Document:

EXHIBIT 10.21 

LOAN AND SECURITY
AGREEMENT 

by and among 

IMAGE ENTERTAINMENT,
INC. 
as Administrative
Borrower 

and 

EGAMI MEDIA, INC.,
IMAGE
ENTERTAINMENT (UK), INC. and 
HOME VISION
ENTERTAINMENT, INC. 
as Guarantors 

WACHOVIA CAPITAL
FINANCE CORPORATION (WESTERN) 
as Agent 

and 

THE LENDERS FROM TIME
TO TIME PARTY HERETO 
as Lenders 

Dated: May 4, 2007 

TABLE OF CONTENTS 

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

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TABLE OF CONTENTS

(continued) 

			Page
			
	SECTION 7.	      COLLATERAL REPORTING AND COVENANTS	48
	            7.1	Collateral Reporting	48
	            7.2	Accounts Covenants	49
	            7.3	Inventory Covenants	50
	            7.4	Equipment and Real Property Covenants	50
	            7.5	Power of Attorney	51
	            7.6	Right to Cure	52
	            7.7	Access to Premises	52
	SECTION 8.	      REPRESENTATIONS AND WARRANTIES	52
	            8.1	Corporate Existence, Power and Authority	52
	            8.2	Name; State of Organization; Chief Executive Office; Collateral Locations	53
	            8.3	Financial Statements; No Material Adverse Change	53
	            8.4	Priority of Liens; Title to Properties	54
	            8.5	Tax Returns	54
	            8.6	Litigation	54
	            8.7	Compliance with Other Agreements and Applicable Laws	54
	            8.8	Environmental Compliance	55
	            8.9	Employee Benefits	55
	            8.10	Bank Accounts	56
	            8.11	Intellectual Property	56
	            8.12	Subsidiaries; Affiliates; Capitalization; Solvency	57
	            8.13	Labor Disputes	57
	            8.14	Restrictions on Subsidiaries	58
	            8.15	Material Contracts	58
	            8.16	Payable Practices	58
	            8.17	Accuracy and Completeness of Information	58
	            8.18	Security Interests of SAG and WGA	58
	            8.19	Survival of Warranties; Cumulative	59
	SECTION 9.	      AFFIRMATIVE AND NEGATIVE COVENANTS	59
	            9.1	Maintenance of Existence	59
	            9.2	New Collateral Locations	59

-ii- 

TABLE OF CONTENTS

(continued) 

			Page
			
	            9.3	Compliance with Laws, Regulations, Etc.	59
	            9.4	Payment of Taxes and Claims	60
	            9.5	Insurance	61
	            9.6	Financial Statements and Other Information	61
	            9.7	Sale of Assets, Consolidation, Merger, Dissolution, Etc.	63
	            9.8	Encumbrances	65
	            9.9	Indebtedness	67
	            9.10	Loans, Investments, Etc.	68
	            9.11	Dividends and Redemptions	70
	            9.12	Transactions with Affiliates	71
	            9.13	Compliance with ERISA	71
	            9.14	End of Fiscal Years; Fiscal Quarters	72
	            9.15	Change in Business	72
	            9.16	Limitation of Restrictions Affecting Subsidiaries	72
	            9.17	Fixed Charge Coverage Ratio	72
	            9.18	Copyrights	73
	            9.19	License Agreements	74
	            9.20	Foreign Assets Control Regulations, Etc.	75
	            9.21	After Acquired Real Property	76
	            9.22	Costs and Expenses	76
	            9.23	Further Assurances	77
	SECTION 10.	      EVENTS OF DEFAULT AND REMEDIES	77
	            10.1	Events of Default	77
	            10.2	Remedies	79
	SECTION 11.	      JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS; GOVERNING LAW	82
	            11.1	Governing Law; Choice of Forum; Service of Process; Jury Trial Waiver	83
	            11.2	Waiver of Notices	84
	            11.3	Amendments and Waivers	84
	            11.4	Waiver of Counterclaims	86
	            11.5	Indemnification	86

-iii- 

TABLE OF CONTENTS

(continued) 

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

-iv- 

INDEX
TO  
EXHIBITS AND
SCHEDULES  

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

LOAN AND SECURITY
AGREEMENT 

        This
Loan and Security Agreement dated May 4, 2007 is entered into by and among Image
Entertainment, Inc., a Delaware corporation (“Administrative Borrower” as
hereinafter further defined), Egami Media, Inc., a Delaware corporation
(“Egami”), Image Entertainment (UK), Inc., a Delaware corporation (“Image
(UK)”), Home Vision Entertainment, Inc., a Delaware corporation (“HVE” and
together with Egami and Image (UK), each individually a “Guarantor” and
collectively, “Guarantors” as hereinafter further defined), the parties hereto
from time to time as lenders, whether by execution of this Agreement or an Assignment and
Acceptance (each individually, a “Lender” and collectively, “Lenders”
as hereinafter further defined) and Wachovia Capital Finance Corporation (Western), a
California corporation, in its capacity as agent for Lenders (in such capacity,
“Agent” as hereinafter further defined). 

W I T N E S S E T H:  

        WHEREAS,
Administrative Borrower and Guarantors have requested that Agent and Lenders enter into
financing arrangements with Administrative Borrower pursuant to which Lenders may make
loans and provide other financial accommodations to Administrative Borrower; and 

        WHEREAS,
each Lender is willing to agree (severally and not jointly) to make such loans and provide
such financial accommodations to Administrative Borrower on a pro rata basis according to
its Commitment (as defined below) on the terms and conditions set forth herein and Agent
is willing to act as agent for Lenders on the terms and conditions set forth herein and
the other Financing Agreements; 

        NOW,
THEREFORE, in consideration of the mutual conditions and agreements set forth herein, and
for other good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows: 

SECTION 1.      
        DEFINITIONS 

        For
purposes of this Agreement, the following terms shall have the respective meanings given
to them below: 

        1.1    
“Accounts” shall mean, as to each Borrower and Guarantor, all present and
future rights of such Borrower and Guarantor to payment of a monetary obligation, whether
or not earned by performance, which is not evidenced by chattel paper or an instrument,
(a) for property that has been or is to be sold, leased, licensed, assigned, or otherwise
disposed of, (b) for services rendered or to be rendered, (c) for a secondary obligation
incurred or to be incurred, or (d) arising out of the use of a credit or charge card or
information contained on or for use with the card.  

        1.2     “Adjusted
Eurodollar Rate” shall mean, with respect to each Interest Period for any Eurodollar
Rate Loan comprising part of the same borrowing (including conversions, extensions and
renewals), the rate per annum determined by dividing (a) the London Interbank Offered
Rate for such Interest Period by (b) a percentage equal to: (i) one (1) minus (ii) the
Reserve Percentage. For purposes hereof, “Reserve Percentage” shall mean for
any day, that percentage, (expressed as a decimal) which is in effect from time to time
under Regulation D of the Board of Governors of the Federal Reserve System (or any
successor), as such regulation may be amended from time to time or any successor
regulation, as the maximum reserve requirement (including, without limitation, any basic,
supplemental, emergency, special, or marginal reserves) applicable with respect to
Eurocurrency liabilities as that term is defined in Regulation D (or against any other
category of liabilities that includes deposits by reference to which the interest rate of
Eurodollar Loans is determined), whether or not any Lender has any Eurocurrency
liabilities subject to such reserve requirement at that time. Eurodollar Loans shall be
deemed to constitute Eurocurrency liabilities and as such shall be deemed subject to
reserve requirements without benefits of credits for proration, exceptions or offsets
that may be available from time to time to a Lender. The Adjusted Eurodollar Rate shall
be adjusted automatically on and as of the effective date of any change in the Reserve
Percentage.  

        1.3     “Administrative
Borrower” shall mean Image Entertainment, Inc., a Delaware corporation in its
capacity as Administrative Borrower on behalf of itself and any other Borrowers pursuant
to Section 6.8 hereof and it successors and assigns in such capacity.  

        1.4     “Affiliate” shall
mean, with respect to a specified Person, any other Person which directly or indirectly,
through one or more intermediaries, controls or is controlled by or is under common
control with such Person, and without limiting the generality of the foregoing, includes
(a) any Person which beneficially owns or holds five (5%) percent or more of any class of
Voting Stock of such Person or other equity interests in such Person, (b) any Person of
which such Person beneficially owns or holds five (5%) percent or more of any class of
Voting Stock or in which such Person beneficially owns or holds five (5%) percent or more
of the equity interests and (c) any director or executive officer of such Person. For the
purposes of this definition, the term “control” (including with correlative
meanings, the terms “controlled by” and “under common control with”),
as used with respect to any Person, means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of such Person,
whether through the ownership of Voting Stock, by agreement or otherwise.  

        1.5     “Agent” shall
mean Wachovia Capital Finance Corporation (Western) in its capacity as agent on behalf of
Lenders pursuant to the terms hereof and any replacement or successor agent hereunder.  

        1.6     “Agent
Payment Account” shall mean account no. 5000000030321 of Agent at Wachovia Bank,
National Association, or such other account of Agent as Agent may from time to time
designate to Administrative Borrower as the Agent Payment Account for purposes of this
Agreement and the other Financing Agreements.  

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

2 

	

	EBITDA
 
	Prime

Spread
	Eurodollar

Spread

	Category 1	0.0%	1.50%
	> $8,500,000
	

	Category 2	0.0%	1.75%
	< $8,500,000
	but
	> $7,500,000
	

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

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

        For
purposes of the foregoing, (a) the Applicable Margin shall be determined as of
the end of each fiscal quarter of Parent (commencing with the fiscal quarter ending
September 30, 2007) based upon the annual or monthly financial statements (for
periods ending on the last day of a fiscal quarter or year) delivered pursuant to
Section 9.6(a), and (b) each change in the Applicable Margin resulting from the
EBITDA of Parent and its Subsidiaries shall be effective during the period commencing on
and including the first day of the month immediately following the date of delivery to the
Agent of such financial statements indicating such change and ending on the date
immediately preceding the effective date of the next such change, provided
that the EBITDA shall be deemed to be in Category 4 at the option of the Agent
or at the request of the Required Lenders if the Parent fails to deliver the annual or
monthly financial statements required to be delivered by it pursuant to
Section 9.6(a) hereof, during the period from the expiration of the time for delivery
thereof until such financial statements are delivered. If any such financial statements
overstate the EBITDA, and if as a result of such overstatement, the interest and fees
charged hereunder are less than what would have been charged had such financial statements
accurately stated the EBITDA, then Borrowers shall be responsible for the difference
between the interest and fees charged as result of such overstatement and what would have
been charged had such financial statements accurately stated the EBITDA, and shall pay the
amount of such difference to the Agent upon its demand therefor. 

        1.8     “Assignment
and Acceptance” shall mean an Assignment and Acceptance substantially in the form of
Exhibit A attached hereto (with blanks appropriately completed) delivered to Agent in
connection with an assignment of a Lender’s interest hereunder in accordance with
the provisions of Section 13.7 hereof.  

        1.9     “Bank
Product Provider” shall mean any Lender, Affiliate of Lender or other financial
institution (in each case as to any such Lender, Affiliate or other financial institution
to the extent approved by Agent) that provides any Bank Products to Borrowers or
Guarantors.  

3 

        1.10     “Bank
Products” shall mean any one or more of the following types or services or
facilities provided to a Borrower by a Bank Product Provider: (a) credit cards or stored
value cards or (b) cash management or related services, including (i) the automated
clearinghouse transfer of funds for the account of a Borrower pursuant to agreement or
overdraft for any accounts of Borrowers maintained at Agent or any Bank Product Provider
that are subject to the control of Agent pursuant to any Deposit Account Control
Agreement to which Agent or such Bank Product Provider is a party, as applicable, and
(ii) controlled disbursement services and (c) Hedge Agreements if and to the extent
permitted hereunder. Any of the foregoing shall only be included in the definition of the
term “Bank Products” to the extent that the Bank Product Provider has been
approved by Agent.  

        1.11         “Blocked
Accounts” shall have the meaning set forth in Section 6.3 hereof. 

        1.12     “Borrowers” shall
mean, collectively, the following (together with their respective successors and
assigns): (a) Image Entertainment, Inc., a Delaware corporation; and (b) any other Person
that at any time after the date hereof becomes a Borrower; each sometimes being referred
to herein individually as a “Borrower”.  

        1.13         “Borrowing
Base” shall mean, at any time, as to each Borrower, the amount equal to: 

            (a)              the
amount equal to eighty-five (85%) percent of the Eligible Accounts of such
          Borrower, minus 

            (b)              Reserves
attributable to such Borrower.  

        Notwithstanding
the foregoing, the maximum portion of the Borrowing Base calculated upon Eligible
Accounts that are unpaid more than ninety (90) days after the date of the original
invoice for them (but not more than one hundred five (105) days after such date), shall
be limited to Two Million Five Hundred Thousand Dollars ($2,500,000).  

        1.14     “Business
Day” shall mean any day other than a Saturday, Sunday, or other day on which
commercial banks are authorized or required to close under the laws of the State of
California or the State of North Carolina, and a day on which Agent is open for the
transaction of business, except that if a determination of a Business Day shall relate to
any Eurodollar Rate Loans, the term Business Day shall also exclude any day on which
banks are closed for dealings in dollar deposits in the London interbank market or other
applicable Eurodollar Rate market.  

        1.15     “Capital
Expenditures” shall mean, for any period, any expenditure of money under a Capital
Lease or for the lease, purchase or other acquisition of any capital asset, for the lease
of any other asset, whether payable currently or in the future, or for the purchase or
construction of assets, or for improvements or additions thereto, which are capitalized
on a Person’s balance sheet.  

        1.16     “Capital
Leases” shall mean, as applied to any Person, any lease of (or any agreement
conveying the right to use) any property (whether real, personal or mixed) by such Person
as lessee which in accordance with GAAP, is required to be reflected as a liability on
the balance sheet of such Person.  

4 

        1.17     “Capital
Stock” shall mean, with respect to any Person, any and all shares, interests,
participations or other equivalents (however designated) of such Person’s capital
stock or partnership, limited liability company or other equity interests at any time
outstanding, and any and all rights, warrants or options exchangeable for or convertible
into such capital stock or other interests (but excluding any debt security that is
exchangeable for or convertible into such capital stock).  

        1.18     “Cash
Equivalents” shall mean, at any time, (a) any evidence of Indebtedness with a
maturity date of ninety (90) days or less issued or directly and fully guaranteed or
insured by the United States of America or any agency or instrumentality thereof; provided,
that, the full faith and credit of the United States of America is pledged in
support thereof; (b) certificates of deposit or bankers’ acceptances with a maturity
of ninety (90) days or less of any financial institution that is a member of the Federal
Reserve System having combined capital and surplus and undivided profits of not less than
$1,000,000,000; (c) commercial paper (including variable rate demand notes) with a
maturity of ninety (90) days or less issued by a corporation (except an Affiliate of any
Borrower or Guarantor) organized under the laws of any State of the United States of
America or the District of Columbia and rated at least A-1 by Standard & Poor’s
Ratings Service, a division of The McGraw-Hill Companies, Inc. or at least P-1 by Moody’s
Investors Service, Inc.; (d) repurchase obligations with a term of not more than thirty
(30) days for underlying securities of the types described in clause (a) above entered
into with any financial institution having combined capital and surplus and undivided
profits of not less than $1,000,000,000; (e) repurchase agreements and reverse repurchase
agreements relating to marketable direct obligations issued or unconditionally guaranteed
by the United States of America or issued by any governmental agency thereof and backed
by the full faith and credit of the United States of America, in each case maturing
within ninety (90) days or less from the date of acquisition; provided, that,
the terms of such agreements comply with the guidelines set forth in the Federal
Financial Agreements of Depository Institutions with Securities Dealers and Others, as
adopted by the Comptroller of the Currency on October 31, 1985; and (f) investments in
money market funds and mutual funds which invest substantially all of their assets in
securities of the types described in clauses (a) through (e) above.  

        1.19     “Change
of Control” shall mean (a) the transfer (in one transaction or a series of
transactions) of all or substantially all of the assets of any Borrower or Guarantor to
any Person or group (as such term is used in Section 13(d)(3) of the Exchange Act), other
than as permitted in Section 9.7 hereof; (b) the liquidation or dissolution of any
Borrower or Guarantor or the adoption of a plan by the stockholders of any Borrower or
Guarantor relating to the dissolution or liquidation of such Borrower or Guarantor, other
than as permitted in Section 9.7 hereof; (c) the acquisition by any Person or group (as
such term is used in Section 13(d)(3) of the Exchange Act), except for one or more
Permitted Holders, of beneficial ownership, directly or indirectly, of a majority of the
voting power of the total outstanding Voting Stock of any Borrower or Guarantor or the
Board of Directors of any Borrower or Guarantor; (d) during any period of two (2)
consecutive years, individuals who at the beginning of such period constituted the Board
of Directors of any Borrower or Guarantor (together with any new directors who have been
appointed by any Permitted Holder, or whose nomination for election by the stockholders
of such Borrower or Guarantor, as the case may be, was approved by a vote of at least
sixty-six and two-thirds (66 2/3%) percent of the directors then still in office who were
either directors at the beginning of such period or whose election or nomination for
election was previously so approved) cease for any reason to constitute a majority of the
Board of Directors of any Borrower or Guarantor then still in office; or (e) the failure
of Parent to own directly or indirectly one hundred (100%) percent of the voting power of
the total outstanding Voting Stock of any other Borrower or Guarantor.  

5 

        1.20     “Code” shall
mean the Internal Revenue Code of 1986, as the same now exists or may from time to time
hereafter be amended, modified, recodified or supplemented, together with all rules,
regulations and interpretations thereunder or related thereto.  

        1.21         “Collateral” shall
have the meaning set forth in Section 5 hereof. 

        1.22     “Collateral
Access Agreement” shall mean an agreement in writing, in form and substance
satisfactory to Agent, from any lessor of premises to any Borrower or Guarantor, or any
other person to whom any Collateral is consigned or who has custody, control or
possession of any such Collateral or is otherwise the owner or operator of any premises
on which any of such Collateral is located, in favor of Agent with respect to the
Collateral at such premises or otherwise in the custody, control or possession of such
lessor, consignee or other person.  

        1.23     “Commitment” shall
mean, at any time, as to each Lender, the principal amount set forth below such Lender’s
signature on the signatures pages hereto designated as the Commitment or on Schedule 1 to
the Assignment and Acceptance Agreement pursuant to which such Lender became a Lender
hereunder in accordance with the provisions of Section 13.7 hereof, as the same may be
adjusted from time to time in accordance with the terms hereof; sometimes being
collectively referred to herein as “Commitments”.  

        1.24     “Credit
Facility” shall mean the Loans and Letters of Credit provided to or for the benefit
of any Borrower pursuant to Sections 2.1 and 2.2 hereof.  

        1.25     “Default” shall
mean an act, condition or event which with notice or passage of time or both would
constitute an Event of Default.  

        1.26         “Defaulting
Lender” shall have the meaning set forth in Section 6.11 hereof. 

        1.27     “Deposit
Account Control Agreement” shall mean an agreement in writing, in form and substance
satisfactory to Agent, by and among Agent, the Borrower or Guarantor with a deposit
account at any bank and the bank at which such deposit account is at any time maintained
which provides that such bank will comply with instructions originated by Agent directing
disposition of the funds in the deposit account without further consent by such Borrower
or Guarantor and has such other terms and conditions as Agent may require.  

        1.28     “EBITDA” shall
mean, as to any Person, with respect to any period, an amount equal to: (a) the Net
Income of such Person and its Subsidiaries for such period on a consolidated basis
determined in accordance with GAAP, plus (b) depreciation, amortization and other
non-cash charges (including, but not limited to, imputed interest and deferred
compensation) of such Person for such period (to the extent deducted in the computation
of Net Income), all in accordance with GAAP, plus (c) Interest Expense of such
Person for such period (to the extent deducted in the computation of Net Income), plus (d)
charges for Federal, State, local and foreign income taxes for such period (to the extent
deducted in the computation of Net Income), plus (e) all extraordinary losses and
unusual losses related to the restructuring of the business of such Person and costs
associated with the financing transaction contemplated by this Agreement, minus (f)
all income (and plus all charges, up to the amount of such income) attributable to any
Subsidiary of such Person.  

6 

        1.29     “Eligible
Accounts” shall mean Accounts created by a Borrower that in each case satisfy the
criteria set forth below as determined by Agent subject to the provisions of Section 9.18
hereof. In general, subject to those provisions, Accounts shall be Eligible Accounts if:  

            (a)              such
Accounts arise from the actual and bona fide sale and delivery of goods by           such
Borrower or rendition of services by such Borrower in the ordinary course           of
its business which transactions are completed in accordance with the terms           and
provisions contained in any documents related thereto;  

            (b)              such
Accounts are not unpaid more than sixty (60) days after the original due           date
for them or more than one hundred five (105) days after the date of the
          original invoice for them;  

            (c)              such
Accounts comply with the terms and conditions contained in Section 7.2(b)           of
this Agreement;  

            (d)              such
Accounts do not arise from sales on consignment, guaranteed sale, sale and
          return, sale on approval, or other terms under which payment by the account
          debtor may be conditional or contingent;  

            (e)              the
chief executive office of the account debtor with respect to such Accounts           is
located in the United States of America or Canada (provided, that, at any
time promptly upon Agent’s request, such Borrower shall           execute and
deliver, or cause to be executed and delivered, such other           agreements,
documents and instruments as may be required by Agent to perfect the           security
interests of Agent in those Accounts of an account debtor with its           chief
executive office or principal place of business in Canada in accordance           with
the applicable laws of the Province of Canada in which such chief executive
          office or principal place of business is located and take or cause to be taken
          such other and further actions as Agent may request to enable Agent as secured
          party with respect thereto to collect such Accounts under the applicable
Federal           or Provincial laws of Canada) or, at Agent’s option, if the chief
executive           office and principal place of business of the account debtor with
respect to           such Accounts is located other than in the United States of America
or Canada,           then if either: (i) the account debtor has delivered to such
Borrower an           irrevocable letter of credit issued or confirmed by a bank
satisfactory to Agent           and payable only in the United States of America and in
U.S. dollars, sufficient           to cover such Account, in form and substance
satisfactory to Agent and if           required by Agent, the original of such letter of
credit has been delivered to           Agent or Agent’s agent and the issuer
thereof, and such Borrower has           complied with the terms of Section 5.2(f) hereof
with respect to the assignment           of the proceeds of such letter of credit to
Agent or naming Agent as transferee           beneficiary thereunder, as Agent may
specify, or (ii) such Account is subject to           credit insurance payable to Agent
issued by an insurer and on terms and in an           amount acceptable to Agent, or
(iii) such Account is otherwise acceptable in all           respects to Agent (subject to
such lending formula with respect thereto as Agent           may determine);  

7 

            (f)              such
Accounts do not consist of progress billings (such that the obligation of           the
account debtors with respect to such Accounts is conditioned upon such           Borrower’s
satisfactory completion of any further performance under the           agreement giving
rise thereto), bill and hold invoices or retainage invoices,           except as to bill
and hold invoices, if Agent shall have received an agreement           in writing from
the account debtor, in form and substance satisfactory to Agent,           confirming the
unconditional obligation of the account debtor to take the goods           related
thereto and pay such invoice;  

            (g)              the
account debtor with respect to such Accounts has not asserted a           counterclaim,
defense or dispute and is not owed or does not claim to be owed           any amounts
that may give rise to any right of setoff or recoupment against such           Accounts
(but the portion of the Accounts of such account debtor in excess of           the amount
at any time and from time to time owed by such Borrower to such           account debtor
or claimed owed by such account debtor may be deemed Eligible           Accounts);  

            (h)              there
are no facts, events or occurrences which would impair the validity,
          enforceability or collectability of such Accounts or reduce the amount payable
          or delay payment thereunder;  

            (i)              such
Accounts are subject to the first priority, valid and perfected security
          interest of Agent and any goods giving rise thereto are not, and were not at
the           time of the sale thereof, subject to any liens except those permitted in
this           Agreement that are subject to an intercreditor agreement in form and
substance           satisfactory to Agent between the holder of such security interest or
lien and           Agent;  

            (j)              neither
the account debtor nor any officer or employee of the account debtor           with
respect to such Accounts is an officer, employee, agent or other Affiliate           of
any Borrower or Guarantor;  

            (k)              the
account debtors with respect to such Accounts are not any foreign           government,
the United States of America, any State, political subdivision,           department,
agency or instrumentality thereof, unless, if the account debtor is           the United
States of America, any State, political subdivision, department,           agency or
instrumentality thereof, upon Agent’s request, the Federal           Assignment of
Claims Act of 1940, as amended or any similar State or local law,           if
applicable, has been complied with in a manner satisfactory to Agent;  

            (l)              there
are no proceedings or actions which are threatened or pending against the
          account debtors with respect to such Accounts which might result in any
material           adverse change in any such account debtor’s financial condition
(including,           without limitation, any bankruptcy, dissolution, liquidation,
reorganization or           similar proceeding);  

            (m)              the
aggregate amount of such Accounts owing by a single account debtor (other           than
Amazon.com, AEC One Stop and Anderson Merchandising) do not constitute more
          than ten (10%) percent of the aggregate amount of all otherwise Eligible
          Accounts and such Accounts owing by each of Amazon.com and AEC One Stop do not,
          in each case, constitute more than twenty-five (25%) percent of the aggregate
          amount of all otherwise Eligible Accounts and such Accounts owing by Anderson
          Merchandising do not constitute more than thirty (30%) percent of the aggregate
          amount of all otherwise Eligible Accounts (but the portion of the Accounts not
          in excess of the applicable percentages may be deemed Eligible Accounts);  

8 

            (n)              such
Accounts are not owed by an account debtor who has Accounts unpaid more           than
sixty (60) days after the original due date for them or more than one           hundred
five (105) days after the original invoice date for them which           constitute more
than fifty (50%) percent of the total Accounts of such account           debtor;  

            (o)              the
account debtor is not located in a state requiring the filing of a Notice of
          Business Activities Report or similar report in order to permit such Borrower
to           seek judicial enforcement in such State of payment of such Account, unless
such           Borrower has qualified to do business in such state or has filed a Notice
of           Business Activities Report or equivalent report for the then current year or
          such failure to file and inability to seek judicial enforcement is capable of
          being remedied without any material delay or material cost;  

            (p)              such
Accounts are owed by account debtors whose total indebtedness to such           Borrower
does not exceed the credit limit with respect to such account debtors           as
determined by such Borrower from time to time, to the extent such credit           limit
as to any account debtor is established consistent with the current           practices
of such Borrower as of the date hereof and such credit limit is           acceptable to
Agent (but the portion of the Accounts not in excess of such           credit limit may
be deemed Eligible Accounts); and  

            (q)              such
Accounts are owed by account debtors deemed creditworthy at all times by           Agent
in good faith.  

        The
criteria for Eligible Accounts set forth above may only be changed and any new criteria
for Eligible Accounts may only be established by Agent in good faith based on either: (i)
an event, condition or other circumstance arising after the date hereof, or (ii) an
event, condition or other circumstance existing on the date hereof to the extent Agent
has no written notice thereof from a Borrower prior to the date hereof, in either case
under clause (i) or (ii) which adversely affects or could reasonably be expected to
adversely affect the Accounts in the good faith determination of Agent. Any Accounts that
are not Eligible Accounts shall nevertheless be part of the Collateral.  

        1.30     “Eligible
Transferee” shall mean (a) any Lender; (b) the parent company of any Lender and/or
any Affiliate of such Lender which is at least fifty (50%) percent owned by such Lender
or its parent company; (c) any person (whether a corporation, partnership, trust or
otherwise) that is engaged in the business of making, purchasing, holding or otherwise
investing in bank loans and similar extensions of credit in the ordinary course of its
business and is administered or managed by a Lender or with respect to any Lender that is
a fund which invests in bank loans and similar extensions of credit, any other fund that
invests in bank loans and similar extensions of credit and is managed by the same
investment advisor as such Lender or by an Affiliate of such investment advisor, and in
each case is approved by Agent; and (d) any other commercial bank, financial institution
or “accredited investor” (as defined in Regulation D under the Securities Act
of 1933) approved by Agent, provided, that, (i) neither any Borrower nor
any Guarantor or any Affiliate of any Borrower or Guarantor shall qualify as an Eligible
Transferee and (ii) no Person to whom any Indebtedness which is in any way subordinated
in right of payment to any other Indebtedness of any Borrower or Guarantor shall qualify
as an Eligible Transferee, except as Agent may otherwise specifically agree.  

9 

        1.31     “Environmental
Laws” shall mean all foreign, Federal, State and local laws (including common law),
legislation, rules, codes, licenses, permits (including any conditions imposed therein),
authorizations, judicial or administrative decisions, injunctions or agreements between
any Borrower or Guarantor and any Governmental Authority, (a) relating to pollution and
the protection, preservation or restoration of the environment (including air, water
vapor, surface water, ground water, drinking water, drinking water supply, surface land,
subsurface land, plant and animal life or any other natural resource), or to human health
or safety, (b) relating to the exposure to, or the use, storage, recycling, treatment,
generation, manufacture, processing, distribution, transportation, handling, labeling,
production, release or disposal, or threatened release, of Hazardous Materials, or (c)
relating to all laws with regard to recordkeeping, notification, disclosure and reporting
requirements respecting Hazardous Materials. The term “Environmental Laws” includes
(i) the Federal Comprehensive Environmental Response, Compensation and Liability Act of
1980, the Federal Superfund Amendments and Reauthorization Act, the Federal Water
Pollution Control Act of 1972, the Federal Clean Water Act, the Federal Clean Air Act,
the Federal Resource Conservation and Recovery Act of 1976 (including the Hazardous and
Solid Waste Amendments thereto), the Federal Solid Waste Disposal and the Federal Toxic
Substances Control Act, the Federal Insecticide, Fungicide and Rodenticide Act, and the
Federal Safe Drinking Water Act of 1974, (ii) applicable state counterparts to such laws
and (iii) any common law or equitable doctrine that may impose liability or obligations
for injuries or damages due to, or threatened as a result of, the presence of or exposure
to any Hazardous Materials.  

        1.32     “Equipment” shall
mean, as to each Borrower and Guarantor, all of such Borrower’s and Guarantor’s
now owned and hereafter acquired equipment, wherever located, including machinery, data
processing and computer equipment (whether owned or licensed and including embedded
software), vehicles, tools, furniture, fixtures, all attachments, accessions and property
now or hereafter affixed thereto or used in connection therewith, and substitutions and
replacements thereof, wherever located.  

        1.33     “ERISA” shall
mean the Employee Retirement Income Security Act of 1974, together with all rules,
regulations and interpretations thereunder or related thereto.  

        1.34     “ERISA
Affiliate” shall mean any person required to be aggregated with any Borrower, any
Guarantor or any of its or their respective Subsidiaries under Sections 414(b), 414(c),
414(m) or 414(o) of the Code.  

        1.35     “ERISA
Event” shall mean (a) any “reportable event”, as defined in Section
4043(c) of ERISA or the regulations issued thereunder, with respect to a Pension Plan,
other than events as to which the requirement of notice has been waived in regulations by
the Pension Benefit Guaranty Corporation; (b) the adoption of any amendment to a Pension
Plan that would require the provision of security pursuant to Section 401(a)(29) of the
Code or Section 307 of ERISA; (c) a complete or partial withdrawal by any Borrower,
Guarantor or any ERISA Affiliate from a Multiemployer Plan or a cessation of operations
which is treated as such a withdrawal or notification that a Multiemployer Plan is in
reorganization; (d) the filing of a notice of intent to terminate, the treatment of a
Pension Plan amendment as a termination under Section 4041 or 4041A of ERISA, or the
commencement of proceedings by the Pension Benefit Guaranty Corporation to terminate a
Pension Plan; (e) an event or condition which might reasonably be expected to constitute
grounds under Section 4042 of ERISA for the termination of, or the appointment of a
trustee to administer, any Plan; (f) the imposition of any liability under Title IV of
ERISA, other than the Pension Benefit Guaranty Corporation premiums due but not
delinquent under Section 4007 of ERISA, upon any Borrower, Guarantor or any ERISA
Affiliate in excess of $250,000 and (g) any other event or condition with respect to a
Plan including any Pension Plan subject to Title IV of ERISA maintained, or contributed
to, by any ERISA Affiliate that could reasonably be expected to result in liability of
any Borrower in excess of $250,000.  

10 

        1.36     “Eurodollar
Rate Loans” shall mean any Loans or portion thereof on which interest is payable
based on the Adjusted Eurodollar Rate in accordance with the terms hereof.  

        1.37     “Event
of Default” shall mean the occurrence or existence of any event or condition
described in Section 10.1 hereof.  

        1.38     “Excess
Availability” shall mean, as to each Borrower, the amount, as determined by Agent,
calculated at any date, equal to: (a) the lesser of: (i) the Borrowing Base of such
Borrower and (ii) the Revolving Loan Limit of such Borrower (in each case under (i) or
(ii) after giving effect to any Reserves other than any Reserves in respect of Letter of
Credit Obligations), minus (b) the sum of: (i) the amount of all then outstanding and
unpaid Obligations of such Borrower (but not including for this purpose Obligations of
such Borrower arising pursuant to any guarantees in favor of Agent and Lenders of the
Obligations of the other Borrowers or any outstanding Letter of Credit Obligations), plus
(ii) the amount of all Reserves then established in respect of Letter of Credit
Obligations, and solely for the purpose of the condition precedent set forth in Section
4.1(f) hereof, plus (iii) the aggregate amount of all then outstanding and unpaid trade
payables and other obligations of such Borrower which are outstanding more than sixty
(60) days past due as of the end of the immediately preceding month or at Agent’s
option, as of a more recent date based on such reports as Agent may from time to time
specify (other than trade payables or other obligations being contested or disputed by
such Borrower in good faith), plus (iv) without duplication, the amount of checks issued
by such Borrower to pay trade payables and other obligations which are more than sixty
(60) days past due as of the end of the immediately preceding month or at Agent’s
option, as of a more recent date based on such reports as Agent may from time to time
specify (other than trade payables or other obligations being contested or disputed by
such Borrower in good faith), but not yet sent.  

        1.39     “Exchange
Act” shall mean the Securities Exchange Act of 1934, together with all rules,
regulations and interpretations thereunder or related thereto.  

        1.40         “Existing
Lenders” shall mean Wells Fargo Foothill, Inc. and its predecessors, successors and
assigns. 

        1.41     “Existing
Letters of Credit” shall mean, collectively, the letters of credit issued for the
account of a Borrower or Guarantor or for which such Borrower or Guarantor is otherwise
liable listed on Schedule 1.41 hereto, as the same now exist or may hereafter be amended,
modified, supplemented, extended, renewed, restated or replaced.  

11 

        1.42     “Fee
Letter” shall mean the letter agreement, dated of even date herewith, by and among
Borrowers, Guarantors and Agent, setting forth certain fees payable by Borrowers to Agent
for the benefit of itself and Lenders, as the same now exists or may hereafter be
amended, modified, supplemented, extended, renewed, restated or replaced.  

        1.43     “Financing
Agreements” shall mean, collectively, this Agreement and all notes, guarantees,
security agreements, deposit account control agreements, investment property control
agreements, intercreditor agreements and all other agreements, documents and instruments
now or at any time hereafter executed and/or delivered by any Borrower or Obligor in
connection with this Agreement; provided, that, in no event shall the term
Financing Agreements be deemed to include any Hedge Agreement.  

        1.44     “Fixed
Charge Coverage Ratio” shall mean, as to any Person, with respect to any period, the
ratio of (a) the EBITDA of such Person during such period, calculated without giving
effect to any asset write-downs associated with Source Entertainment, expenses directly
associated with that certain Agreement and Plan of Merger dated as of March 29, 2007
among BTP Acquisition Company, LLC, IEAC, Inc. and Parent, and any expenses directly
associated with derivative shareholder lawsuits against Parent, plus any
amortization of production costs (to the extent not already added to Net Income in
calculating such EBITDA), minus taxes, whether Federal, State or local, and whether
foreign or domestic, that are paid or payable by such Person or its Subsidiaries in cash
in respect of such period, and minus any Capital Expenditures made by such Person
or its Subsidiaries during such period to the extent they are not financed, to (b) all
principal sums paid or payable by such Person or its Subsidiaries on Indebtedness during
such period and all Interest Expense of such Person and its Subsidiaries during such
period, minus any such Interest Expense not paid or payable in cash, minus deferred
finance expense on subordinated Indebtedness, minus any warrant amortization, and
plus production costs expenditures, in each case made or incurred by such Person or
its Subsidiaries during such period.  

        1.45     “Foreign
Lender” shall mean any Lender that is organized under the laws of a jurisdiction
other than that in which a Borrower is resident for tax purposes. For purposes of this
definition, the United States of America, each State thereof and the District of Columbia
shall be deemed to constitute a single jurisdiction.  

        1.46         “Funding
Bank” shall have the meaning given to such term in Section 3.3 hereof. 

        1.47     “GAAP” shall
mean generally accepted accounting principles in the United States of America as in
effect from time to time as set forth in the opinions and pronouncements of the
Accounting Principles Board and the American Institute of Certified Public Accountants
and the statements and pronouncements of the Financial Accounting Standards Board which
are applicable to the circumstances as of the date of determination consistently applied,
except that, for purposes of Sections 9.17 and 9.18 hereof, GAAP shall be determined on
the basis of such principles in effect on the date hereof and consistent with those used
in the preparation of the most recent audited financial statements delivered to Agent
prior to the date hereof.  

        1.48     “Governmental
Authority” shall mean any nation or government, any state, province, or other
political subdivision thereof, any central bank (or similar monetary or regulatory
authority) thereof, and any entity exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government.  

12 

        1.49     “Guarantors” shall
mean, collectively, the following (together with their respective successors and
assigns): (a) Egami Media, Inc., a Delaware corporation; (b) Image Entertainment (UK),
Inc., a Delaware corporation; (c) Home Vision Entertainment, Inc., a Delaware
corporation; and (d) any other Person that at any time after the date hereof becomes
party to a guarantee in favor of Agent or any Lender or otherwise liable on or with
respect to the Obligations or who is the owner of any property which is security for the
Obligations (other than Borrowers); each sometimes being referred to herein individually
as a “Guarantor”.  

        1.50     “Hazardous
Materials” shall mean any hazardous, toxic or dangerous substances, materials and
wastes, including hydrocarbons (including naturally occurring or man-made petroleum and
hydrocarbons), flammable explosives, asbestos, urea formaldehyde insulation, radioactive
materials, biological substances, polychlorinated biphenyls, pesticides, herbicides and
any other kind and/or type of pollutants or contaminants (including materials which
include hazardous constituents), sewage, sludge, industrial slag, solvents and/or any
other similar substances, materials, or wastes and including any other substances,
materials or wastes that are or become regulated under any Environmental Law (including
any that are or become classified as hazardous or toxic under any Environmental Law).  

        1.51     “Hedge
Agreement” shall mean an agreement between any Borrower or Guarantor and Agent or any
Bank Product Provider that is a swap agreement as such term is defined in 11 U.S.C.
Section 101, and including any rate swap agreement, basis swap, forward rate agreement,
commodity swap, interest rate option, forward foreign exchange agreement, spot foreign
exchange agreement, rate cap agreement rate, floor agreement, rate collar agreement,
currency swap agreement, cross-currency rate swap agreement, currency option, any other
similar agreement (including any option to enter into any of the foregoing or a master
agreement for any the foregoing together with all supplements thereto) for the purpose of
protecting against or managing exposure to fluctuations in interest or exchange rates,
currency valuations or commodity prices; sometimes being collectively referred to herein
as “Hedge Agreements”.  

        1.52     “Indebtedness” shall
mean, with respect to any Person, any liability, whether or not contingent, (a) in
respect of borrowed money (whether or not the recourse of the lender is to the whole of
the assets of such Person or only to a portion thereof) or evidenced by bonds, notes,
debentures or similar instruments; (b) representing the balance deferred and unpaid of
the purchase price of any property or services (other than an account payable to a trade
creditor (whether or not an Affiliate) incurred in the ordinary course of business of
such Person and payable in accordance with customary trade practices); (c) all
obligations as lessee under leases which have been, or should be, in accordance with GAAP
recorded as Capital Leases; (d) any contractual obligation, contingent or otherwise, of
such Person to pay or be liable for the payment of any indebtedness described in this
definition of another Person, including, without limitation, any such indebtedness,
directly or indirectly guaranteed, or any agreement to purchase, repurchase, or otherwise
acquire such indebtedness, obligation or liability or any security therefor, or to
provide funds for the payment or discharge thereof, or to maintain solvency, assets,
level of income, or other financial condition; (e) all obligations with respect to
redeemable stock and redemption or repurchase obligations under any Capital Stock or
other equity securities issued by such Person; (f) all reimbursement obligations and
other liabilities of such Person with respect to surety bonds (whether bid, performance
or otherwise), letters of credit, banker’s acceptances, drafts or similar documents
or instruments issued for such Person’s account; (g) all indebtedness of such Person
in respect of indebtedness of another Person for borrowed money or indebtedness of
another Person otherwise described in this definition which is secured by any consensual
lien, security interest, collateral assignment, conditional sale, mortgage, deed of
trust, or other encumbrance on any asset of such Person, whether or not such obligations,
liabilities or indebtedness are assumed by or are a personal liability of such Person,
all as of such time; (h) all obligations, liabilities and indebtedness of such Person
(marked to market) arising under swap agreements, cap agreements and collar agreements
and other agreements or arrangements designed to protect such person against fluctuations
in interest rates or currency or commodity values; (i) all obligations owed by such
Person under License Agreements with respect to non-refundable, advance or minimum
guarantee royalty payments; (j) indebtedness of any partnership or joint venture in which
such Person is a general partner or a joint venturer to the extent such Person is liable
therefor as a result of such Person’s ownership interest in such entity, except to
the extent that the terms of such indebtedness expressly provide that such Person is not
liable therefor or such Person has no liability therefor as a matter of law and (k) the
principal and interest portions of all rental obligations of such Person under any
synthetic lease or similar off-balance sheet financing where such transaction is
considered to be borrowed money for tax purposes but is classified as an operating lease
in accordance with GAAP.  

13 

        1.53     “Information
Certificate” shall mean, collectively, the Information Certificates of Borrowers and
Guarantors constituting Exhibit B hereto containing material information with respect to
Borrowers and Guarantors, their respective businesses and assets provided by or on behalf
of Borrowers and Guarantors to Agent in connection with the preparation of this Agreement
and the other Financing Agreements and the financing arrangements provided for herein.  

        1.54     “Intellectual
Property” shall mean, as to each Borrower and Guarantor, such Borrower’s and
Guarantor’s now owned and hereafter arising or acquired: patents, patent rights,
patent applications, copyrights, works which are the subject matter of copyrights,
copyright applications, copyright registrations, trademarks, servicemarks, trade names,
trade styles, trademark and service mark applications, and licenses and rights to use any
of the foregoing and all applications, registrations and recordings relating to any of
the foregoing as may be filed in the United States Copyright Office, the United States
Patent and Trademark Office or in any similar office or agency of the United States, any
State thereof, any political subdivision thereof or in any other country or jurisdiction,
together with all rights and privileges arising under applicable law with respect to any
Borrower’s or Guarantor’s use of any of the foregoing; all extensions,
renewals, reissues, divisions, continuations, and continuations-in-part of any of the
foregoing; all rights to sue for past, present and future infringement of any of the
foregoing; inventions, trade secrets, formulae, processes, compounds, drawings, designs,
blueprints, surveys, reports, manuals, and operating standards; goodwill (including any
goodwill associated with any trademark or servicemark, or the license of any trademark or
servicemark); customer and other lists in whatever form maintained; trade secret rights,
copyright rights, rights in works of authorship, domain names and domain name
registration; software and contract rights relating to computer software programs, in
whatever form created or maintained.  

