member, the Membership Interests of all
Members shall be proportionately reduced to reflect the Membership Interest of
such new Member (whose Membership Interest shall be based on the relative value
which such new Member’s capital contribution bears to the value of the existing
Members’ Membership Interests).

 

3.3           Voting Rights.

 

(a)              In addition to voting rights
required by law or by other provisions of this Agreement, the Members shall be
entitled to vote on all matters submitted to a vote of the Members based on
their relative Membership Interests.

 

(b)              The affirmative vote of
sixty-six and two-thirds percent (66 2/3%) of the Membership Interests shall be
necessary to authorize: (i) amend or waive any provision of this Agreement
in a manner that would materially and adversely affect a Member; (ii) enter
into a Company sale transaction by way of merger, sale of the Membership
Interests, or sale of all or substantially all of the assets; or (iii) authorize
the issuance of securities having a preference over or on parity with the
Membership Interests.

 

3.4           Liability of Members. No Member shall be liable
for the debts, obligations or liabilities of the Company, including under a
judgment decree or order of a court. No Member shall be liable to any other
Member or to the Company by reason of the actions or inactions of such Member
in connection with the Company unless such actions or omissions are not done or
made in good faith or constitute (a) actual fraud, or (b) willful
misconduct with the intent to harm the Company or any Member.

 

3.5           Inspection Rights. On written request stating
the purpose, a Member may examine and copy in person, at such times as
reasonably determined by the Board, and at that Member’s sole expense, records
required to be maintained under the Act and such other information regarding
the business, affairs and financial condition of the Company as is reasonable
for the Member to examine and copy, to the extent that such information is
being sought for a purpose reasonably related to the Member’s ownership
interest in the Company.

 

5

 

3.6           Admission of New Members. New Members
may be admitted to the Company, subject to executing an appropriate supplement
to this Agreement and such other documents as the Board of Managers deems
necessary or advisable.

 

ARTICLE 4: MANAGEMENT OF THE
COMPANY

 

4.1           Authority of the Board. The Company
shall be managed by the Board which shall have the full and exclusive power and
authority to represent the Company, to act in its name, and to manage the
Company business.

 

4.2           Number and Appointment of Managers. The Board
shall initially be comprised of two (2) managers (each a “Manager”),  of which one (1) Manager shall
be elected by Ballantyne, so long as Ballantyne remains a Member holding at
least a 40% Membership Interest (“Ballantyne Manager”), and one
Manager shall be elected by REAL D, so long as REAL D remains a Member holding
at least a 50% Membership Interest (“REAL D Managers”).  The Ballantyne
Member may only be removed or replaced, and any vacancy may only be filled, by
Ballantyne, and a Manager elected by REAL D may only be removed or replaced,
and any vacancy may only be filled, by REAL D, so long as Ballantyne or REAL D,
respectively, are entitled to elect Managers pursuant to the preceding
sentences. Managers shall continue to serve until their death, resignation or
removal or replacement in accordance with the terms of this Agreement. The
initial Managers are Michael V. Lewis and John P. Wilmers .

 

4.3           Officers. Officers and employees of
the Company shall conduct the operations of the Company and related business
activities at the direction of and in a manner consistent with the policies
adopted from time to time by the Board. The officers of the Company may
include, without limitation, a Chief Executive Officer and President, Vice
President, Secretary and Treasurer. Each officer shall have such authority and
perform such duties in the management of the property and affairs of the
Company as specified by the Board.

 

4.4           Management Agreement with REAL D. REAL D shall
manage and be responsible for the Company’s day-to-day operations, and,
accordingly, shall be vested with all the powers normally vested in the
executive officers of a company, in exchange for a management fee equal to ten
percent (10%) of the virtual print fees collected by the Company, not to exceed
$2,500 per fiscal year, payable at the end of each month. The Company shall also
reimburse REAL D for its reasonable expenses incurred in connection with such
management services; provided, that any reimbursements in excess of $10,000 in
any fiscal year shall require the consent of Ballantyne.

 

4.5           Place of Meetings. Meetings of the Board may
be held at whatever place in the United States specified in the call of the
meeting, or such other place as agreed to by the Board. In the absence of
specific designation, the meetings shall be held at the principal office of the
Company. Any member of the Board shall be permitted to attend any meeting of
the Board (or any committee thereof) in person or by conference call or other
means of communications which provides such member of the Board an opportunity
to actively participate in such meeting.

 

6

 

4.6           Regular Meetings. The Board
shall meet at least quarterly. No notice need be given to members of the Board
of regular meetings for which the members have previously designated a time and
place for the meeting.

 

4.7           Special Meetings. Special
meetings of the Board may be held at any time upon the request of the Chief
Executive Officer and President of the Company or any Member. Written notice of
any special meeting shall be sent (by facsimile, e-mail, regular mail or any
other reasonable method) to the last known address of each member of the Board
at least five (5) business days before the meeting. Notice of such meeting
may be waived in writing before or after such meeting, and shall be equivalent to
the giving of notice. Attendance at such meeting shall also constitute a waiver
of notice thereof, except where such member of the Board attends for the
express purpose of objecting to the transaction of any business on the ground
that the meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the Board
need be specified in the notice or waiver of notice of such meeting.

 

4.8           Quorum of and Action by the
Board of Managers. The presence of a majority of the Managers shall
constitute a quorum for the transaction of business at any meeting of the
Board. Any action to be taken or approved by the Board hereunder must be taken
or approved by majority vote of the members of the Board present at a meeting
of the Board at which a quorum is present and any action so taken or approved
shall constitute the act of the Board.

 

4.9           Resignation. Any Manager
may resign at any time. Such resignation shall be made in writing and shall
take effect at the time specified therein, or if no time is specified, at the
time of its receipt by the Company.

 

4.10         Action by Written Consent. Any action
that may be taken at a meeting of the Board may be taken without a meeting if a
consent in writing, setting forth the action to be taken, shall be signed by
all of the Managers entitled to vote at that meeting, and such consent shall
have the same force and effect as a unanimous vote of the Board at a meeting
duly called and held. No notice shall be required in connection with the use of
a written consent.

 

4.11         Other Business. Subject to
confidentiality obligations and any fiduciary duties described below, any
Manager may engage in or possess an interest in  other business
ventures (unconnected with the Company) of every kind and description,
independently or with others. Neither the Company nor the Members shall have
any rights in or to such independent ventures of the members of the Board or
the income or profits therefrom by virtue of this Agreement.

 

4.12         Fiduciary Duties.

 

(a)              The fiduciary duties of any
Manager shall be limited to making decisions in good faith and with due care.

 

(b)              No Member or Manager shall
be obligated to offer or present any particular investment opportunity to the
Company, even where such opportunity is of a character which, if presented to
the Company, could be taken and exploited by the Company but rather such
Members and Managers shall have the right to take for the account of such
Member or to recommend to others any such particular investment opportunity.

 

7

 

4.13         No Liability for Monetary
Damages.   No Manager shall be liable
for any monetary damages to the Company for any breach of such duties except
for receipt of a financial benefit to which such member is not entitled, voting
for or assenting to a distribution to Members in violation of this Agreement or
the Act, or a knowing violation of the law.

 

4.14         Committees. Upon the
affirmative vote of a majority of the members of the Board, committees of the
Company may be formed, consisting of one or more members of the Board, which
committees may exercise any or all of the powers of the Board.

 

ARTICLE 5:
REPRESENTATIONS AND WARRANTIES OF BALLANTYNE

 

Ballantyne hereby represents and warrants the
following to REAL D and the Company:

 

5.1           Organization and Authority;
Ownership. Ballantyne is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has all requisite corporate power and authority to own, lease and operate
its properties and assets and to conduct its business as now being conducted.
Ballantyne has the full corporate power and authority to enter into this
Agreement and to perform its obligations hereunder.

 

5.2           No Violation. The
execution, delivery and performance by Ballantyne of this Agreement and the
transactions contemplated hereby do not and will not conflict with or result in
any violation of or constitute a breach or default under any term of the
certificate of incorporation or by-laws of Ballantyne, of any agreement, permit
or other instrument to which Ballantyne is a party or by which Ballantyne is
bound or to which the assets or business of Ballantyne or any of its
subsidiaries is subject, or any order, judgment or decree of any court or other
governmental or regulatory authority to which any of the same is bound or
subject, or any law, statute or regulation of any governmental or regulatory
body.

 

ARTICLE 6:
REPRESENTATIONS AND WARRANTIES OF RTMS

 

REAL D hereby represents and warrants the following
to Ballantyne:

 

6.1           Organization and Authority. REAL D is a
corporation duly organized, validly existing and in good standing under the
laws of the State of California and has all requisite corporate power and
authority to own, lease and operate their properties and assets and to conduct
its business as now being conducted. REAL D has full corporate power and
authority to enter into this Agreement and to perform its obligations
hereunder.

 

6.2           No Violation. The execution, delivery
and performance by REAL D of this Agreement and the transactions contemplated
hereby do not and will not conflict with or result in any violation of or
constitute a breach or default under any term of the articles of incorporation
or by-laws of REAL D, of any agreement, permit or other instrument to which
REAL D or any of its subsidiaries is a party or by which REAL D or any of its
subsidiaries is bound or to which the assets or businesses are subject, or any
order, judgment or decree of any court or other governmental or regulatory
authority to which any of the same is bound or subject, or any law, statute or
regulation of any governmental or regulatory body.

 

8

 

ARTICLE 7:
CAPITAL CONTRIBUTIONS, ASSUMPTIONS OF LIABILITIES AND FINANCING.

 

7.1           Initial Capital
Contributions; Assumption of Liabilities. As of the date hereof,
Ballantyne and REAL D are contributing to the Company the amounts specified in Section 3.2
above.

