Document:

Unassociated Document

    THIS PROMISSORY NOTE AND ANY SECURITIES INTO WHICH THIS NOTE MAY BE
CONVERTIBLE PURSUANT TO THE TERMS HEREOF HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR ANY STATE SECURITIES LAWS AND
NEITHER THIS NOTE NOR ANY SUCH SECURITIES, NOR ANY INTEREST IN ANY THEREOF MAY
BE OFFERED, SOLD, PLEDGED, HYPOTHECATED, ASSIGNED OR OTHERWISE TRANSFERRED
UNLESS (1) A REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE
ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (2) THE COMPANY RECEIVES AN
OPINION OF COUNSEL TO THE HOLDER OF THIS NOTE, WHICH COUNSEL AND OPINION ARE
REASONABLY SATISFACTOR TO THE COMPANY, THAT SUCH SECURITIES OR INTERESTS THEREIN
MAY BE OFFERED, SOLD, PLEDGED, HYPOTHECATED, ASSIGNED OR TRANSFERRED IN THE
MANNER CONTEMPLATED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR
APPLICABLE STATE SECURITIES LAWS.

     

    IMAGE
METRICS, INC.

     

    CONVERTIBLE PROMISSORY
NOTE

    
       

      
        
          
            
              	
                      $1,100,000

                    	
                      September 9,
    2010

                    
	 	
                      Santa Monica,
      California

                    

            

          

        

         

      

    

    IMAGE
METRICS, INC., a Nevada corporation (the “Company”), for value
received, hereby promises to pay to the order of Rosi Kahane (the “Lender”),
with an address of Chesa Carla, Giassa de las Barrieras 17, 7505 Celerina,
Switzerland or its assigns (the “Holder”), the
principal amount of one million one hundred thousand dollars ($1,100,000),
payable in full on the Maturity Date (as hereinafter defined), unless
prepayments have been made by the Company pursuant to Section 2(d) hereof, in
which case the outstanding balance hereon shall be payable in full on the
Maturity Date, and to pay interest on the unpaid principal balance hereof at the
rate of 13.50% per annum (calculated on the basis of a 365-day year) on the
Maturity Date, all as hereafter further provided.

     

    
      	 	
              1.

            	
              Related
    Agreements.

            

    

     

    This Note
is issued pursuant to that certain Loan Agreement of even date herewith by and
between the Company and the Holder (the “Loan Agreement”) to
which reference is made for a complete description of the rights, obligations,
limitations and restrictions of or applicable to the Company and the Holder.
Capitalized terms utilized herein and not otherwise defined shall have the
meanings ascribed to them in the Loan Agreement. This Note is the Note referred
to in that certain Security Agreement (All Assets) (the “Security Agreement”)
of even date herewith issued by the Company to the Holder. This Note and the
Company’s obligations hereunder are secured by the collateral described in the
Security Agreement.

     

    
      
        
        

      

      
         

        
          

        

      

      
        
        

      

       

      
        
          	 	
                  2.

                	
                  

                    Payments.

                  

                

        

      

    

    
       

      (a) The
”Maturity Date” is January 31, 2011; provided however that in
the event
that a Subsequent Financing is consummated, then the Maturity Date shall be the
earliest maturity date of any indebtedness incurred in the Subsequent
Financing.

    

     

    (b) After
the Maturity Date, interest on any overdue principal amount of this Note shall
accrue at a rate of eighteen percent (18%) per annum and shall be payable
quarterly.

     

    (c) If
the Maturity Date would fall on a day that is not a Business Day (as defined
below), the payment due on such Maturity Date will be made on the immediately
preceding Business Day with the same force and effect as if made on the the
Maturity Date. “Business Day” means any day which is not a Saturday or Sunday
and is not a day on which banking institutions are generally authorized or
obligated to close in the City of New York, New York.

     

    (d) The
Company may, at its option, prepay all or any part of the principal of this
Note, without payment of any premium or penalty; provided that, the Company
shall give Holder at least 15 days’ advance written notice of the Company’s
intent to prepay and Holder shall have the right to convert all or any portion
of this Note pursuant to Section 3(b) at any time during such 15-day period. All
payments on this Note, shall be applied first to accrued interest hereon and the
balance to the payment of the principal hereof.

     

    (e)
Payments of principal and interest on this Note shall be made by check sent to
the Holder’s address set forth above or to such other address as the Holder may
designate for such purpose from time to time by written notice to the Company,
in such coin or currency of the United States of America as at the time of
payment shall be legal tender for the payment of public and private
debts.

     

    (f) The
obligations to make the payments provided for in this Note and the Loan
Agreement are absolute and unconditional and not subject to any defense, setoff,
counterclaim, rescission, recoupment or adjustment whatsoever. The Company
hereby expressly waives demand and presentment for payment, notice of
non-payment, notice of dishonor, protest, notice of protest, bringing of suit
and diligence in taking any action to collect any amount called for hereunder,
and shall be directly and primarily liable for the payment of all sums owing and
to be owing hereunder, regardless of and without any notice, diligence, act or
omission with respect to the collection of any amount called for
hereunder.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    
       

      
        
          	 	
                  3.

                	
                  

                    Conversion.

                  

                

        

      

    

     

    
      (a)
Certain Definitions. The following terms shall have the meanings herein
specified:

       

    

    "Capital Stock" means
any of the current or future authorized class or series of capital stock of the
Company.

     

    "Common Stock" means
authorized Common Stock, $.001 par value, of the Company, and shall include any
other class or series of capital stock of the Company that is not limited to a
fixed sum in respect of the rights of the holder thereof to participate in the
liquidation or winding up of the Company.

     

    "Conversion Shares"
means the shares of Common Stock, or such other shares of Capital Stock,
issuable upon conversion of this Note.

     

    (b)
Election to Convert. Holder may, at its option exercisable by written notice
(the "Conversion Notice") to the Company at any time prior to payment in full
hereof, elect to convert all or any part of the entire outstanding principal
amount of this Note plus a pro rata share of the accrued interest on the then
outstanding balance (i) into shares of Common Stock at a conversion price equal
to $1.00 per share (subject to adjustment in the event of any stock splits,
stock dividends or other recapitalization of Common Stock). Conversion of this
Note shall be conditioned on Holder’s execution of an investment representation
statement in a form reasonably required by the Company.

     

    (c)
Delivery of Conversion Shares. The Capital Stock issued on conversion of this
Note (the "Conversion Shares") shall be delivered as follows:

     

    (i) As
promptly as practicable after conversion, the Company shall deliver to Holder,
or to such person or persons as are designated by Holder in the Conversion
Notice, a certificate or certificates representing the number of shares of
Capital Stock into which this Note or portion thereof is to be converted in such
name or names as are specified in the Conversion Notice, together with, in the
case of conversion of the entire remaining principal balance hereof, any cash
payable in respect of a fractional share. Such conversion shall be deemed to
have been effected at the close of business on the date when this Note shall
have been surrendered to the Company for conversion, so that the person entitled
to receive such Conversion Shares shall be treated for all purposes as having
become the record holder of such Conversion Shares at such time.

     

    (ii) In
the event that less than the entire outstanding principal of this Note is
converted hereunder pursuant to subsection (b) above, this Note shall not be
surrendered for cancellation but shall have the fact and amount of conversion
recorded on the face of this Note by writing acknowledged by Holder and the Company. If less than the entire principal balance of this
Note is converted, the amount of principal converted shall be reduced to the
nearest amount that results in no fractional shares.