14 

        1.55     “Interest
Expense” shall mean, for any period, as to any Person and its Subsidiaries, all of
the following as determined in accordance with GAAP, total interest expense, whether paid
or accrued (including the interest component of Capital Leases for such period),
including, without limitation, all bank fees, commissions, discounts and other fees and
charges owed with respect to letters of credit, banker’s acceptances or similar
instruments, but excluding (a) amortization of discount and amortization of deferred
financing fees and closing costs paid in cash in connection with the transactions
contemplated hereby, (b) interest paid in property other than cash and (c) any other
interest expense not payable in cash.  

        1.56     “Interest
Period” shall mean for any Eurodollar Rate Loan, a period of approximately one (1),
two (2), or three (3) months duration as any Borrower (or Administrative Borrower on
behalf of such Borrower) may elect, the exact duration to be determined in accordance
with the customary practice in the applicable Eurodollar Rate market; provided, that,
such Borrower (or Administrative Borrower on behalf of such Borrower) may not elect an
Interest Period which will end after the last day of the then-current term of this
Agreement.  

        1.57     “Interest
Rate” shall mean,  

            (a)              Subject
to clause (b) of this definition below:  

                (i)              as
to Prime Rate Loans, a rate equal to the sum of the Applicable Margin plus           the
Prime Rate; and  

                (ii)              as
to Eurodollar Rate Loans, a rate equal to the sum of the Applicable Margin           plus
the Adjusted Eurodollar Rate (in each case, based on the London Interbank
          Offered Rate applicable for the Interest Period selected by a Borrower, or by
          Administrative Borrower on behalf of such Borrower, as in effect two (2)
          Business Days prior to the commencement of the Interest Period, whether such
          rate is higher or lower than any rate previously quoted to any Borrower or
          Guarantor).  

            (b)              Notwithstanding
anything to the contrary contained in clause (a) of this           definition, the
Interest Rate shall mean a rate two (2.0%) percent per annum           higher than the
applicable rate set forth in such clause (a), at Agent’s           option, without
notice, (i) either (A) for the period on and after the date of           termination or
non-renewal hereof until such time as all Obligations are           indefeasibly paid and
satisfied in full in immediately available funds, or (B)           for the period from
and after the date of the occurrence of any Event of           Default, and for so long
as such Event of Default is continuing as determined by           Agent and (ii) on the
Revolving Loans to any Borrower at any time outstanding in           excess of the
Borrowing Base of such Borrower or the Revolving Loan Limit of           such Borrower
(whether or not such excess(es) arise or are made with or without           Agent’s
or any Lender’s knowledge or consent and whether made before           or after an
Event of Default).  

        1.58     “Inventory” shall
mean, as to each Borrower and Guarantor, all of such Borrower’s and Guarantor’s
now owned and hereafter existing or acquired goods, wherever located, which (a) are
leased by such Borrower or Guarantor as lessor; (b) are held by such Borrower or
Guarantor for sale or lease or to be furnished under a contract of service; (c) are
furnished by such Borrower or Guarantor under a contract of service; or (d) consist of
raw materials, work in process, finished goods or materials used or consumed in its
business.  

15 

        1.59     “Investment
Property Control Agreement” shall mean an agreement in writing, in form and
substance satisfactory to Agent, by and among Agent, any Borrower or Guarantor (as the
case may be) and any securities intermediary, commodity intermediary or other person who
has custody, control or possession of any investment property of such Borrower or
Guarantor acknowledging that such securities intermediary, commodity intermediary or
other person has custody, control or possession of such investment property on behalf of
Agent, that it will comply with entitlement orders originated by Agent with respect to
such investment property, or other instructions of Agent, and has such other terms and
conditions as Agent may require.  

        1.60     “Lenders” shall
mean the financial institutions who are signatories hereto as Lenders and other persons
made a party to this Agreement as a Lender in accordance with Section 13.7 hereof, and
their respective successors and assigns; each sometimes being referred to herein
individually as a “Lender”.  

        1.61     “Letter
of Credit Documents” shall mean, with respect to any Letter of Credit, such Letter
of Credit, any amendments thereto, any documents delivered in connection therewith, any
application therefor, and any agreements, instruments, guarantees or other documents
(whether general in application or applicable only to such Letter of Credit) governing or
providing for (a) the rights and obligations of the parties concerned or at risk or (b)
any collateral security for such obligations.  

        1.62     “Letter
of Credit Limit” shall mean $2,000,000.  

        1.63     “Letter
of Credit Obligations” shall mean, at any time, the sum of (a) the aggregate undrawn
amount of all Letters of Credit outstanding at such time, plus (b) the aggregate amount
of all drawings under Letters of Credit for which the issuer thereof has not at such time
been reimbursed, plus (c) without duplication, the aggregate amount of all payments made
by each Lender to the issuer with respect to such Lender’s participation in Letters
of Credit as provided in Section 2.2 for which Borrowers have not at such time reimbursed
the Lenders, whether by way of a Revolving Loan or otherwise.  

        1.64     “Letters
of Credit” shall mean all letters of credit (whether documentary or stand-by and
whether for the purchase of inventory, equipment or otherwise) issued by an issuer for
the account of any Borrower pursuant to this Agreement, and all amendments, renewals,
extensions or replacements thereof and including, but not limited to, the Existing
Letters of Credit. The issuer of the Letters of Credit shall be, and all references to
such issuer herein shall mean, Wachovia Bank, National Association and its successors and
assigns or such other bank as Lender may from time to time designate.  

        1.65         “License
Agreements” shall have the meaning set forth in Section 8.11 hereof. 

        1.66         “Loans” shall
mean, collectively, the Revolving Loans. 

16 

        1.67     “London
Interbank Offered Rate” shall mean, with respect to any Eurodollar Loan for the
Interest Period applicable thereto, the rate of interest per annum (rounded upwards, if
necessary, to the nearest 1/100 of 1%) appearing on Telerate Page 3750 (or any successor
page) as the London interbank offered rate for deposits in U.S. Dollars at approximately
11:00 A.M. (London time) two (2) Business Days prior to the first day of such Interest
Period for a term comparable to such Interest Period; provided, that, if more than one
rate is specified on Telerate Page 3750, the applicable rate shall be the arithmetic mean
of all such rates. If, for any reason, such rate is not available, the term “London
Interbank Offered Rate” shall mean, with respect to any Eurodollar Loan for the
Interest Period applicable thereto, the rate of interest per annum (rounded upwards, if
necessary, to the nearest 1/100 of 1%) appearing on Reuters Screen LIBO Page as the
London interbank offered rate for deposits in Dollars at approximately 11:00 A.M. (London
time) two (2) Business Days prior to the first day of such Interest Period for a term
comparable to such Interest Period; provided, however, if more than one rate is specified
on Reuters Screen LIBO Page, the applicable rate shall be the arithmetic mean of all such
rates.  

        1.68     “Material
Adverse Effect” shall mean a material adverse effect on (a) the financial condition,
business, performance or operations of Borrowers; (b) the legality, validity or
enforceability of this Agreement or any of the other Financing Agreements; (c) the
legality, validity, enforceability, perfection or priority of the security interests and
liens of Agent upon the Collateral; (d) the Collateral or its value; (e) the ability of
any Borrower to repay the Obligations or of any Borrower to perform its obligations under
this Agreement or any of the other Financing Agreements as and when to be performed; or
(f) the ability of Agent or any Lender to enforce the Obligations or realize upon the
Collateral or otherwise with respect to the rights and remedies of Agent and Lenders
under this Agreement or any of the other Financing Agreements.  

        1.69     “Material
Contract” shall mean (a) any contract or other agreement (other than the Financing
Agreements), written or oral, of any Borrower or Guarantor involving monetary liability
of or to any Person in an amount in excess of $500,000 in any fiscal year and (b) any
other contract or other agreement (other than the Financing Agreements), whether written
or oral, to which any Borrower or Guarantor is a party as to which the breach,
nonperformance, cancellation or failure to renew by any party thereto would have a
Material Adverse Effect.  

        1.70     “Multiemployer
Plan” shall mean a “multi-employer plan” as defined in Section 4001(a)(3)
of ERISA which is or was at any time during the current year or the immediately preceding
six (6) years contributed to by any Borrower, Guarantor or any ERISA Affiliate or with
respect to which any Borrower, Guarantor or any ERISA Affiliate may incur any liability.  

        1.71     “Net
Income” shall mean, with respect to any Person, for any period, the aggregate of the
net income (loss) of such Person and its Subsidiaries, on a consolidated basis, for such
period (excluding to the extent included therein any extraordinary or one-time gains or
losses) after deducting all charges which should be deducted before arriving at the net
income (loss) for such period and after deducting the Provision for Taxes for such
period, all as determined in accordance with GAAP, provided, that, (a) the
net income of any Person that is not a wholly-owned Subsidiary or that is accounted for
by the equity method of accounting shall be included only to the extent of the amount of
dividends or distributions paid or payable to such Person or a wholly-owned Subsidiary of
such Person; (b) the effect of any change in accounting principles adopted by such Person
or its Subsidiaries after the date hereof shall be excluded; and (c) the net income (if
positive) of any wholly-owned Subsidiary to the extent that the declaration or payment of
dividends or similar distributions by such wholly-owned Subsidiary to such Person or to
any other wholly-owned Subsidiary of such Person is not at the time permitted by
operation of the terms of its charter or any agreement, instrument, judgment, decree,
order, statute, rule of government regulation applicable to such wholly-owned Subsidiary
shall be excluded. For the purpose of this definition, net income excludes any gain or
loss, together with any related Provision for Taxes for such gain or loss realized upon
the sale or other disposition of any assets that are not sold in the ordinary course of
business (including, without limitation, dispositions pursuant to sale and leaseback
transactions), or of any Capital Stock of such Person or a Subsidiary of such Person and
any net income realized as a result of changes in accounting principles or the
application thereof to such Person.  

17 

        1.72     “Obligations” shall
mean (a) any and all Loans, Letter of Credit Obligations and all other obligations,
liabilities and indebtedness of every kind, nature and description owing by any or all of
Borrowers to Agent or any Lender or any Issuing Bank, including principal, interest,
charges, fees, costs and expenses, however evidenced, whether as principal, surety,
endorser, guarantor or otherwise, arising under this Agreement or any of the other
Financing Agreements or on account of any Letter of Credit and all other Letter of Credit
Obligations, whether now existing or hereafter arising, whether arising before, during or
after the initial or any renewal term of this Agreement or after the commencement of any
case with respect to such Borrower under the United States Bankruptcy Code or any similar
statute (including the payment of interest and other amounts which would accrue and
become due but for the commencement of such case, whether or not such amounts are allowed
or allowable in whole or in part in such case), whether direct or indirect, absolute or
contingent, joint or several, due or not due, primary or secondary, liquidated or
unliquidated, or secured or unsecured and (b) for purposes only of Section 5.1 hereof and
subject to the priority in right of payment set forth in Section 6.4 hereof, all
obligations, liabilities and indebtedness of every kind, nature and description owing by
any or all of Borrowers or Guarantors to Agent or any Bank Product Provider arising under
or pursuant to any Bank Products, whether now existing or hereafter arising, provided,
that, (i) as to any such obligations, liabilities and indebtedness arising under or
pursuant to a Hedge Agreement, the same shall only be included within the Obligations if
upon Agent’s request, Agent shall have entered into an agreement, in form and
substance satisfactory to Agent, with the Bank Product Provider that is a counterparty to
such Hedge Agreement, as acknowledged and agreed to by Borrowers and Guarantors,
providing for the delivery to Agent by such counterparty of information with respect to
the amount of such obligations and providing for the other rights of Agent and such Bank
Product Provider in connection with such arrangements, (ii) any Bank Product Provider,
other than Wachovia and its Affiliates, shall have delivered written notice to Agent that
(A) such Bank Product Provider has entered into a transaction to provide Bank Products to
a Borrower and Guarantor and (B) the obligations arising pursuant to such Bank Products
provided to Borrowers and Guarantors constitute Obligations entitled to the benefits of
the security interest of Agent granted hereunder, and Agent shall have accepted such
notice in writing and (iii) in no event shall any Bank Product Provider acting in such
capacity to whom such obligations, liabilities or indebtedness are owing be deemed a
Lender for purposes hereof to the extent of and as to such obligations, liabilities or
indebtedness except that each reference to the term “Lender” in Sections 12.1,
12.2, 12.3(b), 12.6, 12.7, 12.9, 12.12 and 13.6 hereof shall be deemed to include such
Bank Product Provider and in no event shall the approval of any such person in its
capacity as Bank Product Provider be required in connection with the release or
termination of any security interest or lien of Agent.  

18 

        1.73         “Other
Taxes” shall have the meaning given to such term in Section 6.5 hereof. 

        1.74         “Parent” shall
mean Image Entertainment, Inc., a Delaware corporation, and its successors and assigns. 

        1.75     “Participant” shall
mean any financial institution that acquires and holds a participation in the interest of
any Lender in any of the Loans and Letters of Credit in conformity with the provisions of
Section 13.7 of this Agreement governing participations.  

        1.76     “Permitted
Holders” shall mean the persons listed on Schedule 1.76 hereto and their
respective successors and assigns.  

        1.77     “Person” or
“person” shall mean any individual, sole proprietorship, partnership,
corporation (including any corporation which elects subchapter S status under the Code),
limited liability company, limited liability partnership, business trust, unincorporated
association, joint stock corporation, trust, joint venture or other entity or any
government or any agency or instrumentality or political subdivision thereof.  

        1.78     “Pension
Plan” shall mean a pension plan (as defined in Section 3(2) of ERISA) subject to
Title IV of ERISA which any Borrower or Guarantor sponsors, maintains, or to which any
Borrower, Guarantor or ERISA Affiliate makes, is making, or is obligated to make
contributions, other than a Multiemployer Plan.  

        1.79     “Plan” shall
mean an employee benefit plan (as defined in Section 3(3) of ERISA) which any Borrower or
Guarantor sponsors, maintains, or to which it makes, is making, or is obligated to make
contributions, or in the case of a Multiemployer Plan has made contributions at any time
during the immediately preceding six (6) plan years or with respect to which any Borrower
or Guarantor may incur liability.  

        1.80     “Prime
Rate” shall mean the higher of the rate from time to time publicly announced by
Reference Bank, as its prime rate, whether or not such announced rate is the best rate
available at such bank or the Federal Funds Effective Rate from time to time plus
one-half (1/2%) percent. The term “Federal Funds Effective Rate” shall mean,
for any period, a fluctuating interest rate per annum equal, for each day during such
period, to the weighted average of the rates on overnight Federal Funds transactions with
members of the Federal Reserve System arranged by Federal Funds brokers, as published for
such day (or, if such day is not a Business Day, for the next preceding Business Day) by
the Federal Reserve Bank of New York, or, if such rate is not so published for any day
that is a Business Day, the average of the quotations for such day on such transactions
received by Agent from three Federal Funds brokers of recognized standing selected by it.  

        1.81     “Prime
Rate Loans” shall mean any Loans or portion thereof on which interest is payable
based on the Prime Rate in accordance with the terms thereof.  

19 

        1.82     “Pro
Rata Share” shall mean as to any Lender, the fraction (expressed as a percentage)
the numerator of which is such Lender’s Commitment and the denominator of which is
the aggregate amount of all of the Commitments of Lenders, as adjusted from time to time
in accordance with the provisions of Section 13.7 hereof; provided, that,
if the Commitments have been terminated, the numerator shall be the unpaid amount of such
Lender’s Loans and its interest in the Letters of Credit and the denominator shall
be the aggregate amount of all unpaid Loans and Letters of Credit.  

        1.83     “Provision
for Taxes” shall mean, with respect to any Person, for any period, an amount equal to
all taxes imposed on or measured by net income, whether Federal, State or local, and
whether foreign or domestic, that are paid or payable by such Person and its Subsidiaries
in respect of such period on a consolidated basis in accordance with GAAP.  

        1.84     “Real
Property” shall mean all now owned and hereafter acquired real property of each
Borrower and Guarantor, including leasehold interests, together with all buildings,
structures, and other improvements located thereon and all licenses, easements and
appurtenances relating thereto, wherever located.  

        1.85     “Receivables” shall
mean all of the following now owned or hereafter arising or acquired property of each
Borrower and Guarantor: (a) all Accounts; (b) all interest, fees, late charges,
penalties, collection fees and other amounts due or to become due or otherwise payable in
connection with any Account; (c) all payment intangibles of such Borrower or Guarantor;
(d) letters of credit, indemnities, guarantees, security or other deposits and proceeds
thereof issued payable to any Borrower or Guarantor or otherwise in favor of or delivered
to any Borrower or Guarantor in connection with any Account; or (e) all other accounts,
contract rights, chattel paper, instruments, notes, general intangibles and other forms
of obligations owing to any Borrower or Guarantor, whether from the sale and lease of
goods or other property, licensing of any property (including Intellectual Property or
other general intangibles), rendition of services or from loans or advances by any
Borrower or Guarantor or to or for the benefit of any third person (including loans or
advances to any Affiliates or Subsidiaries of any Borrower or Guarantor) or otherwise
associated with any Accounts, Inventory or general intangibles of any Borrower or
Guarantor (including, without limitation, choses in action, causes of action, tax
refunds, tax refund claims, any funds which may become payable to any Borrower or
Guarantor in connection with the termination of any Plan or other employee benefit plan
and any other amounts payable to any Borrower or Guarantor from any Plan or other
employee benefit plan, rights and claims against carriers and shippers, rights to
indemnification, business interruption insurance and proceeds thereof, casualty or any
similar types of insurance and any proceeds thereof and proceeds of insurance covering
the lives of employees on which any Borrower or Guarantor is a beneficiary).  

        1.86     “Records” shall
mean, as to each Borrower and Guarantor, all of such Borrower’s and Guarantor’s
present and future books of account of every kind or nature, purchase and sale
agreements, invoices, ledger cards, bills of lading and other shipping evidence,
statements, correspondence, memoranda, credit files and other data relating to the
Collateral or any account debtor, together with the tapes, disks, diskettes and other
data and software storage media and devices, file cabinets or containers in or on which
the foregoing are stored (including any rights of any Borrower or Guarantor with respect
to the foregoing maintained with or by any other person).  

        1.87     “Reference
Bank” shall mean Wachovia Bank, National Association, or such other bank as Agent
may from time to time designate.  

20 

        1.88         “Renewal
Date” shall have the meaning set forth in Section 13.1 hereof. 

        1.89         “Register” shall
have the meaning set forth in Section 13.7 hereof. 

        1.90     “Required
Lenders” shall mean, at any time, those Lenders whose Pro Rata Shares aggregate
sixty-six and two-thirds (66 2/3%) percent or more of the aggregate of the Commitments of
all Lenders, or if the Commitments shall have been terminated, Lenders to whom at least
sixty-six and two-thirds (66 2/3%) percent of the then outstanding Obligations are owing.  

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

        1.92     “Revolving
Loan Limit” shall mean, as to each Borrower, at any time, the amount equal to the
$15,000,000 minus the then outstanding principal amount of the Revolving Loans and
Letters of Credit provided to the other Borrowers, provided that upon the
election of Administrative Borrower exercised by prior written notice to Agent, the
foregoing amount of $15,000,000 may be increased to $20,000,000 so long as (a) no Default
or Event of Default has occurred and is continuing, (b) the Fixed Charge Coverage Ratio
of Borrowers for the twelve (12) months most recently ended, or such lesser number of
months that have elapsed from and including April 2007, is no less than 1.10 to one, and
(c) as of the date of such increase, the difference of the Excess Availability minus the
aggregate sum of principal payments becoming due on Indebtedness during the following six
(6) months, is no less than $5,000,000.  

21 

        1.93     “Revolving
Loans” shall mean the loans now or hereafter made by or on behalf of any Lender or by
Agent for the account of any Lender on a revolving basis pursuant to the Credit Facility
(involving advances, repayments and readvances) as set forth in Section 2.1 hereof.  

        1.94     “Secured
Parties” shall mean, collectively, (a) Agent, (b) Issuing Bank, (c) Lenders, and (d)
Bank Product Providers (to the extent approved by Agent).  

        1.95     “Solvent” shall
mean, at any time with respect to any Person, that at such time such Person (a) is able
to pay its debts as they mature and has (and has a reasonable basis to believe it will
continue to have) sufficient capital (and not unreasonably small capital) to carry on its
business consistent with its practices as of the date hereof, and (b) the assets and
properties of such Person at a fair valuation (and including as assets for this purpose
at a fair valuation all rights of subrogation, contribution or indemnification arising
pursuant to any guarantees given by such Person) are greater than the Indebtedness of
such Person, and including subordinated and contingent liabilities computed at the amount
which, such person has a reasonable basis to believe, represents an amount which can
reasonably be expected to become an actual or matured liability (and including as to
contingent liabilities arising pursuant to any guarantee the face amount of such
liability as reduced to reflect the probability of it becoming a matured liability).  

        1.96         “Special
Agent Advances” shall have the meaning set forth in Section 12.11 hereof. 

        1.97     “Subsidiary” or
“subsidiary” shall mean, with respect to any Person, any corporation, limited
liability company, limited liability partnership or other limited or general partnership,
trust, association or other business entity of which an aggregate of at least a majority
of the outstanding Capital Stock or other interests entitled to vote in the election of
the board of directors of such corporation (irrespective of whether, at the time, Capital
Stock of any other class or classes of such corporation shall have or might have voting
power by reason of the happening of any contingency), managers, trustees or other
controlling persons, or an equivalent controlling interest therein, of such Person is, at
the time, directly or indirectly, owned by such Person and/or one or more subsidiaries of
such Person.  

        1.98     “UCC” shall
mean the Uniform Commercial Code as in effect in the State of California and any
successor statute, as in effect from time to time (except that terms used herein which
are defined in the Uniform Commercial Code as in effect in the State of California on the
date hereof shall continue to have the same meaning notwithstanding any replacement or
amendment of such statute except as Agent may otherwise determine).  

22 

        1.99     “Voting
Stock” shall mean with respect to any Person, (a) one (1) or more classes of Capital
Stock of such Person having general voting powers to elect at least a majority of the
board of directors, managers or trustees of such Person, irrespective of whether at the
time Capital Stock of any other class or classes have or might have voting power by
reason of the happening of any contingency, and (b) any Capital Stock of such Person
convertible or exchangeable without restriction at the option of the holder thereof into
Capital Stock of such Person described in clause (a) of this definition.  

        1.100     “Wachovia” shall
mean Wachovia Capital Finance Corporation (Western), a California corporation, in its
individual capacity, and its successors and assigns.  

SECTION 2.     CREDIT
FACILITIES  

        2.1    Loans. 

            (a)              Subject
to and upon the terms and conditions contained herein, each Lender           severally
(and not jointly) agrees to make its Pro Rata Share of Revolving Loans           to each
Borrower from time to time in amounts requested by such Borrower (or
          Administrative Borrower on behalf of such Borrower) up to the aggregate amount
          outstanding for all Lenders at any time equal to the lesser of: (i) the
          Borrowing Base of such Borrower at such time or (ii) the Revolving Loan Limit
of           such Borrower at such time.  

            (b)              Except
in Agent’s discretion, with the consent of all Lenders, or as           otherwise
provided herein, (i) the aggregate principal amount of the Revolving           Loans and
Letter of Credit Obligations outstanding at any time to a Borrower           shall not
exceed the Borrowing Base of such Borrower, and (ii) the aggregate           principal
amount of the Revolving Loans and Letter of Credit Obligations           outstanding at
any time to a Borrower shall not exceed the Revolving Loan Limit           of such
Borrower.  

            (c)              In
the event that except as otherwise provided herein, the aggregate principal
          amount of the Revolving Loans and Letter of Credit Obligations outstanding to a
          Borrower exceeds the Borrowing Base of such Borrower or the Revolving Loan
Limit           of such Borrower, such event shall not limit, waive or otherwise affect
any           rights of Agent or Lenders in such circumstances or on any future occasions
and           Borrowers shall, upon demand by Agent, which may be made at any time or
from           time to time, immediately repay to Agent the entire amount of any such
          excess(es) for which payment is demanded.  

        2.2    Letters
of Credit.  

            (a)              Subject
to and upon the terms and conditions contained herein and in the Letter           of
Credit Documents, at the request of a Borrower (or Administrative Borrower on
          behalf of such Borrower), Agent agrees to provide or arrange for the account of
          such Borrower one or more Letters of Credit, for the ratable risk of each
Lender           according to its Pro Rata Share, containing terms and conditions
acceptable to           Agent and the issuer thereof.  

23 

            (b)              The
Borrower requesting such Letter of Credit (or Administrative Borrower on           behalf
of such Borrower) shall give Agent three (3) Business Days’ prior           written
notice of such Borrower’s request for the issuance of a Letter of           Credit.
Such notice shall be irrevocable and shall specify the original face           amount of
the Letter of Credit requested, the effective date (which date shall           be a
Business Day and in no event shall be a date less than ten (10) days prior           to
the end of the then current term of this Agreement) of issuance of such
          requested Letter of Credit, whether such Letter of Credit may be drawn in a
          single or in partial draws, the date on which such requested Letter of Credit
is           to expire (which date shall be a Business Day and shall not be more than one
          year from the date of issuance), the purpose for which such Letter of Credit is
          to be issued, and the beneficiary of the requested Letter of Credit. The
          Borrower requesting the Letter of Credit (or Administrative Borrower on behalf
          of such Borrower) shall attach to such notice the proposed terms of the Letter
          of Credit. The renewal or extension of any Letter of Credit shall, for purposes
          hereof, be treated in all respects the same as the issuance of a new Letter of
          Credit hereunder.  

            (c)              In
addition to being subject to the satisfaction of the applicable conditions
          precedent contained in Section 4 hereof and the other terms and conditions
          contained herein, no Letter of Credit shall be available unless each of the
          following conditions precedent have been satisfied in a manner satisfactory to
          Agent: (i) the Borrower requesting such Letter of Credit (or Administrative
          Borrower on behalf of such Borrower) shall have delivered to the proposed
issuer           of such Letter of Credit at such times and in such manner as such
proposed           issuer may require, an application, in form and substance satisfactory
to such           proposed issuer and Agent, for the issuance of the Letter of Credit and
such           other Letter of Credit Documents as may be required pursuant to the terms
          thereof, and the form and terms of the proposed Letter of Credit shall be
          satisfactory to Agent and such proposed issuer; (ii) as of the date of
issuance,           no order of any court, arbitrator or other Governmental Authority
shall purport           by its terms to enjoin or restrain money center banks generally
from issuing           letters of credit of the type and in the amount of the proposed
Letter of           Credit, and no law, rule or regulation applicable to money center
banks           generally and no request or directive (whether or not having the force of
law)           from any Governmental Authority with jurisdiction over money center banks
          generally shall prohibit, or request that the proposed issuer of such Letter of
          Credit refrain from, the issuance of letters of credit generally or the
issuance           of such Letters of Credit; (iii) after giving effect to the issuance
of such           Letter of Credit, the Letter of Credit Obligations shall not exceed the
Letter           of Credit Limit; and (iv) the Excess Availability of the Borrower
requesting           such Letter of Credit, prior to giving effect to any Reserves with
respect to           such Letter of Credit, on the date of the proposed issuance of any
Letter of           Credit, shall be equal to or greater than an amount equal to one
hundred (100%)           percent of the Letter of Credit Obligations with respect
thereto. Effective on           the issuance of each Letter of Credit, a Reserve shall be
established in the           applicable amount set forth above.  

            (d)              Except
in Agent’s discretion, with the consent of all Lenders, the amount           of all
outstanding Letter of Credit Obligations shall not at any time exceed the
          Letter of Credit Limit.  

            (e)              Each
Borrower shall reimburse immediately the issuer of a Letter of Credit for           any
draw under any Letter of Credit issued for the account of such Borrower by           such
issuer and pay such issuer the amount of all other charges and fees payable           to
issuer in connection with any Letter of Credit issued for the account of such
          Borrower immediately when due, irrespective of any claim, setoff, defense or
          other right which such Borrower may have at any time against the issuer or any
          other Person. Each drawing under any Letter of Credit or other amount payable
in           connection therewith when due shall constitute a request by the Borrower for
          whose account such Letter of Credit was issued to Agent for a Prime Rate Loan
in           the amount of such drawing or other amount then due and shall be made by
Agent           on behalf of Lenders as a Revolving Loan (or Special Agent Advance, as
the case           may be). The date of such Loan shall be the date of the drawing or as
to other           amounts, the due date therefor. Any payments made by or on behalf of
Agent or           any Lender to an issuer and/or related parties in connection with any
Letter of           Credit shall constitute additional Revolving Loans to such Borrower
pursuant to           this Section 2 (or Special Agent Advances as the case may be).  

24 

            (f)              Borrowers
and Guarantors shall indemnify and hold Agent and Lenders harmless           from and
against any and all losses, claims, damages, liabilities, costs and           expenses
which Agent or any Lender may suffer or incur in connection with any           Letter of
Credit and any documents, drafts or acceptances relating thereto,           including any
losses, claims, damages, liabilities, costs and expenses due to           any action
taken by any issuer or correspondent with respect to any Letter of           Credit,
except for such losses, claims, damages, liabilities, costs or expenses           that
are a direct result of the gross negligence or wilful misconduct of Agent           or
any Lender as determined pursuant to a final non-appealable order of a court           of
competent jurisdiction. Each Borrower and Guarantor assumes all risks with
          respect to the acts or omissions of the drawer under or beneficiary of any
          Letter of Credit and for such purposes the drawer or beneficiary shall be
deemed           such Borrower’s agent. Each Borrower and Guarantor assumes all
risks for,           and agrees to pay, all foreign, Federal, State and local taxes,
duties and           levies relating to any goods subject to any Letter of Credit or any
documents,           drafts or acceptances thereunder. Each Borrower and Guarantor hereby
releases           and holds Agent and Lenders harmless from and against any acts,
waivers, errors,           delays or omissions with respect to or relating to any Letter
of Credit, except           for the gross negligence or wilful misconduct of Agent or any
Lender as           determined pursuant to a final, non-appealable order of a court of
competent           jurisdiction. The provisions of this Section 2.2(f) shall survive the
payment of           Obligations and the termination of this Agreement.  

            (g)              In
connection with Inventory purchased pursuant to any Letter of Credit,           Borrowers
and Guarantors shall, at Agent’s request, instruct all suppliers,
          carriers, forwarders, customs brokers, warehouses or others receiving or
holding           cash, checks, Inventory, documents or instruments in which Agent holds
a           security interest that upon Agent’s request, such items are to be
delivered           to Agent and/or subject to Agent’s order, and if they shall come
into such           Borrower’s or Guarantor’s possession, to deliver them, upon
          Agent’s request, to Agent in their original form. Except as otherwise
          provided herein, Agent shall not exercise such right to request such items so
          long as no Default or Event of Default shall exist or have occurred and be
          continuing. Except as Agent may otherwise specify, Borrowers shall designate
          Agent or the issuer of the Letter of Credit related thereto, as the consignee
on           all bills of lading and other negotiable and non-negotiable documents.  

            (h)              Each
Borrower and Guarantor hereby irrevocably authorizes and directs any issuer           of
a Letter of Credit to name such Borrower or Guarantor as the account party
          therein and to deliver to Agent all instruments, documents and other writings
          and property received by issuer pursuant to the Letter of Credit and to accept
          and rely upon Agent’s instructions and agreements with respect to all
          matters arising in connection with the Letter of Credit or the Letter of Credit
          Documents with respect thereto. Nothing contained herein shall be deemed or
          construed to grant any Borrower or Guarantor any right or authority to pledge
          the credit of Agent or any Lender in any manner. Agent and Lenders shall have
no           liability of any kind with respect to any Letter of Credit provided by an
issuer           unless Agent has duly executed and delivered to such issuer the
application or a           guarantee or indemnification in writing with respect to such
Letter of Credit.           Borrowers and Guarantors shall be bound by any reasonable
interpretation made in           good faith by Agent, or any other issuer or
correspondent under or in connection           with any Letter of Credit or any
documents, drafts or acceptances thereunder,           notwithstanding that such
interpretation may be inconsistent with any           instructions of any Borrower or
Guarantor.  

25 

            (i)              Immediately
upon the issuance or amendment of any Letter of Credit, each Lender           shall be
deemed to have irrevocably and unconditionally purchased and received,           without
recourse or warranty, an undivided interest and participation to the           extent of
such Lender’s Pro Rata Share of the liability with respect to           such Letter
of Credit and the obligations of Borrowers with respect thereto           (including all
Letter of Credit Obligations with respect thereto). Each Lender           shall
absolutely, unconditionally and irrevocably assume, as primary obligor and           not
as surety, and be obligated to pay to the issuer of any such Letter of           Credit
therefor and discharge when due, its Pro Rata Share of all of such           obligations
arising under such Letter of Credit. Without limiting the scope and           nature of
each Lender’s participation in any Letter of Credit, to the           extent that
the issuer has not been reimbursed or otherwise paid as required           hereunder or
under any such Letter of Credit, each such Lender shall pay to the           issuer its
Pro Rata Share of such unreimbursed drawing or other amounts then due           to issuer
in connection therewith.  

            (j)              The
obligations of Borrowers to pay each Letter of Credit Obligations and the
          obligations of Lenders to make payments to Agent for the account of any issuer
          with respect to Letters of Credit shall be absolute, unconditional and
          irrevocable and shall be performed strictly in accordance with the terms of
this           Agreement under any and all circumstances, whatsoever, notwithstanding the
          occurrence or continuance of any Default, Event of Default, the failure to
          satisfy any other condition set forth in Section 4 or any other event or
          circumstance. If such amount is not made available by a Lender when due, Agent
          shall be entitled to recover such amount on demand from such Lender with
          interest thereon, for each day from the date such amount was due until the date
          such amount is paid to Agent at the interest rate then payable by any Borrower
          in respect of Loans that are Prime Rate Loans. Any such reimbursement shall not
          relieve or otherwise impair the obligation of Borrowers to reimburse the issuer
          under any Letter of Credit or make any other payment in connection therewith.  

            (k)              Any
rights, remedies, duties or obligations granted or undertaken by any           Borrower
to any issuer or correspondent in any application for any Letter of           Credit, or
any other agreement in favor of any issuer or correspondent relating           to any
Letter of Credit, shall be deemed to have been granted or undertaken by           such
Borrower to Agent. Any duties or obligations undertaken by Agent to any           issuer
or correspondent in any application for any Letter of Credit, or any           other
agreement by Agent in favor of any issuer or correspondent relating to any
          Letter of Credit, shall be deemed to have been undertaken by Borrowers to Agent
          and to apply in all respects to Borrowers.  

        2.3    Commitments.
The aggregate amount of each Lender’s Pro Rata Share of the Loans and Letter of
Credit Obligations shall not exceed the amount of such Lender’s Commitment, as the
same may from time to time be amended in accordance with the provisions hereof.  

26 

SECTION 3.           INTEREST
AND FEES 

        3.1    Interest. 

            (a)              Borrowers
shall pay to Agent, for the benefit of Lenders, interest on the           outstanding
principal amount of the Loans at the Interest Rate. All interest           accruing
hereunder on and after the date of any Event of Default or termination           hereof
shall be payable on demand.  

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

            (c)              Any
Eurodollar Rate Loans shall automatically convert to Prime Rate Loans upon           the
last day of the applicable Interest Period, unless Agent has received and
          approved a request to continue such Eurodollar Rate Loan at least three (3)
          Business Days prior to such last day in accordance with the terms hereof. Any
          Eurodollar Rate Loans shall, at Agent’s option, upon notice by Agent to
          Parent, be subsequently converted to Prime Rate Loans in the event that this
          Agreement shall terminate or not be renewed. Borrowers shall pay to Agent, for
          the benefit of Lenders, upon demand by Agent (or Agent may, at its option,
          charge any loan account of any Borrower) any amounts required to compensate any
          Lender or Participant for any loss (including loss of anticipated profits),
cost           or expense incurred by such person, as a result of the conversion of
Eurodollar           Rate Loans to Prime Rate Loans pursuant to any of the foregoing.  

27 

            (d)              Interest
shall be payable by Borrowers to Agent, for the account of Lenders,           monthly in
arrears not later than the first day of each calendar month and shall           be
calculated on the basis of a three hundred sixty (360) day year and actual           days
elapsed. The interest rate on non-contingent Obligations (other than           Eurodollar
Rate Loans) shall increase or decrease by an amount equal to each           increase or
decrease in the Prime Rate effective on the day any change in such           Prime Rate
is announced. In no event shall charges constituting interest payable           by
Borrowers to Agent and Lenders exceed the maximum amount or the rate           permitted
under any applicable law or regulation, and if any such part or           provision of
this Agreement is in contravention of any such law or regulation,           such part or
provision shall be deemed amended to conform thereto.  

        3.2    Fees. 

            (a)              Borrowers
shall pay to Agent, for the account of Lenders, monthly an unused line           fee at a
rate equal to three-eighths of one (0.375%) percent per annum           calculated upon
the amount by which the aggregate sum of the Revolving Loan           Limits for all
Borrowers exceeds the average daily principal balance of the           outstanding
Revolving Loans and Letters of Credit during the immediately           preceding month
(or part thereof) while this Agreement is in effect and for so           long thereafter
as any of the Obligations are outstanding, which fee shall be           payable on the
first day of each month in arrears.  

            (b)              Borrowers
shall pay to Agent, for the account of Lenders, a fee at a per annum           rate equal
to the Applicable Margin for Eurodollar Rate Loans, on the average           daily
maximum amount available to be drawn under all of such Letters of Credit           for
the immediately preceding month (or part thereof), payable in arrears as of           the
first day of each succeeding month, computed for each day from the date of
          issuance to the date of expiration; except that Borrowers shall pay, at
          Agent’s option, without notice, such fee at a rate two (2%) percent
greater           than the otherwise applicable rate on such average daily maximum amount
for: (i)           the period from and after the date of termination or non-renewal
hereof until           Lenders have received full and final payment of all Obligations
(notwithstanding           entry of a judgment against any Borrower or Guarantor) and
(ii) the period from           and after the date of the occurrence of an Event of
Default for so long as such           Event of Default is continuing as determined by
Agent. Such letter of credit           fees shall be calculated on the basis of a three
hundred sixty (360) day year           and actual days elapsed and the obligation of
Borrowers to pay such fee shall           survive the termination or non-renewal of this
Agreement. In addition to the           letter of credit fees provided above, Borrowers
shall pay to the issuer of any           Letter of Credit for its own account (without
sharing with Lenders) the letter           of credit fronting and negotiation fees agreed
to by Borrowers and such issuer           from time to time and the customary charges
from time to time of such issuer           with respect to the issuance, amendment,
transfer, administration, cancellation           and conversion of, and drawings under,
such Letters of Credit.  

28 

            (c)              Borrowers
shall pay to Agent the other fees and amounts set forth in the Fee           Letter in
the amounts and at the times specified therein. To the extent payment           in full
of the applicable fee is received by Agent from Borrowers on or about           the date
hereof, Agent shall pay to each Lender its share of such fees in           accordance
with the terms of the arrangements of Agent with such Lender.  

        3.3    Changes
in Laws and Increased Costs of Loans. 

            (a)              If
after the date hereof, either (i) any change in, or in the interpretation of,
          any law or regulation is introduced, including, without limitation, with
respect           to reserve requirements, applicable to any Lender or any banking or
financial           institution from whom any Lender borrows funds or obtains credit (a
          “Funding Bank”), or (ii) a Funding Bank or any Lender complies with
          any future guideline or request from any central bank or other Governmental
          Authority or (iii) a Funding Bank or any Lender determines that the adoption of
          any applicable law, rule or regulation regarding capital adequacy, or any
change           therein, or any change in the interpretation or administration thereof
by any           Governmental Authority, central bank or comparable agency charged with
the           interpretation or administration thereof has or would have the effect
described           below, or a Funding Bank or any Lender complies with any request or
directive           regarding capital adequacy (whether or not having the force of law)
of any such           authority, central bank or comparable agency, and in the case of
any event set           forth in this clause (iii), such adoption, change or compliance
has or would           have the direct or indirect effect of reducing the rate of return
on any           Lender’s capital as a consequence of its obligations hereunder to a
level           below that which such Lender could have achieved but for such adoption,
change           or compliance (taking into consideration the Funding Bank’s or
          Lender’s policies with respect to capital adequacy) by an amount deemed by
          such Lender to be material, and the result of any of the foregoing events
          described in clauses (i), (ii) or (iii) is or results in an increase in the
cost           to any Lender of funding or maintaining the Loans, the Letters of Credit
or its           Commitment, then Borrowers and Guarantors shall from time to time upon
demand by           Agent pay to Agent additional amounts sufficient to indemnify such
Lender           against such increased cost on an after-tax basis (after taking into
account           applicable deductions and credits in respect of the amount
indemnified). A           certificate as to the amount of such increased cost shall be
submitted to           Administrative Borrower by Agent or the applicable Lender and
shall be           conclusive, absent manifest error.  

            (b)              If
prior to the first day of any Interest Period, (i) Agent shall have           determined
in good faith (which determination shall be conclusive and binding           upon
Borrowers and Guarantors) that, by reason of circumstances affecting the
          relevant market, adequate and reasonable means do not exist for ascertaining
the           Adjusted Eurodollar Rate for such Interest Period, (ii) Agent has received
          notice from the Required Lenders that the Adjusted Eurodollar Rate determined
or           to be determined for such Interest Period will not adequately and fairly
reflect           the cost to Lenders of making or maintaining Eurodollar Rate Loans
during such           Interest Period, or (iii) Dollar deposits in the principal amounts
of the           Eurodollar Rate Loans to which such Interest Period is to be applicable
are not           generally available in the London interbank market, Agent shall give
telecopy or           telephonic notice thereof to Administrative Borrower as soon as
practicable           thereafter, and will also give prompt written notice to
Administrative Borrower           when such conditions no longer exist. If such notice is
given (A) any Eurodollar           Rate Loans requested to be made on the first day of
such Interest Period shall           be made as Prime Rate Loans, (B) any Loans that were
to have been converted on           the first day of such Interest Period to or continued
as Eurodollar Rate Loans           shall be converted to or continued as Prime Rate Loans
and (C) each outstanding           Eurodollar Rate Loan shall be converted, on the last
day of the then-current           Interest Period thereof, to Prime Rate Loans. Until
such notice has been           withdrawn by Agent, no further Eurodollar Rate Loans shall
be made or continued           as such, nor shall any Borrower (or Administrative
Borrower on behalf of any           Borrower) have the right to convert Prime Rate Loans
to Eurodollar Rate Loans.  

29 

            (c)              Notwithstanding
any other provision herein, if the adoption of or any change in           any law,
treaty, rule or regulation or final, non-appealable determination of an
          arbitrator or a court or other Governmental Authority or in the interpretation
          or application thereof occurring after the date hereof shall make it unlawful
          for Agent or any Lender to make or maintain Eurodollar Rate Loans as
          contemplated by this Agreement, (i) Agent or such Lender shall promptly give
          written notice of such circumstances to Administrative Borrower (which notice
          shall be withdrawn whenever such circumstances no longer exist), (ii) the
          commitment of such Lender hereunder to make Eurodollar Rate Loans, continue
          Eurodollar Rate Loans as such and convert Prime Rate Loans to Eurodollar Rate
          Loans shall forthwith be canceled and, until such time as it shall no longer be
          unlawful for such Lender to make or maintain Eurodollar Rate Loans, such Lender
          shall then have a commitment only to make a Prime Rate Loan when a Eurodollar
          Rate Loan is requested and (iii) such Lender’s Loans then outstanding as
          Eurodollar Rate Loans, if any, shall be converted automatically to Prime Rate
          Loans on the respective last days of the then current Interest Periods with
          respect to such Loans or within such earlier period as required by law. If any
          such conversion of a Eurodollar Rate Loan occurs on a day which is not the last
          day of the then current Interest Period with respect thereto, Borrowers and
          Guarantors shall pay to such Lender such amounts, if any, as may be required
          pursuant to Section 3.3(d) below.  