 

7.2           Additional Capital
Contributions. Members are liable for only the amount of the
capital contributions made as of the date hereof. Any additional capital
contribution by a Member requires the prior written consent of the other
Member. The Members agree that for each additional Cinema System acquired by
the Company, which purchase shall be unanimously approved by the Managers, REAL
D shall be obligated to pay 55.6% of the cost and Ballantyne 44.4% of the cost.
The Members shall make their respective capital contributions simultaneously.

 

7.3           Interest and Withdrawals. No interest
shall be paid by the Company on capital contributions or on the balance in any
Capital Account. No Member shall have the right to withdraw its capital
contribution or to demand or receive a return of its capital contribution
except as herein expressly set forth or in the Act in the event of dissolution.

 

7.4           Loans from Members. Loans by a
Member to the Company shall not be considered capital contributions. If any
Member shall advance funds to the Company, the making of such advances shall
not result in any increase in the amount of the Capital Account of such Member.
The amounts of any such advances shall be a debt of the Company to such Member
and shall be payable or collectible only out of the Company funds or assets in
accordance with the terms and conditions upon which such advances are made.

 

7.5           Creditors. The foregoing
provisions of this Section 7 are not intended to be for the benefit of any
creditor (other than a Member) of, or any Person to whom any debts, liabilities
or obligations are owed by (or who otherwise has a claim against) the Company
or any of the Members, and no such creditor or other Person shall obtain any
rights under such provisions or shall by reason of such provisions make any
claim in respect of any of the aforesaid debts, liabilities or obligations (or
otherwise) against the Company or any of the Members.

 

ARTICLE 8: ALLOCATION AND TAX
ACCOUNTING MATTERS

 

8.1           Allocation of Net Profits or Losses.

 

(a)              Allocation of Net Profits or
Losses. Subject to any special allocations pursuant to Section 8.2
hereof, each item of income, gain, loss, deduction or credit of the Company
shall be allocated to and among the Members in proportion to their relative
Membership Interests.

 

(b)              Allocations in Case of
Transfers. The items of Company income, gain, loss, deduction
or credit allocable to any Member whose Membership Interest has been
transferred in whole or in part, during any fiscal year, shall be allocated
among the Persons who were the holders of such Membership Interest during such
year in proportion to their respective

 

9

 

holding periods, measured in days, without any requirement for the
attempted separate determination of the results of Company operations during
such separate periods.

 

8.2           Special Allocations.

 

(a)              Minimum Gain Chargeback.
Notwithstanding any other provision of this Agreement, if there is a net
decrease in Company minimum gain (as defined in Section 1.704-2(d)(2) of
the Regulations), items of income and gain shall be allocated to all Members in
accordance with Regulations Section 1.704-2(f), and such allocations are
intended to comply with the minimum gain chargeback requirements of Regulations
Section 1.704-2 and shall be interpreted consistently therewith.

 

(b)              Section 704(c) Allocation. Solely for
Federal, state, and local income tax purposes and not for book or Capital
Account purposes, depreciation, amortization, gain, or loss with respect to
property that is properly reflected on the Company’s books at a value that
differs from its adjusted basis for federal income tax purposes shall be
allocated in accordance with the principles and requirements of 704(c) of
the Code and the Regulations promulgated thereunder, and in accordance with the
requirements of the relevant provisions of the Regulations issued under Code Section 704(b).
The Company will use the traditional method with curative allocations as
described in Regulation Section 1.704-3(c) to take into account
income, gain, loss and deduction with respect to property described herein. For
Capital Account purposes, depreciation, amortization, gain, or loss with
respect to property that is properly reflected on the Company’s books at a
value that differs from its adjusted basis for tax purposes shall be determined
in accordance with the rules of Regulations Section 1.704-l(b)(2)(iv)(g).

 

(c)              Risk of Loss Allocation. Any item of
Member Nonrecourse Deduction (as defined in Regulation Section 1.704-2(i)(2))
with respect to a Member Nonrecourse Debt (as defined in Regulation Section 1.704-2(b)(4))
shall be allocated to the Member or Members who bear the economic risk of loss
for such Member Nonrecourse Debt in accordance with Regulations Section 1.704-2(i)(l).

 

(d)              Allocation of Excess Nonrecourse Liabilities. For the
purpose of determining each Member’s share of Company nonrecourse liabilities
pursuant to Regulations Section 1.752-3(a)(3), and solely for such
purpose, each Member’s interest in Company profits is hereby specified to be
such Member’s Membership Interest.

 

(e)              Unexpected Allocations and Distributions. No allocation
may be made to a Member to the extent such allocation causes or increases a
deficit balance in such Member’s Adjusted Capital Account. Notwithstanding any
other provision of this Agreement except Sections 8.2(i) and 8.2(iii) above,
in the event that a Member unexpectedly receives an adjustment, allocation or
distribution described in Regulations Section 1.704-l(b)(2)(ii)(d)(4), (5) or
(6) which results in such Member having a negative Adjusted Capital
Account balance (as determined above), then such Member shall be allocated
items of income and gain in an amount and manner sufficient to eliminate, to
the extent required by the Regulations, such negative balance in such Member’s
Adjusted Capital Account as quickly as possible. This provision is intended to
satisfy the “qualified income offset” requirements of the Regulations.

 

10

 

8.3           Capital Accounts of Transferred Company Interest. Upon the
transfer of all or any part of a Membership Interest as permitted by this
Agreement, the Capital Account (or portion thereof) of the transferor that is
attributable to the transferred interest (or portion thereof) shall carry over
to the transferee, as prescribed by Regulations Section 1.704-1(b)(2)(iv)(l).

 

8.4           Time of Allocation. The allocations set forth
above shall be made as of the end of each Fiscal Year. All items of income,
gain, loss and deduction shall be allocated, for federal income tax purposes,
among the Members in the same manner as such items are allocated pursuant to
Sections 8.1 and 8.2.

 

8.5           Right to Use Alternative Method of Calculations.
Notwithstanding anything else in this Section 8 (other than Section 8.6),
the Company shall have the right to use a different method of allocating
Company income gain, loss and deduction if it is advised by the Company
accountant or tax counsel that the method of allocation provided herein violates
the Code or Regulations. The Board shall notify each Member of any change in
the method of allocating Company income or loss in accordance with this
paragraph promptly after the occurrence thereof.

 

8.6           Adjustment of Capital Accounts. After all
allocations for a taxable year are made, Capital Accounts shall be adjusted by
the Company to the extent necessary to comply with applicable laws, regulations
and administrative pronouncements. The tax allocation provisions of this
Agreement are intended to produce final Capital Account balances that are at
levels (“Target Final Balances”)  which
permit liquidating distributions that are made in accordance with such final
Capital Account balances to be equal to the distributions that would occur
under Section 9 hereof if such liquidating proceeds were distributed
pursuant to Section 9. To the extent that the tax allocation provisions of
this Agreement would not produce the Target Final Balances, the Members agree
to take such actions as are necessary to amend such tax allocation provisions
to produce such Target Final Balances. Notwithstanding the other provisions of
this Agreement, allocations of income, gain, loss and deduction (including
items of gross income, gain, loss and deduction) shall be made prospectively as
necessary to produce such Target Final Balances (and, to the extent such
prospective allocations would not effect such result, the prior tax returns of
the Company shall be amended to reallocate items of gross income, gain, loss
and deductions to produce such Target Final Balances).

 

8.7           Change in Economic Arrangement; Membership Interest.
Notwithstanding any other provision of this Agreement, if the Membership
Interest of any Member is adjusted at any time pursuant to the terms of this
Agreement, the Member whose Membership Interest is increased pursuant to such
adjustment shall have the right to amend this Agreement to take into account
the revised economic arrangement of the Members, but only to the extent
required to satisfy the tax allocation rules of Section 704 of the
Code and the Regulations thereunder based on the opinion of legal counsel
selected by such Member.

 

8.8           Calculation of Income, Gain, Loss and Deductions. For purposes
of this Agreement, the income, gain, loss and deductions for each Company
fiscal year or other period shall be equal to the Company’s taxable income,
gain, loss and deductions, as the case may be, for such year or period,
determined in accordance with Section 703(a) of the Code, with the
following adjustments:

 

11

 

(a)              Any income of the Company
described in Section 705(a)(1)(B) of the Code that is exempt from
Federal income tax and not otherwise taken into account shall be added to such
taxable income or subtracted from such taxable loss, as the case may be.

 

(b)              Any expenditures of the
Company described in Section 705(a)(2)(B) of the Code or treated as Section 705(a)(2)(B) expenditures
pursuant to Section 1.704-l(b)(2)(iv)(i) of the Regulations)and not
otherwise taken into account shall be subtracted from taxable income or added
to such taxable loss, as the case may be.

 

(c)              In the event the value at
which any Company asset is reflected in Capital Accounts is adjusted pursuant
to Section 1.704-l(b)(2)(iv)(f) of the Regulations, the amount of
such adjustment shall be taken into account as gain or loss from the
disposition of such asset.

 

(d)              Gain or loss resulting from
any disposition of an asset with respect to which gain or loss is recognized
for Federal income tax purposes shall be computed by reference to the value at
which the asset disposed of is properly reflected in the Capital Accounts of
the Members pursuant to Section 1.704-l(b)(2)(iv) of the Regulations.

 

(e)              In lieu of depreciation,
amortization and other cost recovery deductions taken into account in computing
taxable income or loss, there shall be taken into account depreciation, cost
recovery or amortization computed in accordance with Section 1.704-l(b)(2)(iv)(g)(3) of
the Regulations.