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    (d)
Reservation of Shares. The Company agrees that, during the period within which
this Note may be converted, the Company will at all times have authorized and in
reserve, and will keep available solely for delivery upon the conversion of this
Note, Capital Stock and other securities and properties as from time to time
shall be receivable upon the conversion of this Note, free and clear of all
restrictions on issuance, sale or transfer other than those imposed by law and
free and clear of all pre-emptive rights. The Company agrees that the Conversion
Shares shall, at the time of such delivery, be validly issued and outstanding,
fully paid and non-assessable, and the Company will take all such action as may
be necessary to assure that the stated value or par value per share of the
Conversion Shares is at all times equal to or less than the Conversion
Price.

     

    
      (e)
Protection Against Dilution.

    

     

    
      (i) In
the event of any consolidation with or merger of the Company
with or into another corporation (other than a merger or consolidation in which
the Company is the surviving or continuing corporation) while any principal or
accrued interest remains outstanding under this Note, then such successor, shall
(i) execute with the Holder an agreement providing that the Holder shall have
the right thereafter to receive upon conversion of this Note solely the kind and
amount of shares of stock and other securities, property, cash or any
combination thereof receivable upon such consolidation, or merger by a holder of
the number of shares of Capital Stock for which this Note might have been
converted immediately prior to such consolidation or merger, (ii) make effective
provision in its Articles of Incorporation or otherwise, if necessary, in order
to effect such agreement, and (iii) set aside or reserve, for the benefit of the
Holder, the stock, securities, property and cash to which the Holder would be
entitled upon conversion of this Note.

    

     

    (ii) In
the event of any reclassification or change of the Capital Stock into which this
Note may be converted (other than a change in par value or from no par value to
a specified par value, or as a result of a subdivision or combination, but
including any change in the shares into two or more classes or series of
shares), or in the event of any consolidation or merger of another corporation
into the Company in which the Company is the continuing corporation and in which
there is a reclassification or change (including a change to the right to
receive cash or other property) of the Capital Stock into which this Note may be
converted (other than a change in par value, or from no par value to a specified
par value, or as a result of a subdivision or combination, but including any
change in the shares into two or more classes or series of shares), in either
case while any principal or accrued interest remains outstanding under this
Note, then the Holder shall have the right thereafter to receive upon conversion
of this

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

       

    

    Note solely the kind and amount of shares of stock and other
securities, property, cash or any combination thereof receivable upon such
reclassification, change, consolidation or merger by a holder of the number of
shares of Capital Stock for which this Note might have been converted
immediately prior to such reclassification, change, consolidation or
merger.

     

    The above
provisions of this Section 3(e) shall similarly apply to successive
reclassifications and changes of Capital Stock and to successive consolidations
and mergers.

     

    Notice of
such consolidation, merger, sale, distribution, reclassification or
reorganization and of such provisions so proposed to be made, shall be mailed to
the Holder not less than fifteen (15) days prior to such event.

    
      
         

        
          
            	 	
                    4.

                  	
                    

                      Reserved.

                    

                  

          

        

      

      
        
           

          
            
              	 	
                      5.

                    	
                      

                        Remedies
      Upon Default.

                      

                    

            

             

          

        

      

    

    Upon the
failure of the Company to make any payment due to the Holder hereunder, which
failure shall not be cured within ten Business Days following the date that such
payment is due, the Holder, by notice in writing given to the Company, may
declare the entire principal amount then outstanding of, and the accrued
interest on, this Note to be due and payable immediately, and upon any such
declaration the same shall become and be due and payable immediately, without
presentment, demand, protest or other formalities of any kind, all of which are
expressly waived by the Company.

    
      
         

        
          
            	 	
                    6.

                  	
                    

                      Transfer.

                    

                  

          

        

      

      
        
           

        

      

    

    
      (a) Any
Notes issued upon the transfer of this Note shall be numbered and shall
be registered in a Note Register as they are issued. The Company shall be
entitled to treat the registered holder of any Note on the Note Register as the
owner in fact thereof for all purposes and shall not be bound to recognize any
equitable or other claim to, or interest in, such Note on the part of any other
person, and shall not be liable for any registration or transfer of Notes which
are registered or to be registered in the name of a fiduciary or the nominee of
a fiduciary unless made with the actual knowledge that a fiduciary or nominee is
committing a breach of trust in requesting such registration or transfer, or
with the knowledge of such facts that its participation therein amounts to bad
faith. This Note shall be transferable only on the books of the Company upon
delivery thereof duly endorsed by the Holder or by the Holder’s duly authorized
attorney or representative, or accompanied by proper evidence of succession,
assignment, or authority to transfer. In all cases of transfer by an attorney,
executor, administrator, guardian, or other legal representative, duly
authenticated evidence of his, her or its authority shall be produced. Upon any
registration of transfer, the Company shall deliver a new Note or Notes to the
person entitled thereto. This Note may be exchanged, at the option of the Holder thereof, for another Note, or other Notes of
different denominations, of like tenor and representing in the aggregate a like
principal amount, upon surrender hereto to the Company or its duly authorized
agent.

    

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    (b) The
Holder acknowledges that it has been advised by the Company that this Note has
not been registered under the Act, that the Note is being or has been issued on
the basis of the statutory exemption provided by Section 4(2) of the Act or
Regulation D promulgated thereunder, or both, relating to transactions by an
issuer not involving any public offering, and that the Company’s reliance
thereon is based in part upon the representations made by the original Holder in
accordance with the terms of the Offering. The Holder acknowledges that such
Holder has been informed by the Company of, or is otherwise familiar with, the
nature of the limitations imposed by the Act and the rules and regulations
thereunder on the transfer of securities. In particular, the Holder agrees that
no sale, assignment or transfer of the Note shall be valid or effective, and the
Company shall not be required to give any effect to any such sale, assignment or
transfer (collectively, “Transfer”), unless
(i) the Transfer of the Note is registered under the Act, it being understood
that the Note is not currently registered for sale and that the Company has no
obligation or intention to so register the Notes, or (ii) the Transfer is exempt
from registration under the Act and the Holder delivers an opinion of counsel
inform and substance satisfactory to the Company and counsel for the Company
that the Transfer is so exempt, and, in either case, that the Transfer is not
restricted by applicable state securities laws.

    
      
        
           

          
            
              	 	
                      7.

                    	
                      

                        Miscellaneous.

                      

                    

            

          

        

        
          
             

          

        

      

    

    
      (a) Any
notice or other communication required or permitted to be given
hereunder shall be in writing and shall be mailed by certified mail, return
receipt requested, or by Federal Express, Express Mail or similar overnight
delivery or courier service or delivered (in person or by telecopy, telex or
similar telecommunications equipment) against receipts to the party to whom it
is to be given; (i) if to the Company, at its address at 1918 Main Street,
2nd
Floor, Santa Monica, California 90405, Attention: Chief Executive Officer, (ii)
if to the Holder, at its address set forth on the first page hereof or (iii) in
either case, to such other address as the party shall have furnished in writing
in accordance with the provisions of this Section 7(a). Notice to the estate of
any party shall be sufficient if addressed to the party as provided in this
Section 7(a). Any notice or other communication given by certified mail shall be
deemed given at the time of certification thereof, except for a notice changing
a party’s address which shall be deemed given at the time of receipt thereof.
Any notice given by other means permitted by this Section 7(a) shall be deemed
given at the time of receipt thereof.

    

     

    (b) Upon
receipt of evidence satisfactory to the Company of the loss, theft, destruction
or mutilation of this Note (and upon surrender of this Note if mutilated), and
upon reimbursement of the Company’s reasonable incidental expenses and in the
case of loss, theft or destruction, indemnity as the Company shall, at its
option, reasonable request and in form satisfactory to counsel for the Company,
the Company shall execute and deliver to the Holder a new Note of like date,
tenor and denomination.