            (d)              Borrowers
and Guarantors shall indemnify Agent and each Lender and to hold Agent           and each
Lender harmless from any loss or expense which Agent or such Lender may           sustain
or incur as a consequence of (i) default by Borrower in making a           borrowing of,
conversion into or extension of Eurodollar Rate Loans after such           Borrower (or
Administrative Borrower on behalf of such Borrower) has given a           notice
requesting the same in accordance with the provisions of this Loan           Agreement,
(ii) default by any Borrower in making any prepayment of a Eurodollar           Rate Loan
after such Borrower has given a notice thereof in accordance with the
          provisions of this Agreement, and (iii) the making of a prepayment of
Eurodollar           Rate Loans on a day which is not the last day of an Interest Period
with respect           thereto. With respect to Eurodollar Rate Loans, such
indemnification may include           an amount equal to the excess, if any, of (A) the
amount of interest which would           have accrued on the amount so prepaid, or not so
borrowed, converted or           extended, for the period from the date of such
prepayment or of such failure to           borrow, convert or extend to the last day of
the applicable Interest Period (or,           in the case of a failure to borrow, convert
or extend, the Interest Period that           would have commenced on the date of such
failure) in each case at the applicable           rate of interest for such Eurodollar
Rate Loans provided for herein over (B) the           amount of interest (as determined
by such Agent or such Lender) which would have           accrued to Agent or such Lender
on such amount by placing such amount on deposit           for a comparable period with
leading banks in the interbank Eurodollar market.           This covenant shall survive
the termination or non-renewal of this Agreement and           the payment of the
Obligations.  

30 

SECTION 4.     CONDITIONS
PRECEDENT  

        4.1    Conditions
Precedent to Initial Loans and Letters of Credit. The obligation of Lenders to make
the initial Loans or of Agent and Lenders to provide for the initial Letters of Credit
hereunder is subject to the satisfaction of, or waiver of, immediately prior to or
concurrently with the making of such Loan or the issuance of such Letter of Credit of
each of the following conditions precedent:  

            (a)              Agent
shall have received, in form and substance satisfactory to Agent, all           releases,
terminations and such other documents as Agent may request to evidence           and
effectuate the termination by the Existing Lenders of their respective
          financing arrangements with Borrowers and Guarantors and the termination and
          release by it or them, as the case may be, of any interest in and to any assets
          and properties of each Borrower and Guarantor, duly authorized, executed and
          delivered by it or each of them, including, but not limited to, (i) UCC
          termination statements for all UCC financing statements previously filed by it
          or any of them or their predecessors, as secured party and any Borrower or
          Guarantor, as debtor; and (ii) satisfactions and discharges of any mortgages,
          deeds of trust or deeds to secure debt by any Borrower or Guarantor in favor of
          it or any of them, in form acceptable for recording with the appropriate
          Governmental Authority;  

            (b)              all
requisite corporate action and proceedings in connection with this Agreement
          and the other Financing Agreements shall be satisfactory in form and substance
          to Agent, and Agent shall have received all information and copies of all
          documents, including records of requisite corporate action and proceedings
which           Agent may have requested in connection therewith, such documents where
requested           by Agent or its counsel to be certified by appropriate corporate
officers or           Governmental Authority (and including a copy of the certificate of
incorporation           of each Borrower and Guarantor certified by the Secretary of
State (or           equivalent Governmental Authority) which shall set forth the same
complete           corporate name of such Borrower or Guarantor as is set forth herein
and such           document as shall set forth the organizational identification number
of each           Borrower or Guarantor, if one is issued in its jurisdiction of
incorporation);  

            (c)              no
material adverse change shall have occurred in the assets, business or
          prospects of Borrowers since the date of Agent’s latest field examination
          (not including for this purpose the field review referred to in clause (d)
          below) and no change or event shall have occurred which would impair the
ability           of any Borrower or Guarantor to perform its obligations hereunder or
under any           of the other Financing Agreements to which it is a party or of Agent
or any           Lender to enforce the Obligations or realize upon the Collateral;  

            (d)              Agent
shall have completed a field review of the Records and such other           information
with respect to the Collateral as Agent may require to determine the           amount of
Loans available to Borrowers (including, without limitation, current           perpetual
inventory records and/or roll-forwards of Accounts through the date of           closing,
together with such supporting documentation as may be necessary or           appropriate,
and other documents and information that will enable Agent to           accurately
identify and verify the Collateral), the results of which in each           case shall be
satisfactory to Agent, not more than three (3) Business Days prior           to the date
hereof or such earlier date as Agent may agree;  

31 

            (e)              Agent
shall have received, in form and substance satisfactory to Agent, all           consents,
waivers, acknowledgments and other agreements from third persons which           Agent
may deem necessary or desirable in order to permit, protect and perfect           its
security interests in and liens upon the Collateral or to effectuate the
          provisions or purposes of this Agreement and the other Financing Agreements,
          including, without limitation, Collateral Access Agreements;  

            (f)              the
Excess Availability as determined by Agent, as of the date hereof, shall be           not
less than $5,000,000 after giving effect to the initial Loans made or to be
          made and Letters of Credit issued or to be issued in connection with the
initial           transactions hereunder;  

            (g)              Agent
shall have received, in form and substance satisfactory to Agent, a           guaranty
duly executed and delivered by Guarantors;  

            (h)              Agent
shall have received, in form and substance satisfactory to Agent,           subordination
agreements duly executed and delivered by Sonopress LLC, a           Delaware limited
liability company, and Portside Growth and Opportunity Fund, a           company
organized under the laws of the Cayman Islands, respectively, and           acknowledged
by Administrative Borrower;  

            (i)              Agent
shall have received, in form and substance satisfactory to Agent, Deposit
          Account Control Agreements by and among Agent, each Borrower and Guarantor, as
          the case may be and each bank where such Borrower (or Guarantor) has a deposit
          account, in each case, duly authorized, executed and delivered by such bank and
          Borrower or Guarantor, as the case may be (or Agent shall be the bank’s
          customer with respect to such deposit account as Agent may specify);  

            (j)              Agent
shall have received evidence, in form and substance satisfactory to Agent,           that
Agent has a valid perfected first priority security interest in all of the
          Collateral;  

            (k)              Agent
shall have received and reviewed lien and judgment search results for the
          jurisdiction of organization of each Borrower and Guarantor, the jurisdiction
of           the chief executive office of each Borrower and Guarantor and all
jurisdictions           in which assets of Borrowers and Guarantors are located, which
search results           shall be in form and substance satisfactory to Agent;  

            (l)              Agent
shall have received originals of the shares of the stock certificates
          representing all of the issued and outstanding shares of the Capital Stock of
          each Borrower and Guarantor (other than Parent) and owned by any Borrower or
          Guarantor, in each case together with stock powers duly executed in blank with
          respect thereto;  

            (m)              Agent
shall have received evidence of insurance and loss payee endorsements           required
hereunder and under the other Financing Agreements, in form and           substance
satisfactory to Agent, and certificates of insurance policies and/or
          endorsements naming Agent as loss payee;  

32 

            (n)              Agent
shall have received, in form and substance satisfactory to Agent, such           opinion
letters of counsel to Borrowers and Guarantors with respect to the           Financing
Agreements and such other matters as Agent may request; and  

            (o)              the
other Financing Agreements and all instruments and documents hereunder and
          thereunder shall have been duly executed and delivered to Agent, in form and
          substance satisfactory to Agent.  

        4.2    Conditions
Precedent to All Loans and Letters of Credit. The obligation of Lenders to make the
Loans, including the initial Loans, or of the Agent and Lenders to provide for any Letter
of Credit, including the initial Letters of Credit, is subject to the further
satisfaction of, or waiver of, immediately prior to or concurrently with the making of
each such Loan or the issuance of such Letter of Credit of each of the following
conditions precedent:  

            (a)              all
representations and warranties contained herein and in the other Financing
          Agreements shall be true and correct with the same effect as though such
          representations and warranties had been made on and as of the date of the
making           of each such Loan or providing each such Letter of Credit and after
giving           effect thereto, except to the extent that such representations and
warranties           expressly relate solely to an earlier date (in which case such
representations           and warranties shall have been true and accurate on and as of
such earlier           date);  

            (b)              no
law, regulation, order, judgment or decree of any Governmental Authority           shall
exist, and no action, suit, investigation, litigation or proceeding shall           be
pending or threatened in any court or before any arbitrator or Governmental
          Authority, which (i) purports to enjoin, prohibit, restrain or otherwise affect
          (A) the making of the Loans or providing the Letters of Credit, or (B) the
          consummation of the transactions contemplated pursuant to the terms hereof or
          the other Financing Agreements or (ii) has or has a reasonable likelihood of
          having a Material Adverse Effect; and  

            (c)              no
Default or Event of Default shall exist or have occurred and be continuing on
          and as of the date of the making of such Loan or providing each such Letter of
          Credit and after giving effect thereto.  

SECTION 5.     GRANT AND
PERFECTION OF SECURITY INTEREST 

        5.1    Grant
of Security Interest. To secure payment and performance of all Obligations, each
Borrower and Guarantor hereby grants to Agent, for itself and the benefit of Secured
Parties, a continuing security interest in, a lien upon, and a right of set off against,
and hereby assigns to Agent, for itself and the benefit of Lenders, as security, all
personal and real property and fixtures, and interests in property and fixtures, of each
Borrower and Guarantor, whether now owned or hereafter acquired or existing, and wherever
located (together with all other collateral security for the Obligations at any time
granted to or held or acquired by Agent or any Lender, collectively, the “Collateral”),
including:  

33 

            (a)              all
Accounts;  

            (b)              all
general intangibles, including, without limitation, all Intellectual           Property;  

            (c)              all
goods, including, without limitation, Inventory and Equipment;  

            (d)              all
Real Property and fixtures;  

            (e)              all
chattel paper, including, without limitation, all tangible and electronic
          chattel paper;  

            (f)              all
instruments, including, without limitation, all promissory notes;  

            (g)              all
documents;  

            (h)              all
deposit accounts;  

            (i)              all
letters of credit, banker’s acceptances and similar instruments and
          including all letter-of-credit rights;  

            (j)              all
supporting obligations and all present and future liens, security interests,
          rights, remedies, title and interest in, to and in respect of Receivables and
          other Collateral, including (i) rights and remedies under or relating to
          guaranties, contracts of suretyship, letters of credit and credit and other
          insurance related to the Collateral, (ii) rights of stoppage in transit,
          replevin, repossession, reclamation and other rights and remedies of an unpaid
          vendor, lienor or secured party, (iii) goods described in invoices, documents,
          contracts or instruments with respect to, or otherwise representing or
          evidencing, Receivables or other Collateral, including returned, repossessed
and           reclaimed goods, and (iv) deposits by and property of account debtors or
other           persons securing the obligations of account debtors;  

            (k)              all
(i) investment property (including securities, whether certificated or
          uncertificated, securities accounts, security entitlements, commodity contracts
          or commodity accounts) and (ii) monies, credit balances, deposits and other
          property of any Borrower or Guarantor now or hereafter held or received by or
in           transit to Agent, any Lender or its Affiliates or at any other depository or
          other institution from or for the account of any Borrower or Guarantor, whether
          for safekeeping, pledge, custody, transmission, collection or otherwise;  

            (l)              all
commercial tort claims, including, without limitation, those identified in           the
Information Certificate;  

            (m)              to
the extent not otherwise described above, all Receivables;  

            (n)              all
Records; and  

            (o)              all
products and proceeds of the foregoing, in any form, including insurance
          proceeds and all claims against third parties for loss or damage to or
          destruction of or other involuntary conversion of any kind or nature of any or
          all of the other Collateral.  

34 

        5.2    Perfection
of Security Interests.  

            (a)              Each
Borrower and Guarantor irrevocably and unconditionally authorizes Agent (or           its
agent) to file at any time and from time to time such financing statements           with
respect to the Collateral naming Agent or its designee as the secured party           and
such Borrower or Guarantor as debtor, as Agent may require, and including           any
other information with respect to such Borrower or Guarantor or otherwise
          required by part 5 of Article 9 of the Uniform Commercial Code of such
          jurisdiction as Agent may determine, together with any amendment and
          continuations with respect thereto, which authorization shall apply to all
          financing statements filed on, prior to or after the date hereof. Each Borrower
          and Guarantor hereby ratifies and approves all financing statements naming
Agent           or its designee as secured party and such Borrower or Guarantor, as the
case may           be, as debtor with respect to the Collateral (and any amendments with
respect to           such financing statements) filed by or on behalf of Agent prior to
the date           hereof and ratifies and confirms the authorization of Agent to file
such           financing statements (and amendments, if any). Each Borrower and Guarantor
          hereby authorizes Agent to adopt on behalf of such Borrower and Guarantor any
          symbol required for authenticating any electronic filing. In the event that the
          description of the collateral in any financing statement naming Agent or its
          designee as the secured party and any Borrower or Guarantor as debtor includes
          assets and properties of such Borrower or Guarantor that do not at any time
          constitute Collateral, whether hereunder, under any of the other Financing
          Agreements or otherwise, the filing of such financing statement shall
          nonetheless be deemed authorized by such Borrower or Guarantor to the extent of
          the Collateral included in such description and it shall not render the
          financing statement ineffective as to any of the Collateral or otherwise affect
          the financing statement as it applies to any of the Collateral. In no event
          shall any Borrower or Guarantor at any time file, or permit or cause to be
          filed, any correction statement or termination statement with respect to any
          financing statement (or amendment or continuation with respect thereto) naming
          Agent or its designee as secured party and such Borrower or Guarantor as
debtor.  

            (b)              Each
Borrower and Guarantor does not have any chattel paper (whether tangible or
          electronic) or instruments as of the date hereof, except as set forth in the
          Information Certificate. In the event that any Borrower or Guarantor shall be
          entitled to or shall receive any chattel paper or instrument after the date
          hereof, Borrowers and Guarantors shall promptly notify Agent thereof in
writing.           Promptly upon the receipt thereof by or on behalf of any Borrower or
Guarantor           (including by any agent or representative), such Borrower or
Guarantor shall           deliver, or cause to be delivered to Agent, all tangible
chattel paper and           instruments that such Borrower or Guarantor has or may at any
time acquire,           accompanied by such instruments of transfer or assignment duly
executed in blank           as Agent may from time to time specify, in each case except
as Agent may           otherwise agree. At Agent’s option, each Borrower and
Guarantor shall, or           Agent may at any time on behalf of any Borrower or
Guarantor, cause the original           of any such instrument or chattel paper to be
conspicuously marked in a form and           manner acceptable to Agent with the
following legend referring to chattel paper           or instruments as applicable: “This
[chattel paper][instrument] is subject           to the security interest of Wachovia
Capital Finance Corporation and any sale,           transfer, assignment or encumbrance
of this [chattel paper][instrument] violates           the rights of such secured party.” 

35 

            (c)              In
the event that any Borrower or Guarantor shall at any time hold or acquire an
          interest in any electronic chattel paper or any “transferable record”          (as
such term is defined in Section 201 of the Federal Electronic Signatures in
          Global and National Commerce Act or in Section 16 of the Uniform Electronic
          Transactions Act as in effect in any relevant jurisdiction), such Borrower or
          Guarantor shall promptly notify Agent thereof in writing. Promptly upon
          Agent’s request, such Borrower or Guarantor shall take, or cause to be
          taken, such actions as Agent may request to give Agent control of such
          electronic chattel paper under Section 9-105 of the UCC and control of such
          transferable record under Section 201 of the Federal Electronic Signatures in
          Global and National Commerce Act or, as the case may be, Section 16 of the
          Uniform Electronic Transactions Act, as in effect in such jurisdiction.  

            (d)              Each
Borrower and Guarantor does not have any deposit accounts as of the date
          hereof, except as set forth in the Information Certificate. Borrowers and
          Guarantors shall not, directly or indirectly, after the date hereof open,
          establish or maintain any deposit account unless each of the following
          conditions is satisfied: (i) Agent shall have received not less than five (5)
          Business Days prior written notice of the intention of any Borrower or
Guarantor           to open or establish such account which notice shall specify in
reasonable           detail and specificity acceptable to Agent the name of the account,
the owner of           the account, the name and address of the bank at which such
account is to be           opened or established, the individual at such bank with whom
such Borrower or           Guarantor is dealing and the purpose of the account, (ii) the
bank where such           account is opened or maintained shall be acceptable to Agent,
and (iii) on or           before the opening of such deposit account, such Borrower or
Guarantor shall as           Agent may specify either (A) deliver to Agent a Deposit
Account Control           Agreement with respect to such deposit account duly authorized,
executed and           delivered by such Borrower or Guarantor and the bank at which such
deposit           account is opened and maintained or (B) arrange for Agent to become the
customer           of the bank with respect to the deposit account on terms and
conditions           acceptable to Agent. The terms of this subsection (d) shall not
apply to deposit           accounts specifically and exclusively used for payroll,
payroll taxes and other           employee wage and benefit payments to or for the
benefit of any Borrower’s           or Guarantor’s salaried employees.  

            (e)              No
Borrower or Guarantor owns or holds, directly or indirectly, beneficially or           as
record owner or both, any investment property, as of the date hereof, or have
          any investment account, securities account, commodity account or other similar
          account with any bank or other financial institution or other securities
          intermediary or commodity intermediary as of the date hereof, in each case
          except as set forth in the Information Certificate.  

                (i)              In
the event that any Borrower or Guarantor shall be entitled to or shall at any
          time after the date hereof hold or acquire any certificated securities, such
          Borrower or Guarantor shall promptly endorse, assign and deliver the same to
          Agent, accompanied by such instruments of transfer or assignment duly executed
          in blank as Agent may from time to time specify. If any securities, now or
          hereafter acquired by any Borrower or Guarantor are uncertificated and are
          issued to such Borrower or Guarantor or its nominee directly by the issuer
          thereof, such Borrower or Guarantor shall immediately notify Agent thereof and
          shall as Agent may specify, either (A) cause the issuer to agree to comply with
          instructions from Agent as to such securities, without further consent of any
          Borrower or Guarantor or such nominee, or (B) arrange for Agent to become the
          registered owner of the securities.  

36 

                (ii)              Borrowers
and Guarantors shall not, directly or indirectly, after the date           hereof open,
establish or maintain any investment account, securities account,           commodity
account or any other similar account (other than a deposit account)           with any
securities intermediary or commodity intermediary unless each of the           following
conditions is satisfied: (A) Agent shall have received not less than           five (5)
Business Days prior written notice of the intention of such Borrower or
          Guarantor to open or establish such account which notice shall specify in
          reasonable detail and specificity acceptable to Agent the name of the account,
          the owner of the account, the name and address of the securities intermediary
or           commodity intermediary at which such account is to be opened or established,
the           individual at such intermediary with whom such Borrower or Guarantor is
dealing           and the purpose of the account, (B) the securities intermediary or
commodity           intermediary (as the case may be) where such account is opened or
maintained           shall be acceptable to Agent, and (C) on or before the opening of
such           investment account, securities account or other similar account with a
          securities intermediary or commodity intermediary, such Borrower or Guarantor
          shall as Agent may specify either (i) execute and deliver, and cause to be
          executed and delivered to Agent, an Investment Property Control Agreement with
          respect thereto duly authorized, executed and delivered by such Borrower or
          Guarantor and such securities intermediary or commodity intermediary or (ii)
          arrange for Agent to become the entitlement holder with respect to such
          investment property on terms and conditions acceptable to Agent.  

            (f)              Borrowers
and Guarantors are not the beneficiary or otherwise entitled to any           right to
payment under any letter of credit, banker’s acceptance or similar
          instrument as of the date hereof, except as set forth in Schedule 5.2(f)
          hereto. In the event that any Borrower or Guarantor shall be entitled to or
          shall receive any right to payment under any letter of credit, banker’s
          acceptance or any similar instrument, whether as beneficiary thereof or
          otherwise after the date hereof, such Borrower or Guarantor shall promptly
          notify Agent thereof in writing. Such Borrower or Guarantor shall immediately,
          as Agent may specify, either (i) deliver, or cause to be delivered to Agent,
          with respect to any such letter of credit, banker’s acceptance or similar
          instrument, the written agreement of the issuer and any other nominated person
          obligated to make any payment in respect thereof (including any confirming or
          negotiating bank), in form and substance satisfactory to Agent, consenting to
          the assignment of the proceeds of the letter of credit to Agent by such
Borrower           or Guarantor and agreeing to make all payments thereon directly to
Agent or as           Agent may otherwise direct or (ii) cause Agent to become, at
Borrowers’          expense, the transferee beneficiary of the letter of credit,
banker’s           acceptance or similar instrument (as the case may be).  

            (g)              Borrowers
and Guarantors do not have any commercial tort claims as of the date           hereof,
except as set forth in the Information Certificate. In the event that           any
Borrower or Guarantor shall at any time after the date hereof have any
          commercial tort claims, such Borrower or Guarantor shall promptly notify Agent
          thereof in writing, which notice shall (i) set forth in reasonable detail the
          basis for and nature of such commercial tort claim and (ii) include the express
          grant by such Borrower or Guarantor to Agent of a security interest in such
          commercial tort claim (and the proceeds thereof). In the event that such notice
          does not include such grant of a security interest, the sending thereof by such
          Borrower or Guarantor to Agent shall be deemed to constitute such grant to
          Agent. Upon the sending of such notice, any commercial tort claim described
          therein shall constitute part of the Collateral and shall be deemed included
          therein. Without limiting the authorization of Agent provided in Section 5.2(a)
          hereof or otherwise arising by the execution by such Borrower or Guarantor of
          this Agreement or any of the other Financing Agreements, Agent is hereby
          irrevocably authorized from time to time and at any time to file such financing
          statements naming Agent or its designee as secured party and such Borrower or
          Guarantor as debtor, or any amendments to any financing statements, covering
any           such commercial tort claim as Collateral. In addition, each Borrower and
          Guarantor shall promptly upon Agent’s request, execute and deliver, or
          cause to be executed and delivered, to Agent such other agreements, documents
          and instruments as Agent may require in connection with such commercial tort
          claim.  

37 

            (h)              Borrowers
and Guarantors do not have any goods, documents of title or other           Collateral in
the custody, control or possession of a third party as of the date           hereof,
except as set forth in the Information Certificate and except for goods           located
in the United States in transit to a location of a Borrower or Guarantor
          permitted herein in the ordinary course of business of such Borrower or
          Guarantor in the possession of the carrier transporting such goods. In the
event           that any goods, documents of title or other Collateral are at any time
after the           date hereof in the custody, control or possession of any other person
not           referred to in the Information Certificate or such carriers, Borrowers and
          Guarantors shall promptly notify Agent thereof in writing. Promptly upon
          Agent’s request, Borrowers and Guarantors shall deliver to Agent a
          Collateral Access Agreement duly authorized, executed and delivered by such
          person and the Borrower or Guarantor that is the owner of such Collateral.  

            (i)              Borrowers
and Guarantors shall take any other actions reasonably requested by           Agent from
time to time to cause the attachment, perfection and first priority           of, and the
ability of Agent to enforce, the security interest of Agent in any           and all of
the Collateral, including, without limitation, (i) executing,           delivering and,
where appropriate, filing financing statements and amendments           relating thereto
under the UCC or other applicable law, to the extent, if any,           that any Borrower’s
or Guarantor’s signature thereon is required           therefor, (ii) causing Agent’s
name to be noted as secured party on any           certificate of title for a titled good
if such notation is a condition to           attachment, perfection or priority of, or
ability of Agent to enforce, the           security interest of Agent in such Collateral,
(iii) complying with any           provision of any statute, regulation or treaty of the
United States as to any           Collateral if compliance with such provision is a
condition to attachment,           perfection or priority of, or ability of Agent to
enforce, the security interest           of Agent in such Collateral, (iv) obtaining the
consents and approvals of any           Governmental Authority or third party, including,
without limitation, any           consent of any licensor, lessor or other person
obligated on Collateral, and           taking all actions required by any earlier
versions of the UCC or by other law,           as applicable in any relevant
jurisdiction.  

SECTION 6.     COLLECTION
AND ADMINISTRATION 

        6.1    Borrowers’ Loan
Accounts. Agent shall maintain one or more loan account(s) on its books in which
shall be recorded (a) all Loans, Letters of Credit and other Obligations and the
Collateral, (b) all payments made by or on behalf of any Borrower or Guarantor and (c)
all other appropriate debits and credits as provided in this Agreement, including fees,
charges, costs, expenses and interest. All entries in the loan account(s) shall be made
in accordance with Agent’s customary practices as in effect from time to time.  

        6.2    Statements.
Agent shall render to Administrative Borrower each month a statement setting forth the
balance in the Borrowers’ loan account(s) maintained by Agent for Borrowers pursuant
to the provisions of this Agreement, including principal, interest, fees, costs and
expenses. Each such statement shall be subject to subsequent adjustment by Agent but
shall, absent manifest errors or omissions, be considered correct and deemed accepted by
Borrowers and Guarantors and conclusively binding upon Borrowers and Guarantors as an
account stated except to the extent that Agent receives a written notice from
Administrative Borrower of any specific exceptions of Administrative Borrower thereto
within thirty (30) days after the date such statement has been received by Parent. Until
such time as Agent shall have rendered to Administrative Borrower a written statement as
provided above, the balance in any Borrower’s loan account(s) shall be presumptive
evidence of the amounts due and owing to Agent and Lenders by Borrowers and Guarantors.  

38 

        6.3    Collection
of Accounts.  

            (a)              Borrowers
shall establish and maintain, at their expense, blocked accounts or           lockboxes
and related blocked accounts (in either case, “Blocked           Accounts”), as
Agent may specify, with such banks as are acceptable to           Agent into which
Borrowers shall promptly deposit and direct their respective           account debtors to
directly remit all payments on Receivables and all payments           constituting
proceeds of Inventory or other Collateral in the identical form in           which such
payments are made, whether by cash, check or other manner. Borrowers           shall
deliver, or cause to be delivered to Agent a Deposit Account Control           Agreement
duly authorized, executed and delivered by each bank where a Blocked           Account is
maintained as provided in Section 5.2 hereof or at any time and from           time to
time Agent may become the bank’s customer with respect to any of           the
Blocked Accounts and promptly upon Agent’s request, Borrowers shall
          execute and deliver such agreements and documents as Agent may require in
          connection therewith. Each Borrower and Guarantor agrees that all payments made
          to such Blocked Accounts or other funds received and collected by Agent or any
          Lender, whether in respect of the Receivables, as proceeds of Inventory or
other           Collateral or otherwise shall be treated as payments to Agent and Lenders
in           respect of the Obligations and therefore shall constitute the property of
Agent           and Lenders to the extent of the then outstanding Obligations.  

            (b)              For
purposes of calculating the amount of the Loans available to each Borrower,
          such payments will be applied (conditional upon final collection) to the
          Obligations on the Business Day of receipt by Agent of immediately available
          funds in the Agent Payment Account provided such payments and notice thereof
are           received in accordance with Agent’s usual and customary practices as
in           effect from time to time and within sufficient time to credit such
          Borrower’s loan account on such day, and if not, then on the next Business
          Day. For the purposes of calculating interest on the Obligations, such payments
          or other funds received will be applied (conditional upon final collection) to
          the Obligations one (1) Business Day following the date of receipt of
          immediately available funds by Agent in the Agent Payment Account provided such
          payments or other funds and notice thereof are received in accordance with
          Agent’s usual and customary practices as in effect from time to time and
          within sufficient time to credit such Borrower’s loan account on such day,
          and if not, then on the next Business Day. In the event that at any time or
from           time to time there are no Revolving Loans outstanding, Agent shall be
entitled           to an administrative fee in an amount calculated based on the Interest
Rate for           Prime Rate Loans (on a per annum basis) multiplied by the amount of
the funds           received in the Blocked Account for such day as calculated by Agent
in           accordance with its customary practice. The economic benefit of the timing
in           the application of payments (and the administrative charge with respect
thereto,           if applicable) shall be for the sole benefit of Agent.  

39 

            (c)              Each
Borrower and Guarantor and their respective employees, agents and           Subsidiaries
shall, acting as trustee for Agent, receive, as the property of           Agent, any
monies, checks, notes, drafts or any other payment relating to and/or           proceeds
of Accounts or other Collateral which come into their possession or           under their
control and immediately upon receipt thereof, shall deposit or cause           the same
to be deposited in the Blocked Accounts, or remit the same or cause the           same to
be remitted, in kind, to Agent. In no event shall the same be commingled           with
any Borrower’s or Guarantor’s own funds. Borrowers agree to           reimburse
Agent on demand for any amounts owed or paid to any bank or other           financial
institution at which a Blocked Account or any other deposit account or
          investment account is established or any other bank, financial institution or
          other person involved in the transfer of funds to or from the Blocked Accounts
          arising out of Agent’s payments to or indemnification of such bank,
          financial institution or other person. The obligations of Borrowers to
reimburse           Agent for such amounts pursuant to this Section 6.3 shall survive the
          termination of this Agreement.  

        6.4    Payments. 

            (a)              All
Obligations shall be payable to the Agent Payment Account as provided in
          Section 6.3 or such other place as Agent may designate from time to time.
          Subject to the other terms and conditions contained herein, Agent shall apply
          payments received or collected from any Borrower or Guarantor or for the
account           of any Borrower or Guarantor (including the monetary proceeds of
collections or           of realization upon any Collateral) as follows: first, to
pay any fees,           indemnities or expense reimbursements then due to Agent, Lenders
and Issuing           Bank from any Borrower or Guarantor; second, to pay interest
due in           respect of any Loans (and including any Special Agent Advances) or
Letter of           Credit Obligations; third, to pay or prepay principal in
respect of           Special Agent Advances; fourth, to pay principal due in
respect of the           Loans and to pay Obligations then due arising under or pursuant
to any Hedge           Agreements of a Borrower or Guarantor with Agent or a Bank Product
Provider (up           to the amount of any then effective Reserve established in respect
of such           Obligations), on a pro rata basis; fifth, to pay or
prepay           any other Obligations whether or not then due, in such order and manner
as Agent           determines and at any time an Event of Default exists or has occurred
and is           continuing, to provide cash collateral for any Letter of Credit
Obligations or           other contingent Obligations (but not including for this purpose
any Obligations           arising under or pursuant to any Bank Products); and sixth,
to pay or           prepay any Obligations arising under or pursuant to any Bank Products
(other           than to the extent provided for above) on a pro rata basis.
          Notwithstanding anything to the contrary contained in this Agreement, (i)
unless           so directed by Administrative Borrower, or unless a Default or an Event
of           Default shall exist or have occurred and be continuing, Agent shall not
apply           any payments which it receives to any Eurodollar Rate Loans, except (A)
on the           expiration date of the Interest Period applicable to any such Eurodollar
Rate           Loans or (B) in the event that there are no outstanding Prime Rate Loans
and           (ii) to the extent any Borrower uses any proceeds of the Loans or Letters
of           Credit to acquire rights in or the use of any Collateral or to repay any
          Indebtedness used to acquire rights in or the use of any Collateral, payments
in           respect of the Obligations shall be deemed applied first to the Obligations
          arising from Loans and Letters of Credit that were not used for such purposes
          and second to the Obligations arising from Loans and Letters of Credit the
          proceeds of which were used to acquire rights in or the use of any Collateral
in           the chronological order in which such Borrower acquired such rights in or
the           use of such Collateral.  

40 

            (b)              At
Agent’s option, all principal, interest, fees, costs, expenses and other
          charges provided for in this Agreement or the other Financing Agreements may be
          charged directly to the loan account(s) of any Borrower maintained by Agent. If
          after receipt of any payment of, or proceeds of Collateral applied to the
          payment of, any of the Obligations, Agent or any Lender is required to
surrender           or return such payment or proceeds to any Person for any reason, then
the           Obligations intended to be satisfied by such payment or proceeds shall be
          reinstated and continue and this Agreement shall continue in full force and
          effect as if such payment or proceeds had not been received by Agent or such
          Lender. Borrowers and Guarantors shall be liable to pay to Agent, and do hereby
          indemnify and hold Agent and Lenders harmless for the amount of any payments or
          proceeds surrendered or returned. This Section 6.4(b) shall remain effective
          notwithstanding any contrary action which may be taken by Agent or any Lender
in           reliance upon such payment or proceeds. This Section 6.4 shall survive the
          payment of the Obligations and the termination of this Agreement.  

        6.5    Taxes. 

            (a)              Any
and all payments by or on account of any of the Obligations shall be made           free
and clear of and without deduction or withholding for or on account of, any
          setoff, counterclaim, defense, duties, taxes, levies, imposts, fees,
deductions,           charges, withholdings, liabilities, restrictions or conditions of
any kind,           excluding (i) in the case of each Lender and Agent (A) taxes measured
by its net           income, and franchise taxes imposed on it, by the jurisdiction (or
any political           subdivision thereof) under the laws of which such Lender or Agent
(as the case           may be) is organized and (B) any United States withholding taxes
payable with           respect to payments under the Financing Agreements under laws
(including any           statute, treaty or regulation) in effect on the date hereof (or,
in the case of           an Eligible Transferee, the date of the Assignment and
Acceptance) applicable to           such Lender or Agent, as the case may be, but not
excluding any United States           withholding taxes payable as a result of any change
in such laws occurring after           the date hereof (or the date of such Assignment
and Acceptance) and (ii) in the           case of each Lender, taxes measured by its net
income, and franchise taxes           imposed on it as a result of a present or former
connection between such Lender           and the jurisdiction of the Governmental
Authority imposing such tax or any           taxing authority thereof or therein (all
such non-excluded taxes, levies,           imposts, fees, deductions, charges,
withholdings and liabilities being           hereinafter referred to as “Taxes”).  

            (b)              If
any Taxes shall be required by law to be deducted from or in respect of any           sum
payable in respect of the Obligations to any Lender or Agent (i) the sum
          payable shall be increased as may be necessary so that after making all
required           deductions (including deductions applicable to additional sums payable
under           this Section 6.5), such Lender or Agent (as the case may be) receives an
amount           equal to the sum it would have received had no such deductions been
made, (ii)           the relevant Borrower or Guarantor shall make such deductions, (iii)
the           relevant Borrower or Guarantor shall pay the full amount deducted to the
          relevant taxing authority or other authority in accordance with applicable law
          and (iv) the relevant Borrower or Guarantor shall deliver to Agent evidence of
          such payment.  

            (c)              In
addition, each Borrower and Guarantor agrees to pay any present or future           stamp
or documentary taxes or any other excise or property taxes, charges or           similar
levies of the United States or any political subdivision thereof or any
          applicable foreign jurisdiction, and all liabilities with respect thereto, in
          each case arising from any payment made hereunder or under any of the other
          Financing Agreements or from the execution, delivery or registration of, or
          otherwise with respect to, this Agreement or any of the other Financing
          Agreements (collectively, “Other Taxes”).  

41 

            (d)              Each
Borrower and Guarantor shall indemnify each Lender and Agent for the full
          amount of Taxes and Other Taxes (including any Taxes and Other Taxes imposed by
          any jurisdiction on amounts payable under this Section 6.5) paid by such Lender
          or Agent (as the case may be) and any liability (including for penalties,
          interest and expenses) arising therefrom or with respect thereto, whether or
not           such Taxes or Other Taxes were correctly or legally asserted. This
          indemnification shall be made within thirty (30) days from the date such Lender
          or Agent (as the case may be) makes written demand therefor. A certificate as
to           the amount of such payment or liability delivered to Administrative Borrower
by           a Lender (with a copy to Agent) or by Agent on its own behalf or on behalf
of a           Lender, shall be conclusive absent manifest error.  

            (e)              As
soon as practicable after any payment of Taxes or Other Taxes by any Borrower
          or Guarantor, such Borrower or Guarantor shall furnish to Agent, at its address
          referred to herein, the original or a certified copy of a receipt evidencing
          payment thereof.  

            (f)              Without
prejudice to the survival of any other agreements of any Borrower or           Guarantor
hereunder or under any of the other Financing Agreements, the           agreements and
obligations of such Borrower or Guarantor contained in this           Section 6.5 shall
survive the termination of this Agreement and the payment in           full of the
Obligations.  

            (g)              Any
Foreign Lender that is entitled to an exemption from or reduction of
          withholding tax under the law of the jurisdiction in which the applicable
          Borrower is resident for tax purposes, or any treaty to which such jurisdiction
          is a party, with respect to payments hereunder or under any of the other
          Financing Agreements shall deliver to Administrative Borrower (with a copy to
          Agent), at the time or times prescribed by applicable law or reasonably
          requested by Administrative Borrower or Agent (in such number of copies as is
          reasonably requested by the recipient), whichever of the following is
applicable           (but only if such Foreign Lender is legally entitled to do so): (i)
duly           completed copies of Internal Revenue Service Form W-8BEN claiming
exemption           from, or a reduction to, withholding tax under an income tax treaty,
or any           successor form, (ii) duly completed copies of Internal Revenue Service
Form           8-8ECI claiming exemption from withholding because the income is
effectively           connection with a U.S. trade or business or any successor form,
(iii) in the           case of a Foreign Lender claiming the benefits of the exemption
for portfolio           interest under Sections 871(h) or 881(c) of the Code, (A) a
certificate of the           Lender to the effect that such Lender is not a “bank” within
the           meaning of Section 881(c)(3)(A) of the Code, a “10 percent
          shareholder” of a Borrower within the meaning of Section 881(c)(3)(B) of
          the Code or a “controlled foreign corporation” described and Section
          881(c)(3)(C) of the Code and (B) duly completed copies of Internal Revenue
          Service Form W-8BEN claiming exemption from withholding under the portfolio
          interest exemption or any successor form or (iv) any other applicable form,
          certificate or document prescribed by applicable law as a basis for claiming
          exemption from or a reduction in United States withholding tax duly completed
          together with such supplementary documentation as may be prescribed by
          applicable law to permit a Borrower to determine the withholding or deduction
          required to be made. Unless Administrative Borrower and Agent have received
          forms or other documents satisfactory to them indicating that payments
hereunder           or under any of the other Financing Agreements to or for a Foreign
Lender are           not subject to United States withholding tax or are subject to such
tax at a           rate reduced by an applicable tax treaty, Borrowers or Agent shall
withhold           amounts required to be withheld by applicable requirements of law from
such           payments at the applicable statutory rate.  

42 

            (h)              Any
Lender claiming any additional amounts payable pursuant to this Section 6.5
          shall use its reasonable efforts (consistent with its internal policy and legal
          and regulatory restrictions) to change the jurisdiction of its applicable
          lending office if the making of such a change would avoid the need for, or
          reduce the amount of, any such additional amounts that would be payable or may
          thereafter accrue and would not, in the sole determination of such Lender, be
          otherwise disadvantageous to such Lender.  

        6.6    Authorization
to Make Loans. Agent and Lenders are authorized to make the Loans based upon
telephonic or other instructions received from anyone purporting to be an officer of
Administrative Borrower or any Borrower or other authorized person or, at the discretion
of Agent, if such Loans are necessary to satisfy any Obligations. All requests for Loans
or Letters of Credit hereunder shall specify the date on which the requested advance is
to be made (which day shall be a Business Day) and the amount of the requested Loan.
Requests received after 11:00 a.m. California time on any day shall be deemed to have
been made as of the opening of business on the immediately following Business Day. All
Loans and Letters of Credit under this Agreement shall be conclusively presumed to have
been made to, and at the request of and for the benefit of, any Borrower or Guarantor
when deposited to the credit of any Borrower or Guarantor or otherwise disbursed or
established in accordance with the instructions of any Borrower or Guarantor or in
accordance with the terms and conditions of this Agreement.  

        6.7    Use
of Proceeds. Borrowers shall use the initial proceeds of the Loans and Letters of
Credit hereunder only for: (a) payments to each of the persons listed in the disbursement
direction letter furnished by Borrowers to Agent on or about the date hereof and (b)
costs, expenses and fees in connection with the preparation, negotiation, execution and
delivery of this Agreement and the other Financing Agreements. All other Loans made or
Letters of Credit provided to or for the benefit of any Borrower pursuant to the
provisions hereof shall be used by such Borrower only for general operating, working
capital and other proper corporate purposes of such Borrower not otherwise prohibited by
the terms hereof. None of the proceeds will be used, directly or indirectly, for the
purpose of purchasing or carrying any margin security or for the purposes of reducing or
retiring any indebtedness which was originally incurred to purchase or carry any margin
security or for any other purpose which might cause any of the Loans to be considered a
“purpose credit” within the meaning of Regulation U of the Board of Governors
of the Federal Reserve System, as amended.  

        6.8    Appointment
of Administrative Borrower as Agent for Requesting Loans and Receipts of Loans and
Statements. 

43 

            (a)              Each
Borrower hereby irrevocably appoints and constitutes Administrative           Borrower as
its agent and attorney-in-fact to request and receive Loans and           Letters of
Credit pursuant to this Agreement and the other Financing Agreements           from Agent
or any Lender in the name or on behalf of such Borrower. Agent and           Lenders may
disburse the Loans to such bank account of Administrative Borrower           or a
Borrower or otherwise make such Loans to a Borrower and provide such           Letters of
Credit to a Borrower as Administrative Borrower may designate or           direct,
without notice to any other Borrower or Guarantor. Notwithstanding           anything to
the contrary contained herein, Agent may at any time and from time           to time
require that Loans to or for the account of any Borrower be disbursed           directly
to an operating account of such Borrower.  

            (b)              Administrative
Borrower hereby accepts the appointment by Borrowers to act as           the agent and
attorney-in-fact of Borrowers pursuant to this Section 6.8.           Administrative
Borrower shall ensure that the disbursement of any Loans to each           Borrower
requested by or paid to or for the account of Parent, or the issuance           of any
Letter of Credit for a Borrower hereunder, shall be paid to or for the           account
of such Borrower.  

            (c)              Each
Borrower and other Guarantor hereby irrevocably appoints and constitutes
          Administrative Borrower as its agent to receive statements on account and all
          other notices from Agent and Lenders with respect to the Obligations or
          otherwise under or in connection with this Agreement and the other Financing
          Agreements.  

            (d)              Any
notice, election, representation, warranty, agreement or undertaking by or           on
behalf of any other Borrower or any Guarantor by Administrative Borrower           shall
be deemed for all purposes to have been made by such Borrower or           Guarantor, as
the case may be, and shall be binding upon and enforceable against           such
Borrower or Guarantor to the same extent as if made directly by such           Borrower
or Guarantor.  

            (e)              No
purported termination of the appointment of Administrative Borrower as agent           as
aforesaid shall be effective, except after ten (10) days’ prior written
          notice to Agent.  

        6.9    Pro
Rata Treatment. Except to the extent otherwise provided in this Agreement or as
otherwise agreed by Lenders: (a) the making and conversion of Loans shall be made among
the Lenders based on their respective Pro Rata Shares as to the Loans and (b) each
payment on account of any Obligations to or for the account of one or more of Lenders in
respect of any Obligations due on a particular day shall be allocated among the Lenders
entitled to such payments based on their respective Pro Rata Shares and shall be
distributed accordingly.  

        6.10    Sharing
of Payments, Etc.  

            (a)              Each
Borrower and Guarantor agrees that, in addition to (and without limitation           of)
any right of setoff, banker’s lien or counterclaim Agent or any Lender           may
otherwise have, each Lender shall be entitled, at its option (but subject,           as
among Agent and Lenders, to the provisions of Section 12.3(b) hereof), to
          offset balances held by it for the account of such Borrower or Guarantor at any
          of its offices, in dollars or in any other currency, against any principal of
or           interest on any Loans owed to such Lender or any other amount payable to
such           Lender hereunder, that is not paid when due (regardless of whether such
balances           are then due to such Borrower or Guarantor), in which case it shall
promptly           notify Administrative Borrower and Agent thereof; provided, that,
          such Lender’s failure to give such notice shall not affect the validity
          thereof.  