 

8.9           Income Tax Returns. The Treasurer of the
Company shall cause income tax returns for the Company to be prepared and filed
with the appropriate authorities; provided, that copies thereof shall be
provided to each Member for review and comment not less than 30 days prior the
first to occur of the due date for such filing and the actual date of filing.
As soon as practicable, after the close of each fiscal year of the Company, the
Treasurer of the Company shall send to each Person who was a Member at any time
during such fiscal year such information as will be sufficient to prepare
documents which may be required to be filed under federal income tax laws. The
Company shall be an accrual method taxpayer.

 

8.10         Tax Matters Member. REAL D shall be the “tax
matters partner” of the Company pursuant to Section 6231(a)(7) of the
Code. The Company shall indemnify and reimburse the tax matters partner for all
reasonable expenses, including legal and accounting fees, claims, liabilities,
losses and damages incurred in connection with its actions as tax matters
partner. Any Member may take such action as permitted under the Code to cause
such Member to become a “notice partner” within the meaning of Section 6223
of the Code. The tax matters partner shall inform each other Member of all
significant matters that may come to the tax matter member’s attention in its
capacity as tax matters member by giving notice thereof and, within a
reasonable time, shall forward to each other Member copies of all significant
written communications it may receive as tax matters partner. The tax matters
partner shall immediately notify, as soon as practicable, each other Member of
any communication received from the Internal Revenue Service. Each Member shall
have the full right to participate in any tax audit or administrative or court
proceeding involving the Company. The tax matter partner shall consult in good
faith with, and shall consider the views of, each other Member, regarding such
matters and shall make a good faith attempt to reach a consensus on all issues.
Except as may be required by law, the

 

12

 

tax matters partner shall not take any action
contemplated by Section 6222 through 6232 of the Code without the consent
of all other Members, but this sentence shall not limit the right of the tax
matters partner to take an action on its own behalf left to the determination
of the individual Member under Sections 6222 through 6232 of the Code.

 

8.11        Accounts and Accounting.

 

(a)              Capital Accounts. There shall
be established a capital account for each Member (a “Capital Account”),  which shall be determined and
maintained throughout the full term of the Company in accordance with the
capital accounting rules of Regulations Section 1.704-1(b) from
time to time in effect. In no event shall any adjustment in the Capital
Contributions or Membership Interest of any Member be made on account of any
adjustment having been made to the Capital Account of such Member.

 

(b)              Account Balances. Except as
otherwise provided in this Agreement, whenever it becomes necessary to
ascertain the balance of any Member’s Capital Account, such determination shall
be made after giving effect to all allocations of Company income, gain, loss
and deductions for the current year, and all distributions for such year, in
each case in respect of transactions effected prior to the date as of which
such determination is being made.

 

(c)              Dispute Resolution. Any dispute
or disagreement among the Members with respect to the determination of Capital
Account balances or otherwise with respect to the manner or method of
accounting by the Company may be submitted by any Member to, and resolved by,
an independent certified public accounting firm which shall be jointly chosen
by the Members who have the dispute and which shall not be the Company’s
independent certified public accountants, whose determinations as so made shall
be conclusive and binding upon the Members.

 

(d)              Basis Information. Each Member
shall provide to the Company all information for the Company to determine the
tax basis for federal income tax purposes of its interest in any property
contributed to the Company.

 

8.12        Section 754 Election. In the event
of a distribution of property made in the manner provided in Section 734
of the Code, or in the event of a transfer of any Membership Interest permitted
by this Agreement made in the manner provided in Section 743 of the Code,
the Board may, but shall not be required to, instruct one of the Company’s
officers to file an election under Section 754 of the Code in accordance
with the procedures set forth in the applicable Treasury Regulations.

 

8.13        Income Tax Liability. Each Member
shall be solely responsible for all taxes as may be applicable to any funds
paid or credited to such Member or income deemed taxable to such Member under
this Agreement and no Member shall be liable to any extent in connection with
such taxes payable by any other Member.

 

ARTICLE 9:
DISTRIBUTIONS

 

9.1           Distribution of Cash Flow. Except as
otherwise provided herein, distributions shall be made to the Members in such
amounts and at such intervals as the Board, in its

 

13

 

discretion, shall determine. Distributions, to the
extent made, shall be made pro rata according to each Member’s Membership
Interest.

 

9.2           Priority and Distribution of
Assets. No Member shall have priority over any other Member either as to the
return of capital or as to distributions.

 

9.3           Minimum Distributions.
Notwithstanding the foregoing, if any Member is allocated income which exceeds,
on a cumulative basis, the amount of losses previously allocated to such Member
for tax purposes (the “Excess Income Allocation”),  then the Company shall distribute
amounts in accordance with Membership Interests so that each Memer receives at
least the “Minimum Distribution”. The Minimum Distribution is the amount, if
any, by which (i) the Excess Income Allocation multiplied by the combined
maximum federal and state income tax rates applicable to such Member (reduced
to reflect the maximum federal tax benefit from the deduction of state income
taxes), exceeds (ii) the amount previously distributed to such Member with
respect to the Fiscal Year for which such taxes are payable.

 

9.4           Distribution in Kind. If any assets
of the Company are to be distributed in kind (other than a distribution which
is a liquidating distribution to a redeemed Member), each Member receives such
interest therein as a tenant-in-common with all other Members so entitled in
the same proportions as they would have shared in a cash distribution equal to
the value of such property at the time of such distribution. Any difference
between the fair market value and the amount at which such assets are carried
on the books of the Company is to be recorded as income or loss, as the case
may be, and allocated to the Members immediately prior to such distribution as
set forth in Section 8.1 or 8.2, as applicable, and allocated to each
Member’s Capital Account as required by Regulations Section 1.704-1(b)(2)(iv)(e).
Such assets are to be distributed on the basis of the fair market value
thereof.

 

ARTICLE 10:
RESTRICTIONS ON TRANSFER OF MEMBERSHIP INTERESTS;

ADMISSION
OF MEMBERS

 

10.1         Prohibition on Transfer. Except as
expressly permitted herein, no Member shall sell, assign, transfer, pledge,
encumber or otherwise dispose of (collectively referred to as “Transfer”)
all or any portion of its Membership Interests and any attempt to do so
shall be null and void.

 

10.2         Permitted Transfers. Members shall have the
unrestricted right to transfer (including, without limitation, by foreclosure)
Membership Interest (a) to any lender as collateral security, or (b) to
any Subsidiary of such Member, or any Person of which the Member is a
Subsidiary or any Subsidiary of such Person, (c) to a transferee in
connection with a sale of a Member by way of merger, stock sale, or asset sale.

 

10.3         Buy/Sell Rights. If any Member desires to
sell its Membership Interest (the “Offeror”)
then the Offeror shall present a written offer (“Sale
Proposal”) to sell its Membership Interest at a specified
price to the other Member (the “Offeree”).
If the Offeree accepts the Sale Proposal, then the parties
shall proceed to close on the sale and purchase of such Membership Interest. If
the Offeree is interested in purchasing the Membership Interest but believes
the valuation is different from the price specified in the Sale Proposal, the
Offeree may

 

14

 

request, at its expense, a Final Market Valuation of the Company, in
which case the Offeror and Offeree shall cooperate and take all efforts
necessary to obtain such Final Market Valuation pursuant to Section 10.3(a),
and following which the Offeror and Offeree shall undertake in good faith the
sale procedures described in Section 10.3(c) below.

 

(a)              Procedures for Market Valuation. In the event
a market valuation of the Company is required to be completed pursuant to this
Agreement, the Offeror and the Offeree shall select two investment bankers or
qualified appraisers of national reputation (“Appraiser”) by
mutual agreement or, if they cannot agree, each of Ballantyne and REAL D shall
select one Appraiser, to provide an appraisal of the fair market value of the
Company net of outstanding liabilities (“Market Valuation”).  Each of the Appraisers appointed by
the Offeror and the Offeree shall be directed to provide, within 30 business
days following the receipt by the Offeree of the Offeror’s Sale Proposal, each
of the Offeror and the Offeree with a written report of the Appraisers’
respective Market Valuations (the date of the later submission being referred
to herein as the “Submission Date”).  If the lower of the two Market
Valuations is greater than or equal to 85% of the higher Market Valuation, the
final aggregate Market Valuation (the “Final Market Valuation”)  shall be the average of the two
Market Valuations submitted by such Appraisers. If the lower of the two Market
Valuations does not equal 85% or more of the higher Market Valuation, within
ten business days following the Submission Date the two Appraisers selected by
the Offeror and Offeree shall jointly select a third Appraiser to perform a
third Market Valuation and submit it to the Offeror and Offeree within 20
business days following its selection to provide such valuation. The Final
Market Valuation shall be the average of the two Market Valuations provided by
the Appraisers which are closest in value to each other, and such average shall
constitute the Final Market Valuation and shall be final and conclusive. Each
of the Company and the Members agree to make reasonably available any such
books or records as any of the parties involved in the valuation process
described in this Section 10.1(a) may reasonably require in order to
reach a Market Valuation.

 

(b)              Sale by a Member. (a) If
the Final Market Valuation is performed, and it is at least 85% of the price
contained in the Sale Proposal, the Offeree can purchase the Offeror’s
Membership Interest at the Sale Proposal price or elect to sell the Company. If
the Final Market Valuation is less than 85% of the Sale Proposal Price, the
Offeror can elect to sell its Membership Interest at the Final Market Valuation
Price, if the Offeree is still willing to purchase the Membership Interest or
the Offeror can revoke its offer. If the Final Valuation Prices is more than
the price contained in the Sale Proposal, the Offeree has the option to
purchase the Offeror’s Membership Interest for the Fair Market Valuation, or
initiate a sale of the Company.