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

    (c) No course of dealing and no delay or omission on the part of the
Holder in exercising any right or remedy shall operate as a waive thereof or
otherwise prejudice the Holder’s rights, powers or remedies. No right, power or
remedy conferred by this Note upon the Holder shall be exclusive of any other
right, power or remedy referred to herein or now or hereafter available at law,
in equity, by statute or otherwise, and all such remedies may be exercised
singly or concurrently.

     

    (d) This
Note has been negotiated in the State of California and shall be governed by and
construed in accordance with the laws of the State of California, without giving
effect to principles governing conflicts of law.

     

    (e) The
parties irrevocably consent to the jurisdiction of the federal and state courts
of the State of California in connection with any action or proceeding arising
out of or relating to this Note, any document or instrument delivered pursuant
to or in connection with this Note, or a breach of this Note or any such
document or instrument.

     

    (f) This
Note may be amended, or any of its provisions waived (which amendment or waiver
shall be binding upon all future Holders) only by written consent or consents
executed by the Company and the holders of Notes representing a majority in
principal amount of the Notes then outstanding; provided, however, that any
waiver or amendment which reduces the amount of principal owing hereunder or the
interest rate set forth herein, or which changes the date of payment of any
principal hereof, the Maturity Date provided hereunder shall be effective only
upon the written consent of the Company, the Holder and the holders of Notes
representing a majority in principal amount of the Notes then
outstanding.

     

    IN WITNESS WHEREOF, the
Company has caused this Note to be executed and delivered as of the day and year
first above written.

     

    
      
        
          
            	 	

                    IMAGE
      METRICS, INC.

                  	 
	 	 	 
	 	 	 
	 	 	 	 
	 	
                    By:
      

                  	  	 
	 	 	Ron
      Ryder	 
	 	 	

                    Chief
      Financial Officer

                  	 
	 	 	 	 

          

        

      

    

     

    
      
        
        

      

      
        7Unassociated Document

    LOAN
AGREEMENT

     

    THIS
AGREEMENT made this 9th day of September, 2010 by and between IMAGE METRICS,
INC., a Nevada corporation with an address and principal place of business at
1918 Main Street, 2nd Floor,
Santa Monica, California 90495 (the “Borrower”),
IMAGE METRICS, LTD., a company incorporated and registered in England and Wales
with number 4098216 whose registered office is at 2nd Floor,
Park Gate, 25 Milton Park, Oxford, OX14 4SH (the “Guarantor”)
and Rosi Kahane, an individual with an address at Chesa Carla, Glassa de las
Barrieras 17, 8505 Celerina, Switzerland (hereinafter called the “Lender”).

     

    
      BACKGROUND

       

    

    A.
Borrower has requested that Lender provide funding to support the general
working capital requirements of Borrower and Borrower’s wholly-owned subsidiary,
Image Metrics, Ltd.

     

    B. Lender
has, prior to the execution of this Agreement, provided a portion of the
requested funding, subject to the completion of more formal documentation
evidencing and securing those advances.

     

    C. In
exchange for its receipt of a portion of (i) the proceeds of the prior advances
and (ii) the proceeds of the Loan (hereinafter defined), Guarantor has agreed to
guarantee the obligations of Borrower in connection with the Loan.

     

    D. Lender
has agreed to Borrower’s request for funding, subject to the terms and
conditions of this Agreement.

     

    
      AGREEMENTS

       

    

    NOW,
THEREFORE, for good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:

     

    
      SECTION 1

       

      
        AMOUNT AND TERMS OF LOAN

         

      

    

    1.1
Subject to the terms and conditions of this Agreement, Lender agrees to loan to
the Borrower, and the Borrower agrees to borrow from Lender, funds in an
aggregated principal amount of up to Two Million Six Hundred Thousand US Dollars
($2,600,000.00) (the "Loan"), in installments of One
Hundred Thousand Dollars or greater (each a "Loan
Disbursement").

     

    1.2 The
Borrower acknowledges receipt of Loan Disbursements in the aggregate amount of
One Million One Hundred Thousand Dollars ($1,100,000.00) prior to the date
hereof (the “Initial
Disbursement”). The Borrower may submit to Borrower written requests for
additional Loan Disbursements from time after the date hereof, but
in no event later than January 31, 2011 (each, a “Loan
Disbursement Request”). Each such Loan Disbursement Request is subject to
the Lender’s approval, and the maximum amount advanced by Lender shall not
exceed the total amount of the Loan. The Company may decline to make any further
Loan Disbursement Requests for any reason, in its sole and absolute discretion.
The Lender may decline to approve any or all such Loan Disbursements Requests
for any reason, in its sole and absolute discretion.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

     

    1.3 Loan
Disbursements shall be made within five (5) business days following Lender’s
approval of the applicable Loan Disbursement Request. Interest shall accrue on
each Loan Disbursement from the date of receipt of funds (each a "Disbursement Date") by the
Borrower.

     

    1.4 The
proceeds of the Loan shall be used by the Borrower to finance the general
working capital requirements of the Borrower.

     

    1.5 The
obligations of Borrower with respect to the Loan shall be guaranteed by
Guarantor, and shall be secured by liens and security interests on all of the
assets of the Guarantor (including without limitation all intellectual property
interests of Guarantor), pursuant to the terms of a Guarantee and a Debenture to
be entered into by the Lender and Guarantor (together, the “Guaranty Documents”) within
seven (7) days of the date hereof. Such guarantee shall remain in effect until
the earlier of such time as (i) all obligations of Borrower with respect to the
Loan have been satisfied and (ii) and the right to make Loan Disbursement
Requests is waived or terminated, or the Guarantor first reports positive
accumulated earnings and profits within the meaning of Section 956 of the
Internal Revenue Code of 1986, as amended (the “Guaranty Term”).

     

    1.6
Interest on the Loan shall be payable as set forth in the applicable Note (as
defined below). Interest shall be computed on the basis of a 360-day year, for
the actual number of days elapsed. Default interest shall be charged in
accordance with the terms of the applicable Note.

     

    1.7 The
principal balance of the Loan shall be payable as set forth in the
applicable Note.

     

    1.8 As
evidence of the Borrower’s obligations under the Loan, upon receipt of
each Loan
Disbursement, the Borrower shall execute and deliver to the Lender a Secured
Convertible Promissory Note (the “Note”)
in the form attached hereto as Exhibit B, dated as of the
Disbursement Date, and with a principal amount of the Loan Disbursement. A Note
in the principal amount of the Initial Disbursement shall be issued concurrently
herewith.

     

    1.9 The
Lender need not enter payments of interest and principal upon the Notes but may
maintain a record thereof on a separate ledger maintained by the
Lender.

     

    1.10 The
Borrower may repay, in whole or in part, the principal amount of the Loan, but
may not reborrow any such amounts repaid.

     

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    1.10 The Notes are incorporated herein to the same extent as if it
was set forth in full in this Agreement.

     

    1.11 All
of the Borrower’s obligations to the Lender, of every kind and description,
including those arising under this Agreement, direct or indirect, absolute or
contingent, due or to become due, now existing or hereafter arising, regardless
of how they arise or by what agreement or instrument they may be evidenced,
including those arising under any other agreements, instruments or documents
executed in conjunction herewith, or whether evidenced by an agreement or
instrument, including obligations to perform acts and refrain from taking
action, as well as obligations to repay the Loans, shall constitute the
Borrower’s “Liabilities”
to the Lender, as the same may be modified, amended, replaced or extended from
time to time.