44 

            (b)              If
any Lender (including Agent) shall obtain from any Borrower or Guarantor
          payment of any principal of or interest on any Loan owing to it or payment of
          any other amount under this Agreement or any of the other Financing Agreements
          through the exercise of any right of setoff, banker’s lien or counterclaim
          or similar right or otherwise (other than from Agent as provided herein), and,
          as a result of such payment, such Lender shall have received more than its Pro
          Rata Share of the principal of the Loans or more than its share of such other
          amounts then due hereunder or thereunder by any Borrower or Guarantor to such
          Lender than the percentage thereof received by any other Lender, it shall
          promptly pay to Agent, for the benefit of Lenders, the amount of such excess
and           simultaneously purchase from such other Lenders a participation in the
Loans or           such other amounts, respectively, owing to such other Lenders (or such
interest           due thereon, as the case may be) in such amounts, and make such other
          adjustments from time to time as shall be equitable, to the end that all
Lenders           shall share the benefit of such excess payment (net of any expenses
that may be           incurred by such Lender in obtaining or preserving such excess
payment) in           accordance with their respective Pro Rata Shares or as otherwise
agreed by           Lenders. To such end all Lenders shall make appropriate adjustments
among           themselves (by the resale of participation sold or otherwise) if such
payment is           rescinded or must otherwise be restored.  

            (c)              Each
Borrower and Guarantor agrees that any Lender purchasing a participation           (or
direct interest) as provided in this Section may exercise, in a manner
          consistent with this Section, all rights of setoff, banker’s lien,
          counterclaim or similar rights with respect to such participation as fully as
if           such Lender were a direct holder of Loans or other amounts (as the case may
be)           owing to such Lender in the amount of such participation.  

            (d)              Nothing
contained herein shall require any Lender to exercise any right of           setoff,
banker’s lien, counterclaims or similar rights or shall affect the           right
of any Lender to exercise, and retain the benefits of exercising, any such
          right with respect to any other Indebtedness or obligation of any Borrower or
          Guarantor. If, under any applicable bankruptcy, insolvency or other similar
law,           any Lender receives a secured claim in lieu of a setoff to which this
Section           applies, such Lender shall, to the extent practicable, assign such
rights to           Agent for the benefit of Lenders and, in any event, exercise its
rights in           respect of such secured claim in a manner consistent with the rights
of Lenders           entitled under this Section to share in the benefits of any recovery
on such           secured claim.  

        6.11    Settlement
Procedures.  

            (a)              In
order to administer the Credit Facility in an efficient manner and to           minimize
the transfer of funds between Agent and Lenders, Agent may, at its           option,
subject to the terms of this Section, make available, on behalf of           Lenders, the
full amount of the Loans requested or charged to any           Borrower’s loan
account(s) or otherwise to be advanced by Lenders pursuant           to the terms hereof,
without requirement of prior notice to Lenders of the           proposed Loans.  

45 

            (b)              With
respect to all Loans made by Agent on behalf of Lenders as provided in this
          Section, the amount of each Lender’s Pro Rata Share of the outstanding
          Loans shall be computed weekly, and shall be adjusted upward or downward on the
          basis of the amount of the outstanding Loans as of 5:00 p.m. New York time on
          the Business Day immediately preceding the date of each settlement computation;
provided, that, Agent retains the absolute right at any time or
          from time to time to make the above described adjustments at intervals more
          frequent than weekly, but in no event more than twice in any week. Agent shall
          deliver to each of the Lenders after the end of each week, or at such lesser
          period or periods as Agent shall determine, a summary statement of the amount
of           outstanding Loans for such period (such week or lesser period or periods
being           hereinafter referred to as a “Settlement Period”). If the
summary           statement is sent by Agent and received by a Lender prior to 12:00 p.m.
New York           time, then such Lender shall make the settlement transfer described in
this           Section by no later than 3:00 p.m. New York time on the same Business Day
and if           received by a Lender after 12:00 p.m. New York time, then such Lender
shall make           the settlement transfer by not later than 3:00 p.m. New York time on
the next           Business Day following the date of receipt. If, as of the end of any
Settlement           Period, the amount of a Lender’s Pro Rata Share of the
outstanding Loans is           more than such Lender’s Pro Rata Share of the
outstanding Loans as of the           end of the previous Settlement Period, then such
Lender shall forthwith (but in           no event later than the time set forth in the
preceding sentence) transfer to           Agent by wire transfer in immediately available
funds the amount of the           increase. Alternatively, if the amount of a Lender’s
Pro Rata Share of the           outstanding Loans in any Settlement Period is less than
the amount of such           Lender’s Pro Rata Share of the outstanding Loans for
the previous           Settlement Period, Agent shall forthwith transfer to such Lender
by wire           transfer in immediately available funds the amount of the decrease. The
          obligation of each of the Lenders to transfer such funds and effect such
          settlement shall be irrevocable and unconditional and without recourse to or
          warranty by Agent. Agent and each Lender agrees to mark its books and records
at           the end of each Settlement Period to show at all times the dollar amount of
its           Pro Rata Share of the outstanding Loans and Letters of Credit. Each Lender
shall           only be entitled to receive interest on its Pro Rata Share of the Loans
to the           extent such Loans have been funded by such Lender. Because the Agent on
behalf           of Lenders may be advancing and/or may be repaid Loans prior to the time
when           Lenders will actually advance and/or be repaid such Loans, interest with
respect           to Loans shall be allocated by Agent in accordance with the amount of
Loans           actually advanced by and repaid to each Lender and the Agent and shall
accrue           from and including the date such Loans are so advanced to but excluding
the date           such Loans are either repaid by Borrowers or actually settled with the
          applicable Lender as described in this Section.  

            (c)              To
the extent that Agent has made any such amounts available and the settlement
          described above shall not yet have occurred, upon repayment of any Loans by a
          Borrower, Agent may apply such amounts repaid directly to any amounts made
          available by Agent pursuant to this Section. In lieu of weekly or more frequent
          settlements, Agent may, at its option, at any time require each Lender to
          provide Agent with immediately available funds representing its Pro Rata Share
          of each Loan, prior to Agent’s disbursement of such Loan to Borrower. In
          such event, all Loans under this Agreement shall be made by the Lenders
          simultaneously and proportionately to their Pro Rata Shares. No Lender shall be
          responsible for any default by any other Lender in the other Lender’s
          obligation to make a Loan requested hereunder nor shall the Commitment of any
          Lender be increased or decreased as a result of the default by any other Lender
          in the other Lender’s obligation to make a Loan hereunder.  

46 

            (d)              If
Agent is not funding a particular Loan to a Borrower (or Administrative
          Borrower for the benefit of such Borrower) pursuant to Sections 6.11(a) and
          6.11(b) above on any day, but is requiring each Lender to provide Agent with
          immediately available funds on the date of such Loan as provided in Section
          6.11(c) above, Agent may assume that each Lender will make available to Agent
          such Lender’s Pro Rata Share of the Loan requested or otherwise made on
          such day and Agent may, in its discretion, but shall not be obligated to, cause
          a corresponding amount to be made available to or for the benefit of such
          Borrower on such day. If Agent makes such corresponding amount available to a
          Borrower and such corresponding amount is not in fact made available to Agent
by           such Lender, Agent shall be entitled to recover such corresponding amount on
          demand from such Lender together with interest thereon for each day from the
          date such payment was due until the date such amount is paid to Agent at the
          Federal Funds Rate for each day during such period (as published by the Federal
          Reserve Bank of New York or at Agent’s option based on the arithmetic mean
          determined by Agent of the rates for the last transaction in overnight Federal
          funds arranged prior to 9:00 a.m. (New York City time) on that day by each of
          the three leading brokers of Federal funds transactions in New York City
          selected by Agent) and if such amounts are not paid within three (3) days of
          Agent’s demand, at the highest Interest Rate provided for in Section 3.1
          hereof applicable to Prime Rate Loans. During the period in which such Lender
          has not paid such corresponding amount to Agent, notwithstanding anything to
the           contrary contained in this Agreement or any of the other Financing
Agreements,           the amount so advanced by Agent to or for the benefit of any
Borrower shall, for           all purposes hereof, be a Loan made by Agent for its own
account. Upon any such           failure by a Lender to pay Agent, Agent shall promptly
thereafter notify           Administrative Borrower of such failure and Borrowers shall
pay such           corresponding amount to Agent for its own account within five (5)
Business Days           of Administrative Borrower’s receipt of such notice. A
Lender who fails to           pay Agent its Pro Rata Share of any Loans made available by
the Agent on such           Lender’s behalf, or any Lender who fails to pay any
other amount owing by           it to Agent, is a “Defaulting Lender”. Agent
shall not be obligated to           transfer to a Defaulting Lender any payments received
by Agent for the           Defaulting Lender’s benefit, nor shall a Defaulting
Lender be entitled to           the sharing of any payments hereunder (including any
principal, interest or           fees). Amounts payable to a Defaulting Lender shall
instead be paid to or           retained by Agent. Agent may hold and, in its discretion,
relend to a Borrower           the amount of all such payments received or retained by it
for the account of           such Defaulting Lender. For purposes of voting or consenting
to matters with           respect to this Agreement and the other Financing Agreements
and determining Pro           Rata Shares, such Defaulting Lender shall be deemed not to
be a           “Lender” and such Lender’s Commitment shall be deemed to be
zero           (0). This Section shall remain effective with respect to a Defaulting
Lender           until such default is cured. The operation of this Section shall not be
          construed to increase or otherwise affect the Commitment of any Lender, or
          relieve or excuse the performance by any Borrower or Guarantor of their duties
          and obligations hereunder.  

            (e)              Nothing
in this Section or elsewhere in this Agreement or the other Financing
          Agreements shall be deemed to require Agent to advance funds on behalf of any
          Lender or to relieve any Lender from its obligation to fulfill its Commitment
          hereunder or to prejudice any rights that any Borrower may have against any
          Lender as a result of any default by any Lender hereunder in fulfilling its
          Commitment.  

        6.12    Obligations
Several; Independent Nature of Lenders’ Rights. The obligation of each Lender
hereunder is several, and no Lender shall be responsible for the obligation or commitment
of any other Lender hereunder. Nothing contained in this Agreement or any of the other
Financing Agreements and no action taken by the Lenders pursuant hereto or thereto shall
be deemed to constitute the Lenders to be a partnership, an association, a joint venture
or any other kind of entity. The amounts payable at any time hereunder to each Lender
shall be a separate and independent debt, and subject to Section 12.3 hereof, each Lender
shall be entitled to protect and enforce its rights arising out of this Agreement and it
shall not be necessary for any other Lender to be joined as an additional party in any
proceeding for such purpose.  

47 

        6.13    Bank
Products. Borrowers and Guarantors, or any of their Subsidiaries, may (but no such
Person is required to) request that the Bank Product Providers provide or arrange for
such Person to obtain Bank Products from Bank Product Providers, and each Bank Product
Provider may, in its sole discretion, provide or arrange for such Person to obtain the
requested Bank Products. Borrowers and Guarantors or any of their Subsidiaries that
obtains Bank Products shall indemnify and hold Agent, each Lender and their respective
Affiliates harmless from any and all obligations now or hereafter owing to any other
Person by any Bank Product Provider in connection with any Bank Products other than for
gross negligence or willful misconduct on the part of any such indemnified Person. This
Section 6.13 shall survive the payment of the Obligations and the termination of this
Agreement. Borrower and its Subsidiaries acknowledge and agree that the obtaining of Bank
Products from Bank Product Providers (a) is in the sole discretion of such Bank Product
Provider, and (b) is subject to all rules and regulations of such Bank Product Provider.  

SECTION 7.     COLLATERAL
REPORTING AND COVENANTS 

        7.1    Collateral
Reporting.  

            (a)              Borrowers
shall provide Agent with the following documents in a form           satisfactory to
Agent:  

                (i)              on
a weekly basis, schedules of sales made, credits issued and cash received,
          together with a certificate of the Borrowing Base;  

                (ii)              as
soon as possible after the end of each month (but in any event within ten           (10)
Business Days after the end thereof), on a monthly basis or more frequently           as
Agent may request, (A) agings of accounts receivable (together with a
          reconciliation to the previous month’s aging and general ledger) which
          shall identify the copyright titles whose sale generated each account
receivable           or portion thereof and (B) agings of accounts payable (and including
information           indicating the amounts owing to owners and lessors of leased
premises,           warehouses, processors and other third parties from time to time in
possession           of any Collateral);  

                (iii)              upon
Agent’s request, (A) copies of customer statements, purchase orders,           sales
invoices, credit memos, remittance advices and reports, and copies of           deposit
slips and bank statements, (B) copies of shipping and delivery           documents, (C)
copies of purchase orders, invoices and delivery documents for           Inventory and
Equipment acquired by any Borrower or Guarantor, (D) perpetual           inventory
reports, and (E) inventory reports by location and category (and           including the
amounts of Inventory and the value thereof at any leased locations           and at
premises of warehouses, processors or other third parties);  

                (iv)              such
other reports as to the Collateral as Agent shall request from time to           time.  

48 

            (b)              If
any Borrower’s or Guarantor’s records or reports of the Collateral
          are prepared or maintained by an accounting service, contractor, shipper or
          other agent, such Borrower and Guarantor hereby irrevocably authorizes such
          service, contractor, shipper or agent to deliver such records, reports, and
          related documents to Agent and to follow Agent’s instructions with respect
          to further services at any time that an Event of Default exists or has occurred
          and is continuing.  

        7.2    Accounts
Covenants.  

            (a)              Borrowers
shall notify Agent promptly of: (i) any material delay in any           Borrower’s
performance of any of its material obligations to any account           debtor or the
assertion of any material claims, offsets, defenses or           counterclaims by any
account debtor, or any material disputes with account           debtors, or any
settlement, adjustment or compromise thereof, (ii) all material           adverse
information known to any Borrower or Guarantor relating to the financial
          condition of any account debtor and (iii) any event or circumstance which, to
          the best of any Borrower’s or Guarantor’s knowledge, would cause
Agent           to consider any then existing Accounts as no longer constituting Eligible
          Accounts. No credit, discount, allowance or extension or agreement for any of
          the foregoing shall be granted to any account debtor without Agent’s
          consent, except in the ordinary course of a Borrower’s or Guarantor’s
          business in accordance with practices and policies previously disclosed in
          writing to Agent and except as set forth in the schedules delivered to Agent
          pursuant to Section 7.1(a) above. So long as no Event of Default exists or has
          occurred and is continuing, Borrowers and Guarantors shall settle, adjust or
          compromise any claim, offset, counterclaim or dispute with any account debtor.
          At any time that an Event of Default exists or has occurred and is continuing,
          Agent shall, at its option, have the exclusive right to settle, adjust or
          compromise any claim, offset, counterclaim or dispute with account debtors or
          grant any credits, discounts or allowances.  

            (b)              With
respect to each Account: (i) the amounts shown on any invoice delivered to
          Agent or schedule thereof delivered to Agent shall be true and complete, (ii)
no           payments shall be made thereon except payments immediately delivered to
Agent           pursuant to the terms of this Agreement, (iii) no credit, discount,
allowance or           extension or agreement for any of the foregoing shall be granted
to any account           debtor except as reported to Agent in accordance with this
Agreement and except           for credits, discounts, allowances or extensions made or
given in the ordinary           course of each Borrower’s business in accordance
with practices and           policies previously disclosed to Agent, (iv) there shall be
no setoffs,           deductions, contras, defenses, counterclaims or disputes existing
or asserted           with respect thereto except as reported to Agent in accordance with
the terms of           this Agreement, (v) none of the transactions giving rise thereto
will violate           any applicable foreign, Federal, State or local laws or
regulations, all           documentation relating thereto will be legally sufficient
under such laws and           regulations and all such documentation will be legally
enforceable in accordance           with its terms.  

            (c)              Agent
shall have the right at any time or times, in Agent’s name or in the           name
of a nominee of Agent, to verify the validity, amount or any other matter
          relating to any Receivables or other Collateral, by mail, telephone, facsimile
          transmission or otherwise.  

49 

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

        7.4    Equipment
and Real Property Covenants. With respect to the Equipment and Real Property: (a)
Borrowers and Guarantors shall, at their expense, at any time or times as Agent may
request on or after an Event of Default, deliver or cause to be delivered to Agent
written appraisals as to the Equipment and/or the Real Property in form, scope and
methodology acceptable to Agent and by an appraiser acceptable to Agent, addressed to
Agent and upon which Agent is expressly permitted to rely; (b) Borrowers and Guarantors
shall keep the Equipment in good order, repair, running and marketable condition
(ordinary wear and tear excepted); (c) Borrowers and Guarantors shall use the Equipment
and Real Property with all reasonable care and caution and in accordance with applicable
standards of any insurance and in conformity with all applicable laws; (d) the Equipment
is and shall be used in the business of Borrowers and Guarantors and not for personal,
family, household or farming use; (e) Borrowers and Guarantors shall not remove any
Equipment from the locations set forth or permitted herein, except to the extent
necessary to have any Equipment repaired or maintained in the ordinary course of its
business or to move Equipment directly from one location set forth or permitted herein to
another such location and except for the movement of motor vehicles used by or for the
benefit of such Borrower or Guarantor in the ordinary course of business; (f) the
Equipment is now and shall remain personal property and Borrowers and Guarantors shall
not permit any of the Equipment to be or become a part of or affixed to real property;
and (g) each Borrower and Guarantor assumes all responsibility and liability arising from
the use of the Equipment and Real Property.  

50 

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

51 

        7.6    Right
to Cure. Agent may, at its option, upon notice to Administrative Borrower, (a) cure
any default by any Borrower or Guarantor under any material agreement with a third party
that affects the Collateral, its value or the ability of Agent to collect, sell or
otherwise dispose of the Collateral or the rights and remedies of Agent or any Lender
therein or the ability of any Borrower or Guarantor to perform its obligations hereunder
or under any of the other Financing Agreements, (b) pay or bond on appeal any judgment
entered against any Borrower or Guarantor, (c) discharge taxes, liens, security interests
or other encumbrances at any time levied on or existing with respect to the Collateral
and (d) pay any amount, incur any expense or perform any act which, in Agent’s
judgment, is necessary or appropriate to preserve, protect, insure or maintain the
Collateral and the rights of Agent and Lenders with respect thereto. Agent may add any
amounts so expended to the Obligations and charge any Borrower’s account therefor,
such amounts to be repayable by Borrowers on demand. Agent and Lenders shall be under no
obligation to effect such cure, payment or bonding and shall not, by doing so, be deemed
to have assumed any obligation or liability of any Borrower or Guarantor. Any payment
made or other action taken by Agent or any Lender under this Section shall be without
prejudice to any right to assert an Event of Default hereunder and to proceed
accordingly.  

        7.7    Access
to Premises. From time to time as requested by Agent, at the cost and expense of
Borrowers, (a) Agent or its designee shall have complete access to all of each Borrower’s
and Guarantor’s premises during normal business hours and after notice to Parent, or
at any time and without notice to Administrative Borrower if an Event of Default exists
or has occurred and is continuing, for the purposes of inspecting, verifying and auditing
the Collateral and all of each Borrower’s and Guarantor’s books and records,
including the Records, and (b) each Borrower and Guarantor shall promptly furnish to
Agent such copies of such books and records or extracts therefrom as Agent may request,
and Agent or any Lender or Agent’s designee may use during normal business hours
such of any Borrower’s and Guarantor’s personnel, equipment, supplies and
premises as may be reasonably necessary for the foregoing and if an Event of Default
exists or has occurred and is continuing for the collection of Receivables and
realization of other Collateral.  

SECTION 8.    
REPRESENTATIONS AND WARRANTIES 

        Each
Borrower and Guarantor hereby represents and warrants to Agent and Lenders the following
(which shall survive the execution and delivery of this Agreement): 

        8.1    Corporate
Existence, Power and Authority. Each Borrower and Guarantor is a corporation duly
organized and in good standing under the laws of its jurisdiction of organization and is
duly qualified as a foreign corporation and in good standing in all states or other
jurisdictions where the nature and extent of the business transacted by it or the
ownership of assets makes such qualification necessary, except for those jurisdictions in
which the failure to so qualify would not have a material adverse effect on such Borrower’s
or Guarantor’s financial condition, results of operation or business or the rights
of Agent in or to any of the Collateral. The execution, delivery and performance of this
Agreement, the other Financing Agreements and the transactions contemplated hereunder and
thereunder (a) are all within each Borrower’s and Guarantor’s corporate powers,
(b) have been duly authorized, (c) are not in contravention of law or the terms of any
Borrower’s or Guarantor’s certificate of incorporation, by laws, or other
organizational documentation, or any indenture, agreement or undertaking to which any
Borrower or Guarantor is a party or by which any Borrower or Guarantor or its property
are bound and (d) will not result in the creation or imposition of, or require or give
rise to any obligation to grant, any lien, security interest, charge or other encumbrance
upon any property of any Borrower or Guarantor. This Agreement and the other Financing
Agreements to which any Borrower or Guarantor is a party constitute legal, valid and
binding obligations of such Borrower and Guarantor enforceable in accordance with their
respective terms.  

52 

        8.2    Name;
State of Organization; Chief Executive Office; Collateral Locations. 

            (a)              The
exact legal name of each Borrower and Guarantor is as set forth on the
          signature page of this Agreement and in the Information Certificate. No
Borrower           or Guarantor has, during the five years prior to the date of this
Agreement,           been known by or used any other corporate or fictitious name or been
a party to           any merger or consolidation, or acquired all or substantially all of
the assets           of any Person, or acquired any of its property or assets out of the
ordinary           course of business, except as set forth in the Information
Certificate.  

            (b)              Each
Borrower and Guarantor is an organization of the type and organized in the
          jurisdiction set forth in the Information Certificate. The Information
          Certificate accurately sets forth the organizational identification number of
          each Borrower and Guarantor or accurately states that such Borrower or
Guarantor           has none and accurately sets forth the federal employer
identification number of           each Borrower and Guarantor.  

            (c)              The
chief executive office and mailing address of each Borrower and Guarantor           and
each Borrower’s and Guarantor’s Records concerning Accounts are
          located only at the address identified as such in the Information Certificate
          and its only other places of business and the only other locations of
          Collateral, if any, are the addresses set forth in the Information Certificate,
          subject to the rights of any Borrower or Guarantor to establish new locations
in           accordance with Section 9.2 below. The Information Certificate correctly
          identifies any of such locations which are not owned by a Borrower or Guarantor
          and sets forth the owners and/or operators thereof.  

        8.3    Financial
Statements; No Material Adverse Change. All financial statements relating to any
Borrower or Guarantor which have been or may hereafter be delivered by any Borrower or
Guarantor to Agent and Lenders have been prepared in accordance with GAAP (except as to
any interim financial statements, to the extent such statements are subject to normal
year-end adjustments and do not include any notes) and fairly present in all material
respects the financial condition and the results of operation of such Borrower and
Guarantor as at the dates and for the periods set forth therein. Except as disclosed in
any interim financial statements furnished by Borrowers and Guarantors to Agent prior to
the date of this Agreement, there has been no act, condition or event which has had or is
reasonably likely to have a Material Adverse Effect since the date of the most recent
audited financial statements of any Borrower or Guarantor furnished by any Borrower or
Guarantor to Agent prior to the date of this Agreement. The projections dated March 13,
2007 for the fiscal year ending March 31, 2008 that have been delivered to Agent or
any projections hereafter delivered to Agent have been prepared in light of the past
operations of the businesses of Borrowers and Guarantors and are based upon estimates and
assumptions stated therein, all of which Borrowers and Guarantors have determined to be
reasonable and fair in light of the then current conditions and current facts and reflect
the good faith and reasonable estimates of Borrowers and Guarantors of the future
financial performance of Parent and its Subsidiaries and of the other information
projected therein for the periods set forth therein.  

53 

        8.4    Priority
of Liens; Title to Properties. The security interests and liens granted to Agent
under this Agreement and the other Financing Agreements constitute valid and perfected
first priority liens and security interests in and upon the Collateral subject only to
the liens indicated on the Information Certificate and the other liens permitted under
Section 9.8 hereof. Each Borrower and Guarantor has good and marketable fee simple title
to or valid leasehold interests in all of its Real Property and good, valid and
merchantable title to all of its other properties and assets subject to no liens,
mortgages, pledges, security interests, encumbrances or charges of any kind, except those
granted to Agent and such others as are specifically listed on the Information
Certificate or permitted under Section 9.8 hereof.  

        8.5    Tax
Returns. Each Borrower and Guarantor has filed, or caused to be filed, in a timely
manner all tax returns, reports and declarations which are required to be filed by it.
All information in such tax returns, reports and declarations is complete and accurate in
all material respects. Each Borrower and Guarantor has paid or caused to be paid all
taxes due and payable or claimed due and payable in any assessment received by it, except
taxes the validity of which are being contested in good faith by appropriate proceedings
diligently pursued and available to such Borrower or Guarantor and with respect to which
adequate reserves have been set aside on its books. Adequate provision has been made for
the payment of all accrued and unpaid Federal, State, county, local, foreign and other
taxes whether or not yet due and payable and whether or not disputed.  

        8.6    Litigation.
Except as set forth on the Information Certificate, (a) there is no investigation by any
Governmental Authority pending, or to the best of any Borrower’s or Guarantor’s
knowledge threatened, against or affecting any Borrower or Guarantor, its or their assets
or business and (b) there is no action, suit, proceeding or claim by any Person pending,
or to the best of any Borrower’s or Guarantor’s knowledge threatened, against
any Borrower or Guarantor or its or their assets or goodwill, or against or affecting any
transactions contemplated by this Agreement, in each case, which if adversely determined
against such Borrower or Guarantor has or could reasonably be expected to have a Material
Adverse Effect.  

        8.7    Compliance
with Other Agreements and Applicable Laws. 

            (a)              Borrowers
and Guarantors are not in default in any respect under, or in           violation in any
respect of the terms of, any material agreement, contract,           instrument, lease or
other commitment to which it is a party or by which it or           any of its assets are
bound. Borrowers and Guarantors are in compliance with the           requirements of all
applicable laws, rules, regulations and orders of any           Governmental Authority
relating to their respective businesses, including,           without limitation, those
set forth in or promulgated pursuant to the           Occupational Safety and Health Act
of 1970, as amended, the Fair Labor Standards           Act of 1938, as amended, ERISA,
the Code, as amended, and the rules and           regulations thereunder, and all
Environmental Laws.  

            (b)              Borrowers
and Guarantors have obtained all material permits, licenses,           approvals,
consents, certificates, orders or authorizations of any Governmental           Authority
required for the lawful conduct of its business (the           “Permits”). All
of the Permits are valid and subsisting and in full           force and effect. There are
no actions, claims or proceedings pending or to the           best of any Borrower’s
or Guarantor’s knowledge, threatened that seek           the revocation,
cancellation, suspension or modification of any of the Permits.  

54 

        8.8    Environmental
Compliance.  

            (a)              Except
as set forth on Schedule 8.8 hereto, Borrowers, Guarantors and any           Subsidiary
of any Borrower or Guarantor have not generated, used, stored,           treated,
transported, manufactured, handled, produced or disposed of any           Hazardous
Materials, on or off its premises (whether or not owned by it) in any           manner
which at any time violates in any material respect any applicable           Environmental
Law or Permit, and the operations of Borrowers, Guarantors and any           Subsidiary
of any Borrower or Guarantor complies in all material respects with           all
Environmental Laws and all Permits.  

            (b)              Except
as set forth on Schedule 8.8 hereto, there has been no investigation by           any
Governmental Authority or any proceeding, complaint, order, directive,           claim,
citation or notice by any Governmental Authority or any other person nor           is any
pending or to the best of any Borrower’s or Guarantor’s           knowledge
threatened, with respect to any non compliance with or violation of           the
requirements of any Environmental Law by any Borrower or Guarantor and any
          Subsidiary of any Borrower or Guarantor or the release, spill or discharge,
          threatened or actual, of any Hazardous Material or the generation, use,
storage,           treatment, transportation, manufacture, handling, production or
disposal of any           Hazardous Materials or any other environmental, health or
safety matter, which           adversely affects or could reasonably be expected to
adversely affect in any           material respect any Borrower or Guarantor or its or
their business, operations           or assets or any properties at which such Borrower
or Guarantor has transported,           stored or disposed of any Hazardous Materials.  

            (c)              Except
as set forth on Schedule 8.8 hereto, Borrowers, Guarantors and their
          Subsidiaries have no material liability (contingent or otherwise) in connection
          with a release, spill or discharge, threatened or actual, of any Hazardous
          Materials or the generation, use, storage, treatment, transportation,
          manufacture, handling, production or disposal of any Hazardous Materials.  

            (d)              Borrowers,
Guarantors and their Subsidiaries have all Permits required to be           obtained or
filed in connection with the operations of Borrowers and Guarantors           under any
Environmental Law and all of such licenses, certificates, approvals or           similar
authorizations and other Permits are valid and in full force and effect.  

        8.9    Employee
Benefits.  

            (a)              Each
Plan is in compliance in all material respects with the applicable           provisions
of ERISA, the Code and other Federal or State law. Each Plan which is           intended
to qualify under Section 401(a) of the Code has received a favorable
          determination letter from the Internal Revenue Service and to the best of any
          Borrower’s or Guarantor’s knowledge, nothing has occurred which would
          cause the loss of such qualification. Each Borrower and its ERISA Affiliates
          have made all required contributions to any Plan subject to Section 412 of the
          Code, and no application for a funding waiver or an extension of any
          amortization period pursuant to Section 412 of the Code has been made with
          respect to any Plan.  

55 

            (b)              There
are no pending, or to the best of any Borrower’s or Guarantor’s
          knowledge, threatened claims, actions or lawsuits, or action by any
Governmental           Authority, with respect to any Plan. There has been no prohibited
transaction or           violation of the fiduciary responsibility rules with respect to
any Plan.  

            (c)              (i)
No ERISA Event has occurred or is reasonably expected to occur; (ii) based           on
the latest valuation of each Pension Plan and on the actuarial methods and
          assumptions employed for such valuation (determined in accordance with the
          assumptions used for funding such Pension Plan pursuant to Section 412 of the
          Code) the aggregate current value of accumulated benefit liabilities of such
          Pension Plan under Section 4001(a)(16) of ERISA does not exceed the aggregate
          current value of the assets of such Pension Plan; (iii) each Borrower and
          Guarantor, and their ERISA Affiliates, have not incurred and do not reasonably
          expect to incur, any liability under Title IV of ERISA with respect to any Plan
          (other than premiums due and not delinquent under Section 4007 of ERISA); (iv)
          each Borrower and Guarantor, and their ERISA Affiliates, have not incurred and
          do not reasonably expect to incur, any liability (and no event has occurred
          which, with the giving of notice under Section 4219 of ERISA, would result in
          such liability) under Section 4201 or 4243 of ERISA with respect to a
          Multiemployer Plan; and (v) each Borrower and Guarantor, and their ERISA
          Affiliates, have not engaged in a transaction that would be subject to Section
          4069 or 4212(c) of ERISA.  

        8.10    Bank
Accounts. All of the deposit accounts, investment accounts or other accounts in the
name of or used by any Borrower or Guarantor maintained at any bank or other financial
institution are set forth on the Information Certificate, subject to the right of each
Borrower and Guarantor to establish new accounts in accordance with Section 5.2 hereof.  

        8.11    Intellectual
Property. Each Borrower and Guarantor owns or licenses or otherwise has the right to
use all Intellectual Property necessary for the operation of its business as presently
conducted or proposed to be conducted. As of the date hereof, Borrowers and Guarantors do
not have any Intellectual Property registered, or subject to pending applications, in the
United States Patent and Trademark Office or any similar office or agency in the United
States, any State thereof, any political subdivision thereof or in any other country,
other than those described in the Information Certificate and has not granted any
licenses with respect thereto other than as set forth in the Information Certificate. No
event has occurred which permits or would permit after notice or passage of time or both,
the revocation, suspension or termination of such rights. To the best of any Borrower’s
and Guarantor’s knowledge, no slogan or other advertising device, product, process,
method, substance or other Intellectual Property or goods bearing or using any
Intellectual Property presently contemplated to be sold by or employed by any Borrower or
Guarantor infringes any patent, trademark, servicemark, tradename, copyright, license or
other Intellectual Property owned by any other Person presently and no claim or
litigation is pending or threatened against or affecting any Borrower or Guarantor
contesting its right to sell or use any such Intellectual Property. The Information
Certificate sets forth all of the agreements or other arrangements of each Borrower and
Guarantor pursuant to which such Borrower or Guarantor has a license or other right to
use any trademarks, logos, designs, representations or other Intellectual Property owned
by another person as in effect on the date hereof and the dates of the expiration of such
agreements or other arrangements of such Borrower or Guarantor as in effect on the date
hereof (collectively, together with such agreements or other arrangements as may be
entered into by any Borrower or Guarantor after the date hereof, collectively, the “License
Agreements” and individually, a “License Agreement”). No trademark,
servicemark, copyright or other Intellectual Property at any time used by any Borrower or
Guarantor which is owned by another person, or owned by such Borrower or Guarantor
subject to any security interest, lien, collateral assignment, pledge or other
encumbrance in favor of any person other than Agent and in or against the rights or
interest of such Borrower or Guarantor, is affixed to any Inventory, except (a) to the
extent permitted under the term of the license agreements listed on the Information
Certificate and (b) to the extent the sale of Inventory to which such Intellectual
Property is affixed is permitted to be sold by such Borrower or Guarantor under
applicable law (including the United States Copyright Act of 1976).  

56 

        8.12    Subsidiaries;
Affiliates; Capitalization; Solvency.  

            (a)              Each
Borrower and Guarantor does not have any direct or indirect Subsidiaries or
          Affiliates and is not engaged in any joint venture or partnership except as set
          forth in the Information Certificate.  

            (b)              Each
Borrower and Guarantor is the record and beneficial owner of all of the           issued
and outstanding shares of Capital Stock of each of the Subsidiaries           listed on
the Information Certificate as being owned by such Borrower or           Guarantor and
there are no proxies, irrevocable or otherwise, with respect to           such shares and
no equity securities of any of the Subsidiaries are or may           become required to
be issued by reason of any options, warrants, rights to           subscribe to, calls or
commitments of any kind or nature and there are no           contracts, commitments,
understandings or arrangements by which any Subsidiary           is or may become bound
to issue additional shares of it Capital Stock or           securities convertible into
or exchangeable for such shares.  

            (c)              The
issued and outstanding shares of Capital Stock of each Borrower and           Guarantor
are directly and beneficially owned and held by the persons indicated           in the
Information Certificate, and in each case all of such shares have been           duly
authorized and are fully paid and non-assessable, free and clear of all           claims,
liens, pledges and encumbrances of any kind, except as disclosed in           writing to
Agent prior to the date hereof.  

            (d)              Each
Borrower and Guarantor is Solvent and will continue to be Solvent after the
          creation of the Obligations, the security interests of Agent and the other
          transaction contemplated hereunder.  

        8.13    Labor
Disputes.  

            (a)              Set
forth on Schedule 8.13 hereto is a list (including dates of termination) of           all
collective bargaining or similar agreements between or applicable to each
          Borrower and Guarantor and any union, labor organization or other bargaining
          agent in respect of the employees of any Borrower or Guarantor on the date
          hereof.  

57 

            (b)              There
is (i) no significant unfair labor practice complaint pending against any
          Borrower or Guarantor or, to the best of any Borrower’s or Guarantor’s
          knowledge, threatened against it, before the National Labor Relations Board,
and           no significant grievance or significant arbitration proceeding arising out
of or           under any collective bargaining agreement is pending on the date hereof
against           any Borrower or Guarantor or, to best of any Borrower’s or
Guarantor’s           knowledge, threatened against it, and (ii) no significant
strike, labor dispute,           slowdown or stoppage is pending against any Borrower or
Guarantor or, to the           best of any Borrower’s or Guarantor’s knowledge,
threatened against           any Borrower or Guarantor.  

        8.14    Restrictions
on Subsidiaries. Except for restrictions contained in this Agreement or any other
agreement with respect to Indebtedness of any Borrower or Guarantor permitted hereunder
as in effect on the date hereof, there are no contractual or consensual restrictions on
any Borrower or Guarantor or any of its Subsidiaries which prohibit or otherwise restrict
(a) the transfer of cash or other assets (i) between any Borrower or Guarantor and any of
its or their Subsidiaries or (ii) between any Subsidiaries of any Borrower or Guarantor
or (b) the ability of any Borrower or Guarantor or any of its or their Subsidiaries to
incur Indebtedness or grant security interests to Agent or any Lender in the Collateral.  

        8.15    Material
Contracts. Schedule 8.15 hereto sets forth all Material Contracts to which any
Borrower or Guarantor is a party or is bound as of the date hereof. Borrowers and
Guarantors have delivered true, correct and complete copies of such Material Contracts to
Agent on or before the date hereof. Borrowers and Guarantors are not in breach or in
default in any material respect of or under any Material Contract and have not received
any notice of the intention of any other party thereto to terminate any Material
Contract.  

        8.16    Payable
Practices. Each Borrower and Guarantor have not made any material change in the
historical accounts payable practices from those in effect immediately prior to the date
hereof.  

        8.17    Accuracy
and Completeness of Information. All information furnished by or on behalf of any
Borrower or Guarantor in writing to Agent or any Lender in connection with this Agreement
or any of the other Financing Agreements or any transaction contemplated hereby or
thereby, including all information on the Information Certificate is true and correct in
all material respects on the date as of which such information is dated or certified and
does not omit any material fact necessary in order to make such information not
misleading. No event or circumstance has occurred which has had or could reasonably be
expected to have a Material Adverse Affect, which has not been fully and accurately
disclosed to Agent in writing prior to the date hereof.  

        8.18    Security
Interests of SAG and WGA. With respect to any security interest of Screen Actors
Guild, Inc. (“SAG”) or Writers Guild of America, West, Inc. (“WGA”)
in personal property of Administrative Borrower in connection with the motion picture
titled “Sisters”, Administrative Borrower is not required to remit any payments
on Accounts generated from the sale of such motion picture to SAG or WGA, and
Administrative Borrower is entitled to use such payments. Agent would not be violating
any rights of SAG or WGA in collecting any payments on such Accounts (it being understood
and agreed though that such Accounts will not be Eligible Accounts hereunder for so long
as SAG or WGA hold any security interest therein).  

58 

        8.19    Survival
of Warranties; Cumulative. All representations and warranties contained in this
Agreement or any of the other Financing Agreements shall survive the execution and
delivery of this Agreement and shall be deemed to have been made again to Agent and
Lenders on the date of each additional borrowing or other credit accommodation hereunder
and shall be conclusively presumed to have been relied on by Agent and Lenders regardless
of any investigation made or information possessed by Agent or any Lender. The
representations and warranties set forth herein shall be cumulative and in addition to
any other representations or warranties which any Borrower or Guarantor shall now or
hereafter give, or cause to be given, to Agent or any Lender.  

SECTION 9.     AFFIRMATIVE
AND NEGATIVE COVENANTS 

        9.1    Maintenance
of Existence.  

            (a)              Each
Borrower and Guarantor shall at all times preserve, renew and keep in full
          force and effect its corporate existence and rights and franchises with respect
          thereto and maintain in full force and effect all licenses, trademarks,
          tradenames, approvals, authorizations, leases, contracts and Permits necessary
          to carry on the business as presently or proposed to be conducted, except as to
          any Guarantor other than Parent as permitted in Section 9.7 hereto.  

            (b)              No
Borrower or Guarantor shall change its name unless each of the following
          conditions is satisfied: (i) Agent shall have received not less than thirty
(30)           days prior written notice from Administrative Borrower of such proposed
change           in its corporate name, which notice shall accurately set forth the new
name; and           (ii) Agent shall have received a copy of the amendment to the
Certificate of           Incorporation of such Borrower or Guarantor providing for the
name change           certified by the Secretary of State of the jurisdiction of
incorporation or           organization of such Borrower or Guarantor as soon as it is
available.  

            (c)              No
Borrower or Guarantor shall change its chief executive office or its mailing
          address or organizational identification number (or if it does not have one,
          shall not acquire one) unless Agent shall have received not less than thirty
          (30) days’ prior written notice from Administrative Borrower of such
          proposed change, which notice shall set forth such information with respect
          thereto as Agent may require and Agent shall have received such agreements as
          Agent may reasonably require in connection therewith. No Borrower or Guarantor
          shall change its type of organization, jurisdiction of organization or other
          legal structure.  

        9.2    New
Collateral Locations. Each Borrower and Guarantor may only open any new location
within the continental United States provided such Borrower or Guarantor (a) gives Agent
thirty (30) days prior written notice of the intended opening of any such new location
and (b) executes and delivers, or causes to be executed and delivered, to Agent such
agreements, documents, and instruments as Agent may deem reasonably necessary or
desirable to protect its interests in the Collateral at such location.  

        9.3    Compliance
with Laws, Regulations, Etc.  

            (a)              Each
Borrower and Guarantor shall, and shall cause any Subsidiary to, at all           times,
comply in all material respects with all laws, rules, regulations,           licenses,
approvals, orders and other Permits applicable to it and duly observe           all
requirements of any foreign, Federal, State or local Governmental Authority.  

59 

            (b)              Borrowers
and Guarantors shall give written notice to Agent immediately upon any           Borrower’s
or Guarantor’s receipt of any notice of, or any           Borrower’s or
Guarantor’s otherwise obtaining knowledge of, (i) the           occurrence of any
event involving the release, spill or discharge, threatened or           actual, of any
Hazardous Material or (ii) any investigation, proceeding,           complaint, order,
directive, claims, citation or notice with respect to: (A) any           non-compliance
with or violation of any Environmental Law by any Borrower or           Guarantor or (B)
the release, spill or discharge, threatened or actual, of any           Hazardous
Material other than in the ordinary course of business and other than           as
permitted under any applicable Environmental Law. Copies of all environmental
          surveys, audits, assessments, feasibility studies and results of remedial
          investigations shall be promptly furnished, or caused to be furnished, by such
          Borrower or Guarantor to Agent. Each Borrower and Guarantor shall take prompt
          action to respond to any material non-compliance with any of the Environmental
          Laws and shall regularly report to Agent on such response.  

            (c)              Without
limiting the generality of the foregoing, whenever Agent reasonably           determines
that there is non-compliance, or any condition which requires any           action by or
on behalf of any Borrower or Guarantor in order to avoid any non           compliance,
with any Environmental Law, Borrowers shall, at Agent’s request           and
Borrowers’ expense: (i) cause an independent environmental engineer
          reasonably acceptable to Agent to conduct such tests of the site where
          non-compliance or alleged non compliance with such Environmental Laws has
          occurred as to such non-compliance and prepare and deliver to Agent a report as
          to such non-compliance setting forth the results of such tests, a proposed plan
          for responding to any environmental problems described therein, and an estimate
          of the costs thereof and (ii) provide to Agent a supplemental report of such
          engineer whenever the scope of such non-compliance, or such Borrower’s or
          Guarantor’s response thereto or the estimated costs thereof, shall change
          in any material respect.  

            (d)              Each
Borrower and Guarantor shall indemnify and hold harmless Agent and Lenders           and
their respective directors, officers, employees, agents, invitees,
          representatives, successors and assigns, from and against any and all losses,
          claims, damages, liabilities, costs, and expenses (including reasonable
          attorneys’ fees and expenses) directly or indirectly arising out of or
          attributable to the use, generation, manufacture, reproduction, storage,
          release, threatened release, spill, discharge, disposal or presence of a
          Hazardous Material, including the costs of any required or necessary repair,
          cleanup or other remedial work with respect to any property of any Borrower or
          Guarantor and the preparation and implementation of any closure, remedial or
          other required plans. All representations, warranties, covenants and
          indemnifications in this Section 9.3 shall survive the payment of the
          Obligations and the termination of this Agreement.  

        9.4    Payment
of Taxes and Claims. Each Borrower and Guarantor shall, and shall cause any
Subsidiary to, duly pay and discharge all taxes, assessments, contributions and
governmental charges upon or against it or its properties or assets, except for taxes,
assessments, contributions and governmental charges not to exceed $25,000 in the
aggregate, and except for taxes the validity of which are being contested in good faith
by appropriate proceedings diligently pursued and available to such Borrower, Guarantor
or Subsidiary, as the case may be, and with respect to which adequate reserves have been
set aside on its books to the extent required by GAAP.  