 

(c)              Procedures for Sale of the Company. If the
Offeree elects to initiate a sale of the Company pursuant to Section 10.1(b) above,
the Board shall select and retain an investment banking firm of national
reputation to arrange such sale at a target price (“Target Price”) equal
to (x) the price contained in the Sale Proposal if the Final Market
valuation was at least 85% of such price, or (y) the Final Market
Valuation if the Final Market Valuation was less than 85% of the price
contained in the Sale Proposal. If at least one bona fide offer to purchase the
Company for cash and/or Freely Tradeable Securities on customary terms is
received from a buyer at a price of at least 85% of the Target Price (excluding
for these purposes, any earn-out payments, amounts held in escrow or other forms
of contingent payments) such offer shall be

 

15

 

accepted
and the parties shall proceed to consummate the sale. [If the highest price
offer to purchase the Company is for a price less than 85% of the Target Price (“Best
Offer Price”),  the
Offeror may (a) revoke the Sale Proposal and abandon the process of
selling the Company pursuant to this Section 10.1(c), or (b) notify
the Offeree that it desires to accept the Best Offer Price within 30 days of
receipt thereof. If the Offeror elects (b), the Offeree shall then notify the
Offeror, within 15 days of receiving such notice described in (b), whether it (x) will
purchase the Offeror’s Membership Interest for the Best Offer Price or (y) desires
to proceed with a sale of the Company to the third party who offered the Best
Offer Price. For the purposes hereof, “Freely Tradable Securities” shall mean
securities listed on the New York Stock Exchange or eligible for trading on the
Nasdaq National Market, and which are not subject to restriction on
transferability, whether pursuant to Rule 144, Rule 145, other
provisions under the Securities Act of 1933, as amended, any contractual
restriction or otherwise.

 

(d)              Closing; Payment of Purchase
Price. The closing of the sale of the Offerer’s Membership Interest to the
Offeree (the “Closing”) shall take place within 60
days after the Offeree agrees to such sale as set forth in this Section 10;
unless the Offeror and Offeree mutually agree to hold the Closing at a
different time. The purchase price for such sale shall be payable in cash by
check or wire transfer of funds at the Closing.

 

(e)              Deadlock by the
Board/Members. In the event any of the following has occurred and
is continuing, the Members shall initiate the sale procedures specified in 10.3
above:

 

(i)            A deadlock by the Board regarding any matter; or

 

(ii)           the failure of either any
Member to approve any matter pursuant to Section 3.3(b) which was
approved by the Board.

 

10.4        Involuntary Transfer. In the event
any of the Membership Interests of a Member are acquired by any Person other
than the other Member(s) by “involuntary transfer” (i.e., any transfer or
disposition of such interests by judicial order, foreclosure, legal process,
execution, attachment or other similar procedure or process), then the other
Member(s) (or Member designee) shall have the option for one year after
receipt of actual notice of such involuntary transfer (or otherwise becoming
aware of such involuntary transfer) to exercise the remedy such Member would
have had under Sections 11.2(a) or 11.2(b), below, as the case may be, had
there been an Event of Disassociation and such Member was not the
Disassociating Member. The option set forth herein shall be exercisable by
providing the transferee with 10 days’ notice. Each Member shall use its best
efforts to prevent any involuntary transfer of its Membership Interests. An
involuntary transfer shall not release any Membership Interests held or
previously held by any Member from the provisions of this Agreement or release
any Member from its obligations hereunder or from any default created by such
transfer.

 

ARTICLE 11:
EVENTS OF DISASSOCIATION AND REMEDIES

 

11.1        Definitions and Cure Periods. The
occurrence of any of the following events shall constitute an event of
disassociation (“Event of Disassociation”) on
the part of the Member with respect to whom such event occurs (“Disassociating
Member”), if
within 30 days following

 

16

 

notice
of such disassociation from another Member, the Disassociating Member fails to
commence substantial efforts to cure such disassociation or thereafter fails
within a reasonable time to prosecute to completion with diligence and
continuity the curing of such disassociation; provided, however, that at the
election (without any obligation to give notice) of the non-disassociating
Member(s), occurrence of any of the events described in subparagraphs
(i) - (iv) below shall constitute an Event of Disassociation
immediately upon such occurrence without any requirement of notice or passage
of time except as specifically set forth in any such subparagraph:

 

(i)            such Member shall
(a) apply for or consent to the appointment of, or the taking of
possession by, a receiver, custodian, trustee or liquidator of itself or of all
or a substantial part of its property, (b) make a general assignment for
the benefit of its creditors, (c) commence a voluntary case under any
bankruptcy or similar law (as now or hereafter in effect), (d) file a petition seeking
to take advantage of any other law providing for the relief of debtors, (e) fail
to controvert in a timely manner, or acquiesce in writing to, any petition
filed against it in an involuntary case under any bankruptcy or similar law,
(f) admit its inability to pay its debts generally as such debts become
due, (g) take any action under the laws of its jurisdiction of
organization analogous to any of the foregoing, or (h) take any requisite
action for the purpose of effecting any of the foregoing;

 

(ii)           a proceeding or case shall
be commenced against such Member in any court of competent jurisdiction,
seeking (a) the liquidation, reorganization, dissolution, winding up or
composition or readjustment of its debts, (b) the appointment of a trustee,
receiver, custodian, liquidator or the like of it or of all of any substantial
part of its assets, or (c) similar relief in respect of it, under any
bankruptcy or similar law and such proceeding or case shall continue
undismissed, or unstayed and in effect, for a period of 30 days; or any action
under the laws or the jurisdiction of organization of such entity analogous to
any of the foregoing shall be taken with respect to such entity and shall
continue undismissed, or unstayed and in effect, for a period of 30 days;

 

(iii)          all or substantially all of
the assets of such Member or any material portion thereof, is attached, seized,
subject to a writ of distress warrant, or levied upon, or comes into the
possession of any receiver, trustee, custodian or assignee for the benefit of
creditors, and the same is not vacated, stayed, dismissed or set aside within
30 days after the occurrence thereof;

 

(iv)          dissolution of Member; or

 

(v)           assignment by a Member of
its Membership Interest in contravention of this Agreement.

 

11.2        Remedies of Non-Disassociating Member

 

(i)            Upon the occurrence of an Event of Disassociation by
any Member, the non-disassociating Member (or its designee) shall have the
right to acquire the Membership Interests of the Disassociating Member for cash
at a price equal to: (a) if such Event of Disassociation constitutes an
Event of Disassociation under Section 11.1(v), 75% of the

 

17

 

fair market value of the Disassociating Member’s Membership Interests,
as determined in the same manner as provided in
Section 10.3(a) (except that the Disassociating Member shall pay for
the costs related to the appraisal); and (b) if such Event of
Disassociation constitutes an Event of Disassociation under any other subsections
of Section 11, 100% of the fair market value of the Disassociating
Member’s Membership Interests, as determined in the same manner as provided in
Section 10.3(a), in either case such value to be determined as of the time
immediately following such Event of Disassociation. In furtherance of such
right, the non-disassociating Member may notify the Disassociating Member at
any time following an Event of Disassociation of the election to institute the
procedure set forth herein. Upon receipt of notice of determination of the
purchase price for such disassociating member’s Membership Interests, the
non-disassociating Member shall notify the Disassociating Member of the
election to purchase the interests of the Disassociating Member.

 

(ii)           The non-disassociating Member shall have the right
to purchase a Disassociating Member’s Membership Interests by payment of
one-seventh of the purchase price (as determined by the procedure pursuant to
this Section 11.2(i)) at closing, with the balance to be paid in equal annual
installments over a seven-year period, the unpaid balance to bear interest at
the then Applicable Federal Rate, with the right of prepayment of any amount at
any time without premium or penalty.

 

(ii)           If neither the
non-disassociating Member nor its designee elects to acquire the entire
interest of the Disassociating Member as set forth in this
Section 11.2(i), the non-disassociating Member may elect to dissolve and
terminate the Company by written notice to the Members within 30 days of such disassociation.
The right of the non-disassociating Member institute the procedures for
purchase of the Disassociating Member’s Membership Interests as set forth in
this Section shall continue until the non-disassociating Member elects to
exercise the right to terminate the Company.

 

11.3        Priority. Any option
exercised by a Member under this Section 11 shall supersede and have
priority over any other option exercised by a Member under this Agreement,
regardless of when either option was exercised, unless the purchase under
another Section has been consummated.

 

ARTICLE 12:
DISSOLUTION

 

12.1        Dissolution. The Company
shall be dissolved and terminated upon the first to happen of:

 

(a)           The agreement of all of the
Members to dissolve the Company;

 

(b)           The sale or other disposition
of all or substantially all of the Company’s assets, unless all of the Members
otherwise agree;

 

(c)           Any time at which there are
no Members; provided that the Company is not dissolved and is not required to
be wound up if, within 90 days after the occurrence of the event that
terminated the continued membership of the last remaining member.

 

(d)           The entry of a decree of
judicial dissolution under the Act.

 

18

 

ARTICLE 13:
DISTRIBUTIONS UPON TERMINATION

 

13.1        Distribution upon
Dissolution. Upon dissolution or termination of the Company
under Section 12 the affairs of the Company shall be wound down by the
Board in an orderly fashion. During the period of the winding down of the
affairs of the Company, the rights and obligations of the Members with respect
to the management of the Company shall continue. The Members shall continue to
share income and losses during the period of liquidation in the same proportions
as prior to said dissolution. Any gain or loss on disposition of the Company’s
properties in the process of liquidation shall be credited or charged to the
Members’ respective Capital Accounts in proportion to their Membership
Interests. The proceeds from liquidation shall be applied to the payment of
debts of the Company and to establishing any reserve which the Board shall
reasonably deem necessary to provide for any contingent or unforeseen
liabilities or obligations of the Company and to the payment of all expenses of
liquidation; and with any remaining proceeds being paid to the Members first,
in proportion to their Capital Accounts, until all Capital Accounts have a zero
balance, and thereafter in proportion to their Membership Interests.