     

    
      SECTION 2

    

     

    
      WARRANTIES AND REPRESENTATIONS

    

     

    2.1 To
induce the Lender to enter into this Loan Agreement and to make the Loans, each
of the Borrower and Guarantor warrant and represent that, as of this date,
except as set forth in Exhibit
A attached hereto:

     

    
      	
              (a)

            	
              The
      Borrower is a duly organized and existing corporation under the laws of
      the State of Nevada is in good standing under the laws of said State. The
      Borrower is duly qualified to do business and in good standing as a
      foreign corporation in each state or other jurisdiction where the nature
      of the business conducted by it or the property owned by it requires such
      qualification.

            
	 
      
	
              (b)

            	
              The
      Guarantor is a duly organized and existing corporation under the laws of
      England and Wales is in good standing under the laws of said jurisdiction.
      The Guarantor is duly qualified to do business and in good standing as a
      foreign corporation in each state or other jurisdiction where the nature
      of the business conducted by it or the property owned by it requires such
      qualification.

            
	 
      
	
              (c)

            	
              Each
      of the Borrower and Guarantor has good and clear record and marketable
      title to all properties and assets which it purports to own, free and
      clear of any all mortgages, liens, pledges, charges, security interests
      and encumbrances, other than (i) those being granted to the Lender, if
      any, (ii) certain liens and security interests held by ETV Capital and
      Royal Bank of Scotland, and (iii) other encumbrances incurred in the
      ordinary course of business that do not materially impair Borrower or
      Guarantor’s use of said assets and properties or Lender’s security
      interest in the Collateral (hereinafter defined) (the “Permitted
      Liens”).

            
	 
      
	
              (d)

            	
              Each
      of the Borrower and Guarantor owns and holds or leases all real and
      personal property necessary or incidental to the present and planned
      future conduct of its business, including, without limitation, patents,
      trademarks, service marks,
      trade names, copyrights and licenses and other rights with respect to the
      foregoing.

            
	 
      

    

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    
      
        	 
      
	
                (e) 

              	
                All
      books and records of the Borrower and Guarantor, including, but not
      limited to, minute books, bylaws and books of account are accurate in all
      material respects and in all material respects reflect all matters and
      transactions which should currently be reflected
  therein.

              
	 
      
	
                (f)

              	
                Other
      than its ownership interests in Guarantor, the Borrower has no
      subsidiaries and no investments in the stock or securities of any other
      corporation, firm, trust or other entity. The Guarantor has no
      subsidiaries and no investments in the stock or securities of any other
      corporation, firm, trust or other entity, other than a wholly-owned US
      subsidiary.

              
	 
      
	
                (h)

              	
                There
      are no actions, suits, investigations or proceedings pending, or to the
      knowledge of the Borrower or Guarantor threatened, against the Borrower or
      Guarantor or any of their respective properties in any court, before any
      governmental authority, arbitration board, or any other tribunal which,
      singly or in the aggregate, if decided adversely to the Borrower or
      Guarantor, would materially and adversely affect the business, properties
      or condition (whether financial or otherwise) of the Borrower or
      Guarantor. Neither the Borrower nor the Guarantor is, nor by execution and
      delivery of this Agreement and the performance of its obligations
      hereunder (with or without the passage of time) will the Borrower or
      Guarantor be, in default with respect to any order of any court,
      governmental authority, arbitration board or other
    tribunal.

              
	 
      
	
                (i)

              	
                The
      Lender has had an opportunity to review the financial statements of the
      Company set forth in its quarterly report on Form 10-Q as of and for the
      period ended July 31, 2010. Said statements fairly present the condition
      of the Borrower and Guarantor at the dates thereof, and the statements of
      operation contained therein fairly present the results of the operations
      of the Borrower and Guarantor for the periods indicated, all in conformity
      with generally accepted accounting principles consistently applied,
      subject to any policies and practices stated therein.

              
	 
      
	
                (j)

              	
                Except
      to the extent reflected or reserved against in the financial statements
      referred to above, neither the Borrower nor the Guarantor, as of the date
      of said financial statements, had liabilities of any nature, whether
      accrued, absolute, contingent or otherwise, including, without limitation,
      tax liabilities, due or to become due, or arising out of transactions
      entered into or any state of facts existing prior thereto, other than
      liabilities that would not, individually or in the aggregate, materially
      and adversely affect the business, properties or condition of the Borrower
      or the Guarantor.

              
	 
      
	
                (k)

              	
                Since
      the date of the financial statements referred to in Section 2.1(i), and
      except as shown on Exhibit A, there has not
      been:

              
	 
      

      

    

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    (i) any change in the condition of the Borrower’s or Guarantor’s
assets or liabilities, other than changes in its ordinary course of business,
which has been materially adverse;

     

    (ii) any
damage, destruction or loss, whether or not covered by insurance, materially and
adversely affecting the Borrower’s or Guarantor’s properties or business;
or

     

    (iii) any
materially adverse:

    
      
        	 
      
	 
      	
                (1)

              	
                controversy
      with any labor organization or employees;

              
	 
      
	 
      	
                (2)

              	
                claim
      or controversy involving any federal, state or local governmental
      agencies; or

              
	 
      
	 
      	
                (3)

              	
                other
      event or condition materially affecting the business or properties of the
      Borrower or Guarantor.

              
	 
      

      

    

    

    
      	
              (l)

            	
              Each
      of the Borrower and Guarantor has filed all federal and state income tax
      returns, excise tax returns, and all other tax returns of every kind and
      nature which are required to be filed by the Borrower as of the date
      hereof and has paid all taxes shown to be due on said
    returns.

            
	 
      
	
              (m)

            	
              The
      Borrower has its chief executive office and principal place of business at
      the address set forth at the beginning of the Agreement. The Borrower has
      no other addresses at which the Borrower has an office, conducts business
      or at which any of the Borrower’s property is located except as set forth
      on Exhibit A. The Guarantor has
      its chief executive office and principal place of business at the address
      set forth on Exhibit A. The Guarantor
      has no other addresses at which the Guarantor has an office, conducts
      business or at which any of the Guarantor’s property is located except as
      set forth on Exhibit
      A.

            
	 
      
	
              (n)

            	
              The
      execution and delivery of this Agreement, the borrowing by the Borrower as
      herein provided, the execution and delivery by the Borrower and Guarantor
      of all instruments, agreements and documents of every kind and nature
      pursuant hereto and the performance by the Borrower and Guarantor of all
      of their respective obligations to the Lender hereunder have been duly
      authorized by the board of directors of the Borrower and Guarantor and, to
      the extent required by law or otherwise, by the Borrower’s and Guarantor’s
      stockholders, and this Agreement and all instruments, agreements and
      documents executed pursuant hereto are valid and binding obligations of
      the Borrower and Guarantor enforceable in accordance with their terms
      except to the extent such enforceability may be limited by laws of general
      application affecting the rights of creditors.

            
	 
      

    

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

       

    

    
      	
              (o)

            	
              There
      is no provision in the articles of organization, agreement of association
      or the by laws of the Borrower or Guarantor, or any indenture, contract or
      agreement to which either of them is a party or by which either of them is
      bound, which prohibits the execution and delivery of this Agreement or the
      performance by the Borrower or Guarantor of its obligations
      hereunder.