60 

        9.5    Insurance.
Each Borrower and Guarantor shall, and shall cause any Subsidiary to, at all times,
maintain with financially sound and reputable insurers insurance with respect to the
Collateral against loss or damage and all other insurance of the kinds and in the amounts
customarily insured against or carried by corporations of established reputation engaged
in the same or similar businesses and similarly situated. Said policies of insurance
shall be reasonably satisfactory to Agent as to form, amount and insurer. Borrowers and
Guarantors shall furnish certificates, policies or endorsements to Agent as Agent shall
reasonably require as proof of such insurance, and, if any Borrower or Guarantor fails to
do so, Agent is authorized, but not required, to obtain such insurance at the expense of
Borrowers. All policies shall provide for at least thirty (30) days prior written notice
to Agent of any cancellation or reduction of coverage and that Agent may act as attorney
for each Borrower and Guarantor in obtaining, and at any time an Event of Default exists
or has occurred and is continuing, adjusting, settling, amending and canceling such
insurance. Borrowers and Guarantors shall cause Agent to be named as a loss payee and an
additional insured (but without any liability for any premiums) under such insurance
policies and Borrowers and Guarantors shall obtain non-contributory lender’s loss
payable endorsements to all insurance policies in form and substance satisfactory to
Agent. Such lender’s loss payable endorsements shall specify that the proceeds of
such insurance shall be payable to Agent as its interests may appear and further specify
that Agent and Lenders shall be paid regardless of any act or omission by any Borrower,
Guarantor or any of its or their Affiliates. Without limiting any other rights of Agent
or Lenders, any insurance proceeds received by Agent at any time may be applied to
payment of the Obligations, whether or not then due, in any order and in such manner as
Agent may determine. Upon application of such proceeds to the Revolving Loans, Revolving
Loans may be available subject and pursuant to the terms hereof to be used for the costs
of repair or replacement of the Collateral lost or damages resulting in the payment of
such insurance proceeds.  

        9.6    Financial
Statements and Other Information.  

            (a)              Each
Borrower and Guarantor shall, and shall cause any Subsidiary to, keep           proper
books and records in which true and complete entries shall be made of all
          dealings or transactions of or in relation to the Collateral and the business
of           such Borrower, Guarantor and its Subsidiaries in accordance with GAAP.
Borrowers           and Guarantors shall promptly furnish to Agent and Lenders all such
financial           and other information as Agent shall reasonably request relating to
the           Collateral and the assets, business and operations of Borrowers and
Guarantors,           and Borrower shall notify the auditors and accountants of Borrowers
and           Guarantors that Agent is authorized to obtain such information directly
from           them. Without limiting the foregoing, Borrowers shall furnish or cause to
be           furnished to Agent, the following:  

                (i)              within
thirty-five (35) days after the end of each fiscal month, or if the           fiscal
month is the last month of a fiscal quarter, then within forty-five (45)           days
after the end thereof, monthly unaudited consolidated financial statements,           and
unaudited consolidating financial statements (including in each case balance
          sheets, statements of income and loss, and statements of shareholders’          equity,
and where the fiscal month is the last month of a fiscal quarter,           statements of
cash flow), all in reasonable detail, fairly presenting in all           material
respects the financial position and the results of the operations of           Parent and
its Subsidiaries as of the end of and through such fiscal month,           certified to
be correct by the chief financial officer of Parent, subject to           normal year-end
adjustments and accompanied by a compliance certificate           substantially in the
form of Exhibit C hereto, along with a schedule in a form           reasonably
satisfactory to Agent of the calculations used in determining, as of           the end of
such month, whether Borrowers and Guarantors were in compliance with           the
covenants set forth in Sections 9.17 and 9.18 of this Agreement for such           month,
and  

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                (ii)              within
ninety (90) days after the end of each fiscal year, audited consolidated
          financial statements and unaudited consolidating financial statements of Parent
          and its Subsidiaries (including in each case balance sheets, statements of
          income and loss, statements of cash flow, and statements of shareholders’          equity),
and the accompanying notes thereto, all in reasonable detail, fairly           presenting
in all material respects the financial position and the results of           the
operations of Parent and its Subsidiaries as of the end of and for such           fiscal
year, together with the unqualified opinion of independent certified           public
accountants with respect to the audited consolidated financial           statements,
which accountants shall be an independent accounting firm selected           by
Administrative Borrower and acceptable to Agent, that such audited           consolidated
financial statements have been prepared in accordance with GAAP,           and present
fairly in all material respects the results of operations and           financial
condition of Parent and its Subsidiaries as of the end of and for the           fiscal
year then ended, and  

                (iii)              at
such time as available, but in no event later than forty-five (45) days prior
          to the end of each fiscal year (commencing with the fiscal year of Borrowers
          ending March 31, 2008), projected consolidated financial statements
          (including in each case, forecasted balance sheets and statements of income and
          loss, statements of cash flow, and statements of shareholders’ equity) of
          Parent and its Subsidiaries for the next fiscal year, all in reasonable detail,
          and in a format consistent with the projections delivered by Borrowers to Agent
          prior to the date hereof, together with such supporting information as Agent
may           reasonably request. Such projected financial statements shall be prepared
on a           monthly basis for the next succeeding year. Such projections shall
represent the           reasonable best estimate by Borrowers and Guarantors of the
future financial           performance of Parent and its Subsidiaries for the periods set
forth therein and           shall have been prepared on the basis of the assumptions set
forth therein which           Borrowers and Guarantors believe are fair and reasonable as
of the date of           preparation in light of current and reasonably foreseeable
business conditions           (it being understood that actual results may differ from
those set forth in such           projected financial statements). Each year Borrowers
shall provide to Agent a           semi-annual update with respect to such projections or
at any time a Default or           Event of Default exists or has occurred and is
continuing, more frequently as           Agent may require.  

            (b)              Borrowers
and Guarantors shall promptly notify Agent in writing of the details           of (i) any
loss, damage, investigation, action, suit, proceeding or claim           relating to
Collateral having a value of more than $250,000 or which if           adversely
determined would result in any material adverse change in any           Borrower’s
or Guarantor’s business, properties, assets, goodwill or           condition,
financial or otherwise, (ii) any Material Contract being terminated           or amended
or any new Material Contract entered into (in which event Borrowers           and
Guarantors shall provide Agent with a copy of such Material Contract), (iii)
          any order, judgment or decree in excess of $250,000 shall have been entered
          against any Borrower or Guarantor any of its or their properties or assets,
(iv)           any notification of a material violation of laws or regulations received
by any           Borrower or Guarantor, (v) any ERISA Event, and (vi) the occurrence of
any           Default or Event of Default.  

62 

            (c)              Promptly
after the sending or filing thereof, Borrowers shall send to Agent           copies of
(i) all reports which Parent or any of its Subsidiaries sends to its           security
holders generally, (ii) if specifically requested by Agent, all reports           and
registration statements which Parent or any of its Subsidiaries files with           the
Securities Exchange Commission, any national or foreign securities exchange           or
the National Association of Securities Dealers, Inc., and such other reports           as
Agent may hereafter specifically identify to Administrative Borrower that           Agent
will require be provided to Agent, (iii) all press releases and (iv) all           other
statements concerning material changes or developments in the business of           a
Borrower or Guarantor made available by any Borrower or Guarantor to the
          public.  

            (d)              Borrowers
and Guarantors shall furnish or cause to be furnished to Agent such           budgets,
forecasts, projections and other information respecting the Collateral           and the
business of Borrowers and Guarantors, as Agent may, from time to time,
          reasonably request. Agent is hereby authorized to deliver a copy of any
          financial statement or any other information relating to the business of
          Borrowers and Guarantors to any court or other Governmental Authority or to any
          Lender or Participant or prospective Lender or Participant or any Affiliate of
          any Lender or Participant. Each Borrower and Guarantor hereby irrevocably
          authorizes and directs all accountants or auditors to deliver to Agent, at
          Borrowers’ expense, copies of the financial statements of any Borrower and
          Guarantor and any reports or management letters prepared by such accountants or
          auditors on behalf of any Borrower or Guarantor and to disclose to Agent and
          Lenders such information as they may have regarding the business of any
Borrower           and Guarantor. Any documents, schedules, invoices or other papers
delivered to           Agent or any Lender may be destroyed or otherwise disposed of by
Agent or such           Lender one (1) year after the same are delivered to Agent or such
Lender, except           as otherwise designated by Administrative Borrower to Agent or
such Lender in           writing.  

        9.7    Sale
of Assets, Consolidation, Merger, Dissolution, Etc.  Each Borrower and Guarantor
shall not, and shall not permit any Subsidiary to, directly or indirectly, 

            (a)              merge
into or with or consolidate with any other Person or permit any other           Person to
merge into or with or consolidate with it except as provided in that           certain
Agreement and Plan of Merger dated as of March 29, 2007 among BTP           Acquisition
Company, LLC, IEAC, Inc. and Parent, and except that any           wholly-owned
Subsidiary of Parent (other than any Borrower) may merge with and           into or
consolidate with any other wholly-owned Subsidiary of Parent (other than           any
Borrower), provided, that, each of the following conditions is
          satisfied as determined by Agent in good faith: (i) Agent shall have received
          not less than ten (10) Business Days’ prior written notice of the
intention           of such Subsidiaries to so merge or consolidate, which notice shall
set forth in           reasonable detail satisfactory to Agent, the persons that are
merging or           consolidating, which person will be the surviving entity, the
locations of the           assets of the persons that are merging or consolidating, and
the material           agreements and documents relating to such merger or consolidation,
(ii) Agent           shall have received such other information with respect to such
merger or           consolidation as Agent may reasonably request, (iii) as of the
effective date of           the merger or consolidation and after giving effect thereto,
no Default or Event           of Default shall exist or have occurred, (iv) Agent shall
have received, true,           correct and complete copies of all agreements, documents
and instruments           relating to such merger or consolidation, including, but not
limited to, the           certificate or certificates of merger to be filed with each
appropriate           Secretary of State (with a copy as filed promptly after such
filing), (v) the           surviving corporation shall expressly confirm, ratify and
assume the Obligations           and the Financing Agreements to which it is a party in
writing, in form and           substance satisfactory to Agent, and Borrowers and
Guarantors shall execute and           deliver such other agreements, documents and
instruments as Agent may request in           connection therewith;  

63 

            (b)              sell,
issue, assign, lease, license, transfer, abandon or otherwise dispose of           any
Capital Stock or Indebtedness to any other Person or any of its assets to           any
other Person, except for  

                (i)              sales
of Inventory in the ordinary course of business,  

                (ii)              the
sale or other disposition of Equipment (including worn-out or obsolete
          Equipment or Equipment no longer used or useful in the business of any Borrower
          or Guarantor) so long as such sales or other dispositions do not involve
          Equipment having an aggregate fair market value in excess of $100,000 for all
          such Equipment disposed of in any fiscal year of Borrowers or as Agent may
          otherwise agree, and  

                (iii)              the
issuance and sale by any Borrower or Guarantor of Capital Stock of such
          Borrower or Guarantor after the date hereof; provided, that, (A)
          Agent shall have received not less than ten (10) Business Days’ prior
          written notice of such issuance and sale by such Borrower or Guarantor, which
          notice shall specify the parties to whom such shares are to be sold, the terms
          of such sale, the total amount which it is anticipated will be realized from
the           issuance and sale of such stock and the net cash proceeds which it is
          anticipated will be received by such Borrower or Guarantor from such sale, (B)
          such Borrower or Guarantor shall not be required to pay any cash dividends or
          repurchase or redeem such Capital Stock or make any other payments in respect
          thereof, except as otherwise permitted in Section 9.11 hereof, (C) the terms of
          such Capital Stock, and the terms and conditions of the purchase and sale
          thereof, shall not include any terms that include any limitation on the right
of           any Borrower to request or receive Loans or Letters of Credit or the right
of           any Borrower and Guarantor to amend or modify any of the terms and
conditions of           this Agreement or any of the other Financing Agreements or
otherwise in any way           relate to or affect the arrangements of Borrowers and
Guarantors with Agent and           Lenders or are more restrictive or burdensome to any
Borrower or Guarantor than           the terms of any Capital Stock in effect on the date
hereof, (D) except as Agent           may otherwise agree in writing, all of the proceeds
of the sale and issuance of           such Capital Stock shall be paid to Agent for
application to the Obligations in           such order and manner as Agent may determine
or at Agent’s option, to be           held as cash collateral for the Obligations
and (E) as of the date of such           issuance and sale and after giving effect
thereto, no Default or Event of           Default shall exist or have occurred,  

                (iv)              the
issuance of Capital Stock of any Borrower or Guarantor consisting of common
          stock pursuant to an employee stock option or grant or similar equity plan or
          401(k) plans of such Borrower or Guarantor for the benefit of its employees,
          directors and consultants, provided, that, in no event shall such
          Borrower or Guarantor be required to issue, or shall such Borrower or Guarantor
          issue, Capital Stock pursuant to such stock plans or 401(k) plans which would
          result in a Change of Control or other Event of Default,  

64 

            (c)              wind
up, liquidate or dissolve except that any Guarantor (other than Parent) may
          wind up, liquidate and dissolve, provided, that, each of the
          following conditions is satisfied, (i) the winding up, liquidation and
          dissolution of such Guarantor shall not violate any law or any order or decree
          of any court or other Governmental Authority in any material respect and shall
          not conflict with or result in the breach of, or constitute a default under,
any           indenture, mortgage, deed of trust, or any other agreement or instrument to
          which any Borrower or Guarantor is a party or may be bound, (ii) such winding
          up, liquidation or dissolution shall be done in accordance with the
requirements           of all applicable laws and regulations, (iii) effective upon such
winding up,           liquidation or dissolution, all of the assets and properties of
such Guarantor           shall be duly and validly transferred and assigned to a
Borrower, free and clear           of any liens, restrictions or encumbrances other than
the security interest and           liens of Agent (and Agent shall have received such
evidence thereof as Agent may           require) and Agent shall have received such
deeds, assignments or other           agreements as Agent may request to evidence and
confirm the transfer of such           assets to of such Guarantor to a Borrower, (iv)
Agent shall have received all           documents and agreements that any Borrower or
Guarantor has filed with any           Governmental Authority or as are otherwise
required to effectuate such winding           up, liquidation or dissolution, (v) no
Borrower or Guarantor shall assume any           Indebtedness, obligations or liabilities
as a result of such winding up,           liquidation or dissolution, or otherwise become
liable in respect of any           obligations or liabilities of the entity that is
winding up, liquidating or           dissolving, unless such Indebtedness is otherwise
expressly permitted hereunder,           (vi) Agent shall have received not less than ten
(10) Business Days prior           written notice of the intention of such Guarantor to
wind up, liquidate or           dissolve, and (vii) as of the date of such winding up,
liquidation or           dissolution and after giving effect thereto, no Default or Event
of Default           shall exist or have occurred; or  

            (d)              agree
to do any of the foregoing.  

        9.8    Encumbrances.
Each Borrower and Guarantor shall not, and shall not permit any Subsidiary to, create,
incur, assume or suffer to exist any security interest, mortgage, pledge, lien, charge or
other encumbrance of any nature whatsoever on any of its assets or properties, including
the Collateral, or file or permit the filing of, or permit to remain in effect, any
financing statement or other similar notice of any security interest or lien with respect
to any such assets or properties, except:  

            (a)              the
security interests and liens of Agent for itself and the benefit of Secured
          Parties;  

            (b)              liens
securing the payment of taxes, assessments or other governmental charges           or
levies either not yet overdue or the validity of which are being contested in
          good faith by appropriate proceedings diligently pursued and available to such
          Borrower, or Guarantor or Subsidiary, as the case may be and with respect to
          which adequate reserves have been set aside on its books;  

65 

            (c)              non-consensual
statutory liens (other than liens securing the payment of taxes)           arising in the
ordinary course of such Borrower’s, Guarantor’s or           Subsidiary’s
business to the extent: (i) such liens secure Indebtedness           which is not overdue
or (ii) such liens secure Indebtedness relating to claims           or liabilities which
are fully insured and being defended at the sole cost and           expense and at the
sole risk of the insurer or being contested in good faith by           appropriate
proceedings diligently pursued and available to such Borrower,           Guarantor or
such Subsidiary, in each case prior to the commencement of           foreclosure or other
similar proceedings and with respect to which adequate           reserves have been set
aside on its books;  

            (d)              zoning
restrictions, easements, licenses, covenants and other restrictions           affecting
the use of Real Property which do not interfere in any material           respect with
the use of such Real Property or ordinary conduct of the business           of such
Borrower, Guarantor or such Subsidiary as presently conducted thereon or
          materially impair the value of the Real Property which may be subject thereto;  

            (e)              purchase
money security interests in Equipment (including Capital Leases) and           purchase
money mortgages on Real Property to secure Indebtedness permitted under           Section
9.9(b) hereof;  

            (f)              pledges
and deposits of cash by any Borrower or Guarantor after the date hereof           in the
ordinary course of business in connection with workers’          compensation,
unemployment insurance and other types of social security benefits           consistent
with the current practices of such Borrower or Guarantor as of the           date hereof;  

            (g)              pledges
and deposits of cash by any Borrower or Guarantor after the date hereof           to
secure the performance of tenders, bids, leases, trade contracts (other than
          for the repayment of Indebtedness), statutory obligations and other similar
          obligations in each case in the ordinary course of business consistent with the
          current practices of such Borrower or Guarantor as of the date hereof; provided,
that, in connection with any performance bonds issued by           a surety or
other person, the issuer of such bond shall have waived in writing           any rights
in or to, or other interest in, any of the Collateral in an           agreement, in form
and substance satisfactory to Agent;  

            (h)              liens
arising from (i) operating leases and the precautionary UCC financing           statement
filings in respect thereof and (ii) equipment or other materials which           are not
owned by any Borrower or Guarantor located on the premises of such           Borrower or
Guarantor (but not in connection with, or as part of, the financing           thereof)
from time to time in the ordinary course of business and consistent           with
current practices of such Borrower or Guarantor and the precautionary UCC
          financing statement filings in respect thereof;  

            (i)              judgments
and other similar liens arising in connection with court proceedings           that do
not constitute an Event of Default, provided, that, (i)           such
liens are being contested in good faith and by appropriate proceedings
          diligently pursued, (ii) adequate reserves or other appropriate provision, if
          any, as are required by GAAP have been made therefor, (iii) a stay of
          enforcement of any such liens is in effect and (iv) Agent may establish a
          Reserve with respect thereto; and  

            (j)              the
security interests and liens set forth on the Information Certificate.  

66 

        9.9    Indebtedness.
Each Borrower and Guarantor shall not, and shall not permit any Subsidiary to, incur,
create, assume, become or be liable in any manner with respect to, or permit to exist,
any Indebtedness, or guarantee, assume, endorse, or otherwise become responsible for
(directly or indirectly), the Indebtedness, performance, obligations or dividends of any
other Person, except:  

            (a)              the
Obligations;  

            (b)              purchase
money Indebtedness (including Capital Leases) arising after the date           hereof to
the extent secured by purchase money security interests in Equipment           (including
Capital Leases) and purchase money mortgages on Real Property not to           exceed
$150,000 in the aggregate at any time outstanding so long as such           security
interests and mortgages do not apply to any property of such Borrower,
          Guarantor or Subsidiary other than the Equipment or Real Property so acquired,
          and the Indebtedness secured thereby does not exceed the cost of the Equipment
          or Real Property so acquired, as the case may be;  

            (c)              guarantees
by any Borrower or Guarantor of the Obligations of the other           Borrowers or
Guarantors in favor of Agent for the benefit of Lenders and the           other Secured
Parties;  

            (d)              the
Indebtedness of any Borrower or Guarantor to any other Borrower or Guarantor
          arising after the date hereof pursuant to loans by any Borrower or Guarantor
          permitted under Section 9.10(g) hereof;  

            (e)              Indebtedness
of any Borrower or Guarantor entered into in the ordinary course of           business
pursuant to a Hedge Agreement; provided, that, (i) such
          arrangements are with a Bank Product Provider, (ii) such arrangements are not
          for speculative purposes, and (iii) such Indebtedness shall be unsecured,
except           to the extent such Indebtedness constitutes part of the Obligations
arising           under or pursuant to Hedge Agreements with a Bank Product Provider that
are           secured under the terms hereof;  

            (f)              unsecured
Indebtedness of any Borrower or Guarantor arising after the date           hereof to any
third person (but not to any other Borrower or Guarantor), provided, that,
each of the following conditions is satisfied as           determined by Agent: (i) such
Indebtedness shall be on terms and conditions           acceptable to Agent and shall be
subject and subordinate in right of payment to           the right of Agent and Lenders
to receive the prior indefeasible payment and           satisfaction in full payment of
all of the Obligations pursuant to the terms of           an intercreditor agreement
between Agent and such third party, in form and           substance satisfactory to
Agent, (ii) Agent shall have received not less than           ten (10) days prior written
notice of the intention of such Borrower or           Guarantor to incur such
Indebtedness, which notice shall set forth in reasonable           detail satisfactory to
Agent the amount of such Indebtedness, the person or           persons to whom such
Indebtedness will be owed, the interest rate, the schedule           of repayments and
maturity date with respect thereto and such other information           as Agent may
request with respect thereto, (iii) Agent shall have received true,           correct and
complete copies of all agreements, documents and instruments           evidencing or
otherwise related to such Indebtedness, (iv) except as Agent may           otherwise
agree in writing, all of the proceeds of the loans or other           accommodations
giving rise to such Indebtedness shall be paid to Agent for           application to the
Obligations in such order and manner as Agent may determine           or at Agent’s
option, to be held as cash collateral for the Obligations,           (v) in no event
shall the aggregate principal amount of such Indebtedness           incurred during the
term of this Agreement exceed $150,000, (vi) as of the date           of incurring such
Indebtedness and after giving effect thereto, no Default or           Event of Default
shall exist or have occurred, (vii) such Borrower and Guarantor           shall not,
directly or indirectly, (A) amend, modify, alter or change the terms           of such
Indebtedness or any agreement, document or instrument related thereto, except,
that, such Borrower or Guarantor may, after prior written notice           to Agent,
amend, modify, alter or change the terms thereof so as to extend the           maturity
thereof, or defer the timing of any payments in respect thereof, or to           forgive
or cancel any portion of such Indebtedness (other than pursuant to           payments
thereof), or to reduce the interest rate or any fees in connection           therewith,
or (B) redeem, retire, defease, purchase or otherwise acquire such           Indebtedness
(except pursuant to regularly scheduled payments permitted herein),           or set
aside or otherwise deposit or invest any sums for such purpose, and           (viii)
Borrowers and Guarantors shall furnish to Agent all notices or demands in
          connection with such Indebtedness either received by any Borrower or Guarantor
          or on its behalf promptly after the receipt thereof, or sent by any Borrower or
          Guarantor or on its behalf concurrently with the sending thereof, as the case
          may be;  

67 

            (g)              the
Indebtedness set forth on Schedule 9.9 hereto; provided, that,           (i) except
for the payment in full of the Senior Convertible Note dated           August 30,
2006 issued by Parent to the order of Portside Growth and           Opportunity Fund in
the original principal amount of $17,000,000, which payment           may be made solely
from the funds contributed by BTP Acquisition Company, LLC as           provided in that
certain Agreement and Plan of Merger dated as of March 29,           2007 amount BTP
Acquisition Company, LLC, IEAC, Inc. and Parent, Borrowers and           Guarantors may
only make regularly scheduled payments of principal and interest           in respect of
such Indebtedness in accordance with the terms of the agreement or           instrument
evidencing or giving rise to such Indebtedness as in effect on the           date hereof,
(ii) Borrowers and Guarantors shall not, directly or indirectly,           (A) amend,
modify, alter or change the terms of such Indebtedness or any           agreement,
document or instrument related thereto as in effect on the date           hereof except,
that, Borrowers and Guarantors may, after prior written notice to           Agent, amend,
modify, alter or change the terms thereof so as to extend the           maturity thereof,
or defer the timing of any payments in respect thereof, or to           forgive or cancel
any portion of such Indebtedness (other than pursuant to           payments thereof), or
to reduce the interest rate or any fees in connection           therewith, or (B) redeem,
retire, defease, purchase or otherwise acquire such           Indebtedness, or set aside
or otherwise deposit or invest any sums for such           purpose, and (iii) Borrowers
and Guarantors shall furnish to Agent all notices           or demands in connection with
such Indebtedness either received by any Borrower           or Guarantor or on its
behalf, promptly after the receipt thereof, or sent by           any Borrower or
Guarantor or on its behalf, concurrently with the sending           thereof, as the case
may be.  

        9.10    Loans,
Investments, Etc. Each Borrower and Guarantor shall not, and shall not permit any
Subsidiary to, directly or indirectly, make any loans or advance money or property to any
person, or invest in (by capital contribution, dividend or otherwise) or purchase or
repurchase the Capital Stock or Indebtedness or all or a substantial part of the assets
or property of any person, or form or acquire any Subsidiaries, or agree to do any of the
foregoing, except:  

            (a)              the
endorsement of instruments for collection or deposit in the ordinary course           of
business;  

68 

            (b)              investments
in cash or Cash Equivalents, provided, that, (i) no           Loans are
then outstanding and (ii) the terms and conditions of Section 5.2           hereof shall
have been satisfied with respect to the deposit account, investment           account or
other account in which such cash or Cash Equivalents are held;  

            (c)              the
existing equity investments of each Borrower and Guarantor as of the date
          hereof in its Subsidiaries, provided, that, no Borrower or
          Guarantor shall have any further obligations or liabilities to make any capital
          contributions or other additional investments or other payments to or in or for
          the benefit of any of such Subsidiaries;  

            (d)              loans
and advances by any Borrower or Guarantor to employees of such Borrower or
          Guarantor not to exceed the principal amount of $500,000 in the aggregate at
any           time outstanding for: (i) reasonably and necessary work-related travel or
other           ordinary business expenses to be incurred by such employee in connection
with           their work for such Borrower or Guarantor and (ii) reasonable and
necessary           relocation expenses of such employees (including home mortgage
financing for           relocated employees);  

            (e)              stock
or obligations issued to any Borrower or Guarantor by any Person (or the
          representative of such Person) in respect of Indebtedness of such Person owing
          to such Borrower or Guarantor in connection with the insolvency, bankruptcy,
          receivership or reorganization of such Person or a composition or readjustment
          of the debts of such Person; provided, that, the original of any
          such stock or instrument evidencing such obligations shall be promptly
delivered           to Agent, upon Agent’s request, together with such stock power,
assignment           or endorsement by such Borrower or Guarantor as Agent may request;  

            (f)              obligations
of account debtors to any Borrower or Guarantor arising from           Accounts which are
past due evidenced by a promissory note made by such account           debtor payable to
such Borrower or Guarantor; provided, that,           promptly upon the
receipt of the original of any such promissory note by such           Borrower or
Guarantor, such promissory note shall be endorsed to the order of           Agent by such
Borrower or Guarantor and promptly delivered to Agent as so           endorsed;  

            (g)              loans
by a Borrower or Guarantor to another Borrower or Guarantor after the date
          hereof, provided, that,  

                (i)              as
to all of such loans, (A) within thirty (30) days after the end of each           fiscal
month, Borrowers shall provide to Agent a report in form and substance
          satisfactory to Agent of the outstanding amount of such loans as of the last
day           of the immediately preceding month and indicating any loans made and
payments           received during the immediately preceding month, (B) the Indebtedness
arising           pursuant to any such loan shall not be evidenced by a promissory note
or other           instrument, unless the single original of such note or other
instrument is           promptly delivered to Agent upon its request to hold as part of
the Collateral,           with such endorsement and/or assignment by the payee of such
note or other           instrument as Agent may require, (C) as of the date of any such
loan and after           giving effect thereto, the Borrower or Guarantor making such
loan shall be           Solvent, and (D) as of the date of any such loan and after giving
effect           thereto, no Default or Event of Default shall exist or have occurred and
be           continuing,  

69 

                (ii)              as
to loans by a Guarantor to a Borrower, (A) the Indebtedness arising pursuant           to
such loan shall be subject to, and subordinate in right of payment to, the
          right of Agent and Lenders to receive the prior final payment and satisfaction
          in full of all of the Obligations on terms and conditions acceptable to Agent,
          (B) promptly upon Agent’s request, Agent shall have received a
          subordination agreement, in form and substance satisfactory to Agent, providing
          for the terms of the subordination in right of payment of such Indebtedness of
          such Borrower to the prior final payment and satisfaction in full of all of the
          Obligations, duly authorized, executed and delivered by such Guarantor and such
          Borrower, and (C) such Borrower shall not, directly or indirectly make, or be
          required to make, any payments in respect of such Indebtedness prior to the end
          of the then current term of this Agreement;  

                (iii)              as
to loans by a Borrower to a Guarantor or another Borrower, as of the date of
          any such loan and after giving effect thereto, the Excess Availability of the
          Borrower making the loan shall be no less than $1,500,000;  

            (h)              Borrowers
may make investments in film projects so long as (i) no Default           or Event
of Default has occurred and is continuing or would result therefrom,           (ii) the
aggregate sum of such investments shall not exceed $3,000,000           during any fiscal
year and $8,000,000 during the entire term of this Agreement           (as it may be
renewed or extended) and (iii) the Excess Availability shall be no           less than
$1,500,000 both immediately before and after giving effect to any such
          investment; and  

            (i)              the
loans and advances set forth on Schedule 9.10 hereto; provided, that, as to
such loans and advances, Borrowers and Guarantors shall not,           directly or
indirectly, amend, modify, alter or change the terms of such loans           and advances
or any agreement, document or instrument related thereto and           Borrowers and
Guarantors shall furnish to Agent all notices or demands in           connection with
such loans and advances either received by any Borrower or           Guarantor or on its
behalf, promptly after the receipt thereof, or sent by any           Borrower or
Guarantor or on its behalf, concurrently with the sending thereof,           as the case
may be.  

        9.11    Dividends
and Redemptions. Each Borrower and Guarantor shall not, directly or indirectly,
declare or pay any dividends on account of any shares of class of any Capital Stock of
such Borrower or Guarantor now or hereafter outstanding, or set aside or otherwise
deposit or invest any sums for such purpose, or redeem, retire, defease, purchase or
otherwise acquire any shares of any class of Capital Stock (or set aside or otherwise
deposit or invest any sums for such purpose) for any consideration or apply or set apart
any sum, or make any other distribution (by reduction of capital or otherwise) in respect
of any such shares or agree to do any of the foregoing, except that:  

            (a)              any
Borrower or Guarantor may declare and pay such dividends or redeem, retire,
          defease, purchase or otherwise acquire any shares of any class of Capital Stock
          for consideration in the form of shares of common stock (so long as after
giving           effect thereto no Change of Control or other Default or Event of Default
shall           exist or occur);  

            (b)              Borrowers
and Guarantors may pay dividends to the extent permitted in Section           9.12 below;  

70 

            (c)              any
Subsidiary of a Borrower or Guarantor may pay dividends to a Borrower;  

            (d)              Borrowers
and Guarantors may repurchase Capital Stock consisting of common stock           held by
employees pursuant to any employee stock ownership plan thereof upon the
          termination, retirement or death of any such employee in accordance with the
          provisions of such plan, provided, that, as to any such
          repurchase, each of the following conditions is satisfied: (i) as of the date
of           the payment for such repurchase and after giving effect thereto, no Default
or           Event of Default shall exist or have occurred and be continuing, (ii) such
          repurchase shall be paid with funds legally available therefor, (iii) such
          repurchase shall not violate any law or regulation or the terms of any
          indenture, agreement or undertaking to which such Borrower or Guarantor is a
          party or by which such Borrower or Guarantor or its or their property are
bound,           and (iv) the aggregate amount of all payments for such repurchases in
any           calendar year shall not exceed $150,000.  

        9.12    Transactions
with Affiliates.  Each Borrower and Guarantor shall not, directly or indirectly: 

            (a)              purchase,
acquire or lease any property from, or sell, transfer or lease any           property to,
any officer, director or other Affiliate of such Borrower or           Guarantor, except
in the ordinary course of and pursuant to the reasonable           requirements of such
Borrower’s or Guarantor’s business (as the case           may be) and upon fair
and reasonable terms no less favorable to such Borrower or           Guarantor than such
Borrower or Guarantor would obtain in a comparable           arm’s length
transaction with an unaffiliated person; or  

            (b)              make
any payments (whether by dividend, loan or otherwise) of management,           consulting
or other fees for management or similar services, or of any           Indebtedness owing
to any officer, employee, shareholder, director or any other           Affiliate of such
Borrower or Guarantor, except (i) reasonable compensation to           officers,
employees and directors for services rendered to such Borrower or           Guarantor in
the ordinary course of business, and (ii) payments by any such           Borrower or
Guarantor to Parent for actual and necessary reasonable           out-of-pocket legal and
accounting, insurance, marketing, payroll and similar           types of services paid
for by Parent on behalf of such Borrower or Guarantor, in           the ordinary course
of their respective businesses or as the same may be           directly attributable to
such Borrower or Guarantor and for the payment of taxes           by or on behalf of
Parent.  

        9.13    Compliance
with ERISA. Each Borrower and Guarantor shall, and shall cause each of its ERISA
Affiliates to: (a) maintain each Plan in compliance in all material respects with the
applicable provisions of ERISA, the Code and other Federal and State law; (b) cause each
Plan which is qualified under Section 401(a) of the Code to maintain such qualification;
(c) not terminate any Pension Plan so as to incur any material liability to the Pension
Benefit Guaranty Corporation; (d) not allow or suffer to exist any prohibited transaction
involving any Plan or any trust created thereunder which would subject such Borrower,
Guarantor or such ERISA Affiliate to a material tax or other liability on prohibited
transactions imposed under Section 4975 of the Code or ERISA; (e) make all required
contributions to any Plan which it is obligated to pay under Section 302 of ERISA,
Section 412 of the Code or the terms of such Plan; (f) not allow or suffer to exist any
accumulated funding deficiency, whether or not waived, with respect to any such Pension
Plan; (g) not engage in a transaction that could be subject to Section 4069 or 4212(c) of
ERISA; or (h) not allow or suffer to exist any occurrence of a reportable event or any
other event or condition which presents a material risk of termination by the Pension
Benefit Guaranty Corporation of any Plan that is a single employer plan, which
termination could result in any material liability to the Pension Benefit Guaranty
Corporation.  

71 

        9.14    End
of Fiscal Years; Fiscal Quarters. Each Borrower and Guarantor shall, for financial
reporting purposes, cause its, and each of its Subsidiaries’ (a) fiscal years to end
on March 31 of each year and (b) fiscal quarters to end on March 31, June 30,
September 30, and December 31 of each year.  

        9.15    Change
in Business. Each Borrower and Guarantor shall not engage in any business other than
the business of such Borrower or Guarantor on the date hereof and any business reasonably
related, ancillary or complimentary to the business in which such Borrower or Guarantor
is engaged on the date hereof.  

        9.16    Limitation
of Restrictions Affecting Subsidiaries. Each Borrower and Guarantor shall not,
directly, or indirectly, create or otherwise cause or suffer to exist any encumbrance or
restriction which prohibits or limits the ability of any Subsidiary of such Borrower or
Guarantor to (a) pay dividends or make other distributions or pay any Indebtedness owed
to such Borrower or Guarantor or any Subsidiary of such Borrower or Guarantor; (b) make
loans or advances to such Borrower or Guarantor or any Subsidiary of such Borrower or
Guarantor, (c) transfer any of its properties or assets to such Borrower or Guarantor or
any Subsidiary of such Borrower or Guarantor; or (d) create, incur, assume or suffer to
exist any lien upon any of its property, assets or revenues, whether now owned or
hereafter acquired, other than encumbrances and restrictions arising under (i) applicable
law, (ii) this Agreement, (iii) customary provisions restricting subletting or assignment
of any lease governing a leasehold interest of such Borrower or Guarantor or any
Subsidiary of such Borrower or Guarantor, (iv) customary restrictions on dispositions of
real property interests found in reciprocal easement agreements of such Borrower or
Guarantor or any Subsidiary of such Borrower or Guarantor, (v) any agreement relating to
permitted Indebtedness incurred by a Subsidiary of such Borrower or Guarantor prior to
the date on which such Subsidiary was acquired by such Borrower or such Guarantor and
outstanding on such acquisition date, and (vi) the extension or continuation of
contractual obligations in existence on the date hereof; provided, that,
any such encumbrances or restrictions contained in such extension or continuation are no
less favorable to Agent and Lenders than those encumbrances and restrictions under or
pursuant to the contractual obligations so extended or continued.  

        9.17    Fixed
Charge Coverage Ratio.  Borrowers shall maintain: 

            (a)              a
Fixed Charge Coverage Ratio of no less than 1.0-to-1.0 during each fiscal year
          to date period ending on the last day of any month from April 2007 through
          November 2007 (inclusive), provided that the covenant in this Section 9.17(a)
          will not be tested as to any particular such period if Borrowers had Excess
          Availability hereunder equal to or greater than $2,000,000 at all times during
          the thirty (30) days preceding the date on which the financial statements for
          the applicable month are furnished to Agent pursuant to Section 9.6(a)(i)
          hereof;  

72 

            (b)              a
Fixed Charge Coverage Ratio of no less than 0.8-to-1.0 to one during the nine
          (9) months ending December 31, 2007 (regardless of Excess Availability);  

            (c)              Excess
Availability equal to or greater than $2,000,000 at all times from           December 31,
2007 through and including the date on which the financial           statements for
December 2007 are furnished to Agent pursuant to Section           9.6(a)(i) hereof;  

            (d)              a
Fixed Charge Coverage Ratio of no less than 0.8-to-1.0 during each of the
          fiscal year to date periods ending on January 31, 2008 and February 29, 2008,
provided that the covenant in this Section 9.17(d) will not be
          tested as to any particular such period if Borrowers had Excess Availability
          hereunder equal to or greater than $5,000,000 at all times during the thirty
          (30) days preceding the date on which the financial statements for the
          applicable month are furnished to Agent pursuant to Section 9.6(a)(i) hereof;  

            (e)              a
Fixed Charge Coverage Ratio of no less than 1.0-to-1.0 during the fiscal year
          ending March 31, 2008, provided that the covenant in this Section
          9.17(e) will not be tested if Borrowers had Excess Availability hereunder equal
          to or greater than $5,000,000 at all times during the thirty (30) days
preceding           the date on which the financial statements for March 2008 are
furnished to Agent           pursuant to Section 9.6(a)(i) hereof; and  

            (f)              for
each month after March 2008, a Fixed Charge Coverage Ratio during the twelve
          (12) month period ending on the last day of such month of no less than the
          minimum ratio determined by Agent for such month (as set forth below), provided that the
covenant in this Section 9.17(f) will not be           tested as to any particular such
period if Borrowers had Excess Availability           hereunder equal to or greater than
$5,000,000 at all times during the thirty           (30) days preceding the date on which
the financial statements for the           applicable month are furnished to Agent
pursuant to Section 9.6(a)(i) hereof.           Agent will, upon written notice to
Administrative Borrower, establish the           minimum ratio for each month in a fiscal
year based upon the projected financial           statements for such fiscal year
furnished to Agent pursuant to Section           9.6(a)(iii) hereof (it being understood
that the minimum ratios so established           for any fiscal year will be no less
stringent than the minimum ratios           established for the prior fiscal year).  

        9.18    Copyrights.
With respect to all titles that any Borrower or Guarantor is actively manufacturing and
distributing copies of as copyright licensee or owner (collectively, the “Active
Licensed/Owned Titles”), Administrative Borrower shall, during the first ninety (90)
day period following the date of this Agreement, determine which of the Active
Licensed/Owned Titles has been registered with the United States Copyright Office and
which of the Active Licensed/Owned Titles have not been so registered. On or before the
ninetieth (90th) day following the date of this Agreement, Administrative
Borrower shall furnish Agent with a written report identifying (a) those Active
Licensed/Owned Titles that have been registered with the United States Copyright Office,
(b) those Active Licensed/Owned Titles that have not been so registered, and (c) those
titles that any Borrower or Guarantor is actively distributing but is not manufacturing
copies of pursuant to a license and is only purchasing copies of (collectively, the “Active
Non-Licensed/Owned Titles”). During the second ninety (90) day period following the
date of this Agreement, Administrative Borrower shall use its best efforts to obtain
either a copy of the Certificate of Copyright Registration issued by the United States
Copyright Office for each of the Active Licensed/Owned Titles (“Registration
Certificate”) or (to the extent applicable) written confirmation from the owner or
licensor of such Active Licensed/Owned Title that such Active Licensed/Owned Title has
not been registered with the United States Copyright Office and that no such registration
will be made (“Non-Registration Confirmation”). Administrative Borrower shall,
no later than the one hundred eightieth (180th) day following the date of this
Agreement, furnish Agent with all of the Registration Certificates and Non-Registration
Confirmations so obtained, together with copyright security agreement(s) duly executed
and delivered by each of the applicable Borrowers and Guarantors in form and substance
satisfactory to Agent for recording with the United States Copyright Office and covering
all of the Active Licensed/Owned Titles for which Registration Certificates are so
furnished to Agent (it being understood that Agent will then and from time to time
thereafter conduct searches, at Borrowers’ expense, of the records of the United
States Copyright Office on selective Active Licensed/Owned Titles). On or before such one
hundred eightieth (180th) day, Administrative Borrower shall also furnish
Agent with a written report (a “Copyright Report”) identifying (c) those Active
Licensed/Owned Titles for which a Registration Certificate or Non-Registration
Confirmation has been furnished to Agent, (d) those Active Licensed/Owned Titles for
which a Registration Certificate or Non-Registration Confirmation has not been furnished
to Agent and (e) the Active Non-Licensed/Owned Titles. As soon as possible after the end
of each month after the one hundred eightieth (180th) day following the date
of this Agreement (but in any event within ten (10) Business Days after the end thereof),
Administrative Borrower shall furnish Agent with a Registration Certificate or (to the
extent applicable) Non-Registration Confirmation for each Active Licensed/Owned Title
obtained by any Borrower or Guarantor during such month, together with amendment(s) to
copyright security agreement(s) or new copyright security agreement(s) (as applicable)
duly executed and delivered by each of the applicable Borrowers and Guarantors in form
and substance satisfactory to Agent for recording with the United States Copyright Office
and covering all of such Active Licensed/Owned Titles for which Registration Certificates
are so furnished to Agent, and together with a current Copyright Report. Commencing on
the one hundred eightieth (180th) day following the date of this Agreement, as
to any of the Active Licensed/Owned Titles for which a Registration Certificate or
Non-Registration Confirmation and a copyright security agreement or amendment are not
furnished to Agent as set forth above, any Account (or portion thereof) generated from
such Active Licensed/Owned Titles will not be deemed an Eligible Account. Administrative
Borrower shall provide Agent with such further documents as Agent may request with
respect to the foregoing matters.  

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        9.19    License
Agreements.  

                (a)              Each
Borrower and Guarantor shall (i) promptly and faithfully observe and           perform
all of the material terms, covenants, conditions and provisions of the           material
License Agreements to which it is a party to be observed and performed           by it,
at the times set forth therein, if any, (ii) not do, permit, suffer or           refrain
from doing anything that could reasonably be expected to result in a           default
under or breach of any of the terms of any material License Agreement,           (iii)
not cancel, surrender, modify, amend, waive or release any material           License
Agreement in any material respect or any term, provision or right of the
          licensee thereunder in any material respect, or consent to or permit to occur
          any of the foregoing; except, that, subject to Section 9.19(b) below, such
          Borrower or Guarantor may cancel, surrender or release any material License
          Agreement in the ordinary course of the business of such Borrower or Guarantor;
provided, that, such Borrower or Guarantor (as the case may be)
          shall give Agent not less than thirty (30) days prior written notice of its
          intention to so cancel, surrender and release any such material License
          Agreement, (iv) give Agent prompt written notice of any material License
          Agreement entered into by such Borrower or Guarantor after the date hereof,
          together with a true, correct and complete copy thereof and such other
          information with respect thereto as Agent may request, (v) give Agent prompt
          written notice of any material breach of any obligation, or any default, by any
          party under any material License Agreement, and deliver to Agent (promptly upon
          the receipt thereof by such Borrower or Guarantor in the case of a notice to
          such Borrower or Guarantor and concurrently with the sending thereof in the
case           of a notice from such Borrower or Guarantor) a copy of each notice of
default           and every other notice and other communication received or delivered by
such           Borrower or Guarantor in connection with any material License Agreement
which           relates to the right of such Borrower or Guarantor to continue to use the
          property subject to such License Agreement, and (vi) furnish to Agent, promptly
          upon the request of Agent, such information and evidence as Agent may
reasonably           require from time to time concerning the observance, performance and
compliance           by such Borrower or Guarantor or the other party or parties thereto
with the           material terms, covenants or provisions of any material License
Agreement.  