 

13.2        Nothing contained herein
shall prevent the Company from distributing its assets in kind in accordance
with the above provisions. Any property distributed in kind shall be valued and
treated, for purposes of accounting to and between the Members, as though the property
were sold for cash at its fair value and the cash proceeds were distributed. No
Member shall have any claim or recourse against any other Member in the event
the net assets of the Company are insufficient to repay any capital
contribution. In order to minimize any losses attendant upon liquidation and
winding up, a reasonable time shall be allowed for completion of all such
activities.

 

ARTICLE 14:
INDEMNIFICATION

 

14.1         Mandatory
Indemnification. The Company shall indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding (other than an action, suit or proceeding
by or in the right of the company), whether civil, criminal, administrative or
investigative, by reason of the fact that he, she or it is or was a Member,
Manager, or executive officer of the Company, against expenses (including
reasonable attorneys’ fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him, her or it in connection with such
action, suit or proceeding to the fullest extent permitted by the Act and
Delaware law. The Company may indemnify its other officers, employees and
authorized agents, acting within the scope of their duties as such, to the same
extent as Members, Managers and officers hereunder.

 

14.2         Advances of Expenses. Expenses (including
reasonable attorneys’ fees) incurred by a Manager, Member or executive officer
in defending any civil, criminal, administrative or investigative action, suit
or proceeding shall be paid by the Company in advance of the final disposition of such action suit or
proceeding upon receipt of an undertaking by or on behalf of such manager of
Member to repay such amount if it shall ultimately be determined that he, she
or it is not entitled to be indemnified by the Company pursuant to this Section 14.1
or 14.2. Such expenses (including attorneys’ fees) incurred by other officers,
employees and agents shall be so paid upon such terms and conditions, if any,
as the Board deems appropriate.

 

19

 

14.3         Non-Exclusive. The
indemnification and advancement of expenses provided by, or granted pursuant
to, this Section 14 shall not be deemed exclusive of any other rights to
which those seeking indemnification or advancement of expenses may be entitled
under any by-law, agreement, vote of Members or disinterested Managers or
otherwise, both as to action in an official capacity and as to action in
another capacity while holding such office.

 

14.4         Successors and Assigns. For purposes
of this Section 14, any reference to the “Company” shall include, in
addition to the resulting or surviving corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, managers, members, employees,
representatives or agents, so that any Person who is or was a director,
officer, manager, member, employee, representative or agent of such constituent
corporation, or is or was serving at the request of such constituent
corporation as a director, officer, manager, employee, representative or agent
of another corporation, limited liability company, partnership, joint venture,
trust or other enterprise, shall stand in the same position under the
provisions of this Section 14 with respect to the resulting or surviving
corporation as he or she would have with respect to such constituent corporation
if its separate existence had continued.

 

14.5         Change of Status. The
indemnification and advancement of expenses provided by, or granted pursuant
to, this Section 14 shall continue as to a Person who has ceased to be a
manager, Member, Manager, officer, employee, representative or agent and shall
inure to the benefit of the heirs, executors and administrators of such Person.

 

14.6         Indemnitee Initiated Actions.
Notwithstanding anything in this Article to the contrary, the Company will
not have the obligation of indemnifying any Person with respect to proceedings,
claims or actions initiated or brought voluntarily by such Person and not by
way of defense.

 

14.7         Enforceability. Any Member,
Manager, officer, employee or agent of the Company may apply to any court of
competent jurisdiction in the State of Delaware for indemnification to the
extent otherwise permissible under this Section 14. The basis of such
indemnification by a court shall be a determination by such court that
indemnification of the member, member of the Manager, member of any committee
of the Company or officer or employee is proper in the circumstances because
such person has met the applicable standards of conduct set forth in the
applicable provision of this Section 14. Neither a contrary determination
nor the absence of a determination in a specific case shall be a defense to
such application or create a presumption that the person seeking
indemnification has not met any applicable standard of conduct.

 

14.8         Insurance. The Company
shall purchase and maintain insurance in an amount of not less than $5,000,000
or another arrangement on behalf of any Person who is or was a Manager, Member,
officer, employee or agent of the Company against liability asserted against
such Person or incurred by such Person in such capacity or arising out of the
status of such a Person, whether or not the Company would have the power to
indemnify such Person against that liability hereunder.

 

20

 

ARTICLE 15:
MISCELLANEOUS PROVISIONS

 

15.1         Confidentiality.

 

(a)   The Members agree to refrain from disclosing
Confidential Information about the Company and any of its Affiliates (except to
such Member’s partners, representatives, attorneys, employees, accountants and
other advisors (collectively, the “Advisors”) of
such holders who are legally or ethically obligated to refrain from disclosing
the Confidential Information; provided however, that such Member shall be
responsible for the disclosure of such Confidential Information in violation of
the terms hereof by the Advisors) for so long as such Member is a Member of the
Company and for a period of two (2) years thereafter. This provision shall
not restrict any Member from disclosing Confidential Information to prospective
investors in the Company (including prospective Assignees) or potential
acquirers.

 

(b)   Notwithstanding the foregoing, the Confidential
Information may be disclosed as may be required (i) by a Member to its
Affiliates and advisors for the purpose of providing return and performance
information on internal portfolio investments, consistent with past practice
and as otherwise required by governmental regulatory agencies or
self-regulating bodies, and (ii) by the a Member’s Affiliates to their
Affiliates and advisors for the purpose of providing return and performance
information on internal portfolio investments, consistent with past practice
and as otherwise may be required by governmental regulatory agencies or
self-regulating bodies, provided, that, the Members and their Affiliates and
advisors shall require that any transferee of such Confidential Information
keep the Confidential Information confidential, consistent with this Section 15.1.

 

(c)   “Confidential Information” means any
information regarding the business of the Company or any of its Affiliates,
including its operations, operating plans, customers, customer lists,
advertisers, advertiser lists, members, interests, the identity of any holder
of, or amount of, any interests, proposed or current ventures, business plans,
past agreements, potential agreements, private or proprietary conversations,
trade secrets, as well as information relating to their financial performance,
condition or valuation; provided, that “Confidential Information” does not include
information which: (i) is now, or hereafter becomes, through no act or
failure to act on the part of the receiving party, generally known or available
to the public; (ii) was acquired by the receiving party before receiving
such information from the Company and without restriction as to use or
disclosure; (iii) is hereafter rightfully furnished to the receiving party
by a third party, without restriction as to use or disclosure; (iv) is
information which the receiving party can document was independently developed
by the receiving party without breach of any obligation of confidentiality; (v) is
required to be disclosed pursuant to law, provided the receiving party uses
reasonable efforts to give the Company reasonable advance notice of such
required disclosure; or (vi) is disclosed with the prior written consent
of the Company.

 

15.2         Accounting Basis for Tax and
Reporting Purposes. The books and records of the Company for tax
purposes, for purposes of this Agreement and for the purpose of reports to the Members
shall be kept in accordance with such method as the Board shall determine.

 

21

 

15.3        Books and Records. The books and
records of the Company shall be maintained at the office of the Company. Each
Member shall have reasonable access to inspect the accounting records of the
Company during regular business hours of the Company at the office of the
Company.

 

15.4        Reports. (a) Within
forty-five (45) days after the end of each Fiscal Year, the Chief Executive
Officer shall send to each Person who was a Member at the end of the Fiscal Year
then ended the balance sheet of the Company as of the end of such year and
statements of operations, changes in Members’ capital and cash flow of the
Company for such year, all of which shall be prepared in accordance with
accounting principles consistently applied. Any Member may request audited
financial statements for the Company. The audit shall be performed by the
accounting firm for the Member requesting the audit. The Member requesting the
audit, shall pay for the cost of the audit.

 

(b)           Within seventy five (75)
days after the end of each Fiscal Year, the Chief Executive Officer shall send
to each Person who was a Member at any time during the year then ended such tax
information relating to the Company as shall be necessary for the preparation
by such Member of its federal income tax return and required state income and
other tax returns.

 

(c)           Within 10 days after the end
of each quarter, the Chief Executive Officer shall send to each person who is a
member an unaudited balance sheet of the Company and statements of operations,
changes in Members’ capital and cash flow of the Company for such quarter or
allow them access to the necessary financial information to prepare such
reports. Each Member shall have unlimited access to all the financial
information of the Company and may, at its expense, request that an audit of
the Company be prepared by such Member’s accounting firm.

 

15.5        Termination of Certain
Provisions. All the provisions of this Agreement shall be
deemed terminated upon an initial public offering of the Company. This
Agreement, or any portion hereof may be terminated with the written agreement
of the Company and each Member.

 

15.6        Notices. Any notice
required or permitted to be sent hereunder shall be delivered personally or
mailed, registered or certified mail, return receipt requested, or delivered by
overnight courier service, to the intended recipient’s address set forth below
or to such other address as the intended recipient designates by written notice
to the Company, and shall be deemed to have been given upon delivery, if
delivered personally, three days after mailing, if mailed, or one Business Day
after delivery to the courier, if delivered by overnight courier service. Any
such notice shall be mailed as follows:

 

(i)            if to the Company, to:

 

 

 

(ii)           if to any other Member, to
its address set forth on the signature page hereto.

 

22

 

15.7         Entire Agreement. This Agreement, including
the exhibits and schedules attached hereto, is the entire agreement among the
parties hereto relating to the subject matter hereof. It supersedes all prior
agreements pertaining to the subject matter hereof and may not be amended
except as provided in Section 15.10 hereof.

 

15.8         Severability. Whenever possible, each
provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law, but if any provision of this
Agreement is held to be prohibited by or invalid under applicable law, such
provision will be ineffective only to the extent of such prohibition or
invalidity, without invalidating the remainder of this Agreement.