            
	 
      
	
              (p)

            	
              No
      event has occurred and no condition exists, which, upon the execution and
      delivery of this Agreement would constitute a default or an Event of
      Default hereunder, except for any Events of Default that by their terms
      apply only to future events or conditions. Neither the nature of the
      Borrower or Guarantor or any of its business or properties, nor any
      relationships between the Borrower or Guarantor and any other person, nor
      any circumstances in connection with the execution or delivery of this
      Agreement, is such as to require a consent, approval, or authorization of
      or filing, registration, or qualification with, any governmental authority
      on the part of the Borrower or Guarantor as a condition of the execution
      and delivery of this Agreement or any other instrument, agreement or
      document contemplated hereby, or the performance by the Borrower or
      Guarantor of their respective obligations hereunder or
      thereunder.

            
	 
      
	
              (r)

            	
              Neither
      Borrower nor Guarantor is in violation of, has received written notice
      that it is in violation of, or has knowingly caused any person to violate,
      any applicable statute, regulation or ordinance of the United States of
      America, or of any state, city, town, municipality, county or of any other
      jurisdiction, or of any agency, or department, thereof (including without
      limitation ERISA or environmental laws and regulations), which may
      materially and adversely affect its business, financial condition,
      property or prospects.

            
	 
      
	
              (s)

            	
              Neither
      Borrower nor Guarantor has knowledge of (i) the presence of any Hazardous
      Substances on any of the real property where Borrower or Guarantor conduct
      operations or has its property, or (ii) any spills, releases, discharges
      or disposal of Hazardous Substances that have occurred or are presently
      occurring on any of such real property or where any Collateral is located,
      or (iii) of any spills, releases, discharges or disposal of Hazardous
      Substances that have occurred or are presently occurring on any other real
      property as a result of the conduct, action or activities of Borrower or
      Guarantor. As used herein, the term “Hazardous
      Substances” means any substances defined or designated as hazardous
      or toxic waster, hazardous or toxic material, hazardous substance or
      similar term, by any environmental statute, rule or regulation of any
      governmental entity presently in effect and applicable to such real
      property.

            
	 
      
	
              (t)

            	
              Neither
      the Borrower nor Guarantor has any pension, profit sharing, stock option,
      Employee Stock Ownership Trust (“ESOT”),
      insurance or other similar plan providing for a program of deferred
      compensation or benefits for any employee or officer, except as indicated
      on Exhibit A
      hereto. With respect to any
      pension plan identified on Exhibit A, Borrower has funded its obligations
      as set forth in each such pension plan.

            
	 
      

    

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

       

    

    
      
        	 
      
	
                (u)

              	
                Except
      for Permitted Liens, Borrower and Guarantor each has granted to the Lender
      a valid, perfected first priority and sole security interest in the
      Collateral.

              
	 
      
	
                (v)

              	
                The
      Borrower currently maintains insurance covering such risks and in such
      amounts as are customarily maintained by companies operating in the same
      industry as Borrower.

              
	 
      

      

       

    

    SECTION 3

     

    
      AFFIRMATIVE COVENANTS

    

     

    Until
such time as the Loan has been repaid in full, without the prior written consent
of Lender or its duly appointed agent:

     

    3.1 The
Borrower will duly and punctually pay all interest and principal becoming due to
the Lender and will duly and punctually perform all things on its part to be
done or performed under this Agreement, or pursuant to any instrument, document
or agreement executed pursuant hereto.

     

    3.2 The
Borrower will, at all times, keep proper books of account in which full, true
and correct entries will be made of its transactions in accordance with
generally accepted accounting principles consistently applied.

     

    3.3 The
Borrower will, at all reasonable times and upon prior reasonable notice, make
its financial books and records available, in its offices, for inspection,
examination and copying by the Lender and the Lender’s representatives and will,
at all reasonable times and upon prior reasonable notice, permit inspection of
its properties by the Lender and the Lender’s representatives, subject to
Borrower’s execution of a confidentiality and trading restriction agreement in
the form reasonably requested by Borrower.

     

    3.4 The
Borrower will, from time to time, furnish the Lender with such information and
statements as the Lender may reasonably request, and with copies of all
financial statements that it shall send to its stockholders.

     

    3.5 The
Borrower and Guarantor shall each be in compliance with any and all laws,
ordinances, governmental rules and regulations, and court or administrative
orders or decrees to which it is subject, whether federal, state, local or other
jurisdiction (including without limitation ERISA, securities law or
environmental laws, statutes, ordinances, rules, regulations and notices), and
shall obtain and maintain any and all licenses, permits, franchises or other
governmental authorizations necessary to the ownership of its property or to the
conduct of its businesses, which violation or failure to obtain may materially
adversely affect the business, property, financial conditions or prospects of
Borrower or Guarantor.

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

    3.6 In the event Borrower shall cease to file periodic reports under
the Exchange Act: The Borrower will furnish the Lender quarterly, within
forty-five (45) days after the close of each fiscal quarter, commencing with the
month in which this Agreement is executed, a balance sheet and income and
surplus statement reflecting the financial condition of the Borrower at the end
of each such period and the results of its operation during each such period.
Each statement shall also contain comparative statements for the same period
during the prior fiscal quarter. Each balance sheet and income and surplus
statement is to be certified by a duly authorized officer of the Borrower, such
certification to state that such balance sheet and income and surplus statement
fairly present the financial condition and the result of operations of the
Borrower at the end of such period and during such period in accordance with
generally accepted accounting principles consistently applied, subject, however,
to ordinary year-end adjustments, none of which will be materially
adverse.

     

    3.7 In
the event Borrower shall cease to file periodic reports under the Exchange Act:
The Borrower will furnish the Lender annually, within one hundred twenty (120)
days after the close of each fiscal year, audited balance sheet and income and
surplus statement reflecting the financial condition of the Borrower at the end
of each such fiscal year and the results of its operation during such fiscal
year, prepared in accordance with generally accepted accounting principles
consistently applied. Each such statement shall also contain comparative
statements for the prior fiscal year.

     

    3.8 Subject to Section 3.3
above, the Borrower shall make its books and records available to the Lender for
audit at any time from time to time.

     

    3.9 The
Borrower will maintain its corporate existence in good standing, comply in all
material respects with all laws and regulations of the United States, of any
state or states thereof, of any political subdivision thereof and of any
governmental authority which may be applicable to the Borrower or to the
Borrower’s business.

     

    3.10 The
Borrower will pay all real and personal property taxes, assessments and charges
and all franchise, income, unemployment, old age benefit, withholding, sales and
other taxes assessed against it or payable by it at such times and in such
manner to prevent any penalty from accruing or any lien or charge from attaching
to its properties. The provisions of this section, however, shall not preclude
the Borrower from contesting in good faith and diligently prosecuting any such
tax. The Borrower shall not be in default under this Section by reason of the
existence of a lien for taxes not then due.

     

    3.11 The
Borrower will put and maintain its properties in good repair, working condition
and order and, from time to time, make all needful and proper repairs, renewals
and replacements.

     

    3.12 The
Borrower will maintain insurance at all times covering such risks and in such
amounts as the Lender may reasonably require in accordance with industry
standards, all such insurance to be in such form and for such periods and written
by such companies as shall be reasonably acceptable to the
Lender.

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

    3.13 The
Borrower will pay or reimburse the Lender, on demand, for all reasonable
expenses (including, without limitation, reasonable counsel fees) incurred or
paid by the Lender in connection with the preparation, amendment,
interpretation, extension or negotiation of this Agreement, and any instrument,
agreement or document to be delivered pursuant hereto, up to $25,000; the
enforcement by the Lender of its rights as against the Borrower or any other
person primarily or secondarily liable to the Lender hereunder or thereunder;
and the administration, supervision, protection or realization on any Collateral
held by the Lender as security for any obligation of the Borrower or any other
person primarily or secondarily liable with respect thereto.