74 

            (b)              Each
Borrower and Guarantor will either exercise any option to renew or extend           the
term of each material License Agreement to which it is a party in such           manner
as will cause the term of such material License Agreement to be           effectively
renewed or extended for the period provided by such option and give           prompt
written notice thereof to Agent or give Agent prior written notice that           such
Borrower or Guarantor does not intend to renew or extend the term of any           such
material License Agreement or that the term thereof shall otherwise be
          expiring, not less than sixty (60) days prior to the date of any such
          non-renewal or expiration. In the event of the failure of such Borrower or
          Guarantor to extend or renew any material License Agreement to which it is a
          party, Agent shall have, and is hereby granted, the irrevocable right and
          authority, at its option, to renew or extend the term of such material License
          Agreement, whether in its own name and behalf, or in the name and behalf of a
          designee or nominee of Agent or in the name and behalf of such Borrower or
          Guarantor, as Agent shall determine at any time that an Event of Default shall
          exist or have occurred and be continuing. Agent may, but shall not be required
          to, perform any or all of such obligations of such Borrower or Guarantor under
          any of the License Agreements, including, but not limited to, the payment of
any           or all sums due from such Borrower or Guarantor thereunder. Any sums so
paid by           Agent shall constitute part of the Obligations.  

        9.20    Foreign
Assets Control Regulations, Etc. None of the requesting or borrowing of the Loans or
the requesting or issuance, extension or renewal of any Letter of Credit or the use of
the proceeds of any thereof will violate the Trading With the Enemy Act (50 USC §1
et seq., as amended) (the “Trading With the Enemy Act”) or any of the foreign
assets control regulations of the United States Treasury Department (31 C.F.R., Subtitle
B, Chapter V, as amended) (the “Foreign Assets Control Regulations”) or any
enabling legislation or executive order relating thereto (including, but not limited to
(a) Executive order 13224 of September 21, 2001 Blocking Property and Prohibiting
Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism (66 Fed.
Reg. 49079 (2001)) (the “Executive Order”) and (b) the Uniting and
Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct
Terrorism Act of 2001 (Public Law 107-56). None of Borrowers or any of their Subsidiaries
or other Affiliates is or will become a “blocked person” as described in the
Executive Order, the Trading with the Enemy Act or the Foreign Assets Control Regulations
or engages or will engage in any dealings or transactions, or be otherwise associated,
with any such “blocked person”.  

75 

        9.21    
After Acquired Real Property. If any Borrower or Guarantor hereafter acquires any
Real Property or fixtures, then if such Real Property or fixtures at any location (or
series of adjacent, contiguous or related locations, and regardless of the number of
parcels) has a fair market value in an amount equal to or greater than $150,000 (or if a
Default or Event of Default exists, then regardless of the fair market value of such
assets), without limiting any other rights of Agent or any Lender, or duties or
obligations of any Borrower or Guarantor, promptly upon Agent’s request, such
Borrower or Guarantor shall execute and deliver to Agent a mortgage, deed of trust or
deed to secure debt, as Agent may determine, in form and substance satisfactory to Agent
and in form appropriate for recording in the real estate records of the jurisdiction in
which such Real Property or other property is located granting to Agent a first and only
lien and mortgage on and security interest in such Real Property, fixtures or other
property (except as such Borrower or Guarantor would otherwise be permitted to incur
hereunder or under the Mortgages or as otherwise consented to in writing by Agent) and
such other agreements, documents and instruments as Agent may require in connection
therewith.  

        9.22    Costs
and Expenses. Borrowers and Guarantors shall pay to Agent on demand all costs,
expenses, filing fees and taxes paid or payable in connection with the preparation,
negotiation, execution, delivery, recording, syndication, administration, collection,
liquidation, enforcement and defense of the Obligations, Agent’s rights in the
Collateral, this Agreement, the other Financing Agreements and all other documents
related hereto or thereto, including any amendments, supplements or consents which may
hereafter be contemplated (whether or not executed) or entered into in respect hereof and
thereof, including: (a) all costs and expenses of filing or recording (including Uniform
Commercial Code financing statement filing taxes and fees, documentary taxes, intangibles
taxes and mortgage recording taxes and fees, if applicable); (b) costs and expenses and
fees for insurance premiums, environmental audits, title insurance premiums, surveys,
assessments, engineering reports and inspections, appraisal fees and search fees,
background checks, costs and expenses of remitting loan proceeds, collecting checks and
other items of payment, and establishing and maintaining the Blocked Accounts, together
with Agent’s customary charges and fees with respect thereto; (c) charges, fees or
expenses charged by any bank or issuer in connection with any Letter of Credit; (d) costs
and expenses of preserving and protecting the Collateral; (e) costs and expenses paid or
incurred in connection with obtaining payment of the Obligations, enforcing the security
interests and liens of Agent, selling or otherwise realizing upon the Collateral, and
otherwise enforcing the provisions of this Agreement and the other Financing Agreements
or defending any claims made or threatened against Agent or any Lender arising out of the
transactions contemplated hereby and thereby (including preparations for and
consultations concerning any such matters); (f) all out-of-pocket expenses and costs
heretofore and from time to time hereafter incurred by Agent during the course of
periodic field examinations of the Collateral and such Borrower’s or Guarantor’s
operations, plus a per diem charge at Agent’s then standard rate for Agent’s
examiners in the field and office (which rate as of the date hereof is $850 per person
per day) provided that so long as no Default or Event of Default has
occurred and is continuing, Borrowers and Guarantors will not be charged with more than
$20,000 of such expenses, costs and per diem charges per year for any such field
examinations conducted after the date of this Agreement; and (g) the fees and
disbursements of counsel (including legal assistants) to Agent in connection with any of
the foregoing.  

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        9.23    Further
Assurances. At the request of Agent at any time and from time to time, Borrowers and
Guarantors shall, at their expense, duly execute and deliver, or cause to be duly
executed and delivered, such further agreements, documents and instruments, and do or
cause to be done such further acts as may be necessary or proper to evidence, perfect,
maintain and enforce the security interests and the priority thereof in the Collateral
and to otherwise effectuate the provisions or purposes of this Agreement or any of the
other Financing Agreements. Agent may at any time and from time to time request a
certificate from an officer of any Borrower or Guarantor representing that all conditions
precedent to the making of Loans and providing Letters of Credit contained herein are
satisfied. In the event of such request by Agent, Agent and Lenders may, at Agent’s
option, cease to make any further Loans or provide any further Letters of Credit until
Agent has received such certificate and, in addition, Agent has determined that such
conditions are satisfied.  

SECTION 10.     EVENTS OF
DEFAULT AND REMEDIES 

        10.1    Events
of Default. The occurrence or existence of any one or more of the following events
are referred to herein individually as an “Event of Default”, and collectively
as “Events of Default”:  

            (a)              (i)
any Borrower fails to pay any of the Obligations when due or (ii) any           Borrower
or Guarantor fails to perform any of the covenants contained in           Sections 9.3,
9.4, 9.13, 9.14, 9.15, and 9.16 of this Agreement and such failure           shall
continue for ten (10) days; provided, that, such ten (10)           day
period shall not apply in the case of: (A) any failure to observe any such
          covenant which is not capable of being cured at all or within such ten (10) day
          period or which has been the subject of a prior failure within a six (6) month
          period or (B) an intentional breach by any Borrower or Guarantor of any such
          covenant or (iii) any Borrower or Guarantor fails to perform any of the terms,
          covenants, conditions or provisions contained in this Agreement or any of the
          other Financing Agreements other than those described in Sections 10.1(a)(i)
and           10.1(a)(ii) above;  

            (b)              any
representation, warranty or statement of fact made by any Borrower or           Guarantor
to Agent in this Agreement, the other Financing Agreements or any           other written
agreement, schedule, confirmatory assignment or otherwise shall           when made or
deemed made be false or misleading in any material respect;  

            (c)              any
Guarantor revokes or terminates or purports to revoke or terminate or fails           to
perform any of the terms, covenants, conditions or provisions of any           guarantee,
endorsement or other agreement of such party in favor of Agent or any           Lender;  

            (d)              any
judgment for the payment of money is rendered against any Borrower or           Guarantor
in excess of $250,000 in any one case or in excess of $500,000 in the           aggregate
(to the extent not covered by insurance where the insurer has assumed
          responsibility in writing for such judgment) and shall remain undischarged or
          unvacated for a period in excess of thirty (30) days or execution shall at any
          time not be effectively stayed, or any judgment other than for the payment of
          money, or injunction, attachment, garnishment or execution is rendered against
          any Borrower or Guarantor or any of the Collateral having a value in excess of
          $250,000;  

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            (e)              any
Guarantor (being a natural person or a general partner of an Guarantor which           is
a partnership) dies or any Borrower or Guarantor, which is a partnership,
          limited liability company, limited liability partnership or a corporation,
          dissolves or suspends or discontinues doing business;  

            (f)              any
Borrower or Guarantor makes an assignment for the benefit of creditors,           makes
or sends notice of a bulk transfer or calls a meeting of its creditors or
          principal creditors in connection with a moratorium or adjustment of the
          Indebtedness due to them;  

            (g)              a
case or proceeding under the bankruptcy laws of the United States of America
          now or hereafter in effect or under any insolvency, reorganization,
          receivership, readjustment of debt, dissolution or liquidation law or statute
of           any jurisdiction now or hereafter in effect (whether at law or in equity) is
          filed against any Borrower or Guarantor or all or any part of its properties
and           such petition or application is not dismissed within thirty (30) days after
the           date of its filing or any Borrower or Guarantor shall file any answer
admitting           or not contesting such petition or application or indicates its
consent to,           acquiescence in or approval of, any such action or proceeding or
the relief           requested is granted sooner;  

            (h)              a
case or proceeding under the bankruptcy laws of the United States of America
          now or hereafter in effect or under any insolvency, reorganization,
          receivership, readjustment of debt, dissolution or liquidation law or statute
of           any jurisdiction now or hereafter in effect (whether at a law or equity) is
          filed by any Borrower or Guarantor or for all or any part of its property;  

            (i)              any
default in respect of any Indebtedness of any Borrower or Guarantor (other           than
Indebtedness owing to Agent and Lenders hereunder), in any case in an           amount in
excess of $250,000, which default continues for more than the           applicable cure
period, if any, with respect thereto, or any default by any           Borrower or
Guarantor under any Material Contract, which default continues for           more than
the applicable cure period, if any, with respect thereto and/or is not           waived
in writing by the other parties thereto, or any breach by Parent of that
          certain Agreement and Plan of Merger dated as of March 29, 2007 among BTP
          Acquisition Company, LLC, IEAC, Inc. and Parent, or Parent otherwise becomes
          liable thereunder for the “Termination Fee” or “Fiduciary
          Fee” as defined therein;  

            (j)              any
material provision hereof or of any of the other Financing Agreements shall           for
any reason cease to be valid, binding and enforceable with respect to any           party
hereto or thereto (other than Agent) in accordance with its terms, or any           such
party shall challenge the enforceability hereof or thereof, or shall assert           in
writing, or take any action or fail to take any action based on the assertion
          that any provision hereof or of any of the other Financing Agreements has
ceased           to be or is otherwise not valid, binding or enforceable in accordance
with its           terms, or any security interest provided for herein or in any of the
other           Financing Agreements shall cease to be a valid and perfected first
priority           security interest in any of the Collateral purported to be subject
thereto           (except as otherwise permitted herein or therein);  

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            (k)              an
ERISA Event shall occur which results in or could reasonably be expected to
          result in liability of any Borrower in an aggregate amount in excess of
          $250,000;  

            (l)              any
Change of Control, provided that the Change in Control           resulting
directly from the transactions contemplated in that certain Agreement           and Plan
of Merger dated as of March 29, 2007 among BTP Acquisition           Company, LLC,
IEAC, Inc. and Parent shall not constitute a Default or Event of           Default;  

            (m)              the
indictment by any Governmental Authority, or as Agent may reasonably and in
          good faith determine, the threatened indictment by any Governmental Authority
of           any Borrower or Guarantor of which any Borrower, Guarantor or Agent receives
          notice, in either case, as to which there is a reasonable possibility of an
          adverse determination, in the good faith determination of Agent, under any
          criminal statute, or commencement or threatened commencement of criminal or
          civil proceedings against such Borrower or Guarantor, pursuant to which statute
          or proceedings the penalties or remedies sought or available include forfeiture
          of (i) any of the Collateral having a value in excess of $50,000 or (ii) any
          other property of any Borrower or Guarantor which is necessary or material to
          the conduct of its business;  

            (n)              there
shall be a material adverse change in the business, assets or prospects of           any
Borrower or Guarantor after the date hereof; or  

            (o)              there
shall be an event of default under any of the other Financing Agreements.  

        10.2    Remedies.  

            (a)              At
any time an Event of Default exists or has occurred and is continuing, Agent
          and Lenders shall have all rights and remedies provided in this Agreement, the
          other Financing Agreements, the UCC and other applicable law, all of which
          rights and remedies may be exercised without notice to or consent by any
          Borrower or Guarantor, except as such notice or consent is expressly provided
          for hereunder or required by applicable law. All rights, remedies and powers
          granted to Agent and Lenders hereunder, under any of the other Financing
          Agreements, the UCC or other applicable law, are cumulative, not exclusive and
          enforceable, in Agent’s discretion, alternatively, successively, or
          concurrently on any one or more occasions, and shall include, without
          limitation, the right to apply to a court of equity for an injunction to
          restrain a breach or threatened breach by any Borrower or Guarantor of this
          Agreement or any of the other Financing Agreements. Subject to Section 12
          hereof, Agent may, and at the direction of the Required Lenders shall, at any
          time or times, proceed directly against any Borrower or Guarantor to collect
the           Obligations without prior recourse to the Collateral.  

            (b)              Without
limiting the generality of the foregoing, at any time an Event of           Default
exists or has occurred and is continuing, Agent may, at its option and           shall
upon the direction of the Required Lenders, (i) upon notice to           Administrative
Borrower, accelerate the payment of all Obligations and demand           immediate
payment thereof to Agent for itself and the benefit of Lenders           (provided,
that, upon the occurrence of any Event of Default           described in Sections
10.1(g) and 10.1(h), all Obligations shall automatically           become immediately due
and payable), and (ii) terminate the Commitments           whereupon the obligation of
each Lender to make any Loan and an issuer to issue           any Letter of Credit shall
immediately terminate (provided, that, upon           the occurrence of any Event
of Default described in Sections 10.1(g) and           10.1(h), the Commitments and any
other obligation of the Agent or a Lender           hereunder shall automatically
terminate).  

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

80 

            (d)              At
any time or times that an Event of Default exists or has occurred and is
          continuing, Agent may, in its discretion, enforce the rights of any Borrower or
          Guarantor against any account debtor, secondary obligor or other obligor in
          respect of any of the Accounts or other Receivables. Without limiting the
          generality of the foregoing, Agent may, in its discretion, at such time or
times           (i) notify any or all account debtors, secondary obligors or other
obligors in           respect thereof that the Receivables have been assigned to Agent
and that Agent           has a security interest therein and Agent may direct any or all
account debtors,           secondary obligors and other obligors to make payment of
Receivables directly to           Agent, (ii) extend the time of payment of, compromise,
settle or adjust for           cash, credit, return of merchandise or otherwise, and upon
any terms or           conditions, any and all Receivables or other obligations included
in the           Collateral and thereby discharge or release the account debtor or any
secondary           obligors or other obligors in respect thereof without affecting any
of the           Obligations, (iii) demand, collect or enforce payment of any Receivables
or such           other obligations, but without any duty to do so, and Agent and Lenders
shall           not be liable for any failure to collect or enforce the payment thereof
nor for           the negligence of its agents or attorneys with respect thereto and (iv)
take           whatever other action Agent may deem necessary or desirable for the
protection           of its interests and the interests of Lenders. At any time that an
Event of           Default exists or has occurred and is continuing, at Agent’s
request, all           invoices and statements sent to any account debtor shall state
that the Accounts           and such other obligations have been assigned to Agent and
are payable directly           and only to Agent and Borrowers and Guarantors shall
deliver to Agent such           originals of documents evidencing the sale and delivery
of goods or the           performance of services giving rise to any Accounts as Agent
may require. In the           event any account debtor returns Inventory when an Event of
Default exists or           has occurred and is continuing, Borrowers shall, upon Agent’s
request, hold           the returned Inventory in trust for Agent, segregate all returned
Inventory from           all of its other property, dispose of the returned Inventory
solely according to           Agent’s instructions, and not issue any credits,
discounts or allowances           with respect thereto without Agent’s prior written
consent.  

            (e)              To
the extent that applicable law imposes duties on Agent or any Lender to
          exercise remedies in a commercially reasonable manner (which duties cannot be
          waived under such law), each Borrower and Guarantor acknowledges and agrees
that           it is not commercially unreasonable for Agent or any Lender (i) to fail to
incur           expenses reasonably deemed significant by Agent or any Lender to prepare
          Collateral for disposition or otherwise to complete raw material or work in
          process into finished goods or other finished products for disposition, (ii) to
          fail to obtain third party consents for access to Collateral to be disposed of,
          or to obtain or, if not required by other law, to fail to obtain consents of
any           Governmental Authority or other third party for the collection or
disposition of           Collateral to be collected or disposed of, (iii) to fail to
exercise collection           remedies against account debtors, secondary obligors or
other persons obligated           on Collateral or to remove liens or encumbrances on or
any adverse claims           against Collateral, (iv) to exercise collection remedies
against account debtors           and other persons obligated on Collateral directly or
through the use of           collection agencies and other collection specialists, (v) to
advertise           dispositions of Collateral through publications or media of general
circulation,           whether or not the Collateral is of a specialized nature, (vi) to
contact other           persons, whether or not in the same business as any Borrower or
Guarantor, for           expressions of interest in acquiring all or any portion of the
Collateral, (vii)           to hire one or more professional auctioneers to assist in the
disposition of           Collateral, whether or not the collateral is of a specialized
nature, (viii) to           dispose of Collateral by utilizing Internet sites that
provide for the auction           of assets of the types included in the Collateral or
that have the reasonable           capability of doing so, or that match buyers and
sellers of assets, (ix) to           dispose of assets in wholesale rather than retail
markets, (x) to disclaim           disposition warranties, (xi) to purchase insurance or
credit enhancements to           insure Agent or Lenders against risks of loss,
collection or disposition of           Collateral or to provide to Agent or Lenders a
guaranteed return from the           collection or disposition of Collateral, or (xii) to
the extent deemed           appropriate by Agent, to obtain the services of other
brokers, investment           bankers, consultants and other professionals to assist
Agent in the collection           or disposition of any of the Collateral. Each Borrower
and Guarantor           acknowledges that the purpose of this Section is to provide
non-exhaustive           indications of what actions or omissions by Agent or any Lender
would not be           commercially unreasonable in the exercise by Agent or any Lender
of remedies           against the Collateral and that other actions or omissions by Agent
or any           Lender shall not be deemed commercially unreasonable solely on account
of not           being indicated in this Section. Without limitation of the foregoing,
nothing           contained in this Section shall be construed to grant any rights to any
Borrower           or Guarantor or to impose any duties on Agent or Lenders that would
not have           been granted or imposed by this Agreement or by applicable law in the
absence of           this Section.  

81 

            (f)              For
the purpose of enabling Agent to exercise the rights and remedies hereunder,
          each Borrower and Guarantor hereby grants to Agent, to the extent assignable,
an           irrevocable, non-exclusive license (exercisable at any time an Event of
Default           shall exist or have occurred and for so long as the same is continuing)
without           payment of royalty or other compensation to any Borrower or Guarantor,
to use,           assign, license or sublicense any of the trademarks, service-marks,
trade names,           business names, trade styles, designs, logos and other source of
business           identifiers and other Intellectual Property and general intangibles
now owned or           hereafter acquired by any Borrower or Guarantor, wherever the same
maybe           located, including in such license reasonable access to all media in
which any           of the licensed items may be recorded or stored and to all computer
programs           used for the compilation or printout thereof.  

            (g)              At
any time an Event of Default exists or has occurred and is continuing, Agent
          may apply the cash proceeds of Collateral actually received by Agent from any
          sale, lease, foreclosure or other disposition of the Collateral to payment of
          the Obligations, in whole or in part and in accordance with the terms hereof,
          whether or not then due or may hold such proceeds as cash collateral for the
          Obligations. Borrowers and Guarantors shall remain liable to Agent and Lenders
          for the payment of any deficiency with interest at the highest rate provided
for           herein and all costs and expenses of collection or enforcement, including
          attorneys’ fees and expenses.  

            (h)              Without
limiting the foregoing, upon the occurrence of a Default or an Event of
          Default, (i) Agent and Lenders may, at Agent’s option, and upon the
          occurrence of an Event of Default at the direction of the Required Lenders,
          Agent and Lenders shall, without notice, (A) cease making Loans or arranging
for           Letters of Credit or reduce the lending formulas or amounts of Loans and
Letters           of Credit available to Borrowers and/or (B) terminate any provision of
this           Agreement providing for any future Loans or Letters of Credit to be made
by           Agent and Lenders to Borrowers and (ii) Agent may, at its option, establish
such           Reserves as Agent determines, without limitation or restriction,
notwithstanding           anything to the contrary contained herein.  

SECTION 11.     JURY TRIAL
WAIVER; OTHER WAIVERS AND CONSENTS; GOVERNING LAW 

        11.1    Governing
Law; Choice of Forum; Service of Process; Jury Trial Waiver.  

            (a)              The
validity, interpretation and enforcement of this Agreement and the other
          Financing Agreements (except as otherwise provided therein) and any dispute
          arising out of the relationship between the parties hereto, whether in
contract,           tort, equity or otherwise, shall be governed by the internal laws of
the State           of California but excluding any principles of conflicts of law or
other rule of           law that would cause the application of the law of any
jurisdiction other than           the laws of the State of California.  

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            (b)              Borrowers,
Guarantors, Agent and Lenders irrevocably consent and submit to the
          non-exclusive jurisdiction of the Superior Court of the State of California for
          the County of Los Angeles and the United States District Court for the Central
          District of California, whichever Agent may elect, and waive any objection
based           on venue or forum non conveniens with respect to any action instituted
therein           arising under this Agreement or any of the other Financing Agreements
or in any           way connected with or related or incidental to the dealings of the
parties           hereto in respect of this Agreement or any of the other Financing
Agreements or           the transactions related hereto or thereto, in each case whether
now existing or           hereafter arising, and whether in contract, tort, equity or
otherwise, and agree           that any dispute with respect to any such matters shall be
heard only in the           courts described above (except that Agent and Lenders shall
have the right to           bring any action or proceeding against any Borrower or
Guarantor or its or their           property in the courts of any other jurisdiction
which Agent deems necessary or           appropriate in order to realize on the
Collateral or to otherwise enforce its           rights against any Borrower or Guarantor
or its or their property).  

            (c)              Each
Borrower and Guarantor hereby waives personal service of any and all           process
upon it and consents that all such service of process may be made by           certified
mail (return receipt requested) directed to its address set forth           herein and
service so made shall be deemed to be completed five (5) days after           the same
shall have been so deposited in the U.S. mails, or, at Agent’s           option, by
service upon any Borrower or Guarantor (or Administrative Borrower on           behalf of
such Borrower or Guarantor) in any other manner provided under the           rules of any
such courts. Within thirty (30) days after such service, such           Borrower or
Guarantor shall appear in answer to such process, failing which such           Borrower
or Guarantor shall be deemed in default and judgment may be entered by           Agent
against such Borrower or Guarantor for the amount of the claim and other           relief
requested.  

            (d)              BORROWERS,
GUARANTORS, AGENT AND LENDERS EACH HEREBY WAIVES ANY RIGHT TO TRIAL           BY JURY OF
ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING UNDER THIS           AGREEMENT OR
ANY OF THE OTHER FINANCING AGREEMENTS OR IN ANY WAY CONNECTED WITH           OR RELATED
OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO IN RESPECT OF           THIS
AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR THE TRANSACTIONS           RELATED
HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER           ARISING, AND
WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. BORROWERS,           GUARANTORS, AGENT
AND LENDERS EACH HEREBY AGREES AND CONSENTS THAT ANY SUCH           CLAIM, DEMAND, ACTION
OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT           A JURY AND THAT ANY
BORROWER, ANY GUARANTOR, AGENT OR ANY LENDER MAY FILE AN           ORIGINAL COUNTERPART
OF A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN           EVIDENCE OF THE CONSENT
OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO           TRIAL BY JURY.  

83 

            (e)              If
any action or proceeding is filed in a court of the State of California by or
          against any party hereto in connection with any of the transactions
contemplated           by this Agreement or any document related hereto, (a) the court
shall, and is           hereby directed to, make a general reference pursuant to
California Code of           Civil Procedure Section 638 to a referee or referees to
hear and determine           all of the issues in such action or proceeding (whether of
fact or law) and to           report a statement of decision, provided that at the option
of Agent, any such           issues pertaining to a “provisional remedy” as
defined in California           Code of Civil Procedure Section 1281.8 shall be
heard and determined by the           court, (b) any arbitrator of JAMS shall be
deemed qualified as a referee in           such action or proceeding for the purpose of
subdivision (a) of Section 641 of           the California Code of Civil Procedure, and
(c) Borrowers shall be solely           responsible to pay all fees and expenses of any
referee appointed in such action           or proceeding.  

            (f)              Agent
and Lenders shall not have any liability to any Borrower or Guarantor           (whether
in tort, contract, equity or otherwise) for losses suffered by such           Borrower or
Guarantor in connection with, arising out of, or in any way related           to the
transactions or relationships contemplated by this Agreement, or any act,
          omission or event occurring in connection herewith, unless it is determined by
a           final and non-appealable judgment or court order binding on Agent and such
          Lender, that the losses were the result of acts or omissions constituting gross
          negligence or willful misconduct. In any such litigation, Agent and Lenders
          shall be entitled to the benefit of the rebuttable presumption that it acted in
          good faith and with the exercise of ordinary care in the performance by it of
          the terms of this Agreement. Each Borrower and Guarantor: (i) certifies that
          neither Agent, any Lender nor any representative, agent or attorney acting for
          or on behalf of Agent or any Lender has represented, expressly or otherwise,
          that Agent and Lenders would not, in the event of litigation, seek to enforce
          any of the waivers provided for in this Agreement or any of the other Financing
          Agreements and (ii) acknowledges that in entering into this Agreement and the
          other Financing Agreements, Agent and Lenders are relying upon, among other
          things, the waivers and certifications set forth in this Section 11.1 and
          elsewhere herein and therein.  

        11.2    Waiver
of Notices. Each Borrower and Guarantor hereby expressly waives demand, presentment,
protest and notice of protest and notice of dishonor with respect to any and all
instruments and chattel paper, included in or evidencing any of the Obligations or the
Collateral, and any and all other demands and notices of any kind or nature whatsoever
with respect to the Obligations, the Collateral and this Agreement, except such as are
expressly provided for herein. No notice to or demand on any Borrower or Guarantor which
Agent or any Lender may elect to give shall entitle such Borrower or Guarantor to any
other or further notice or demand in the same, similar or other circumstances.  

        11.3    Amendments
and Waivers.  

            (a)              Neither
this Agreement nor any other Financing Agreement nor any terms hereof or
          thereof may be amended, waived, discharged or terminated unless such amendment,
          waiver, discharge or termination is in writing signed by Agent and the Required
          Lenders or at Agent’s option, by Agent with the authorization or consent
of           the Required Lenders, and as to amendments to any of the Financing
Agreements           (other than with respect to any provision of Section 12 hereof), by
any Borrower           and such amendment, waiver, discharger or termination shall be
effective and           binding as to all Lenders only in the specific instance and for
the specific           purpose for which given; except, that, no such amendment, waiver,
discharge or           termination shall:  

84 

                (i)              reduce
the interest rate or any fees or extend the time of payment of principal,
          interest or any fees or reduce the principal amount of any Loan or Letters of
          Credit, in each case without the consent of each Lender directly affected
          thereby,  

                (ii)              increase
the Commitment of any Lender over the amount thereof then in effect or           provided
hereunder, in each case without the consent of the Lender directly           affected
thereby,  

                (iii)              release
any Collateral (except as expressly required hereunder or under any of           the
other Financing Agreements or applicable law and except as permitted under
          Section 12.11(b) hereof), without the consent of Agent and all of Lenders,  

                (iv)              reduce
any percentage specified in the definition of Required Lenders, without           the
consent of Agent and all of Lenders,  

                (v)              consent
to the assignment or transfer by any Borrower or Guarantor of any of           their
rights and obligations under this Agreement, without the consent of Agent           and
all of Lenders,  

                (vi)              amend,
modify or waive any terms of this Section 11.3 hereof, without the           consent of
Agent and all of Lenders, or  

                (vii)              increase
the advance rate constituting part of the Borrowing Base or increase           the Letter
of Credit Limit, without the consent of Agent and all of Lenders.  

            (b)              Agent
and Lenders shall not, by any act, delay, omission or otherwise be deemed           to
have expressly or impliedly waived any of its or their rights, powers and/or
          remedies unless such waiver shall be in writing and signed as provided herein.
          Any such waiver shall be enforceable only to the extent specifically set forth
          therein. A waiver by Agent or any Lender of any right, power and/or remedy on
          any one occasion shall not be construed as a bar to or waiver of any such
right,           power and/or remedy which Agent or any Lender would otherwise have on
any future           occasion, whether similar in kind or otherwise.  

            (c)              Notwithstanding
anything to the contrary contained in Section 11.3(a) above, in           connection with
any amendment, waiver, discharge or termination, in the event           that any Lender
whose consent thereto is required shall fail to consent or fail           to consent in a
timely manner (such Lender being referred to herein as a           “Non-Consenting
Lender”), but the consent of any other Lenders to such           amendment, waiver,
discharge or termination that is required are obtained, if           any, then Wachovia
shall have the right, but not the obligation, at any time           thereafter, and upon
the exercise by Wachovia of such right, such Non-Consenting           Lender shall have
the obligation, to sell, assign and transfer to Wachovia or           such Eligible
Transferee as Wachovia may specify, the Commitment of such           Non-Consenting
Lender and all rights and interests of such Non-Consenting Lender           pursuant
thereto. Wachovia shall provide the Non-Consenting Lender with prior           written
notice of its intent to exercise its right under this Section, which           notice
shall specify on date on which such purchase and sale shall occur. Such
          purchase and sale shall be pursuant to the terms of an Assignment and
Acceptance           (whether or not executed by the Non-Consenting Lender), except that
on the date           of such purchase and sale, Wachovia, or such Eligible Transferee
specified by           Wachovia, shall pay to the Non-Consenting Lender (except as
Wachovia and such           Non-Consenting Lender may otherwise agree) the amount equal
to: (i) the           principal balance of the Loans held by the Non-Consenting Lender
outstanding as           of the close of business on the business day immediately
preceding the effective           date of such purchase and sale, plus (ii) amounts
accrued and unpaid in respect           of interest and fees payable to the
Non-Consenting Lender to the effective date           of the purchase (but in no event
shall the Non-Consenting Lender be deemed           entitled to any early termination
fee), minus (iii) the amount of the closing           fee received by the Non-Consenting
Lender pursuant to the terms hereof or of any           of the other Financing Agreements
multiplied by the fraction, the numerator of           which is the number of months
remaining in the then current term of the Credit           Facility and the denominator
of which is the number of months in the then           current term thereof. Such
purchase and sale shall be effective on the date of           the payment of such amount
to the Non-Consenting Lender and the Commitment of           the Non-Consenting Lender
shall terminate on such date.  

85 

            (d)              The
consent of Agent shall be required for any amendment, waiver or consent
          affecting the rights or duties of Agent hereunder or under any of the other
          Financing Agreements, in addition to the consent of the Lenders otherwise
          required by this Section and the exercise by Agent of any of its rights
          hereunder with respect to Reserves or Eligible Accounts shall not be deemed an
          amendment to the advance rates provided for in this Section 11.3.
          Notwithstanding anything to the contrary contained in Section 11.3(a) above,
(i)           in the event that Agent shall agree that any items otherwise required to be
          delivered to Agent as a condition of the initial Loans and Letters of Credit
          hereunder may be delivered after the date hereof, Agent may, in its discretion,
          agree to extend the date for delivery of such items or take such other action
as           Agent may deem appropriate as a result of the failure to receive such items
as           Agent may determine or may waive any Event of Default as a result of the
failure           to receive such items, in each case without the consent of any Lender
and (ii)           Agent may consent to any change in the type of organization,
jurisdiction of           organization or other legal structure of any Borrower,
Guarantor or any of their           Subsidiaries and amend the terms hereof or of any of
the other Financing           Agreements as may be necessary or desirable to reflect any
such change, in each           case without the approval of any Lender.  

            (e)              The
consent of Agent and a Bank Product Provider that is providing Bank Products
          and has outstanding any such Bank Products at such time that are secured
          hereunder shall be required for any amendment to the priority of payment of
          Obligations arising under or pursuant to any Hedge Agreements of a Borrower or
          Guarantor or other Bank Products as set forth in Section 6.4(a) hereof.  

        11.4    Waiver
of Counterclaims. Each Borrower and Guarantor waives all rights to interpose any
claims, deductions, setoffs or counterclaims of any nature (other then compulsory
counterclaims) in any action or proceeding with respect to this Agreement, the
Obligations, the Collateral or any matter arising therefrom or relating hereto or
thereto.  

        11.5    Indemnification.
Each Borrower and Guarantor shall, jointly and severally, indemnify and hold Agent and
each Lender, and their respective officers, directors, agents, employees, advisors and
counsel and their respective Affiliates (each such person being an “Indemnitee”),
harmless from and against any and all losses, claims, damages, liabilities, costs or
expenses (including attorneys’ fees and expenses) imposed on, incurred by or
asserted against any of them in connection with any litigation, investigation, claim or
proceeding commenced or threatened related to the negotiation, preparation, execution,
delivery, enforcement, performance or administration of this Agreement, any other
Financing Agreements, or any undertaking or proceeding related to any of the transactions
contemplated hereby or any act, omission, event or transaction related or attendant
thereto, including amounts paid in settlement, court costs, and the fees and expenses of
counsel except that Borrowers and Guarantors shall not have any obligation under this
Section 11.5 to indemnify an Indemnitee with respect to a matter covered hereby resulting
from the gross negligence or wilful misconduct of such Indemnitee as determined pursuant
to a final, non-appealable order of a court of competent jurisdiction (but without
limiting the obligations of Borrowers or Guarantors as to any other Indemnitee). To the
extent that the undertaking to indemnify, pay and hold harmless set forth in this Section
may be unenforceable because it violates any law or public policy, Borrowers and
Guarantors shall pay the maximum portion which it is permitted to pay under applicable
law to Agent and Lenders in satisfaction of indemnified matters under this Section. To
the extent permitted by applicable law, no Borrower or Guarantor shall assert, and each
Borrower and Guarantor hereby waives, any claim against any Indemnitee, on any theory of
liability, for special, indirect, consequential or punitive damages (as opposed to direct
or actual damages) arising out of, in connection with, or as a result of, this Agreement,
any of the other Financing Agreements or any undertaking or transaction contemplated
hereby. No Indemnitee referred to above shall be liable for any damages arising from the
use by unintended recipients of any information or other materials distributed by it
through telecommunications, electronic or other information transmission systems in
connection with this Agreement or any of the other Financing Agreements or the
transaction contemplated hereby or thereby. All amounts due under this Section shall be
payable upon demand. The foregoing indemnity shall survive the payment of the Obligations
and the termination or non-renewal of this Agreement.  

86 

SECTION 12.     THE AGENT 

        12.1    Appointment,
Powers and Immunities. Each Lender irrevocably designates, appoints and authorizes
Wachovia to act as Agent hereunder and under the other Financing Agreements with such
powers as are specifically delegated to Agent by the terms of this Agreement and of the
other Financing Agreements, together with such other powers as are reasonably incidental
thereto. Agent (a) shall have no duties or responsibilities except those expressly set
forth in this Agreement and in the other Financing Agreements, and shall not by reason of
this Agreement or any other Financing Agreement be a trustee or fiduciary for any Lender;
(b) shall not be responsible to Lenders for any recitals, statements, representations or
warranties contained in this Agreement or in any of the other Financing Agreements, or in
any certificate or other document referred to or provided for in, or received by any of
them under, this Agreement or any other Financing Agreement, or for the value, validity,
effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other
Financing Agreement or any other document referred to or provided for herein or therein
or for any failure by any Borrower or any Guarantor or any other Person to perform any of
its obligations hereunder or thereunder; and (c) shall not be responsible to Lenders for
any action taken or omitted to be taken by it hereunder or under any other Financing
Agreement or under any other document or instrument referred to or provided for herein or
therein or in connection herewith or therewith, except for its own gross negligence or
willful misconduct as determined by a final non-appealable judgment of a court of
competent jurisdiction. Agent may employ agents and attorneys in fact and shall not be
responsible for the negligence or misconduct of any such agents or attorneys in fact
selected by it in good faith. Agent may deem and treat the payee of any note as the
holder thereof for all purposes hereof unless and until the assignment thereof pursuant
to an agreement (if and to the extent permitted herein) in form and substance
satisfactory to Agent shall have been delivered to and acknowledged by Agent.  

87 

        12.2    Reliance
by Agent. Agent shall be entitled to rely upon any certification, notice or other
communication (including any thereof by telephone, telecopy, telex, telegram or cable)
believed by it to be genuine and correct and to have been signed or sent by or on behalf
of the proper Person or Persons, and upon advice and statements of legal counsel,
independent accountants and other experts selected by Agent. As to any matters not
expressly provided for by this Agreement or any other Financing Agreement, Agent shall in
all cases be fully protected in acting, or in refraining from acting, hereunder or
thereunder in accordance with instructions given by the Required Lenders or all of
Lenders as is required in such circumstance, and such instructions of such Agents and any
action taken or failure to act pursuant thereto shall be binding on all Lenders.  

        12.3    Events
of Default.  

            (a)              Agent
shall not be deemed to have knowledge or notice of the occurrence of a           Default
or an Event of Default or other failure of a condition precedent to the           Loans
and Letters of Credit hereunder, unless and until Agent has received           written
notice from a Lender, or Borrower specifying such Event of Default or           any
unfulfilled condition precedent, and stating that such notice is a           “Notice
of Default or Failure of Condition”. In the event that Agent           receives such
a Notice of Default or Failure of Condition, Agent shall give           prompt notice
thereof to the Lenders. Agent shall (subject to Section 12.7) take           such action
with respect to any such Event of Default or failure of condition           precedent as
shall be directed by the Required Lenders to the extent provided           for herein; provided,
that, unless and until Agent shall have           received such directions, Agent
may (but shall not be obligated to) take such           action, or refrain from taking
such action, with respect to or by reason of such           Event of Default or failure
of condition precedent, as it shall deem advisable           in the best interest of
Lenders. Without limiting the foregoing, and           notwithstanding the existence or
occurrence and continuance of an Event of           Default or any other failure to
satisfy any of the conditions precedent set           forth in Section 4 of this
Agreement to the contrary, unless and until otherwise           directed by the Required
Lenders, Agent may, but shall have no obligation to,           continue to make Loans and
issue or cause to be issued any Letter of Credit for           the ratable account and
risk of Lenders from time to time if Agent believes           making such Loans or
issuing or causing to be issued such Letter of Credit is in           the best interests
of Lenders.  

            (b)              Except
with the prior written consent of Agent, no Lender may assert or exercise           any
enforcement right or remedy in respect of the Loans, Letter of Credit
          Obligations or other Obligations, as against any Borrower or Guarantor or any
of           the Collateral or other property of any Borrower or Guarantor.  

        12.4    Wachovia
in its Individual Capacity. With respect to its Commitment and the Loans made and
Letters of Credit issued or caused to be issued by it (and any successor acting as
Agent), so long as Wachovia shall be a Lender hereunder, it shall have the same rights
and powers hereunder as any other Lender and may exercise the same as though it were not
acting as Agent, and the term “Lender” or “Lenders” shall, unless the
context otherwise indicates, include Wachovia in its individual capacity as Lender
hereunder. Wachovia (and any successor acting as Agent) and its Affiliates may (without
having to account therefor to any Lender) lend money to, make investments in and
generally engage in any kind of business with Borrowers (and any of its Subsidiaries or
Affiliates) as if it were not acting as Agent, and Wachovia and its Affiliates may accept
fees and other consideration from any Borrower or Guarantor and any of its Subsidiaries
and Affiliates for services in connection with this Agreement or otherwise without having
to account for the same to Lenders.  

88 

        12.5    Indemnification.
Lenders agree to indemnify Agent (to the extent not reimbursed by Borrowers hereunder and
without limiting any obligations of Borrowers hereunder) ratably, in accordance with
their Pro Rata Shares, for any and all claims of any kind and nature whatsoever that may
be imposed on, incurred by or asserted against Agent (including by any Lender) arising
out of or by reason of any investigation in or in any way relating to or arising out of
this Agreement or any other Financing Agreement or any other documents contemplated by or
referred to herein or therein or the transactions contemplated hereby or thereby
(including the costs and expenses that Agent is obligated to pay hereunder) or the
enforcement of any of the terms hereof or thereof or of any such other documents, provided,
that, no Lender shall be liable for any of the foregoing to the extent it arises
from the gross negligence or willful misconduct of the party to be indemnified as
determined by a final non-appealable judgment of a court of competent jurisdiction. The
foregoing indemnity shall survive the payment of the Obligations and the termination or
non-renewal of this Agreement.  

        12.6    Non-Reliance
on Agent and Other Lenders. Each Lender agrees that it has, independently and without
reliance on Agent or other Lender, and based on such documents and information as it has
deemed appropriate, made its own credit analysis of Borrowers and Guarantors and has made
its own decision to enter into this Agreement and that it will, independently and without
reliance upon Agent or any other Lender, and based on such documents and information as
it shall deem appropriate at the time, continue to make its own analysis and decisions in
taking or not taking action under this Agreement or any of the other Financing
Agreements. Agent shall not be required to keep itself informed as to the performance or
observance by any Borrower or Guarantor of any term or provision of this Agreement or any
of the other Financing Agreements or any other document referred to or provided for
herein or therein or to inspect the properties or books of any Borrower or Guarantor.
Agent will use reasonable efforts to provide Lenders with any information received by
Agent from any Borrower or Guarantor which is required to be provided to Lenders or
deemed to be requested by Lenders hereunder and with a copy of any Notice of Default or
Failure of Condition received by Agent from any Borrower or any Lender; provided, that,
Agent shall not be liable to any Lender for any failure to do so, except to the extent
that such failure is attributable to Agent’s own gross negligence or willful
misconduct as determined by a final non-appealable judgment of a court of competent
jurisdiction. Except for notices, reports and other documents expressly required to be
furnished to Lenders by Agent or deemed requested by Lenders hereunder, Agent shall not
have any duty or responsibility to provide any Lender with any other credit or other
information concerning the affairs, financial condition or business of any Borrower or
Guarantor that may come into the possession of Agent.  

89 

        12.7    Failure
to Act. Except for action expressly required of Agent hereunder and under the other
Financing Agreements, Agent shall in all cases be fully justified in failing or refusing
to act hereunder and thereunder unless it shall receive further assurances to its
satisfaction from Lenders of their indemnification obligations under Section 12.5 hereof
against any and all liability and expense that may be incurred by it by reason of taking
or continuing to take any such action.  