 

15.9         Descriptive Headings. The descriptive headings
of this Agreement are inserted for convenience of reference only and do not
constitute a part of and shall not be utilized in interpreting this Agreement.

 

15.10       Consent to Amendments; Waivers. Except as
otherwise expressly provided herein, the provisions of this Agreement may be
amended or waived at any time by the written agreement of the Company and each
Member. Any waiver, permit, consent or approval of any kind or character on the
part of any such Member of any provisions or conditions of this Agreement must
be made in writing and shall be effective only to the extent specifically set
forth in such writing.

 

15.11       Successors and Assigns. Except as
otherwise expressly provided herein, all covenants and agreements contained in
this Agreement by or on behalf of any of the parties hereto will bind and inure
to the benefit of the respective successors and assigns of the parties hereto.

 

15.12       Third Party Rights. The provisions of this
Agreement are for the exclusive benefit of the Company and the Members and no
other person (including, without limitation, any creditor of the Company) shall
have any right or claim against the Company or the Members by reason of these
provisions or be entitled to enforce any of these provisions against the
Company or the Members.

 

15.13       Governing Law; Jurisdiction. All questions
concerning the construction, validity, and interpretation of this Agreement,
and the performance of the obligations imposed by this Agreement, shall be
governed by the laws of the State of Delaware.

 

15.14       Remedies. The parties hereto shall
have all rights and remedies set forth in this Agreement and all rights and
remedies available under any applicable law. The parties hereto agree and
acknowledge that money may not be an adequate remedy for any breach of the provisions
of this Agreement and that any party may, in its sole discretion, apply to any
court of law or equity of competent jurisdiction for specific performance or
injunctive relief (without posting bond or other security) in order to enforce,
or prevent any violations of, the provisions of this Agreement.

 

15.15       Waiver of Partition. Except as may be otherwise
provided by law in connection with the winding-up, liquidation and dissolution
of the Company, each Member hereby

 

23

 

irrevocably
waives any and all rights that it may have to maintain an action for partition
of any of the Company’s property.

 

15.16       Counterparts. This Agreement may be
executed in any number of counterparts, each of which when so executed and
delivered shall be deemed an original, and such counterparts together shall
constitute one instrument.

 

[Balance
of Page Left Blank; Signature Pages Follow]

 

24

 

	
   

  	
  Members:

  
	
   

  	
   

  
	
   

  	
  REAL D

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
  Address:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  BALLANTYNE OF OMAHA,
  INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
  Address:Exhibit 10.20

 

Credit
and Security Agreement

 

This Credit and Security
Agreement (“Agreement”) is entered into as of July 26, 2007, by and
between REAL D, a California
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                               “Adjusted EBITDA” means, as of the date of determination,
EBITDA, minus (a) revenues earned under License Agreements for the twelve (12)
month period ending on the date of determination, plus (b) monitoring fees
(in an aggregate amount not to exceed $350,000.00 per year) paid by Borrower to
Shamrock, plus (c) non-recurring expenses (including without limitation,
those incurred in connection with (i) mergers and acquisitions, (ii) the
incurrence of Debt, (iii) relocation and severance payments related to the
relocation of employees from California to Colorado, not to exceed $450,000.00
in total), and (iv) upgrades to Borrower’s 3-D Theater System, not to
exceed one-fifth (1/5) of such upgrade expenses incurred during the twelve (12)
month period ending on the date of determination, (d) plus revenues
projected by Borrower to be earned under License Agreements for the twelve (12)
month period beginning as of the date of determination.

 

1.4                               “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.

 

1.5                               “Applicable Margin” means a rate per annum based on the
outstanding Loans, divided  by Adjusted EBITDA, calculated as of the last day of
each fiscal quarter and applicable to the next fiscal quarter as set forth
below:

 

	
  Outstanding
  Loans

  	
   

  	
  Applicable Margin (%)

  	
   

  
	
  Adjusted
  EBITDA

  	
   

  	
  For Libor Loans

  	
   

  	
  For Prime Loans

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Greater than 2.5

  	
   

  	
  3.00

  	
  %

  	
  1.00

  	
  %

  
	
  Equal to or greater
  than 2.0 and below 2.5

  	
   

  	
  2.25

  	
  %

  	
  0.25

  	
  %

  
	
  Equal to or greater
  than 1.5 and below 2.0

  	
   

  	
  1.50

  	
  %

  	
  0.00

  	
  %

  
	
  Less than 1.5

  	
   

  	
  1.25

  	
  %

  	
  0.00

  	
  %

  

 

1.6                               “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

 

1

 

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
five (5) days of receipt of such statement, or ten (10) 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.

 

1.7                               “Borrowing Base” will be in an amount, determined by CNB,
equal to the greater of (a)  the sum of (i) seventy five percent (75%) of the
Eligible Accounts, plus (ii) seventy five percent (75%) of Eligible
Recurring Revenues, and (b) three hundred percent (300%) of Adjusted
EBITDA. In no event will the Borrowing Base exceed the Revolving Credit
Commitment.

 

1.8                               “Borrowing Base
Certificate” means
the certificate, in form and satisfactory to CNB,  executed by Borrower to evidence the Borrowing Base.

 

1.9                               “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..

 

1.10                        “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.

 

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

 

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

 

1.13                        “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.

 

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

 

1.15                        “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, (g) all obligations, direct or indirect, for letters of
credit, and (h) any other obligations or liabilities which are required by
GAAP to be shown as liabilities on the balance sheet of Borrower or any
Subsidiary.

 

1.16                        “Demand Deposit Account”
means Borrower’s
demand deposit account No. 112-788964 maintained with CNB.

 

1.17                        “EBITDA” means, as of the date of determination,
earnings before interest, taxes, depreciation and amortization and 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

 

2

 

extraordinary gains and
losses, plus (b) interest expense, plus (c) provisions for income
taxes, plus (d) depreciation and amortization, each of such items
determined based on the twelve (12) month period ending on the date of
determination.

 

1.18                        “Eligible Account” means an Account of Borrower, which is
not an Account owed under a License Agreement, and:

 

1.18.1              Upon which Borrower’s right to receive payment is
absolute and not contingent upon the fulfillment of any condition (other than
the nonpayment condition contained in License Agreements relating to a minimum
number of theatrical releases in 3D format not being offered or available for
exhibition);

 

1.18.2              Against which is asserted no defense, counterclaim,
discount or set-off, whether well-founded or otherwise;

 

1.18.3              That is a true and correct statement of a bona fide
indebtedness incurred in the amount of the Account with respect to a money
obligation owed by the Account Debtor, including but not limited to obligations
arising, for goods sold or leased and delivered to, or for services rendered to
and accepted by, the Account Debtor;

 

1.18.4              That is owned by Borrower free and clear of all liens,
encumbrances, charges, interests and rights of others, except the security
interests granted to CNB;

 

1.18.5              That does not arise from a sale or lease to or for
services rendered to an employee, stockholder, director, Subsidiary or
Affiliate of Borrower or any entity in which any employee, stockholder,
director, Subsidiary or Affiliate of Borrower has any interest;

 

1.18.6              That is not the obligation of an Account Debtor that
is the federal government unless perfected under the Federal Assignment of
Claims Act of 1940, as amended;

 

1.18.7              That is not the obligation of an Account Debtor
located in a foreign country, except Canada, unless the obligation is insured
by foreign credit insurance satisfactory to CNB or through a letter of credit
negotiated through CNB with drawing documents in order;

 

1.18.8              That is (a) not due and payable on delivery of
goods, receipt of documents or receipt of invoice, or (b) due and payable
not more than thirty (30) days from the original invoice date, in either case
unless otherwise agreed to in writing by CNB;

 

1.18.9              As to which not more than ninety (90) days has elapsed
since the original invoice date, excluding all Accounts owed by Borrower’s
Affiliates which for financial statement purposes would be consolidated with
Borrower under GAAP;

 

1.18.10       As to which the Account Debtor has not:

 

(a)                                 died, suspended business, made a general
assignment for the benefit of creditors, become the subject of a petition under
the Bankruptcy Code or consented to or applied for the appointment of a
receiver, trustee, custodian or liquidator for itself or any of its property;

 

(b)                                 allowed more than 20% of the amounts owed
by such Account Debtor to Borrower to become ineligible under Section 1.18.9;

 

3

 

(c)                                  had its check in payment of an Account
returned unpaid; or

 

(d)                                 become or appear to have become unable,
in the opinion of CNB, to pay the Account in accord with its terms;

 

1.18.11       That does not, when added to all other Accounts that are
obligations of the Account Debtor to Borrower, result in a total sum that
exceeds twenty percent (20%) of the total balance then due on all Accounts; and

 

1.18.12       That is not an obligation owed by the Account Debtor
which is evidenced by chattel paper or an instrument as those terms are defined
in the Code.

 

1.19                        “Eligible License
Agreement” means
a License Agreement:

 

1.19.1              Upon which Borrower’s right to receive payment is
absolute and not contingent upon the fulfillment of any condition (other than
the nonpayment condition contained in License Agreements relating to a minimum
number of theatrical releases in 3D format not being offered or available for
exhibition);

 

1.19.2              Against which is asserted no defense, counterclaim,
discount or set-off, whether well-founded or otherwise;

 

1.19.3              That is a true and correct statement of a bona fide
indebtedness represented by an Account with respect to a money obligation owed
by the Account Debtor, including but not limited to obligations arising, for
goods sold or leased and delivered to for services rendered to and accepted by
the Account Debtor;

 

1.19.4              That is owned by Borrower free and clear of all liens,
encumbrances, charges, interests and rights of others, except that security
interest granted to CNB;

 

1.19.5              That is not the obligation of an Account Debtor
located in a foreign country, except Canada, unless the obligation is insured
through a letter of credit negotiated through CNB with drawing documents in
order;

 

1.19.6              As to which the Account Debtor is not more than 90
days past due; and 

 

1.19.7              As to which the Account Debtor has not:

 

(a)                                 died, suspended business, made a general
assignment for the benefit of creditors, become the subject of a petition under
the Bankruptcy Code or consented to or applied for the appointment of a
receiver, trustee, custodian or liquidator for itself or any of its property;

 

(b)                                 had its check in payment of an Account
returned unpaid; or

 

(c)                                  become or appear to have become unable,
in the opinion of CNB, to pay the Account in accord with its terms.