     

    3.14 The
Borrower shall pay or cause to be paid when due all amounts necessary to fund in
accordance with their terms all the Borrower’s deferred compensation plans (if
any) whether now in existence or hereafter created, and the Borrower will not
withdraw from participation in, permit the termination or partial termination
of, or permit the occurrence of any other event with respect to any deferred
compensation plan maintained for the benefit of its employees under
circumstances that could result in liability to the Pension Benefit Guaranty
Corporation, or any of its successors or assigns, or to the entity which
provides funds for such deferred compensation plan.

     

    3.15 No
later than seven (7) days after the date hereof, the Borrower and the Lender
shall enter into a registration rights agreement (the “Rights Agreement”). The
Rights Agreement shall contain substantially the same terms as the registration
rights agreement currently in effect between the holders of the Borrower’s
Series A preferred shares and the Borrower, with such modifications as are
reasonably necessary to reflect the terms of the transactions provided for in
this Agreement and the other Loan Documents.

     

    3.16 No
later than seven (7) days after the date hereof, the Guarantor and the Lender
shall enter into the Guaranty Documents. Guarantor acknowledges that Lender has
provided forms of Deed of Guarantee and Debenture. Such forms shall serve as the
basis for negotiation of mutually acceptable Guaranty Documents.

     

    3.17 The
Borrower shall use its best efforts to file its quarterly report on Form 10-Q
for the period ended June 30, 2010 no later than September 17, 2010, and shall
otherwise make such filings, and take such other actions, as are necessary to
preserve the registration of its securities, and its good standing, with the
U.S. Securities and Exchange Commission.

     

    
      SECTION 4

       

      
        NEGATIVE COVENANTS

         

      

    

    Until
such time as the Loan has been repaid in full, without the prior written consent
of Lender or its duly appointed agent:

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

    4.1 The Borrower will not issue evidences of indebtedness or
create, assume, become contingently liable for, or suffer to exist indebtedness
for borrowed money secured by a senior collateral interest in the Collateral
(other than indebtedness in existence as of the date hereof and interest or
penalties accruing thereon); provided, however, that the Borrower may incur
liabilities which are incurred or arise in the ordinary course of the Borrower’s
business (other than liabilities incurred or arising with respect to money
borrowed) and purchase money security interests in acquired assets as reflected
on Exhibit
A.

     

    4.2 The
Borrower will not make any loans or advances to any individual, firm or
corporation without the prior written consent of the Lender, including, without
limitation, its officers and employees; provided, however, that the Borrower may
make advances to its employees and consultants, including its officers, with
respect to expenses incurred by such employees and consultants, which expenses
are reimbursable by the Borrower and directly related to the conduct of the
Borrower’s business.

     

    4.3 The
Borrower will not invest in or purchase any stock or securities of any
individual, firm or corporation, provided, however, the Borrower may invest in
direct obligations of the United States of America having a maturity of one year
or less from the date of investment.

     

    4.4 The
Borrower will not merge or consolidate or be merged or consolidated with or into
any other corporation.

     

    4.5 The
Borrower will not sell or dispose of any of its assets except for sales of
inventory in the ordinary and usual course of its business; provided, however,
that the Borrower may dispose of (or trade in) equipment which is no longer
required for the conduct of the Borrower’s business so long as the Borrower
receives therefor a sum (or credit) substantially equal to such equipment’s fair
value; and provided further that Borrower may sell or license certain other
assets that are not essential to the conduct of its anticipated
business.

     

    4.6 The
Borrower will not grant or suffer to exist any mortgage, pledge, title retention
agreement, security interest, lien, charge or encumbrance with respect to any of
its assets (other than Permitted Liens), tangible or intangible, whether now
owned or hereafter acquired, or subject any of such assets to the prior payment
of any indebtedness, or transfer in any manner any of such assets with the
intent or purpose, directly or indirectly, of subjecting such assets to the
payment of indebtedness.

     

    4.7 The
Borrower will not engage in any business other than the business in which it is
currently engaged or a business reasonably related thereto.

     

    4.8 The
Borrower will not change its state of organization or entity type without
notifying the Lender of such change, along with the new state of organization
and organizational number (if any) or change in entity within three (3) days of
such change.

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

    
      4.9 The Borrower shall not enter into any
transaction with any subsidiary or any other Affiliate (hereinafter defined)
including, without limitation, the purchase, sale, lease or exchange of
property, or the loaning, capitalization or giving of funds to any subsidiary or
other such Affiliate, unless (i) such subsidiary or other Affiliate is engaged
in a business substantially related to the business conducted by Borrower, and
(ii) the transaction is in the ordinary course of and pursuant to the reasonable
requirements of Borrower’s business and upon terms substantially the same and no
less favorable to Borrower as it would obtain in a comparable arm’s-length
transaction with any person not a subsidiary or Affiliate, and (iii) such
transaction is not otherwise prohibited under this Agreement. For purposes of
this Agreement, “Affiliate” shall mean any
person or entity (i) which directly or indirectly controls, or is controlled by
or is under common control with the Borrower or a subsidiary, (ii) which
directly or indirectly beneficially holds or owns five (5%) percent or more of
any class of voting stock of the Borrower or any subsidiary, or (iii) five (5%)
percent or more of the voting stock of which is directly or indirectly
beneficially owned or held by the Borrower or a subsidiary.

       

    

    
      SECTION 5

       

      SECURITY

    

     

    5.1 The
Lender shall have and hold as security for the repayment of the Loans and all
other Liabilities of the Borrower to the Lender a security interest in
substantially all of the Borrower’s business assets (the “Collateral”), and the Borrower
will execute and deliver all customary instruments and documents required to
establish, create and perfect the same (e.g. UUC financing statements or
recordations of liens with the US patent & trademark office and similar
agencies), including, without limitation, the Security Agreement between
Borrower and Lender of even date herewith (together, the “Security Agreement”).
Notwithstanding the foregoing, upon termination of the Guarantee Period, the
Collateral shall immediately be deemed to exclude 35% of all equity interests of
the Guarantor owned by the Borrower; and the parties shall cooperate in amending
all aforementioned instruments, documents statements and recordations of liens
to reflect such exclusion.

     

    5.2 The Lender and the
Borrower acknowledge that the Borrower is currently seeking a senior secured
debt financing of up to an amount equal to the Financing Cap (hereinafter
defined) on terms substantially similar to those set forth in this Agreement and
the other Loan Documents (the “Subsequent
Financing”) from third party investors that are not Affiliates of the
Borrower (the “New
Investors”). If the Borrower is able to procure the Subsequent Financing,
the Borrower shall give the Lender no less than fifteen (15) days written notice
of the proposed closing date of the Subsequent Financing. The Lender’s and the
New Investor’s security interest in the Collateral shall be pari
passu and of
the same priority in all respects. In furtherance of the foregoing, the Lender
and the Borrower, provided
that the
closing of the Subsequent Financing occurs within sixty (60) days of the date of
this Agreement, and
further provided that, if Lender so elects, $350,000 of the principal
balance of the Note is repaid with the proceeds of the Subsequent Refinancing.
The Lender and the Borrower shall execute such documentation as is reasonably
necessary to effectuate the treatment of the security interests securing the
Loan and the Subsequent Financing as are set forth in this Section 5.2. For
purposes of this Agreement, the “Financing Cap” shall mean an amount equal
to the difference between (i) Eight Million and 00/100 Dollars ($8,000,000.00),
and (ii) the aggregate principal amount of any secured loan made to Borrower by
Lender after the date hereof.