        12.8    Additional
Loans. Agent shall not make any Revolving Loans or provide any Letter of Credit to
any Borrower on behalf of Lenders intentionally and with actual knowledge that such
Revolving Loans or Letter of Credit would cause the aggregate amount of the total
outstanding Revolving Loans and Letters of Credit to such Borrower to exceed the
Borrowing Base of such Borrower, without the prior consent of all Lenders, except, that,
Agent may make such additional Revolving Loans or provide such additional Letter of
Credit on behalf of Lenders, intentionally and with actual knowledge that such Revolving
Loans or Letter of Credit will cause the total outstanding Revolving Loans and Letters of
Credit to such Borrower to exceed the Borrowing Base of such Borrower, as Agent may deem
necessary or advisable in its discretion, provided, that: (a) the total
principal amount of the additional Revolving Loans or additional Letters of Credit to any
Borrower which Agent may make or provide after obtaining such actual knowledge that the
aggregate principal amount of the Revolving Loans equal or exceed the Borrowing Bases of
Borrowers, plus the amount of Special Agent Advances made pursuant to Section
12.11(a)(ii) hereof then outstanding, shall not exceed the aggregate amount equal to ten
(10%) percent of the aggregate sum of the Revolving Loan Limits for all Borrowers and
shall not cause the total principal amount of the Revolving Loans and Letters of Credit
to exceed the aggregate sum of the Revolving Loan Limits for all Borrowers and (b) no
such additional Revolving Loan or Letter of Credit shall be outstanding more than ninety
(90) days after the date such additional Revolving Loan or Letter of Credit is made or
issued (as the case may be), except as the Required Lenders may otherwise agree. Each
Lender shall be obligated to pay Agent the amount of its Pro Rata Share of any such
additional Revolving Loans or Letters of Credit.  

        12.9    Concerning
the Collateral and the Related Financing Agreements. Each Lender authorizes and
directs Agent to enter into this Agreement and the other Financing Agreements. Each
Lender agrees that any action taken by Agent or Required Lenders in accordance with the
terms of this Agreement or the other Financing Agreements and the exercise by Agent or
Required Lenders of their respective powers set forth therein or herein, together with
such other powers that are reasonably incidental thereto, shall be binding upon all of
the Lenders.  

        12.10    Field
Audit, Examination Reports and other Information; Disclaimer by Lenders.  By signing
this Agreement, each Lender: 

            (a)              is
deemed to have requested that Agent furnish such Lender, promptly after it
          becomes available, a copy of each field audit or examination report and report
          with respect to the Borrowing Base prepared or received by Agent (each field
          audit or examination report and report with respect to the Borrowing Base being
          referred to herein as a “Report” and collectively,           “Reports”),
appraisals with respect to the Collateral and financial           statements with respect
Parent and its Subsidiaries received by Agent;  

90 

            (b)              expressly
agrees and acknowledges that Agent (i) does not make any           representation or
warranty as to the accuracy of any Report, appraisal or           financial statement or
(ii) shall not be liable for any information contained in           any Report, appraisal
or financial statement;  

            (c)              expressly
agrees and acknowledges that the Reports are not comprehensive audits           or
examinations, that Agent or any other party performing any audit or           examination
will inspect only specific information regarding Borrowers and           Guarantors and
will rely significantly upon Borrowers’ and Guarantors’          books and
records, as well as on representations of Borrowers’ and           Guarantors’ personnel;
and  

            (d)              agrees
to keep all Reports confidential and strictly for its internal use in
          accordance with the terms of Section 13.5 hereof, and not to distribute or use
          any Report in any other manner.  

        12.11    Collateral
Matters.  

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

91 

            (b)              Lenders
hereby irrevocably authorize Agent, at its option and in its discretion           to
release any security interest in, mortgage or lien upon, any of the           Collateral
(i) upon termination of the Commitments and payment and satisfaction           of all of
the Obligations and delivery of cash collateral to the extent required           under
Section 13.1 below, or (ii) constituting property being sold or disposed           of if
Administrative Borrower or any Borrower or Guarantor certifies to Agent           that
the sale or disposition is made in compliance with Section 9.7 hereof (and
          Agent may rely conclusively on any such certificate, without further inquiry),
          or (iii) constituting property in which any Borrower or Guarantor did not own
an           interest at the time the security interest, mortgage or lien was granted or
at           any time thereafter, or (iv) having a value in the aggregate in any twelve
(12)           month period of less than $500,000, and to the extent Agent may release
its           security interest in and lien upon any such Collateral pursuant to the sale
or           other disposition thereof, such sale or other disposition shall be deemed
          consented to by Lenders, or (v) if required or permitted under the terms of any
          of the other Financing Agreements, including any intercreditor agreement, or
          (vi) approved, authorized or ratified in writing by all of Lenders. Except as
          provided above, Agent will not release any security interest in, mortgage or
          lien upon, any of the Collateral without the prior written authorization of all
          of Lenders. Upon request by Agent at any time, Lenders will promptly confirm in
          writing Agent’s authority to release particular types or items of
          Collateral pursuant to this Section.  

            (c)              Without
any manner limiting Agent’s authority to act without any specific           or
further authorization or consent by the Required Lenders, each Lender agrees           to
confirm in writing, upon request by Agent, the authority to release           Collateral
conferred upon Agent under this Section. Agent shall (and is hereby           irrevocably
authorized by Lenders to) execute such documents as may be necessary           to
evidence the release of the security interest, mortgage or liens granted to
          Agent upon any Collateral to the extent set forth above; provided, that,
(i) Agent shall not be required to execute any such document on           terms which, in
Agent’s opinion, would expose Agent to liability or create           any obligations
or entail any consequence other than the release of such           security interest,
mortgage or liens without recourse or warranty and (ii) such           release shall not
in any manner discharge, affect or impair the Obligations or           any security
interest, mortgage or lien upon (or obligations of any Borrower or           Guarantor in
respect of) the Collateral retained by such Borrower or Guarantor.  

            (d)              Agent
shall have no obligation whatsoever to any Lender or any other Person to
          investigate, confirm or assure that the Collateral exists or is owned by any
          Borrower or Guarantor or is cared for, protected or insured or has been
          encumbered, or that any particular items of Collateral meet the eligibility
          criteria applicable in respect of the Loans or Letters of Credit hereunder, or
          whether any particular reserves are appropriate, or that the liens and security
          interests granted to Agent pursuant hereto or any of the Financing Agreements
or           otherwise have been properly or sufficiently or lawfully created, perfected,
          protected or enforced or are entitled to any particular priority, or to
exercise           at all or in any particular manner or under any duty of care,
disclosure or           fidelity, or to continue exercising, any of the rights,
authorities and powers           granted or available to Agent in this Agreement or in
any of the other Financing           Agreements, it being understood and agreed that in
respect of the Collateral, or           any act, omission or event related thereto,
subject to the other terms and           conditions contained herein, Agent may act in
any manner it may deem           appropriate, in its discretion, given Agent’s own
interest in the           Collateral as a Lender and that Agent shall have no duty or
liability whatsoever           to any other Lender.  

92 

        12.12    Agency
for Perfection. Each Lender hereby appoints Agent and each other Lender as agent and
bailee for the purpose of perfecting the security interests in and liens upon the
Collateral of Agent in assets which, in accordance with Article 9 of the UCC can be
perfected only by possession (or where the security interest of a secured party with
possession has priority over the security interest of another secured party) and Agent
and each Lender hereby acknowledges that it holds possession of any such Collateral for
the benefit of Agent as secured party. Should any Lender obtain possession of any such
Collateral, such Lender shall notify Agent thereof, and, promptly upon Agent’s
request therefor shall deliver such Collateral to Agent or in accordance with Agent’s
instructions.  

        12.13    Successor
Agent. Agent may resign as Agent upon thirty (30) days’ notice to Lenders and
Parent. If Agent resigns under this Agreement, the Required Lenders shall appoint from
among the Lenders a successor agent for Lenders. If no successor agent is appointed prior
to the effective date of the resignation of Agent, Agent may appoint, after consulting
with Lenders and Parent, a successor agent from among Lenders. Upon the acceptance by the
Lender so selected of its appointment as successor agent hereunder, such successor agent
shall succeed to all of the rights, powers and duties of the retiring Agent and the term
“Agent” as used herein and in the other Financing Agreements shall mean such
successor agent and the retiring Agent’s appointment, powers and duties as Agent
shall be terminated. After any retiring Agent’s resignation hereunder as Agent, the
provisions of this Section 12 shall inure to its benefit as to any actions taken or
omitted by it while it was Agent under this Agreement. If no successor agent has accepted
appointment as Agent by the date which is thirty (30) days after the date of a retiring
Agent’s notice of resignation, the retiring Agent’s resignation shall
nonetheless thereupon become effective and Lenders shall perform all of the duties of
Agent hereunder until such time, if any, as the Required Lenders appoint a successor
agent as provided for above.  

        12.14    Other
Agent Designations. Agent may at any time and from time to time determine that a
Lender may, in addition, be a “Co-Agent”, “Syndication Agent”, “Documentation
Agent” or similar designation hereunder and enter into an agreement with such Lender
to have it so identified for purposes of this Agreement. Any such designation shall be
effective upon written notice by Agent to Administrative Borrower of any such
designation. Any Lender that is so designated as a Co-Agent, Syndication Agent,
Documentation Agent or such similar designation by Agent shall have no right, power,
obligation, liability, responsibility or duty under this Agreement or any of the other
Financing Agreements other than those applicable to all Lenders as such. Without limiting
the foregoing, the Lenders so identified shall not have or be deemed to have any
fiduciary relationship with any Lender and no Lender shall be deemed to have relied, nor
shall any Lender rely, on a Lender so identified as a Co-Agent, Syndication Agent,
Documentation Agent or such similar designation in deciding to enter into this Agreement
or in taking or not taking action hereunder.  

93 

SECTION 13.    TERM
OF AGREEMENT; MISCELLANEOUS 

        13.1    Term. 

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

94 

            (b)              No
termination of the Commitments, this Agreement or any of the other Financing
          Agreements shall relieve or discharge any Borrower or Guarantor of its
          respective duties, obligations and covenants under this Agreement or any of the
          other Financing Agreements until all Obligations have been fully and finally
          discharged and paid, and Agent’s continuing security interest in the
          Collateral and the rights and remedies of Agent and Lenders hereunder, under
the           other Financing Agreements and applicable law, shall remain in effect until
all           such Obligations have been fully and finally discharged and paid.
Accordingly,           each Borrower and Guarantor waives any rights it may have under
the UCC to           demand the filing of termination statements with respect to the
Collateral and           Agent shall not be required to send such termination statements
to Borrowers or           Guarantors, or to file them with any filing office, unless and
until this           Agreement shall have been terminated in accordance with its terms
and all           Obligations paid and satisfied in full in immediately available funds.  

            (c)              If
for any reason this Agreement is terminated prior to the Renewal Date, in           view
of the impracticality and extreme difficulty of ascertaining actual damages           and
by mutual agreement of the parties as to a reasonable calculation of           Agent’s
and each Lender’s lost profits as a result thereof, Borrowers           agree to pay
to Agent, for the benefit of Lenders, upon the effective date of           such
termination, an early termination fee in the amount equal to the applicable
          percentage set forth below of the aggregate sum of the Revolving Loan Limits
for           all Borrowers, based upon the period in which the effective date of
termination           occurs:  

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

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

95 

        13.2    Interpretative
Provisions.  

            (a)              All
terms used herein which are defined in Article 1, Article 8 or Article 9 of           the
UCC shall have the meanings given therein unless otherwise defined in this
          Agreement.  

            (b)              All
references to the plural herein shall also mean the singular and to the
          singular shall also mean the plural unless the context otherwise requires.  

            (c)              All
references to any Borrower, Guarantor, Agent and Lenders pursuant to the
          definitions set forth in the recitals hereto, or to any other person herein,
          shall include their respective successors and assigns.  

            (d)              The
words “hereof”, “herein”, “hereunder”,           “this
Agreement” and words of similar import when used in this           Agreement shall
refer to this Agreement as a whole and not any particular           provision of this
Agreement and as this Agreement now exists or may hereafter be           amended,
modified, supplemented, extended, renewed, restated or replaced.  

            (e)              The
word “including” when used in this Agreement shall mean           “including,
without limitation” and the word “will” when           used in this
Agreement shall be construed to have the same meaning and effect as           the word
“shall”.  

            (f)              An
Event of Default shall exist or continue or be continuing until such Event of
          Default is waived in accordance with Section 11.3 or is cured in a manner
          satisfactory to Agent, if such Event of Default is capable of being cured as
          determined by Agent.  

            (g)              All
references to the term “good faith” used herein when applicable to
          Agent or any Lender shall mean, notwithstanding anything to the contrary
          contained herein or in the UCC, honesty in fact in the conduct or transaction
          concerned. Borrowers and Guarantors shall have the burden of proving any lack
of           good faith on the part of Agent or any Lender alleged by any Borrower or
          Guarantor at any time.  

            (h)              Any
accounting term used in this Agreement shall have, unless otherwise
          specifically provided herein, the meaning customarily given in accordance with
          GAAP, and all financial computations hereunder shall be computed unless
          otherwise specifically provided herein, in accordance with GAAP as consistently
          applied and using the same method for inventory valuation as used in the
          preparation of the financial statements of Parent most recently received by
          Agent prior to the date hereof. Notwithstanding anything to the contrary
          contained in GAAP or any interpretations or other pronouncements by the
          Financial Accounting Standards Board or otherwise, the term “unqualified
          opinion” as used herein to refer to opinions or reports provided by
          accountants shall mean an opinion or report that is unqualified and also does
          not include any explanation, supplemental comment or other comment concerning
          the ability of the applicable person to continue as a going concern or the
scope           of the audit.  

            (i)              In
the computation of periods of time from a specified date to a later specified
          date, the word “from” means “from and including”, the words
          “to” and “until” each mean “to but excluding” and
          the word “through” means “to and including”.  

96 

            (j)              Unless
otherwise expressly provided herein, (i) references herein to any           agreement,
document or instrument shall be deemed to include all subsequent           amendments,
modifications, supplements, extensions, renewals, restatements or           replacements
with respect thereto, but only to the extent the same are not           prohibited by the
terms hereof or of any other Financing Agreement, and (ii)           references to any
statute or regulation are to be construed as including all           statutory and
regulatory provisions consolidating, amending, replacing,           recodifying,
supplementing or interpreting the statute or regulation.  

            (k)              The
captions and headings of this Agreement are for convenience of reference           only
and shall not affect the interpretation of this Agreement.  

            (l)              This
Agreement and other Financing Agreements may use several different           limitations,
tests or measurements to regulate the same or similar matters. All           such
limitations, tests and measurements are cumulative and shall each be           performed
in accordance with their terms.  

            (m)              This
Agreement and the other Financing Agreements are the result of negotiations
          among and have been reviewed by counsel to Agent and the other parties, and are
          the products of all parties. Accordingly, this Agreement and the other
Financing           Agreements shall not be construed against Agent or Lenders merely
because of           Agent’s or any Lender’s involvement in their preparation.  

        13.3    Notices.  

            (a)              All
notices, requests and demands hereunder shall be in writing and deemed to           have
been given or made: if delivered in person, immediately upon delivery; if           by
telex, telegram or facsimile transmission, immediately upon sending and upon
          confirmation of receipt; if by nationally recognized overnight courier service
          with instructions to deliver the next Business Day, one (1) Business Day after
          sending; and if by certified mail, return receipt requested, five (5) days
after           mailing. Notices delivered through electronic communications shall be
effective           to the extent set forth in Section 13.3(b) below. All notices,
requests and           demands upon the parties are to be given to the following
addresses (or to such           other address as any party may designate by notice in
accordance with this           Section):  

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

97 

			
		with a copy to:	Dreier Stein & Kahan LLP
			1620 26th Street, 6th Floor, North Tower
			Santa Monica, CA 90404
			Attention: Steve Peden, Esq.
			Telephone No.: (310) 828-9050
			Telecopy No.: (310) 828-9101
		

			Wachovia Capital Finance Corporation
			(Western)
			251 S. Lake Avenue, Suite 900
			Pasadena, CA 91101
			Attention: Portfolio Manager
			Telephone No.: (626) 304-4900
			Telecopy No.: (626) 304-4949

            (b)              Notices
and other communications to Lenders Bank hereunder may be delivered or
          furnished by electronic communication (including e-mail and Internet or
intranet           websites) pursuant to procedures approved by Agent or as otherwise
determined by           Agent, provided, that, the foregoing shall not apply to notices
to any Lender           pursuant to Section 2 hereof if such Lender, as applicable, has
notified Agent           that it is incapable of receiving notices under such Section by
electronic           communication. Unless Agent otherwise requires, (i) notices and
other           communications sent to an e-mail address shall be deemed received upon
the           sender’s receipt of an acknowledgement from the intended recipient
(such as           by the “return receipt requested” function, as available,
return           e-mail or other written acknowledgement), provided, that, if such notice
or           other communication is not given during the normal business hours of the
          recipient, such notice shall be deemed to have been sent at the opening of
          business on the next Business Day for the recipient, and (ii) notices or
          communications posted to an Internet or intranet website shall be deemed
          received upon the deemed receipt by the intended recipient at its e-mail
address           as described in the foregoing clause (i) of notification that such
notice or           communications is available and identifying the website address
therefor.  

        13.4    Partial
Invalidity. If any provision of this Agreement is held to be invalid or
unenforceable, such invalidity or unenforceability shall not invalidate this Agreement as
a whole, but this Agreement shall be construed as though it did not contain the
particular provision held to be invalid or unenforceable and the rights and obligations
of the parties shall be construed and enforced only to such extent as shall be permitted
by applicable law.  

        13.5    Confidentiality.  

            (a)              Agent
and each Lender shall use all reasonable efforts to keep confidential, in
          accordance with its customary procedures for handling confidential information
          and safe and sound lending practices, any non-public information supplied to it
          by any Borrower pursuant to this Agreement which is clearly and conspicuously
          marked as confidential at the time such information is furnished by such
          Borrower to Agent or such Lender, provided, that, nothing
          contained herein shall limit the disclosure of any such information: (i) to the
          extent required by statute, rule, regulation, subpoena or court order, (ii) to
          bank examiners and other regulators, auditors and/or accountants, in connection
          with any litigation to which Agent or such Lender is a party, (iii) to any
          Lender or Participant (or prospective Lender or Participant) or to any
Affiliate           of any Lender so long as such Lender or Participant (or prospective
Lender or           Participant) or Affiliate shall have been instructed to treat such
information           as confidential in accordance with this Section 13.5, or (iv) to
counsel for           Agent or any Lender or Participant (or prospective Lender or
Participant).  

98 

            (b)              In
the event that Agent or any Lender receives a request or demand to disclose           any
confidential information pursuant to any subpoena or court order, Agent or           such
Lender, as the case may be, agrees (i) to the extent permitted by           applicable
law or if permitted by applicable law, to the extent Agent or such           Lender
determines in good faith that it will not create any risk of liability to           Agent
or such Lender, Agent or such Lender will promptly notify Administrative
          Borrower of such request so that Administrative Borrower may seek a protective
          order or other appropriate relief or remedy and (ii) if disclosure of such
          information is required, disclose such information and, subject to
reimbursement           by Borrowers of Agent’s or such Lender’s expenses,
cooperate with           Administrative Borrower in the reasonable efforts to obtain an
order or other           reliable assurance that confidential treatment will be accorded
to such portion           of the disclosed information which Administrative Borrower so
designates, to the           extent permitted by applicable law or if permitted by
applicable law, to the           extent Agent or such Lender determines in good faith
that it will not create any           risk of liability to Agent or such Lender.  

            (c)              In
no event shall this Section 13.5 or any other provision of this Agreement,           any
of the other Financing Agreements or applicable law be deemed: (i) to apply           to
or restrict disclosure of information that has been or is made public by any
          Borrower, Guarantor or any third party or otherwise becomes generally available
          to the public other than as a result of a disclosure in violation hereof, (ii)
          to apply to or restrict disclosure of information that was or becomes available
          to Agent or any Lender (or any Affiliate of any Lender) on a non-confidential
          basis from a person other than a Borrower or Guarantor, (iii) to require Agent
          or any Lender to return any materials furnished by a Borrower or Guarantor to
          Agent or a Lender or prevent Agent or a Lender from responding to routine
          informational requests in accordance with the Code of Ethics for the Exchange
of           Credit Information promulgated by The Robert Morris Associates or other
          applicable industry standards relating to the exchange of credit information.
          The obligations of Agent and Lenders under this Section 13.5 shall supersede
and           replace the obligations of Agent and Lenders under any confidentiality
letter           signed prior to the date hereof or any other arrangements concerning the
          confidentiality of information provided by any Borrower or Guarantor to Agent
or           any Lender. In addition, Agent and Lenders may disclose information relating
to           the Credit Facility to Gold Sheets and other similar bank trade
publications,           with such information to consist of deal terms and other
information customarily           found in such publications.  

        13.6    Successors.
This Agreement, the other Financing Agreements and any other document referred to herein
or therein shall be binding upon and inure to the benefit of and be enforceable by Agent,
Lenders, Borrowers, Guarantors and their respective successors and assigns, except that
Borrower may not assign its rights under this Agreement, the other Financing Agreements
and any other document referred to herein or therein without the prior written consent of
Agent and Lenders. Any such purported assignment without such express prior written
consent shall be void. No Lender may assign its rights and obligations under this
Agreement without the prior written consent of Agent, except as provided in Section 13.7
below. The terms and provisions of this Agreement and the other Financing Agreements are
for the purpose of defining the relative rights and obligations of Borrowers, Guarantors,
Agent and Lenders with respect to the transactions contemplated hereby and there shall be
no third party beneficiaries of any of the terms and provisions of this Agreement or any
of the other Financing Agreements.  

99 

        13.7    Assignments;
Participations.  

            (a)              Each
Lender may, with the prior written consent of Agent, assign all or, if less
          than all, a portion equal to at least $5,000,000 in the aggregate for the
          assigning Lender, of such rights and obligations under this Agreement to one or
          more Eligible Transferees (but not including for this purpose any assignments
in           the form of a participation), each of which assignees shall become a party
to           this Agreement as a Lender by execution of an Assignment and Acceptance; provided,
that, (i) such transfer or assignment will not be           effective until
recorded by Agent on the Register and (ii) Agent shall have           received for its
sole account payment of a processing fee from the assigning           Lender or the
assignee in the amount of $5,000.  

            (b)              Agent
shall maintain a register of the names and addresses of Lenders, their
          Commitments and the principal amount of their Loans (the “Register”).
          Agent shall also maintain a copy of each Assignment and Acceptance delivered to
          and accepted by it and shall modify the Register to give effect to each
          Assignment and Acceptance. The entries in the Register shall be conclusive and
          binding for all purposes, absent manifest error, and any Borrowers, Guarantors,
          Agent and Lenders may treat each Person whose name is recorded in the Register
          as a Lender hereunder for all purposes of this Agreement. The Register shall be
          available for inspection by Administrative Borrower and any Lender at any
          reasonable time and from time to time upon reasonable prior notice.  

            (c)              Upon
such execution, delivery, acceptance and recording, from and after the
          effective date specified in each Assignment and Acceptance, the assignee
          thereunder shall be a party hereto and to the other Financing Agreements and,
to           the extent that rights and obligations hereunder have been assigned to it
          pursuant to such Assignment and Acceptance, have the rights and obligations
          (including, without limitation, the obligation to participate in Letter of
          Credit Obligations) of a Lender hereunder and thereunder and the assigning
          Lender shall, to the extent that rights and obligations hereunder have been
          assigned by it pursuant to such Assignment and Acceptance, relinquish its
rights           and be released from its obligations under this Agreement.  

            (d)              By
execution and delivery of an Assignment and Acceptance, the assignor and
          assignee thereunder confirm to and agree with each other and the other parties
          hereto as follows: (i) other than as provided in such Assignment and
Acceptance,           the assigning Lender makes no representation or warranty and
assumes no           responsibility with respect to any statements, warranties or
representations           made in or in connection with this Agreement or any of the
other Financing           Agreements or the execution, legality, enforceability,
genuineness, sufficiency           or value of this Agreement or any of the other
Financing Agreements furnished           pursuant hereto, (ii) the assigning Lender makes
no representation or warranty           and assumes no responsibility with respect to the
financial condition of any           Borrower, Guarantor or any of their Subsidiaries or
the performance or           observance by any Borrower or Guarantor of any of the
Obligations; (iii) such           assignee confirms that it has received a copy of this
Agreement and the other           Financing Agreements, together with such other
documents and information it has           deemed appropriate to make its own credit
analysis and decision to enter into           such Assignment and Acceptance, (iv) such
assignee will, independently and           without reliance upon the assigning Lender,
Agent and based on such documents           and information as it shall deem appropriate
at the time, continue to make its           own credit decisions in taking or not taking
action under this Agreement and the           other Financing Agreements, (v) such
assignee appoints and authorizes Agent to           take such action as agent on its
behalf and to exercise such powers under this           Agreement and the other Financing
Agreements as are delegated to Agent by the           terms hereof and thereof, together
with such powers as are reasonably incidental           thereto, and (vi) such assignee
agrees that it will perform in accordance with           their terms all of the
obligations which by the terms of this Agreement and the           other Financing
Agreements are required to be performed by it as a Lender. Agent           and Lenders
may furnish any information concerning any Borrower or Guarantor in           the
possession of Agent or any Lender from time to time to assignees and
          Participants.  

100 

            (e)              Each
Lender may sell participations to one or more banks or other entities in or           to
all or a portion of its rights and obligations under this Agreement and the
          other Financing Agreements (including, without limitation, all or a portion of
          its Commitments and the Loans owing to it and its participation in the Letter
of           Credit Obligations, without the consent of Agent or the other Lenders); provided,
that, (i) such Lender’s obligations under this           Agreement
(including, without limitation, its Commitment hereunder) and the           other
Financing Agreements shall remain unchanged, (ii) such Lender shall remain
          solely responsible to the other parties hereto for the performance of such
          obligations, and Borrowers, Guarantors, the other Lenders and Agent shall
          continue to deal solely and directly with such Lender in connection with such
          Lender’s rights and obligations under this Agreement and the other
          Financing Agreements, and (iii) the Participant shall not have any rights under
          this Agreement or any of the other Financing Agreements (the Participant’s
          rights against such Lender in respect of such participation to be those set
          forth in the agreement executed by such Lender in favor of the Participant
          relating thereto) and all amounts payable by any Borrower or Guarantor
hereunder           shall be determined as if such Lender had not sold such
participation.  

            (f)              Nothing
in this Agreement shall prevent or prohibit any Lender from pledging its           Loans
hereunder to a Federal Reserve Bank in support of borrowings made by such
          Lenders from such Federal Reserve Bank; provided, that, no such
          pledge shall release such Lender from any of its obligations hereunder or
          substitute any such pledgee for such Lender as a party hereto.  

            (g)              Borrowers
and Guarantors shall assist Agent or any Lender permitted to sell           assignments
or participations under this Section 13.7 in whatever manner           reasonably
necessary in order to enable or effect any such assignment or           participation,
including (but not limited to) the execution and delivery of any           and all
agreements, notes and other documents and instruments as shall be           requested and
the delivery of informational materials, appraisals or other           documents for, and
the participation of relevant management in meetings and           conference calls with,
potential Lenders or Participants. Borrowers shall           certify the correctness,
completeness and accuracy, in all material respects, of           all descriptions of
Borrowers and Guarantors and their affairs provided,           prepared or reviewed by
any Borrower or Guarantor that are contained in any           selling materials and all
other information provided by it and included in such           materials.  

101 

        13.8    Entire
Agreement. This Agreement, the other Financing Agreements, any supplements hereto or
thereto, and any instruments or documents delivered or to be delivered in connection
herewith or therewith represents the entire agreement and understanding concerning the
subject matter hereof and thereof between the parties hereto, and supersede all other
prior agreements, understandings, negotiations and discussions, representations,
warranties, commitments, proposals, offers and contracts concerning the subject matter
hereof, whether oral or written. In the event of any inconsistency between the terms of
this Agreement and any schedule or exhibit hereto, the terms of this Agreement shall
govern.  

        13.9    USA
Patriot Act. Each Lender subject to the USA PATRIOT Act (Title III of Pub.L. 107-56
(signed into law October 26, 2001) (the “Act”) hereby notifies Borrowers and
Guarantors that pursuant to the requirements of the Act, it is required to obtain, verify
and record information that identifies each person or corporation who opens an account
and/or enters into a business relationship with it, which information includes the name
and address of Borrowers and Guarantors and other information that will allow such Lender
to identify such person in accordance with the Act and any other applicable law.
Borrowers and Guarantors are hereby advised that any Loans or Letters of Credit hereunder
are subject to satisfactory results of such verification.  

        13.10    Counterparts,
Etc. This Agreement or any of the other Financing Agreements may be executed in any
number of counterparts, each of which shall be an original, but all of which taken
together shall constitute one and the same agreement. Delivery of an executed counterpart
of this Agreement or any of the other Financing Agreements by telefacsimile or other
electronic method of transmission shall have the same force and effect as the delivery of
an original executed counterpart of this Agreement or any of such other Financing
Agreements. Any party delivering an executed counterpart of any such agreement by
telefacsimile or other electronic method of transmission shall also deliver an original
executed counterpart, but the failure to do so shall not affect the validity,
enforceability or binding effect of such agreement.  

102 

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

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

GUARANTORS
	
EGAMI MEDIA, INC.	HOME VISION ENTERTAINMENT, INC.
	
By: /S/ JEFF M. FRAMER	By: /S/ JEFF M. FRAMER
	
Title: CHIEF FINANCIAL OFFICER	Title: CHIEF FINANCIAL OFFICER
	
IMAGE ENTERTAINMENT (UK), INC.
	
By: /S/ JEFF M. FRAMER
	
Title: CHIEF FINANCIAL OFFICER

S-1 

EXHIBIT A 
to

LOAN AND SECURITY
AGREEMENT 

ASSIGNMENT AND
ACCEPTANCE AGREEMENT 

        This
ASSIGNMENT AND ACCEPTANCE AGREEMENT (this “Assignment and Acceptance”) dated as
of _____________, 200_  is made between ________________________ (the “Assignor”)
and ____________________ (the “Assignee”). 

W I T N E S S E T H:  

        WHEREAS,
Wachovia Capital Finance Corporation (Western), in its capacity as agent pursuant to the
Loan Agreement (as hereinafter defined) acting for and on behalf of the financial
institutions which are parties thereto as lenders (in such capacity, “Agent”),
and the financial institutions which are parties to the Loan Agreement as lenders
(individually, each a “Lender” and collectively, “Lenders”) have
entered or are about to enter into financing arrangements pursuant to which Agent and
Lenders may make loans and advances and provide other financial accommodations to Image
Entertainment, Inc., (“Administrative Borrower”) as set forth in the Loan and
Security Agreement, dated May 4, 2007, by and among Administrative Borrower, certain of
its affiliates, Agent and Lenders (as the same now exists or may hereafter be amended,
modified, supplemented, extended, renewed, restated or replaced, the “Loan
Agreement”), and the other agreements, documents and instruments referred to therein
or at any time executed and/or delivered in connection therewith or related thereto (all
of the foregoing, together with the Loan Agreement, as the same now exist or may hereafter
be amended, modified, supplemented, extended, renewed, restated or replaced, being
collectively referred to herein as the “Financing Agreements”); 

        WHEREAS,
as provided under the Loan Agreement, Assignor committed to making Loans (the
“Committed Loans”) to Borrowers in an aggregate amount not to exceed
$___________ (the “Commitment”); 

        WHEREAS,
Assignor wishes to assign to Assignee [part of the] [all] rights and obligations of
Assignor under the Loan Agreement in respect of its Commitment in an amount equal to
$______________ (the “Assigned Commitment Amount”) on the terms and subject to
the conditions set forth herein and Assignee wishes to accept assignment of such rights
and to assume such obligations from Assignor on such terms and subject to such conditions; 

        NOW,
THEREFORE, in consideration of the foregoing and the mutual agreements contained herein,
the parties hereto agree as follows: 

        1.    Assignment
and Acceptance.  

            (a)              Subject
to the terms and conditions of this Assignment and Acceptance, Assignor           hereby
sells, transfers and assigns to Assignee, and Assignee hereby purchases,
          assumes and undertakes from Assignor, without recourse and without
          representation or warranty (except as provided in this Assignment and
          Acceptance) an interest in (i) the Commitment and each of the Committed Loans
of           Assignor and (ii) all related rights, benefits, obligations, liabilities and
          indemnities of the Assignor under and in connection with the Loan Agreement and
          the other Financing Agreements, so that after giving effect thereto, the
          Commitment of Assignee shall be as set forth below and the Pro Rata Share of
          Assignee shall be _______ (__%) percent.  

A-1 

            (b)              With
effect on and after the Effective Date (as defined in Section 5 hereof),
          Assignee shall be a party to the Loan Agreement and succeed to all of the
rights           and be obligated to perform all of the obligations of a Lender under the
Loan           Agreement, including the requirements concerning confidentiality and the
payment           of indemnification, with a Commitment in an amount equal to the
Assigned           Commitment Amount. Assignee agrees that it will perform in accordance
with their           terms all of the obligations which by the terms of the Loan
Agreement are           required to be performed by it as a Lender. It is the intent of
the parties           hereto that the Commitment of Assignor shall, as of the Effective
Date, be           reduced by an amount equal to the Assigned Commitment Amount and
Assignor shall           relinquish its rights and be released from its obligations under
the Loan           Agreement to the extent such obligations have been assumed by
Assignee; provided, that, Assignor shall not relinquish its rights under
          Sections 2.2, 6.4, 6.9, 11.5 and 12.5 of the Loan Agreement to the extent such
          rights relate to the time prior to the Effective Date.  

            (c)              After
giving effect to the assignment and assumption set forth herein, on the
          Effective Date Assignee’s Commitment will be $_____________.  

            (d)              After
giving effect to the assignment and assumption set forth herein, on the
          Effective Date Assignor’s Commitment will be $______________ (as such
          amount may be further reduced by any other assignments by Assignor on or after
          the date hereof).  

        2.    Payments.  

            (a)              As
consideration for the sale, assignment and transfer contemplated in Section 1
          hereof, Assignee shall pay to Assignor on the Effective Date in immediately
          available funds an amount equal to $____________, representing Assignee’s
          Pro Rata Share of the principal amount of all Committed Loans.  

            (b)              Assignee
shall pay to Agent the processing fee in the amount specified in           Section
13.7(a) of the Loan Agreement.  

        3.    Reallocation
of Payments. Any interest, fees and other payments accrued           to the Effective
Date with respect to the Commitment, Committed Loans and           outstanding Letters of
Credit shall be for the account of Assignor. Any           interest, fees and other
payments accrued on and after the Effective Date with           respect to the Assigned
Commitment Amount shall be for the account of Assignee.           Each of Assignor and
Assignee agrees that it will hold in trust for the other           party any interest,
fees and other amounts which it may receive to which the           other party is
entitled pursuant to the preceding sentence and pay to the other           party any such
amounts which it may receive promptly upon receipt.  

        4.    Independent
Credit Decision. Assignee acknowledges that it has received a           copy of the
Loan Agreement and the Schedules and Exhibits thereto, together with           copies of
the most recent financial statements of Parent and its Subsidiaries,           and such
other documents and information as it has deemed appropriate to make           its own
credit and legal analysis and decision to enter into this Assignment and
          Acceptance and agrees that it will, independently and without reliance upon
          Assignor, Agent or any Lender and based on such documents and information as it
          shall deem appropriate at the time, continue to make its own credit and legal
          decisions in taking or not taking action under the Loan Agreement.  

A-2 

        5.    Effective
Date; Notices.  

            (a)              As
between Assignor and Assignee, the effective date for this Assignment and
          Acceptance shall be _______________, 200_ (the “Effective Date”); provided,
that, the following conditions precedent have been           satisfied on or
before the Effective Date:  

                (i)              this
Assignment and Acceptance shall be executed and delivered by Assignor and
          Assignee;  

                (ii)              the
consent of Agent as required for an effective assignment of the Assigned
          Commitment Amount by Assignor to Assignee shall have been duly obtained and
          shall be in full force and effect as of the Effective Date;  

                (iii)              written
notice of such assignment, together with payment instructions, addresses           and
related information with respect to Assignee, shall have been given to
          Administrative Borrower and Agent;  

                (iv)              Assignee
shall pay to Assignor all amounts due to Assignor under this Assignment           and
Acceptance; and  

                (v)              the
processing fee referred to in Section 2(b) hereof shall have been paid to
          Agent.  

            (b)              the
execution of this Assignment and Acceptance, Assignor shall deliver to
          Administrative Borrower and Agent for acknowledgment by Agent, a Notice of
          Assignment in the form attached hereto as Schedule 1.  

        6.    Agent.
[INCLUDE ONLY IF ASSIGNOR IS AN AGENT]  

            (a)              Assignee
hereby appoints and authorizes Assignor in its capacity as Agent to           take such
action as agent on its behalf to exercise such powers under the Loan           Agreement
as are delegated to Agent by Lenders pursuant to the terms of the Loan
          Agreement.  

            (b)              Assignee
shall assume no duties or obligations held by Assignor in its capacity           as Agent
under the Loan Agreement.]  

        7.    Withholding
Tax. Assignee (a) represents and warrants to Assignor, Agent           and Borrowers
that under applicable law and treaties no tax will be required to           be withheld
by Assignee, Agent or Borrowers with respect to any payments to be           made to
Assignee hereunder or under any of the Financing Agreements, (b) agrees           to
furnish (if it is organized under the laws of any jurisdiction other than the
          United States or any State thereof) to Agent and Borrowers prior to the time
          that Agent or Borrowers are required to make any payment of principal, interest
          or fees hereunder, duplicate executed originals of either U.S. Internal Revenue
          Service Form W-8BEN or W-8ECI, as applicable (wherein Assignee claims
          entitlement to the benefits of a tax treaty that provides for a complete
          exemption from U.S. federal income withholding tax on all payments hereunder)
          and agrees to provide new such forms upon the expiration of any previously
          delivered form or comparable statements in accordance with applicable U.S. law
          and regulations and amendments thereto, duly executed and completed by
Assignee,           and (c) agrees to comply with all applicable U.S. laws and
regulations with           regard to such withholding tax exemption.  

A-3 

        8.    Representations
and Warranties.  

            (a)              Assignor
represents and warrants that (i) it is the legal and beneficial owner           of the
interest being assigned by it hereunder and that such interest is free           and
clear of any security interest, lien, encumbrance or other adverse claim,           (ii)
it is duly organized and existing and it has the full power and authority           to
take, and has taken, all action necessary to execute and deliver this
          Assignment and Acceptance and any other documents required or permitted to be
          executed or delivered by it in connection with this Assignment and Acceptance
          and to fulfill its obligations hereunder, (iii) no notices to, or consents,
          authorizations or approvals of, any Person are required (other than any already
          given or obtained) for its due execution, delivery and performance of this
          Assignment and Acceptance, and apart from any agreements or undertakings or
          filings required by the Loan Agreement, no further action by, or notice to, or
          filing with, any Person is required of it for such execution, delivery or
          performance, and (iv) this Assignment and Acceptance has been duly executed and
          delivered by it and constitutes the legal, valid and binding obligation of
          Assignor, enforceable against Assignor in accordance with the terms hereof,
          subject, as to enforcement, to bankruptcy, insolvency, moratorium,
          reorganization and other laws of general application relating to or affecting
          creditors’ rights and to general equitable principles.  

            (b)              Assignor
makes no representation or warranty and assumes no responsibility with           respect
to any statements, warranties or representations made in or in           connection with
the Loan Agreement or any of the other Financing Agreements or           the execution,
legality, validity, enforceability, genuineness, sufficiency or           value of the
Loan Agreement or any other instrument or document furnished           pursuant thereto.
Assignor makes no representation or warranty in connection           with, and assumes no
responsibility with respect to, the solvency, financial           condition or statements
of Borrowers, Guarantors or any of their respective           Affiliates, or the
performance or observance by Borrowers, Guarantors or any           other Person, of any
of its respective obligations under the Loan Agreement or           any other instrument
or document furnished in connection therewith.  

            (c)              Assignee
represents and warrants that (i) it is duly organized and existing and           it has
full power and authority to take, and has taken, all action necessary to
          execute and deliver this Assignment and Acceptance and any other documents
          required or permitted to be executed or delivered by it in connection with this
          Assignment and Acceptance, and to fulfill its obligations hereunder, (ii) no
          notices to, or consents, authorizations or approvals of, any Person are
required           (other than any already given or obtained) for its due execution,
delivery and           performance of this Assignment and Acceptance, and apart from any
agreements or           undertakings or filings required by the Loan Agreement, no
further action by, or           notice to, or filing with, any Person is required of it
for such execution,           delivery or performance; and (iii) this Assignment and
Acceptance has been duly           executed and delivered by it and constitutes the
legal, valid and binding           obligation of Assignee, enforceable against Assignee
in accordance with the           terms hereof, subject, as to enforcement, to bankruptcy,
insolvency, moratorium,           reorganization and other laws of general application
relating to or affecting           creditors’ rights to general equitable
principles.  

A-4 

        9.    Further
Assurances. Assignor and Assignee each hereby agree to execute           and deliver
such other instruments, and take such other action, as either party           may
reasonably request in connection with the transactions contemplated by this
          Assignment and Acceptance, including the delivery of any notices or other
          documents or instruments to Borrowers or Agent, which may be required in
          connection with the assignment and assumption contemplated hereby.  

        10.    Miscellaneous.  

            (a)              Any
amendment or waiver of any provision of this Assignment and Acceptance shall           be
in writing and signed by the parties hereto. No failure or delay by either
          party hereto in exercising any right, power or privilege hereunder shall
operate           as a waiver thereof and any waiver of any breach of the provisions of
this           Assignment and Acceptance shall be without prejudice to any rights with
respect           to any other for further breach thereof.  

            (b)              All
payments made hereunder shall be made without any set-off or counterclaim.  

            (c)              Assignor
and Assignee shall each pay its own costs and expenses incurred in           connection
with the negotiation, preparation, execution and performance of this           Assignment
and Acceptance.  

            (d)              This
Assignment and Acceptance may be executed in any number of counterparts and           all
of such counterparts taken together shall be deemed to constitute one and           the
same instrument.  

            (e)              THIS
ASSIGNMENT AND ACCEPTANCE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE           WITH
THE LAW OF THE STATE OF CALIFORNIA. Assignor and Assignee each irrevocably
          submits to the non-exclusive jurisdiction of any State or Federal court sitting
          in Los Angeles County, California over any suit, action or proceeding arising
          out of or relating to this Assignment and Acceptance and irrevocably agrees
that           all claims in respect of such action or proceeding may be heard and
determined           in such State or Federal court. Each party to this Assignment and
Acceptance           hereby irrevocably waives, to the fullest extent it may effectively
do so, the           defense of an inconvenient forum to the maintenance of such action
or           proceeding.  

            (f)              ASSIGNOR
AND ASSIGNEE EACH HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE           ANY
RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED
          HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH THIS ASSIGNMENT AND
          ACCEPTANCE, THE LOAN AGREEMENT, ANY OF THE OTHER FINANCING AGREEMENTS OR ANY
          RELATED DOCUMENTS AND AGREEMENTS OR ANY COURSE OF CONDUCT, COURSE OF DEALING,
OR           STATEMENTS (WHETHER ORAL OR WRITTEN).  

A-5 

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

	 	
[ASSIGNOR]

	 	
By:________________________________________ 

	 	
Title:_______________________________________ 

	 	
[ASSIGNEE]

	 	
By:________________________________________ 

	 	
Title:_______________________________________ 

A-6 

SCHEDULE 1 

NOTICE OF ASSIGNMENT
AND ACCEPTANCE 

______________, 20__ 

_________________________
_________________________
_________________________  

Attn.: ______________________

	 	
Re:______________________________  

Ladies and Gentlemen: 

        Wachovia
Capital Finance Corporation (Western), in its capacity as agent pursuant to the Loan
Agreement (as hereinafter defined) acting for and on behalf of the financial institutions
which are parties thereto as lenders (in such capacity, “Agent”), and the
financial institutions which are parties to the Loan Agreement as lenders (individually,
each a “Lender” and collectively, “Lenders”) have entered or are about
to enter into financing arrangements pursuant to which Agent and Lenders may make loans
and advances and provide other financial accommodations to Image Entertainment, Inc.
(“Administrative Borrower”) as set forth in the Loan and Security Agreement,
dated May 7, 2007, by and among Administrative Borrower, certain of its affiliates, Agent
and Lenders (as the same now exists or may hereafter be amended, modified, supplemented,
extended, renewed, restated or replaced, the “Loan Agreement”), and the other
agreements, documents and instruments referred to therein or at any time executed and/or
delivered in connection therewith or related thereto (all of the foregoing, together with
the Loan Agreement, as the same now exist or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced, being collectively referred to
herein as the “Financing Agreements”). Capitalized terms not otherwise defined
herein shall have the respective meanings ascribed thereto in the Loan Agreement. 