 

1.20                        “Eligible Period” means, for any measurement date, the
twelve (12) month period beginning on the measurement date.

 

4

 

1.21                        “Eligible Recurring
Revenues” means,
for any Eligible Period, the sum of Release Based Payments, plus Scheduled
License Payments, plus Paid Admission Based Payments.

 

1.22                        “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).

 

1.23                        “Facility Fee” is $37,500.00.

 

1.24                        “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.), plus (b) all interest incurred on
borrowed money, plus (c) provisions for income taxes, plus (d) all
maintenance capital expenditures, each of such items determined based on the
twelve (12) month period ending on the date of determination.

 

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

 

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

 

1.27                        “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.

 

1.28                        “Interest Period” means the period commencing on the date
the 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 first
day of the month occurring prior to or 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.

 

1.29                        “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.

 

1.30                        “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

  	
   

  

 

5

 

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

 

1.32                        “License Agreement” means an agreement between Borrower and
an Account Debtor pursuant to which Borrower licenses to Account Debtor the
right to use Borrower’s 3-D theater system for use in exhibiting motion picture
theatrical films and other media in 3D (“3-D Theater System”).

 

1.33                        “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).

 

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

 

1.35                        “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.

 

1.36                        “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 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.

 

1.37                        “Net Worth” means, at any time of determination, the
net worth of Borrower and its consolidated Subsidiaries, determined in
accordance with GAAP.

 

1.38                        “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.

 

1.39                        “Paid Admission Based
Payments” means,
for an Eligible Period, with respect to those Eligible License Agreements under
which royalty payments are based on an admission fee for each paid admission
for each Screen for each motion picture, $2,000 per Screen for each motion
picture announced and scheduled for release during the Eligible Period.

 

1.40                        “Permitted Individual
Holders” means (a) Mr. Michael
Lewis and the estate of Mr. Michael Lewis (including the beneficiaries
thereof), Mr. Joshua Greer and the estate of Mr. Joshua Greer
(including the beneficiaries thereof) (collectively, the “Current Holders”), (b) members
of the immediate families of the Current Holders, (c) trusts for the benefit
of Current Holders and members of the immediate families of the Current
Holders, and (d) a non-profit corporation or foundation controlled by any
of the Persons described in (a), (b) or (c) of this definition.
Members of a Person’s “immediate family” shall mean such Person’s parents,
brothers, sisters, spouse and lineal descendants.

 

6

 

1.41                        “Permitted Liens” means:

 

1.41.1              Liens existing on the date hereof and described on
Schedule 1.41;

 

1.41.2              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;

 

1.41.3              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;

 

1.41.4              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;

 

1.41.5              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;

 

1.41.6              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

 

1.41.7              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).

 

1.42                        “Person” means any individual or entity.

 

1.43                        “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.

 

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

 

1.45                        “Prime Rate” means the rate most recently announced by
CNB at its principal office in Beverly Hills, 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.

 

7

 

1.46                        “Release Based Payments”
means license fee
payments due and payable under Eligible License Agreements for an Eligible
Period that are calculated based upon the number of motion pictures scheduled
for release during the Eligible Period, such release schedule to be subject to
CNB’s approval, which approval shall not be unreasonably withheld.

 

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

 

1.48                        “Scheduled License
Payments” means
license fee payments to be due and payable under Eligible License Agreements
for an Eligible Period, net of any rebates, and which are not Release Based
Payments or Paid Admission Based Payments.

 

1.49                        “Shamrock” means Shamrock Capital Growth Fund II,
L.P.

 

1.50                        “Screens” means those theater movie screens that
have installed Borrower’s 3D theater system under License Agreements.

 

1.51                        “Subordinated Debt” means Debt of Borrower or any Subsidiary,
the repayment of which is subordinated, on terms satisfactory to CNB, to the
Obligations. The holders of Subordinated Debt are listed on Schedule 1.51
hereof.

 

1.52                        “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.

 

1.53                        “Termination Date” means July 31, 2010, unless the term
of this Agreement is renewed by CNB for an additional period under Section 3,
or such earlier termination date 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.

 

1.54                        “Total Senior
Liabilities” means,
as of any date of determination, the amount of all liabilities that should be
reflected as a liability on a consolidated balance sheet of Borrower and the
Subsidiaries prepared in accordance with GAAP, less Subordinated Debt.

 

2.                                      THE CREDIT.

 

2.1                               Loans.  Subject to the terms of this Agreement, CNB agrees to
make loans (“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, up
to the amount of the Borrowing Base. The Loans may be repaid and reborrowed at
any time up to the Termination Date; provided, however, that the aggregate
unpaid principal amount of outstanding Loans will at no time exceed the
Borrowing Base.

 

2.1.1                     Interest.  The 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 LIBOR Loan, the LIBOR Interest
Rate plus the Applicable Margin, or (b) for a Prime Loan, the fluctuating
Prime Rate plus the Applicable Margin. Interest on the Loans and other charges
incurred under this Agreement will accrue daily and be payable (a) except
in respect of a LIBOR Loan, monthly in arrears, on the first day of the next
month, commencing on the first such date following disbursement; (b) if a
LIBOR Loan, on the last day of each Interest Period therefore and upon any
prepayment thereof (to the extent accrued on the amount prepaid); and (c) at
the Termination Date. A Loan tied to the

 

8

 

LIBOR Interest Rate is
called a “LIBOR Loan,” and a Loan tied to the Prime Rate is called a “Prime Loan.”
A Loan will be a Prime Loan any time it is not a LIBOR Loan.

 

2.1.2                     Payment for Amounts
Exceeding Borrowing Base. Borrower will,  immediately upon demand, repay the amount by which the
unpaid principal amount of Borrower’s Loan Account exceeds the amount CNB has
agreed to lend under Section 2.1. The portion of the Loans exceeding the
Borrowing Base (“Overadvance”) will bear additional interest of three percent
(3.0%) per year over the rate set forth in Section 2.1.1 for Prime Loans.

 

2.2                               LIBOR Loan Terms and
Conditions

 

2.2.1                     Procedure for LIBOR
Loans. Borrower may
request that a Loan be a LIBOR Loan (including conversion of a Prime Loan to a
LIBOR Loan, or continuation of a LIBOR Loan as a LIBOR Loan upon the expiration
of an Interest Period). Borrower’s request will be irrevocable, will be made to
CNB using the “Notice of Borrowing” form attached hereto as Exhibit “A,”
no earlier than two (2) Business Days before and no later than 1:00 p.m.
Pacific Time on the day the LIBOR Loan is to be made. If Borrower fails to
select a LIBOR Loan in accordance herewith, the Loan will be a Prime Loan, and,
unless Borrower has selected an additional Interest Period therefore, any
outstanding LIBOR Loan will be deemed a Prime Loan upon expiration of its
then-current Interest Period.

 

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) 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; provided, that on each prepayment, Borrower will pay the accrued
interest on the prepaid principal, to the date of such prepayment.

 

2.4                               Default Interest Rate. From and after written notice by CNB to
Borrower of the  occurrence of an Event of Default (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, with respect to any Overadvance for which additional
interest is then being charged under Section 2.1.2, such additional
interest shall be deducted from any default interest charged on the Overadvance
under this Section, and provided, further, for purposes of this Section, a
LIBOR Loan will be treated as a Prime Loan upon the termination of the Interest
Period. All interest provided for in this Section will be compounded
monthly and payable on demand.

 

9

 

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.
..

 

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 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
Administrative Agent, 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
conclusive and binding 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
Loans.

 

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, 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                               Extension of Credit. The obligation of CNB to make any Loan or
other extension of  credit hereunder 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 and any guaranties required hereunder;

 

10

 

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 as that 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 6.6
hereof is in effect;

 

4.1.7                     A complete list of claims made against Borrower, as
indicated in Schedule 4.1.6  hereto; and

 

4.1.8                     The Facility 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 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;

 

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;

 

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 security interest in, and a valid and binding first
lien on the Collateral; and CNB will have received evidence, in form and
substance acceptable to CNB, that all filings, recordings and other

 

11

 

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; 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. 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) or any order of
any governmental authority, court or arbitration board 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.

 

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 have a Material Adverse Effect.

 

5.6          Financial Condition. The most recent financial statements of
Borrower, its Subsidiaries  and each Guarantor, if any, 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, its Subsidiaries or such Guarantor, as the
case may be, 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 or any Subsidiary or Guarantor since the date
of such financial statements. Neither Borrower nor any Subsidiary or Guarantor
has any material liabilities for taxes or long-term leases or commitments,
except as disclosed in the financial statements.

 

12

 

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 have a Material Adverse Effect.

 

5.8          Collateral. Borrower owns and has possession of and
has the right and power to grant a  security interest in the Collateral, and the
Collateral is genuine and free from liens, adverse claims, setoffs, defaults,
prepayments, defenses and 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 to the Collateral or any
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 unfunded vested liabilities under any benefit plan
of Borrower. Borrower has met its minimum funding requirements under ERISA with
respect to each of its plans 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.

 

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.

 

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 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.