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

     

    5.3 Any
and all deposits or other sums at any time credited by or due from the Lender to
the Borrower shall at all times constitute additional security for all
obligations of the Borrower to the Lender and may be set off against any such
obligations at any time after demand or the occurrence of an Event of Default,
as applicable, whether or not security held by the Lender is deemed to be
adequate. Any and all instruments, documents, policies and certificates of
insurance, securities, goods, accounts receivable, choses in action, chattel
paper, cash, property and the proceeds thereof owned by the Borrower or in which
the Borrower has an interest, which now or hereafter are at any time in
possession or control of the Lender or in transit by mail or carrier to or from
the Lender or in the possession of any third party acting in the Lender’s
behalf, without regard to whether the Lender received the same in pledge, for
safekeeping, as agent for collection or transmission or otherwise or whether the
Lender has conditionally released the same, shall constitute additional security
for such obligations and may be applied at any time after demand or the
occurrence of an Event of Default, as applicable, to such obligations, whether
due or not.

     

    
      SECTION 6

       

      DEFAULT

    

     

    6.1 The
occurrence of any of the following events (after the expiration of any
applicable grace and/or cure periods) shall be an event of default hereunder
(each an “Event of
Default”):

     

    
      	
              (a)

            	
              The
      Borrower shall fail to pay any installment of principal or interest on
      account of the Loans within five (5) days of (i) the date when such
      payment is due under the Note(s), or (ii) the Lender’s demand therefor, in
      the case of any payments Lender is entitled to demand pursuant to the
      terms hereof.

            
	 
      
	
              (b)

            	
              The
      Borrower shall fail to observe or perform any covenant or agreement
      contained in this Agreement, the Note(s) or the Security Agreement (the
      “Transaction
      Documents”) and the expiration of ten (10) days from the Lender’s
      written notice of such failure, provided, however, in the event that the
      Borrower commences the cure within the 10-day period and diligently
      proceeds to cure, the cure period shall be extended for an additional
      period of time, not to exceed thirty (30) days in total, to allow the
      Borrower time to effect a cure.

            
	 
      
	
              (c)

            	
              Any
      warranty or representation set forth in the Transaction Documents proves
      to have been false in any material respect when made or
      furnished.

            
	 
      
	
              (d)

            	
              Any
      event which results in the acceleration of the maturity of the
      indebtedness and demand for payment of money borrowed of the Borrower,
      other than pursuant to
      Borrower’s existing obligations to ETV Capital and other obligations not
      in excess of $100,000.00 under any indenture, agreement, undertaking or
      otherwise.

            
	 
      

    

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

       

    

    
      
        
          	 
      
	
                  (e)

                	
                  Dissolution,
      termination of existence, or business failure of the Borrower or
      Guarantor.

                
	
                   
      

                
	
                  (f)

                	
                  Either
      the Borrower or Guarantor shall: (i) cease, be unable, or admit in writing
      its inability to pay its debts as they mature, or make a general
      assignment for the benefit of, or enter into any composition, trust
      mortgage or other arrangement with creditors; (ii) apply for, or consent
      (by admission of material allegations of a petition or otherwise) to the
      appointment of a receiver, trustee or liquidator of the Borrower or of a
      substantial part of its assets, or authorize such application or consent,
      or proceedings seeking such appointment shall be commenced against the
      Borrower; or (iii) apply for, or consent (by admission of material
      allegations of a petition or otherwise) to the application of any
      bankruptcy, reorganization, readjustment of debt, insolvency, dissolution,
      liquidation or other similar law of any jurisdiction, or authorize such
      application or consent, or proceedings to such end shall be instituted
      against the Borrower, be approved as properly instituted or result in
      adjudication of bankruptcy or insolvency.

                
	 
      
	
                  (g)

                	
                  The
      entry of any judgment(s) against Borrower or Guarantor in excess of
      $100,000, which judgment(s) is not satisfied or appealed from (with
      execution or similar process stayed) within thirty (30) days of its
      entry.

                

        

      

    

     

    6.2 Upon
demand or the occurrence of any Event of Default, all Liabilities of the
Borrower to the Lender shall, at the Lender’s option and without notice or
demand, and notwithstanding any terms of payment in any note or other instrument
evidencing such Liabilities, become immediately due and payable, and any
obligation of the Lender to consider making Loans pursuant to Section 1 shall
terminate.

     

    
      SECTION 7

       

      NOTICE

    

     

    7.1 All
notices and other communications hereunder shall be made by facsimile, overnight
air courier, or certified or registered mail, return receipt requested, and
shall be deemed to be received by the party to whom it was sent one (1) business
day after sending, if sent by facsimile, or overnight air courier, and three (3)
business days after mailing if sent by certified or registered US mail. All such
notices and other communications to a party hereto shall be addressed to such
party at the address set forth at the beginning of this Agreement or to such
other address as such party may designate for itself in a notice to the other
party given in accordance with this section.

     

    7.2 The
addresses to which such communications shall be sent are as
follows:

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

     

    
      	
            	
              
                (a) 

              

            	
              
                If intended for the
      Borrower, to:

                Image
      Metrics, Inc.

                1918
      Main Street, Second Floor

                Santa
      Monica, CA 90405

                Telecopier
      No.: 1-310-656-6566

                Attention:
      Chief Financial Officer

              

            

    

     

    
      	
              with
      copies to:

            

    

    
       

      
        	
              	
                
                   

                

              	
                
                  

                    Patrick
      Sweeney/Ramsey Hanna

                    Reed
      Smith LLP

                    1901
      Avenue of the Stars, Suite 700

                    Los
      Angeles, California 90067

                    Telecopier
      No.: 310-734-5299

                    Attention:
      Patrick Sweeney/Ramsey
Hanna

                  

                

              

      

       

      
        	
              	
                
                  (b) 

                

              	
                
                  

                    If
      intended for the Lender, to:

                     

                    Ms. Rosi Kahane 

                    Chesa Carla 

                    Giassa de las Barrieras 

                    2505 Celerina, Switzerland 

                    Telecopier No.:
______________

                  

                

              

      

       

    

    
      	
              with
      copies to:

            

    

    
       

      
        	
              	
                
                   

                

              	
                
                  

                    

                      Casner
      & Edwards, LLP

                      303
      Congress Street

                      Boston,
      MA 02210

                      Telecopier
      No.: (617) 426-8810

                      Attention:
      Michael J. Goldberg,
Esq.

                    

                  

                

              

      

       

    

    7.3 The
addresses set forth herein may be changed by notice hereunder.

     

    
      SECTION 8

       

      MISCELLANEOUS

    

     

    8.1 The
Borrower or Guarantor may take any action herein prohibited or omit to perform
any act required to be performed by the Borrower or Guarantor if the Borrower or
Guarantor shall obtain the Lender’s prior written consent to each such action,
or omission to act. No waiver on the Lender’s part on any one occasion shall be
deemed a waiver on any other occasion. The Lender shall not be deemed to have waived any of its
rights hereunder unless such waiver shall be in writing and duly signed by an
authorized officer of the Lender.

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

     

    8.2 This
Agreement may be amended only by an instrument in writing and duly signed by an
authorized officer of the Borrower and Guarantor, and the Lender.

     

    8.3 All
covenants, agreements, representations and warranties contained in this
Agreement shall bind the Borrower and Guarantor and their respective successors
and assigns, and shall inure to the Lender’s benefit and the benefit of the
Lender’s successors and assigns, whether expressed or not.

     

    8.4 All
rights of the Lender hereunder shall be cumulative. The Lender shall not be
required to have recourse to any Collateral before enforcing its rights or
remedies against the Borrower or Guarantor. The Borrower hereby waives
presentment and protest of any instrument and any notice thereof.