        1.              We
hereby give you notice of, and request your consent to, the assignment by
          __________________________ (the “Assignor”) to
          ___________________________ (the “Assignee”) such that after giving
          effect to the assignment Assignee shall have an interest equal to ________
(__%)           percent of the total Commitments pursuant to the Assignment and
Acceptance           Agreement attached hereto (the “Assignment and Acceptance”).
We           understand that the Assignor’s Commitment shall be reduced by
          $_____________, as the same may be further reduced by other assignments on or
          after the date hereof.  

        2.              Assignee
agrees that, upon receiving the consent of Agent to such assignment,           Assignee
will be bound by the terms of the Loan Agreement as fully and to the           same
extent as if the Assignee were the Lender originally holding such interest
          under the Loan Agreement.  

A-7 

        3.              The
following administrative details apply to Assignee:  

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

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

A-8 

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

		Very truly yours,
	
 	[NAME OF ASSIGNOR]
	
 	By:________________________________________
	
 	Title:_______________________________________
	

 	[NAME OF ASSIGNEE]
	
 	By:________________________________________
	
 	Title:_______________________________________

ACKNOWLEDGED AND ASSIGNMENT

CONSENTED TO:  

WACHOVIA CAPITAL FINANCE
CORPORATION
(WESTERN), as Agent  

By:________________________________________ 

Title:_______________________________________  

A-9 

EXHIBIT C 
TO 
LOAN AND SECURITY
AGREEMENT 

Compliance Certificate 

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

Pasadena, CA 91101 

Ladies and Gentlemen: 

        I
hereby certify to you pursuant to Section 9.6 of the Loan Agreement (as defined below) as
follows: 

        1.              I
am the duly elected Chief Financial Officer of Image Entertainment, Inc., a
          Delaware corporation (“Administrative Borrower”). Capitalized terms
          used herein without definition shall have the meanings given to such terms in
          the Loan and Security Agreement, dated May 4, 2007, by and among Wachovia
          Capital Finance Corporation (Western) as agent for the financial institutions
          party thereto as lenders (in such capacity, “Agent”) and the
financial           institutions party thereto as lenders (collectively, “Lenders”),
          Administrative Borrower and certain of its affiliates (as such Loan and
Security           Agreement is amended, modified or supplemented, from time to time, the
          “Loan Agreement”).  

        2.              I
have reviewed the terms of the Loan Agreement, and have made, or have caused           to
be made under my supervision, a review in reasonable detail of the           transactions
and the financial condition of Borrowers and Guarantors, during the           immediately
preceding fiscal month.  

        3.              The
review described in Section 2 above did not disclose the existence during or           at
the end of such fiscal month, and I have no knowledge of the existence and
          continuance on the date hereof, of any condition or event which constitutes a
          Default or an Event of Default, except as set forth on Schedule I attached
          hereto. Described on Schedule I attached hereto are the exceptions, if any, to
          this Section 3 listing, in detail, the nature of the condition or event, the
          period during which it has existed and the action which any Borrower or
          Guarantor has taken, is taking, or proposes to take with respect to such
          condition or event.  

        4.              I
further certify that, based on the review described in Section 2 above, no
          Borrower or Guarantor has not at any time during or at the end of such fiscal
          month, except as specifically described on Schedule II attached hereto or as
          permitted by the Loan Agreement, done any of the following:  

            (a)              Changed
its respective corporate name, or transacted business under any trade           name,
style, or fictitious name, other than those previously described to you           and set
forth in the Financing Agreements.  

            (b)              Changed
the location of its chief executive office, changed its jurisdiction of
          incorporation, changed its type of organization or changed the location of or
          disposed of any of its properties or assets (other than pursuant to the sale of
          Inventory in the ordinary course of its business or as otherwise permitted by
          Section 9.7 of the Loan Agreement), or established any new asset locations.  

C-1 

            (c)              Materially
changed the terms upon which it sells goods (including sales on           consignment) or
provides services, nor has any vendor or trade supplier to any           Borrower or
Guarantor during or at the end of such period materially adversely           changed the
terms upon which it supplies goods to any Borrower or Guarantor.  

            (d)              Permitted
or suffered to exist any security interest in or liens on any of its
          properties, whether real or personal, other than as specifically permitted in
          the Financing Agreements.  

            (e)              Received
any notice of, or obtained knowledge of any of the following not           previously
disclosed to Agent: (i) the occurrence of any event involving the           release,
spill or discharge of any Hazardous Material in violation of applicable
          Environmental Law in a material respect or (ii) any investigation, proceeding,
          complaint, order, directive, claims, citation or notice with respect to: (A)
any           non-compliance with or violation of any applicable Environmental Law by any
          Borrower or Guarantor in any material respect or (B) the release, spill or
          discharge of any Hazardous Material in violation of applicable Environmental
Law           in a material respect or (C) the generation, use, storage, treatment,
          transportation, manufacture, handling, production or disposal of any Hazardous
          Materials in violation of applicable Environmental Laws in a material respect
or           (D) any other environmental, health or safety matter, which has a material
          adverse effect on any Borrower or Guarantor or its business, operations or
          assets or any properties at which such Borrower or Guarantor transported,
stored           or disposed of any Hazardous Materials.  

            (f)              Become
aware of, obtained knowledge of, or received notification of, any breach           or
violation of any material covenant contained in any instrument or agreement           in
respect of Indebtedness for money borrowed by any Borrower or Guarantor.  

        5.              Attached
hereto as Schedule III are the calculations used in determining, as of           the end
of the fiscal month ended __________, 20__, whether Borrowers and           Guarantors
are in compliance with the covenants set forth in Section 9.17 of the           Loan
Agreement for such fiscal month.  

        The
foregoing certifications are made and delivered this day of ___________, 20__. 

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

C-2Exhibit 10.19

HOLMES FINANCING (NO. 6) PLC 

 

REPORT AND ACCOUNTS 

 

FOR THE YEAR ENDED 31 DECEMBER 2006

 

Registered in England and Wales No. 4359738

 

 

 

 

 

HOLMES FINANCING (NO.6) PLC 

 

Report of the directors

 

The Directors submit their report together with the financial statements for the year ended 31 December 2006.

 

Principal activity and Enhanced Business Review 

The principal activity of the Company is to issue asset backed notes and enter into all financial arrangements in that connection.

 

During the year the Company received interest of £105.3m (2005: £119.8m) from Holmes Funding Limited.  The Company used those cash resources to pay interest of £96.3m (2005: £145.8m) on the debt securities.  The Company received repayments of principal £nil (2005: £873.5m) and made payments of principal of £nil (2005: £873.5m).  All amounts were paid in full and on time.

 

The Directors do not expect any significant change in the level of business in the foreseeable future.

 

	
            Key Performance Indicators
 	
            Net interest margin
 	
            Net assets
 
	
             

Closing date of securitisation
 	
            2006

£000
 	
            2005

£000
 	
            2006

£000
 	
            2005
 £000
 
	
             
 	
             
 	
             
 	
             
 	
             
 
	
            7 November 2002
 	
            1
 	
            -
 	
            14
 	
            347
 

 

The purpose of this Report is to provide information to the members of the Company and as such it is only addressed to those members.  The Report may contain certain forward-looking statements with respect to the operations, performance and financial condition of the Company.  By their nature, these statements involve inherent risks and uncertainties since future events, circumstances and other factors can cause results and developments to differ materially from the plans, objectives, expectations and intentions expressed in such forward-looking statements. Members should consider this when relying on any forward-looking statements.  The forward-looking statements reflect knowledge and information available at the date of preparation of this Report and the Company undertakes no obligation to update any forward-looking statement during the year.  Nothing in this Report should be construed as a profit forecast.

 

Results and dividends

 

The loss for the year on ordinary activities after taxation amounted to £333,000 (2005: profit £296,000).

 

The Directors do not recommend the payment of a dividend (2005: £nil).

 

Directors and their interests

 

The Directors who served throughout the year were:

 

Mr D M Green

Mr M McDermott

Ms R Samson (appointed 10 November 2006)

Mr R G Baker (Alternate Director to Mr D M Green, appointed 28 July 2006, resigned 10 November 2006)

Wilmington Trust SP Services (London) Limited 

 

At the year end and the previous year end, Holmes Holdings Limited and Mr M McDermott jointly held one share in the Company.

 

Wilmington Trust SP Services (London) Limited and Mr M McDermott jointly held one share in the holding company, Holmes Holdings Limited, at the year end.  The other share in Holmes Holdings Limited was held by Wilmington Trust SP Services (London) Limited. Mr M McDermott is also a Director of Wilmington Trust SP Services (London) Limited.

 

None of the other Directors had a beneficial interest in the shares of the Company, or of the holding company, Holmes Holdings Limited and its subsidiaries, at the year-end.

 

Financial Instruments

 

The Company’s financial instruments, other than derivatives, comprise loans to group undertakings, borrowings, cash and liquid resources, and various items, such as debtors and creditors that arise directly from its operations.  The main purpose of these financial instruments is to raise finance for the Company’s operations.

 

The Company also enters into derivatives transactions (principally cross currency swaps).  The purpose of such transactions is to manage the currency risks arising from the Company’s operations and its sources of finance.

 

 

Report of the directors (continued)

 

1

 

HOLMES FINANCING (NO.6) PLC 

 

 

It is, and has been throughout the year under review, the Company’s policy that no trading in financial instruments shall be undertaken.

 

Financial Instruments (continued)

 

The main risk arising from the Company’s financial instruments is currency risk. The Company has debt securities in issue denominated in US Dollars, Euros and Swiss Francs.  The Board reviews and agrees policies for managing this risk. The Company’s policy is to eliminate all exposures arising from movements in exchange rates by the use of cross currency swaps to hedge payments of interest and principal on the securities.

 

All other assets, liabilities and transactions are denominated in Sterling.

 

Further disclosures regarding financial risk management objectives and policies and the company’s exposure to principal risks can be found in note 2.

 

Directors’ responsibility statement

 

The directors are responsible for preparing their report and financial statements.  The directors have chosen to prepare accounts for the Company in accordance with International Financial Reporting Standards (IFRS).  Company law requires the directors to prepare such financial statements in accordance with International Financial Reporting Standards and the Companies Act 1985.

 

International Accounting Standard 1 requires that financial statements present fairly for each financial year the company’s financial position, financial performance and cash flows.  This requires the faithful representation of the effects of transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the International Accounting Standards Board’s ‘Framework for the Preparation and Presentation of Financial Statements’.  In virtually all circumstances, a fair presentation will be achieved by compliance with all applicable International Financial Reporting Standards.  Directors are also required to:

 

	
             
 	
            •
 	
            properly select and apply accounting policies;
 

	
             
 	
            •
 	
            present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;
 

	
             
 	
            •
 	
            provide additional disclosures when compliance with the specific requirements in International Financial Reporting Standards is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity’s financial position and financial performance; and
 

	
             
 	
            •
 	
            prepare the accounts on a going concern basis unless, having assessed the ability of the company to continue as a going concern, management either intends to liquidate the entity or to cease trading, or have no realistic alternative but to do so.
 

 

The directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the company, for safeguarding assets, for taking reasonable steps for the prevention and detection of fraud and other irregularities and for the preparation of a directors’ report which complies with the requirements of the Companies Act 1985.

 

Legislation in the United Kingdom governing the preparation and dissemination of financial statements differs from legislation in other jurisdictions.

 

Third Party Indemnities

 

During 2006, Abbey National plc applied the provisions of the Companies (Audit, Investigations and Community Enterprise) Act 2004 to provide enhanced indemnities to the Directors of the Company and any of its subsidiaries or other company where such person has been nominated in writing by Abbey as its representative on the board of such companies against liabilities and associated costs which they could incur in the course of their duties to the Company.  The indemnities remain in force as at the date of this Annual Report & Accounts.  A copy of each of the indemnities is kept at the registered office address of Abbey National plc.

 

2

 

HOLMES FINANCING (NO.6) PLC 

 

Report of the directors (continued)

 

Payment Policy

Given the nature of the Company's business, the Company does not have any suppliers and there therefore does not operate a payment policy.  The Company has no creditors and is unable to quantify the practice on payment of creditors.

 

Auditors

 

At the forthcoming Annual General Meeting of the Company it will be proposed that Deloitte & Touche LLP be re-appointed as auditors of the Company, in accordance with the resolution by Abbey National plc to appoint Deloitte & Touche LLP as auditors of Abbey National plc and its subsidiaries.

 

In the case of each of the persons who are directors of the company at the date when this report was approved:

 

	
             
 	
            •
 	
            so far as each of the directors is aware, there is no relevant audit information (as defined in s234ZA of the Companies Act 1985) of which the company’s auditors are unaware; and
 

	
             
 	
            •
 	
            each of the directors has taken all steps that he ought to have taken as director to make himself aware of any relevant audit information (as defined in s234ZA of the Companies Act 1985) and to establish that the company’s auditors are aware of that information.
 

 

By Order of the Board

 

 

For and on behalf of 

Abbey National Secretariat Services Limited, Secretary

 

2 March 2007

 

Registered Office Address: Abbey National House, 2 Triton Square, Regent's Place, London NW1 3AN

3

 

HOLMES FINANCING (NO.6) PLC 

 

Independent auditors’ report to the members of Holmes Financing (No.6) plc

 

We have audited the financial statements of Holmes Financing (No.6) plc for the year ended 31 December 2006 which comprise the Income Statement, the Statement of Recognised Income and Expense, the Balance Sheet, the Cash Flow Statement and the related notes 1 to 20. These financial statements have been prepared under the accounting policies set out therein.

 

Respective responsibilities of directors and auditors

 

The directors' responsibilities for preparing the Annual Report and the financial statements in accordance with applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union are set out in the Directors' Responsibility Statement.

 

Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland).

 

We report to you our opinion as to whether the financial statements give a true and fair view and are properly prepared in accordance with the Companies Act 1985. We also report to you whether in our opinion the information given in the Report of the directors is consistent with the financial statements. 

 

In addition we report to you if, in our opinion, the company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding directors' remuneration and other transactions is not disclosed.

 

We read the Report of the directors and the other information contained in the annual report and consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. Our responsibilities do not extend to any further information outside the Annual Report.

 

Basis of audit opinion

 

We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgments made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the company's circumstances, consistently applied and adequately disclosed.

 

We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements.

 

Opinion

 

In our opinion:

  	
        •
	
        the financial statements give a true and fair view, in accordance with IFRSs as adopted by the European Union, of the state of the company's affairs as at 31 December 2006 and of its loss for the year then ended;

  	
        •
	
        the financial statements have been properly prepared in accordance with the Companies Act 1985; and

  	
        •
	
        the information given in the Report of the directors is consistent with the financial statements.

Separate opinion in relation to IFRSs

 

As explained in Note 1 to the financial statements, the company in addition to complying with IFRSs as adopted by the European Union, has also complied with the IFRSs as issued by the International Accounting Standards Board.

 

In our opinion the financial statements give a true and fair view, in accordance with IFRSs, of the state of the company's affairs as at 31 December 2006 and of its loss for the year then ended.

 

Deloitte & Touche LLP

Chartered Accountants and Registered Auditors 

London

2 March  2007

 

 

4

 

HOLMES FINANCING (NO.6) PLC 

 

 

 

Income Statement

For the year ended 31 December 2006

 

	
             

 

Continuing operations
  	
             

 

Notes
 	
            Year ended

31 December 2006

£000
 	
            Year ended

31 December 2005

£000
 
	
       
  	
       
 	
             
 	
             
 
	
      Interest and similar income
 	
      4
 	
            106,636
 	
            121,925
 
	
      Interest expense and similar charges
 	
      5
 	
            (106,635)
 	
            (121,925)
 
	
      Net interest income
 	
       
 	
            1
 	
            -
 
	
      Other operating (expense)/income
 	
      6
 	
            (478)
 	
            423
 
	
      (Loss)/profit before tax
 	
      7
 	
            (477)
 	
            423
 
	
      Tax
 	
      8
 	
            144
 	
            (127)
 
	
      (Loss)/profit attributable to equity holders of the company
  	
       
 	
            (333)
 	
  296
 

 

 

 

 

 

Statement of Recognised Income and Expense

For the year ended 31 December 2006

 

The Company has no recognised income or expenses other than the results for the current and previous year as set out in the Income Statement.

 

 

 

 

 

 

5

 

HOLMES FINANCING (NO.6) PLC 

 

 

 

Balance Sheet

As at 31 December 2006

 

	
       

       

       
	
      Notes
    	
      2006

    £000
	
      2005

    £00

	
       
	
       
	
       
	
       

	
      Loans and advances to group companies
	
      9
	
      2,077,278
	
      2,077,278

	
      Other assets
	
      11
	
      23,921
	
      21,373

	
      Cash and cash equivalents
	
      14
	
      15
	
      56,567

	
      Deferred tax asset
	
      13
	
      17
	
      -

	
      Total assets
	
       
	
      2,101,231
	
      2,155,218

	 	 	 	 
	
      Derivative financial instruments
	
      10
	
      (109,515)
	
      (4,234)

	
      Debt securities in issue
	
      12
	
      (1,967,818)
	
      (2,072,621)

	
      Deferred tax liabilities
	
      13
	
      -
	
      (127)

	
      Other liabilities
	
      15
	
      (23,884)
	
      (77,889)

	
      Total liabilities
	
       
	
      2,101,217
	
      2,154,871

	
      Equity
	
       
	
       
	
       

	
      Share capital
	
      16
	
      (50)
	
      (50)

	
      Accumulated losses/(retained earnings)
	
      17
	
      36
	
      (297)

	
      Total liabilities and equity
	
       
	
      (2,101,231)
	
      (2,155,218)

 

 

 

 

The financial statements were approved by the board of directors and authorised for issue on 2 March 2007.  They were signed on its behalf by:

 

 

 

M McDermott

Director

6

 

HOLMES FINANCING (NO.6) PLC 

 

 

 

Cash Flow Statement

For the year ended 31 December 2006

 

	
             

 

 
 	
             

 

Notes
 	
            Year ended 

31 December 2006

£000
 	
            Year ended 

31 December 2005

£000
 
	
       
  	
       
 	
       
 	
             
 
	
      Net cash (used in)/from operating activities
 	
      18
 	
      (56,552)
 	
            (25,994)
 
	
       
  	
       
 	
       
 	
             
 
	
      Investing activities
  	
       
 	
       
 	
             
 
	
      Repayment of loans to group companies
  	
       
 	
      -
 	
            873,494
 
	
      Net cash from investing activities
  	
       
 	
      -
 	
            873,494
 
	
       
 	
       
 	
       
 	
             
 
	
      Financing activities
  	
       
 	
       
 	
             
 
	
      Repayment of debt securities in issue
 	
       
 	
      -
 	
            (873,494)
 
	
      Net cash used in financing activities
  	
       
 	
      -
 	
            (873,494)
 
	
       
 	
       
 	
       
 	
             
 
	
      Net (decrease) in cash and cash equivalents
  	
       
 	
      (56,552)
 	
            (25,994)
 
	
      Cash and cash equivalents at beginning of year
  	
       
 	
      56,567
 	
            82,561
 
	
      Cash and cash equivalents at end of year
  	
       
 	
      15
 	
  56,567
 

 

 

 

7

 

HOLMES FINANCING (NO.6) PLC

 

Notes to the financial statements for the year ended 31 December 2006

 

1. Accounting policies

 

The principal accounting policies applied in the preparation of financial statements are set out below. These policies have been consistently applied to all years presented, unless otherwise stated.

 

Basis of preparation

 

The financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as adopted for use in the European Union that are effective or available for early adoption at the company’s reporting date. The company, in addition to complying with its legal obligation to comply with IFRSs as adopted for use in the European Union, has also complied with the IFRSs as issued by the International Accounting Standards Board. The financial statements have been prepared under the historical cost convention.

 

The company has adopted the following new or revised IFRS:

 

	
             
 	
            a)
 	
            The amendments to IAS 39 “Financial Instruments: Recognition and Measurement” and IFRS 4 “Insurance Contracts” relating to Financial Guarantee Contracts.
 

	
             
 	
            b)
 	
            The company has decided to early adopt IFRS 7 “Financial Instruments: Disclosure”.  The company is going to adopt the amendments to IAS 1 “Presentation of Financial statements” in 2007.
 

 

Due to the nature of the business the Directors’ are of the opinion that it is more appropriate to use net interest income rather than turnover in presenting the income statement.

 

Foreign currency translation

 

Items included in the financial statements of the entity are measured using the currency that best reflects the economic substance of the underlying events and circumstances relevant to that entity (“the functional currency”). The financial statements are presented in Pounds Sterling.

 

Foreign currency transactions are translated into the functional currency at the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement. 

 

Revenue recognition

 

Interest income and expense is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount.

 

Offsetting financial instruments

 

Financial assets and liabilities including derivatives are offset and the net amount reported in the balance sheet when there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously.

 

Derivative financial instruments and hedge accounting

 

Derivatives are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at their fair value.  Fair values are obtained from quoted market prices in active markets, including recent market transactions, and valuation techniques, including discounted cash flow models and option pricing models as appropriate.  All derivatives are carried as assets when fair value is positive and as liabilities when fair value is negative.

 

The method of recognising the resulting fair value gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged.  The entity designates all its derivatives as hedges of the fair value of recognised assets or liabilities or firm commitments (fair value hedge). Hedge accounting is used for derivatives designated in this way provided certain criteria are met.

 

The entity documents, at the inception of the transaction, the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions.  The entity also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items.

 

8

 

HOLMES FINANCING (NO.6) PLC

 

Notes to the financial statements for the year ended 31 December 2006

 

1. Accounting policies (continued)

 

Fair value hedge

 

Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the income statement, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk.  Any hedge ineffectiveness is shown in other operating income.

 

If the hedge no longer meets the criteria for hedge accounting, the adjustment to the carrying amount of the hedged item for which the effective interest method is used is amortised to profit or loss over the period to maturity.  The adjustment to the carrying amount of a hedged equity security remains in retained earnings until the disposal of the equity security.

 

Income taxes, including deferred income taxes

 

The tax expense represents the sum of the income tax currently payable and deferred income tax.

 

Income tax payable on profits, based on the applicable tax law in each jurisdiction is recognised as an expense in the period in which profits arise. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. The tax effects of income tax losses available to carry forward are recognised as an asset when it is probable that future taxable profits will be available against which tax losses can be utilised.

 

Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. . Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition of other assets (other than in a business combination) and liabilities in a transaction that affects neither the tax profit nor the accounting profit.

 

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

 

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries except where we are able to control reversal of the temporary difference and it is probable that it will not reverse.

 

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

 

Deferred and current tax assets and liabilities are only offset when they arise in the same tax reporting group and where there is both the legal right and the intention to settle on a net basis or to realise the asset and settle the liability simultaneously.

 

Financial assets

 

The entity classifies its financial assets as loans and receivables which are held at amortised cost.  These includes loans and advances to group companies shown on the face of the balance sheet, accrued interest receivable shown within other assets and cash and cash equivalents shown on the face of the balance sheet.  Derivatives are classified as fair value and are shown on the face of the balance sheet.

 

Cash and cash equivalents

 

For the purposes of the cash flow statement, cash and cash equivalents comprise balances with less than three months’ maturity from the date of acquisition, including cash and non restricted balances with central banks, treasury bills and other eligible bills, loans and advances to banks, amounts due from other banks and short term investments in securities.

 

Financial liabilities

 

Financial liabilities are measured at amortised cost, which includes a valuation adjustment for debt securities designated as hedging instruments.  These include debt securities in issue shown on the face of the balance sheet, and accrued interest shown within other liabilities. 

 

9

 

HOLMES FINANCING (NO.6) PLC

 

Notes to the financial statements for the year ended 31 December 2006

 

2. Financial risk factors

 

The company’s activities expose it to a variety of financial risks including market risk, liquidity risk and credit risk. The company’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the company’s financial performance.  The company uses derivative financial instruments to hedge certain risk exposures.

 

Risk management is carried out by the central risk management function of the Abbey Group.  Authority flows from the Abbey National plc Board of Directors to the Chief Executive Office and from him to his direct reports. Delegation of authority is to individuals.  Formal standing committees are maintained for effective management or oversight.  Their authority is derived from the person they are intended to assist.

 

Market risk

 

The company is subject to market risk in the form of interest rate and currency risks.  As a result of the cross currency swaps the Company’s total interest income and expenditure on financial assets and liabilities is based on the same rate of sterling LIBOR, it therefore has no material sensitivity to changes in interest rates or currency rates in either 2006 or 2005.  

 

Liquidity risk

 

The table below analyses the Company’s undiscounted liabilities into relevant maturity groupings based on the remaining period at balance sheet date to contractual maturity date:

 

	
             

 

 
 	
             
 	
            On 

demand

£000
 	
            1-3 

            months

£000
 	
            3-12 

            months

£000
 	
            1-5 

years

£000
 	
            Over 5 

            years

£000
 	
            2006

Total

£000
 
	
            Debt securities in issue
 	
             
 	
            -
 	
            -
 	
            -
 	
            (1,305,743)
 	
            (662,583)
 	
            (1,968,326)
 
	
            Derivative financial instruments
 	
             
 	
            -
 	
            -
 	
            -
 	
            (1,403,756)
 	
            (673,522)
 	
            (2,077,278)
 
	
            Total 
  	
             
 	
            -
 	
            -
 	
            -
 	
            (2,709,499)
 	
            (1,336,105)
 	
            (4,045,604)
 

 

	
             

 

 
 	
             
 	
            On 

demand

£000
 	
            1-3 

            months

£000
 	
            3-12 

            months

£000
 	
            1-5 

years

£000
 	
            Over 5 

            years

£000
 	
            2005

Total

£000
 
	
            Debt securities in issue
 	
             
 	
            -
 	
            -
 	
            -
 	
            (1,400,153)
 	
            (671,815)
 	
            (2,071,968)
 
	
            Derivative financial instruments
 	
             
 	
            -
 	
            -
 	
            -
 	
            (1,403,756)
 	
            (673,522)
 	
            (2,077,278)
 
	
            Total 
  	
             
 	
            -
 	
            -
 	
            -
 	
            (2,803,909)
 	
            (1,345,337)
 	
            (4,149,246)
 

 

The undiscounted cashflows for the derivative financial instruments comprise only the amounts payable under the contract.  

 

Liquidity is managed by the Company by matching the terms of the financial instruments so that cash inflows meet cash outflows.  The receipts from the intercompany loan asset and the payments in respect of the derivative financial instruments described above are matched.  The receipts from the derivative financial instruments and the payments required in respect of the debt securities in issue described above are also matched.

 

Credit risk

 

The maximum exposure to credit risk is the carrying amount of the Loans and advances to group companies of £2,077,278,000 (2005: £2,077,278,000) and the fair value of derivative financial instruments of £109,514,597 (2005: £4,233,111).

 

Accounting for derivative financial instruments and hedging activities

 

The Company holds derivatives as fair value hedges of the non-sterling debt securities in issue in order to hedge foreign currency and interest rate risk.   These require the Company to pay a rate based on three-month sterling LIBOR and receive US dollar LIBOR, EURIBOR and fixed rate receipts in Swiss Francs.  These are initially recognised and subsequently re-measured at fair value.

 

Fair value estimation

 

Where quoted market prices are not available, a discounted cash flow model is used based on a current yield curve appropriate for the remaining term to maturity.

 

3. Business and geographical segments

 

All of the Company’s income is derived from activities in the same business and geographical segment, within the UK.  There were no discontinued operations during the period.

 

10

 

HOLMES FINANCING (NO.6) PLC

 

Notes to the financial statements for the year ended 31 December 2006

 

4. Interest and similar income

 

	
             

 

 
 	
            Year ended

31 December 2006

£000
 	
            Year ended

31 December 2005

£000
 
	
             
  	
             
 	
       
 
	
            Interest receivable from group companies
  	
            105,253
 	
      119,819
 
	
            Interest receivable on collateralised cash
 	
            1,382
 	
      2,106
 
	
            Interest receivable from related parties
 	
            1
 	
      -
 
	
             
  	
            106,636
 	
      121,925
 

 

5. Interest expense and similar charges

 

	
             

 

 
 	
            Year ended

31 December 2006

£000
 	
            Year ended

31 December 2005

£000
 
	
             
  	
             
 	
       
 
	
            Interest payable on debt securities
  	
            96,275
 	
      145,754
 
	
            Interest payable on collateralised cash
 	
            1,382
 	
      2,106
 
	
            Swap interest payable
 	
            8,978
 	
      (25,935)
 
	
             
  	
            106,635
 	
      121,925
 

 

6. Other operating (expense)/income

 

	
             

 
 	
            Year ended

31 December 2006

£000
 	
            Year ended

31 December 2005

£000
 
	
       
  	
       
 	
       
 
	
      Net foreign exchange (losses)/gains
  	
      (446)
 	
      669
 
	
      Net loss on hedging derivatives
 	
      (105,281)
 	
      (4,233)
 
	
      Net gain on hedged item
 	
      105,249
 	
      3,987
 
	
       
 	
      (478)
 	
  423
 

 

7. (Loss)/profit before tax

 

(Loss)/profit before tax has been arrived at after (charging)/crediting:

 

	
             

 

 
 	
            Year ended

31 December 2006

£000
 	
            Year ended

31 December 2005

£000
 
	
             
  	
             
 	
       
 
	
            Net foreign exchange (losses)/gains
  	
            (446)
 	
      669
 
	
            Net loss on hedging derivatives
 	
            (105,281)
 	
      (4,233)
 
	
            Net gain on hedged item
 	
            105,249
 	
      3,987
 

 

Fees payable to the company’s auditors for the audit of the company’s annual accounts for the current year are £15,000 (2005: £15,000) and have been borne by Abbey National plc, for which no recharge has been made in the current or prior year.

 

Directors' emoluments are borne by Abbey National plc.  No emoluments were paid by the Company to Directors during the year (2005: £nil).

 

The Company had no employees in the current or previous financial year.

 

11

 

HOLMES FINANCING (NO.6) PLC

 

Notes to the financial statements for the year ended 31 December 2006

 

8. Tax

 

	
             

 
 	
            Year ended

31 December 2006

£000
 	
            Year ended

31 December 2005

£000
 
	
      Current tax:
  	
       
 	
       
 
	
      UK corporation tax
 	
       
 	
      -
 
	
       
 	
       
 	
      -
 
	
      Deferred tax (note 13):
 	
       
 	
       
 
	
      Current year
 	
      144
 	
      (127)
 
	
       
 	
      144
 	
  (127)
 

 

Corporation tax is calculated at 30% (2005: 30%) of the estimated assessable (loss)/profit for the year.

 

The charge for the year can be reconciled to the (loss)/profit per the income statement as follows:

 

	
       
 	
            Year ended 

31 December 2006

£000
 	
            Year ended 

31 December 2005

£000
 
	
       
  	
             
 	
             
 
	
      (Loss)/profit before tax
 	
            (477)
 	
            423
 
	
       
 	
             
 	
             
 
	
      Tax at the UK corporation tax rate of 30% (2005: 30%)
 	
            144
 	
            (127)
 
	
      Tax income/(expense) for the year
  	
            144
 	
  (127)
 

 

9. Loans and advances to group companies

 

	
             

 
 	
            2006

£000
 	
            2005

£000
 
	
            Repayable:
  	
             
 	
       
 
	
            Less than 1 year
  	
            -
 	
      -
 
	
            1 to 2 years 
 	
            -
 	
      -
 
	
            2 to 5 years
 	
            1,403,756
 	
      1,403,756
 
	
            Greater than 5 years
 	
            673,522
 	
      673,522
 
	
             
 	
            2,077,278
 	
      2,077,278
 

 

The loans are all denominated in sterling and are at variable rates of interest, based on LIBOR for three-month sterling deposits. The carrying amount of loans and advances to group companies approximates to their fair value.

 

10. Derivative Financial Instruments

 

The Company holds derivatives as fair value hedges of the non-sterling debt securities in issue in order to hedge foreign currency and interest rate risk.   These require the Company to pay a rate based on three-month sterling LIBOR and receive US dollar LIBOR, EURIBOR and fixed rate receipts in Swiss Francs.  These are initially recognised and subsequently re-measured at a fair value.  The hedging relationship between the cross currency derivatives and the debt securities in issue qualifies for a hedge accounting treatment of the liabilities.

 

11. Other assets

 

	
             

 
 	
            2006

£000
 	
            2005

£000
 
	
       
 	
       
 	
       
 
	
      Called up share capital not paid – due from parent undertaking
 	
      37
 	
      37
 
	
      Accrued interest due from group companies
 	
      23,884
 	
      21,336
 
	
       
 	
      23,921
 	
  21,373
 

 

The carrying amount of other assets approximates to their fair value.

 

Other assets are due within one year.

 

12

 

HOLMES FINANCING (NO.6) PLC

 

Notes to the financial statements for the year ended 31 December 2006

 

12. Debt securities in issue

 

	
         
	
        2006

        £000
	
        2005

        £000

	
             
 	
             
 	
             
 
	
            Series 3 Class A Floating Rate Notes 2009
 	
            671,333
 	
            686,881 
 
	
            Series 3 Class B Floating Rate Notes 2040
 	
            22,829
 	
            23,362
 
	
            Series 3 Class C Floating Rate Notes 2040
 	
            38,290
 	
            39,215 
 
	
            Series 4 Class A1 Floating Rate Notes 2009
 	
            508,899
 	
            580,456 
 
	
            Series 4 Class A2 Fixed/Floating Rate Notes 2009
 	
            125,142
 	
            133,716 
 
	
            Series 4 Class B Floating Rate Notes 2040
 	
            20,338
 	
            23,185 
 
	
            Series 4 Class C Floating Rate Notes 2040
 	
            34,987
 	
            39,806 
 
	
            Series 5 Class A Floating Rate Notes 2040
 	
            500,000
 	
            500,000 
 
	
            Series 5 Class B Floating Rate Notes 2040
 	
            17,000
 	
            17,000 
 
	
            Series 5 Class C Floating Rate Notes 2040
 	
            29,000
 	
            29,000 
 
	
             
 	
            1,967,818
 	
            2,072,621
 

 

Included in the carrying amount of debt securities in issue above are the following valuation adjustments as a result of the hedge accounting treatment of these instruments.

 

	
       
 	
            2006

£000
 	
            2005

£000
 
	
       
 	
       
 	
             
 
	
      Series 3 Class A Floating Rate Notes 2009
 	
      37,833
 	
            53,381
 
	
      Series 3 Class B Floating Rate Notes 2040
 	
      1,290
 	
            1,823
 
	
      Series 3 Class C Floating Rate Notes 2040
 	
      2,180
 	
            3,105
 
	
      Series 4 Class A1 Floating Rate Notes 2009
 	
      (132,127)
 	
            (60,570)
 
	
      Series 4 Class A2 Fixed/Floating Rate Notes 2009
 	
      (4,088)
 	
            4,486
 
	
      Series 4 Class B Floating Rate Notes 2040
 	
      (5,304)
 	
            (2,457)
 
	
      Series 4 Class C Floating Rate Notes 2040
 	
      (9,244)
 	
            (4,425)
 
	
       
 	
      (109,460)
 	
  (4,657)
 

 

The carrying amount of debt securities in issue approximates to their fair value.

 

All the Class A Notes (irrespective of series) will rank pari passu and rateably without any preference or priority except, until enforcement of the security for the Notes, as to payments of principal in respect of which the Class A1 Notes will rank in priority to the Class A2 Notes.

 

Payments in respect of the Class B and C Notes will only be made if, and to the extent that, there are sufficient funds after paying or providing for certain liabilities, including liabilities in respect of the Class A Notes.  The Class B Notes rank after the Class A Notes in point of security but before the Class C Notes.

 

Interest is payable on the notes at variable rates based on the one-month US Dollar LIBOR, three-month Sterling and US Dollar LIBOR and three-month EURIBOR, except for the Series 4 Class A2 notes, on which interest is paid at a fixed rate until October 2007, after which it is paid at variable rates based on the three-month CHF LIBOR.

 

The Company’s obligations to noteholders, and to other secured creditors, are secured under a deed of charge that grants security over all of its assets in favour of the security trustee.  The principal assets of the Company are loans made to Holmes Funding Limited, a group company, whose obligations in respect of these loans, are secured under a deed of charge which grants security over all its assets, primarily comprising shares in a portfolio of residential mortgage loans, in favour of the security trustee.   These mortgages fail the derecognition criteria described in IAS 39 and as such are represented by a receivable on the balance sheet of Holmes Funding Limited, though legally Holmes Funding Limited is entitled to the income from these mortgages.  The security trustee holds this security for the benefit of all secured creditors of Holmes Funding Limited, including the Company.

 

13

 

HOLMES FINANCING (NO.6) PLC

 

Notes to the financial statements for the year ended 31 December 2006

 

13. Deferred tax

 

	
             

 
 	
            2006

£000
 	
            2005

£000
 
	
       
  	
       
 	
       
 
	
      Deferred tax asset
  	
      17
 	
      -
 
	
      Deferred tax liability
  	
      -
 	
  (127)
 

 

The movement on the deferred tax account is as follows:

 

	
       
 	
            2006

£000
 	
            2005

£000
 
	
       
 	
       
 	
       
 
	
      At 1 January
 	
      (127)
 	
      -
 
	
      Income statement credit/(charge)
 	
      144
 	
      (127)
 
	
      At 31 December 
 	
      17
 	
  (127)
 

 

The deferred tax asset/(liability) arises as a result of the Company being taxed under the special regime for securitisation companies in the Finance Act 2005.

 

The deferred tax asset is due after more than one year. 

 

14. Cash and cash equivalents

 

The Company holds deposits at banks, which pay interest based on LIBOR.

 

Swap counterparties are subject to a cash collateralisation agreement whereby dependent on the credit rating of the counterparty an amount may be payable by the counterparty to the Company.  This amount is included in cash at bank and in hand, and within other liabilities.  It is repayable when the swap agreements mature, or if earlier when the credit rating of the counterparty improves.

 

At 31 December 2006 an amount of £nil (2005: £56,553,000) was held which related to cash received under cash collateralisation agreements.  The amount was held on deposit at Federal Funds with an effective interest rate to match the interest payable to the swap counterparty.

 

15. Other liabilities

 

	
             

 
 	
            2006

£000
 	
            2005

£000
 
	
       
  	
       
 	
       
 
	
      Amounts due in respect of collateralised cash received
  	
      -
 	
      56,553
 
	
      Accrued interest payable 
 	
      23,884
 	
      21,336
 
	
       
 	
      23,884
 	
  77,889
 

 

The directors consider that the carrying amount of other liabilities approximates to their fair value.

 

Other liabilities are due within one year.

 

16. Share capital

 

	
             

 
 	
            2006

£000
 	
            2005

£000
 
	
      Authorised:
  	
       
 	
       
 
	
      100,000 ordinary shares of £1 each
  	
      100
 	
      100
 
	
       
  	
       
 	
       
 
	
      Issued:
  	
       
 	
       
 
	
      50,000 ordinary shares of £1 each
  	
      50
 	
  50
 

 

49,998 Ordinary shares are partly paid to 25 pence.  Two subscriber shares are fully paid.

 

14

 

HOLMES FINANCING (NO.6) PLC

 

Notes to the financial statements for the year ended 31 December 2006

 

17. Retained earnings/(accumulated losses)

 

	
             
 	
            £000
 
	
            Balance at 1 January 2005
  	
            1
 
	
            Profit for the year
  	
            296
 
	
            Balance at 13 December 2005 and 1 January 2006
  	
            297
 
	
            Loss for the year
  	
            (333)
 
	
            Balance at 31 December 2006
  	
            (36)
 

 

18. Notes to the cash flow statement

 

	
             

 
 	
            2006

£000
 	
            2005

£000
 
	
       
  	
       
 	
       
 
	
      (Loss)/profit before tax
  	
      (477)
 	
      423
 
	
       
  	
       
 	
       
 
	
      Adjustments for:
  	
       
 	
       
 
	
      Loss on derivatives
  	
      32
 	
      246
 
	
      Loss/(gain) on foreign exchange
  	
      446
 	
      (669)
 
	
       
  	
       
 	
       
 
	
      Operating cash flows before movements in working capital
  	
      1
 	
      -
 
	
       
  	
       
 	
       
 
	
      Decrease/(increase) in receivables
  	
      (2,548)
 	
      11,473
 
	
      (Decrease)/increase in payables
  	
      (54,005)
 	
      (37,467)
 
	
      Cash (used in)/generated by operations
  	
      (56,552)
 	
      (25,994)
 
	
       
  	
       
 	
       
 
	
      Net cash flow from operating activities
  	
      (56,552)
 	
  (25,994)
 

 

Cash and cash equivalents (which are presented as a single class of assets on the face of the balance sheet) comprise cash at bank and other short-term highly liquid investments with a maturity of three months or less.

 

19. Related party transactions

 

During the year, the company entered into the following transactions with related parties:

 

	
             
 	
      Interest receivable
 	
            Cash and cash

            equivalents held 

with related parties
 	
            Amounts due from 

      related parties
 
	
             
 	
            2006

£000
 	
            2005
 £000
 	
            2006

£000
 	
            2005
 £000
 	
            2006

£000
 	
            2005
 £000
 
	
             
 	
             
 	
             
 	
             
 	
             
 	
             
 	
             
 
	
            Abbey National plc
 	
            1
 	
            -
 	
            15
 	
            14
 	
            -
 	
            -
 
	
            Abbey National Treasury Services plc
 	
            1,382
 	
            2,106
 	
            -
 	
            -
 	
            -
 	
            -
 
	
            Holmes Funding Limited
 	
            105,253
 	
            119,819
 	
            -
 	
            -
 	
            2,101,122
 	
            2,098,614
 
	
            Holmes Holdings Limited
 	
            -
 	
            -
 	
            -
 	
            -
 	
            37
 	
  37
 

 

There were no related party transactions during the year, or existing at the balance sheet date, with the company’s or parent company’s key management personnel.

 

15

 

HOLMES FINANCING (NO.6) PLC

 

Notes to the financial statements for the year ended 31 December 2006

 

20. Parent undertaking and controlling party

 

The Company’s immediate parent company is Holmes Holdings Limited.  Holmes Holdings Limited is owned by Wilmington Trust SP Services (London) Limited, a Company incorporated in Great Britain and registered in England and Wales, holding all of the shares in the Company (one jointly with M McDermott as nominee) as trustee under a discretionary charitable trust, dated 17 February 1999, for the benefit of nurses employed in the United Kingdom and for charitable purposes.

 

The administration, operations, accounting and financial reporting functions of the Company are performed by Abbey National plc, which is incorporated in Great Britain and registered in England and Wales.  Abbey National plc has delegated administration and servicing functions in respect of the loans on behalf of the mortgages’ trustee and the beneficiaries to a service provider.

 

The Company meets the definition of a Special Purpose Entity and is therefore consolidated within the Abbey National plc group accounts. 

 

The Company's ultimate controlling party is Banco Santander Central Hispano S.A., a Company incorporated in Spain. Banco Santander Central Hispano S.A. is the parent undertaking of the largest group of undertakings for which group accounts are drawn up. Abbey National plc is the controlling undertaking of the smallest group of undertakings for which group accounts are drawn up.

 

Copies of all sets of group accounts, which include the results of the Company, are available from Abbey Secretariat, Abbey National House, 2 Triton Square, Regent’s Place, London, NW1 3AN.

 

16

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