 

13

 

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, on demand of 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 $50,000.00;

 

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
Accounts, and any other Collateral for the Obligations, or to enable CNB to
enforce its security interest in any of the foregoing;

 

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, 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 satisfactory to CNB to show CNB’s security
interest therein;

 

14

 

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

 

6.1.7       Borrower will, if 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, upon demand, the cost,
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 any deposit account of Borrower or Borrower’s Loan
Account maintained with CNB;

 

6.1.9       Borrower will promptly notify CNB of any occurrence or
discovery of any event which would cause or has caused a previously Eligible
Account to become ineligible;

 

6.1.10     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

 

6.1.11     Borrower will, upon request by CNB, but in no event
less than once every six (6) months, supply CNB with 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       If at the end of any month, Adjusted EBITDA for the
twelve-month period  ending on the last day of such month is $3,000,000.00 or less, then
within thirty (30) days after the end of each month, or sooner if available, a
financial statement consisting of not less than a balance sheet, income
statement, reconciliation of net worth and statement of cash flows, prepared
consistent with prior periods and in accordance with GAAP, which financial
statement may be internally prepared;

 

6.2.2       If at the end of any fiscal quarter, Adjusted EBITDA
for the twelve-month  period ending on the last day of such fiscal quarter is greater than
$3,000,000.00, then within forty-five (45) days after the end of each such
quarterly accounting period of each fiscal year, a financial statement
consisting of not less than a balance sheet, income statement, reconciliation
of net worth and statement of cash flows, prepared consistent with prior
periods and in accordance with GAAP (except for FASB 123, tax accrual and
purchase accounting) 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;

 

6.2.3       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

 

15

 

accountant acceptable to
CNB, certified by such accountant 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;

 

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

 

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

 

6.3          Collateral Reports. Borrower will supply the following
collateral reports, together with  such additional information, reports and/or statements
as CNB may reasonably request, within the times set forth below:

 

6.3.1       Within five (5) Business Days of CNB’s request, 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);

 

6.3.2       Within thirty (30) days after the end of each fiscal
quarter, a schedule listing for  each License Agreement, the theatre owner, the
territory, the number of theaters, the initial film for which the License
Agreement was entered into, the installation date of the 3-D theatrical system,
the initial fee, the annual fee and such other information that CNB may from
time to time reasonably request; and

 

6.3.3       Whenever Loans outstanding exceed three hundred
percent (300%) of Adjusted EBITDA, a Borrowing Base Certificate within thirty
(30) days after the end of each month.

 

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 (exclusive of LIBOR 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 mortgagee protection clause (to
whom any loss will be payable) 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);;

 

16

 

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

 

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 (exclusive of LIBOR 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 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 7.8,
Borrower will, and will cause  each Subsidiary to, maintain its corporate existence
and all of its rights, privileges and franchises necessary or desirable in the
normal course 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 have a Material Adverse
Effect.

 

6.10        Financial Tests. Borrower will :

 

6.10.1     Maintain at all times a sum of (a) Net Worth plus
(b) Subordinated Debt of not less than $20,000,000.00;

 

6.10.2     Achieve for the four fiscal quarters ending March 31,
2008 Adjusted EBITDA of not less than $1,000,000.00;

 

6.10.3     Achieve a ratio of the outstanding Loans on the last
day of each fiscal quarter to Adjusted EBITDA on a rolling four-quarter basis
ending on the last day of each fiscal quarter of not more than (a) 3.0 to
1 on June 30, 2008 and September 30, 2008, (b) 2.5 to 1 on December 31,
2008, and (c) 2.0 to 1 on March 31, 2009 and continuing on each
fiscal quarter-end thereafter; and

 

17

 

6.10.4     Achieve a ratio of Adjusted EBITDA to Fixed Charges,
on a rolling four-quarter basis ending on the last day of each fiscal quarter,
of not less than (a) 1.0 to 1 on June 30, 2008 and September 30,
2008, (b) 1.1 to 1 on December 31, 2008, (c) 1.15 to 1 on March 31,
2009, and (d) 1.25 to 1 on June 30, 2009 and continuing on each
fiscal quarter-end thereafter.

 

6.11        Minimum Screens. Borrower will have Screens subject to
License Agreements of not less than: (a) 700 as of the date of this
Agreement, (b) 1000 as of March 31, 2008, (c) 1,300 as of March 31,
2009, and (d) 1,500 as of June 30, 2009 and thereafter.

 

6.12        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 the Borrower or such Subsidiary 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:

 

7.1          Borrowing. Create, incur, assume or permit to exist
any Debt except (a) Debt  outstanding on the date hereof and listed on Schedule
7.1, (b) Debt to CNB, (c) Subordinated Debt, (d) 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, and (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 $100,000.00.

 

7.2          Sale of Assets. Except in respect of the sale or other
disposition of (a) its ownership  interest in ColorLink Japan, Ltd., (b) inventory,
servers and projectors in the ordinary course of business, and (c) equipment
which has become obsolete or reached the end of its useful life (but only to
the extent such equipment is being replaced), 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 $100,000.00 in any fiscal year.

 

7.3          Loans. Make loans or advances to any Person,
except credit extended to 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, (b) Contingent
Liabilities in favor of CNB, and (c) those outstanding on the date hereof
and listed on Schedule 7.4.

 

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 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) investments in wholly-owned Subsidiaries, (d) purchases
of the equity interests or assets of ColorLink Japan, Ltd. not currently owned
by Borrower,

 

18

 

and (e) investments
made on or before February 28, 2008 relating to the motion picture “U2 3D”
in an aggregate amount not to exceed $8,000,000.00.

 

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. 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 within a period of thirty (30)
days.

 

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

 

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        Dividends and Purchase of Stock. Redeem or repurchase stock or partnership
interests, declare or pay any dividends or make any distribution, whether of
capital, income or otherwise, and whether in cash or other property, except
that any Subsidiary may declare distributions to Borrower; provided, however,
if Borrower for any tax year elects to file as a Sub-Chapter S corporation
under the federal or state income tax laws, distributions may be made to
Borrower’s shareholders during any current or subsequent tax year in proportion
to their holdings, in an aggregate amount equal to that payable by an
individual in the highest tax bracket upon Borrower’s taxable income.

 

7.11        Event of Default. Permit a default to occur under any
document or instrument evidencing Debt in an outstanding amount of at least
$50,000.00 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;

 

19

 

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 upon the occurrence and during the continuance of a Potential Event
of Default or an Event of Default, whether Borrower was theretofore making
collections thereon. Until CNB elects to exercise such right, Borrower is
authorized on behalf of CNB to collect and enforce the Accounts. Upon the
occurrence and during the continuation of a Potential Event of Default or an
Event of Default, immediately upon CNB’s request, Borrower will deliver to CNB
for application in accord with this Agreement, all checks, drafts, cash and
other remittances in payment or on account of payment of its Accounts on the
banking day following the receipt thereof, and in precisely the form received,
except for the endorsement of Borrower where necessary to permit collection of
the items, which endorsement Borrower hereby agrees to make. Pending such
delivery, Borrower will not commingle any such checks, cash, drafts and other
remittances with any of its other funds or property, but will hold them
separate and apart therefrom expressly in trust for CNB. All such remittances
will be accompanied by such statements and reports of collections and adjustments
as CNB may reasonably specify.

 

8.3          Attorney-In-Fact. 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. Notwithstanding
the foregoing, CNB shall not exercise any of the aforementioned powers unless a
Potential Event of Default or an Event of Default shall have occurred and be
continuing.

 

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:

 

20

 

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       Any Person, or any Subsidiary of any Person, which is
a party to any Loan  Document 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 entry of an order for relief or the filing of an
involuntary petition with  respect to Borrower or any Subsidiary or Guarantor
under the United States Bankruptcy Code; the appointment of a receiver,
trustee, custodian or liquidator of or for any part of the assets or property
of Borrower or any Subsidiary or Guarantor; or Borrower or any Subsidiary or
Guarantor 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 ten (10) days after the granting thereof;

 

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;

 

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) results in a Material Adverse Effect;

 

9.1.10     The Permitted Individual Holders, Shamrock and the
Subsidiaries and Affiliates of Shamrock shall, collectively, no longer control
at least fifty-one percent (51%) of the capital stock of Borrower, on an issued
and outstanding basis;

 

9.1.11     Any obligee of Subordinated Debt fails to comply with
the provisions of the documents evidencing such Subordinated Debt or any
Subordination Agreement; or

 

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

 

21

 

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 ten (10) 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.

 

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.

 

10.          MISCELLANEOUS.

 

10.1        Reimbursement of Costs and Expenses.  Borrower will reimburse CNB for all 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.

 

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) all past, present and future loans; (5) 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 (6) 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.

 

22

 

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.

 

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.

 

23

 

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.

 

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, 16th Floor  

  Los Angeles,
  California 90071  

  Attention: Aaron
  Cohen, Senior Vice President

  
	
   

  	
   

  	
   

  
	
  with copy to:

  	
   

  	
  City National Bank,
  Legal Department 

  400 North Roxbury Drive  

  Beverly Hills,
  California 90210-5021 

  Attention: Managing Counsel, Credit Unit

  
	
   

  	
   

  	
   

  
	
  Borrower:

  	
   

  	
  REAL D  

  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.

 

24

 

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.

 

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 or advisable to
institute, in the name of CNB, Borrower or both, against any other Person, for
any reason whatsoever to protect the rights of CNB hereunder or under any of
the documents, instruments or agreements executed or to be executed pursuant
hereto, including attorneys’ fees and court costs and all other 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 Loans and other
extensions of credit and the payment or performance of all other 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.

 

25

 

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.

 

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

  	
  REAL
  D,

  
	
   

  	
  a California
  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

  

 

26

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00171-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00171-of-00352.parquet"}]]