     

    8.5 If
any provisions of this Agreement shall be held to be illegal or unenforceable,
such illegality or unenforceability shall relate solely to such provision and
shall not affect the remainder of this Agreement.

     

    8.6 This
Agreement shall be construed and enforced in accordance with the laws of the
State of California.

     

    
      8.7 This
Agreement shall take effect as an instrument under seal.

       

      
        8.8 BORROWER,
GUARANTOR AND LENDER EACH HEREBY KNOWINGLY, VOLUNTARILY
AND INTENTIONALLY WAIVES ANY RIGHT IT MAY HAVE OR HEREAFTER HAVE TO A TRIAL BY
JURY IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO
THIS AGREEMENT. Borrower and Guarantor hereby certify that neither Lender nor
any of its representatives, agents or counsel has represented, expressly or
otherwise, that Lender would not, in the event of any such suit, action or
proceeding, seek to enforce this waiver of right to trial by jury. Borrower and
Guarantor acknowledge that Lender has been induced to enter into this Agreement
by, among other things, this waiver. Borrower and Guarantor each acknowledges
that it has read the provisions of this Agreement and in particular, this
Section; has consulted legal counsel; understands the right it is granting in
this Agreement and is waiving in this Section in particular, and makes the above
waiver knowingly, voluntarily and intentionally.

      

    

     

    8.9
Borrower, Guarantor and Lender agree that any action or proceeding to enforce or
arising out of this Agreement may be commenced in any court of the State of
California sitting in the County of Los Angeles, or in the District Court of the
United States for the Central District of California, and Borrower, Guarantor
and Lender each waive personal service of process and agree that a summons and
complaint commencing an action or proceeding in any such court shall be properly
served and confer personal jurisdiction if served by registered or certified
mail to Borrower, Guarantor or Lender, as applicable, or as otherwise
provided by the laws of the State of California or the United States of
America.

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

     

    8.10 This
Agreement may be executed in multiple counterparts, each of which shall be
effective upon delivery and, thereafter, shall be deemed to be an original, and
all of which shall be taken as one and the same instrument with the same effect
as if each party hereto had signed on the same signature page. Any signature
page of this Agreement may be detached from any counterpart of this Agreement
without impairing the legal effect of any signature thereto and may be attached
to another part of this Agreement identical in form hereto and having attached
to it one or more additional signature pages. This Agreement together with any
and all loan documents and instruments executed in connection herewith and all
documents and instruments executed subsequently to the date hereof (together,
the “Loan Documents”)
may be transmitted by facsimile machine or by electronic mail in portable
document format (“pdf”)
and signatures appearing on faxed instruments and/or electronic mail instruments
shall be treated as original signatures. Any party delivering an executed
counterpart of the Loan Documents by telefacsimile or other electronic method of
transmission also shall deliver an original executed counterpart of the Loan
Documents, but the failure to deliver an original executed counterpart shall not
affect the validity, enforceability or binding effect hereof.

     

    8.11 The Exhibit annexed
hereto as Exhibit
A is the only Exhibit to be annexed to this Agreement, and the material
contained therein shall be incorporated herein. 

     

    8.12 The
captions herein contained are inserted as a matter of convenience only and such
captions do not form a part of this Agreement and shall not be utilized in the
construction hereof.

     

     

    <
The remainder of this page is intentionally left blank >

     

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

     

    
      
        
          
            
              	

                       

                      WITNESS: 

                    	 	

                      BORROWER

                      
                        IMAGE
      METRICS, INC. 

                      

                    	 
	 	 	 	 
	 	 	 	 
	
                       

                    	 	By: 	
                       

                    	 
	
                       

                    	 	 	
                      Name: 

                    	 
	
                       

                    	 	 	
                      Title:

                    	 

            

          

        

      

    

    
       

      
        
          
            
              
                	

                         

                         

                      	 	

                        GUARANTOR

                        
                          

                            IMAGE
      METRICS, LTD.

                          

                        

                      	 
	 	 	 	 
	 	 	 	 
	
                         

                      	 	By: 	
                         

                      	 
	
                         

                      	 	 	
                        Name: 

                      	 
	
                         

                      	 	 	
                        Title:

                      	 

              

            

          

        

      

      
         

        
          
            
              
                
                  
                    
                      
                        
                          
                            
                              
                                	

                                         

                                      	 	

                                        

                                          LENDER

                                        

                                      	 
	 	 	 	 
	
                                         

                                      	 	 	 
	 	 	

                                        Rosi
      Kahane 

                                      	 
	
                                         

                                      	 	 	
                                         

                                      	 

                              

                            

                          

                        

                      

                    

                  

                

              

            

          

        

         

        
          
            
            

          

          
            17

            
              

            

          

          
            
            

          

           

        

        
          EXHIBIT
A

        

         

      

    

    
      
        
          
            
              
                
                  
                    
                      
                        
                          
                            
                              
                                
                                  
                                    
                                      
                                        
                                          
                                            
                                              	 
      
	
                                                      2.1(j) 

                                                    	 
      	
                                                      Since
      July 31, 2010, Borrower has borrowed additional amounts pursuant to
      a $1,500,000
      bridge loan facility funded by certain investors including Saffron
      Hill Ventures. 

                                                    
	 
      	 
      	
                                                       

                                                    
	 
      	 
      	
                                                       

                                                    
	 
      
	
                                                      2.1(k) 

                                                    	 
      	
                                                      Material
      Changes in Operations 

                                                    
	 
      
	 
      	 
      	
                                                      Since
      the date of the most financial statements referred to in Section
      2.1(i), Borrower
      has continued to experience operating losses and negative cash
      flows, and
      has experienced a decrease in new working capital and an increase in
      its accumulated
      deficit. 

                                                    
	 
      
	 
      	 
      	
                                                      Borrower
      has written off the value of an equity investment in a third party.
      The previous
      book value of such investments was
  $729,000. 

                                                    
	 
      
	 
      	 
      	
                                                      Michael
      Starkenburg, the Chief Executive Officer and a director of the
      Company, tendered
      his resignation on September 7, 2010. 

                                                    
	 
      
	 
      
	
                                                      2.1(m) 

                                                    	 
      	
                                                      Other
      Locations 

                                                    
	 
      
	 
      	 
      	
                                                      The
      Company maintains an office at 1918 Main Street, 2nd Floor, Santa
      Monica, CA 90405, USA.

                                                    
	 
      
	 
      	 
      	
                                                      The
      Guarantor maintains an office at 1 Portland Street, Manchester M1
      3BE, United
      Kingdom. 

                                                    
	 
      
	 
      	 
      	
                                                      The
      Company employs independent contractors in other locations, and may
      own certain
      computer or other equipment in such locations, which is not
      material value. 

                                                    
	 
      
	
                                                      2.1(n) 

                                                    	 
      	
                                                      The
      Agreement and Guaranty Documents may be subject to approval by
      the governing
      board of the Guarantor and by its sole shareholder. Such
      approvals have
      not yet been obtained. 

                                                    
	 
      
	
                                                      2.1(u) 

                                                    	 
      	
                                                      Deferred
      Compensation Plans 

                                                    
	 
      
	 
      	 
      	
                                                      Borrower
      maintains an incentive stock option plan. Guarantor also maintains
      an inactive
      incentive equity plan. Borrower also makes a 401(k) deferred
      savings plan
      benefits available to its officers and
      employees. 

                                                    

                                            

                                          

                                        

                                      

                                    

                                  

                                

                              

                            

                          

                        

                      

                    

                  

                

              

            

          

        

      

    

     

    
      
        
        

      

      
        18

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