Document:

Unassociated Document

    Exhibit
      10.1

    
 

    EXCHANGE
      AND FORBEARANCE AGREEMENT

     

    This
      Agreement (this "Agreement") is made and entered into as of March 12, 2007,
      by
      and among Spectrum Brands, Inc., a Wisconsin corporation (the "Company"), and
      each of the holders of the Company's 8 1⁄2% Senior Subordinated Notes due 2013
      (the "Notes") which have executed and become a party to this Agreement
      (individually, a "Consenting Noteholder" and collectively, the "Consenting
      Noteholders").

     

    WHEREAS,
      the Company issued the Notes pursuant to that certain indenture dated as of
      September 30, 2003, by and among the Company, as issuer, the Subsidiary
      Guarantors party thereto, as Guarantors, and U.S. Bank National Association,
      as
      Trustee (the "Trustee"), as amended by a Supplemental Indenture, dated as of
      October 24, 2003, a Second Supplemental Indenture dated as of January 20, 2005,
      a Third Supplemental Indenture, dated as of February 7, 2005, and a Fourth
      Supplemental Indenture, dated as of May 3, 2005 (such indenture, as so amended,
      the "Indenture"); and

     

    WHEREAS,
      each Consenting Noteholder currently holds the aggregate principal amount of
      Notes set forth beneath such Consenting Noteholder's name on the signature
      pages
      hereto, and each Consenting Noteholder desires to exchange all of the Notes
      it
      holds for a like principal amount of New Notes (as defined below), subject
      to
      the terms and conditions set forth herein; and

     

    WHEREAS,
      this Agreement sets forth the terms on which the Consenting Noteholders have
      agreed (i) to exchange such Consenting Noteholder's Notes for a like principal
      amount of new notes (the "New Notes") having substantially the terms set forth
      on the Exhibit A attached hereto, (ii) to provide consents reflecting the
      Proposed Amendments (as defined below) to the amendment of the Indenture in
      connection with the Exchange Offer and (iii) to forbear from taking certain
      actions;

     

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

     

    1.  The
      Exchange Offer.
      (a)
      The
      Company shall commence, not later than March 16, 2007, an offer (the "Exchange
      Offer") to all eligible holders of the Notes (each a "Noteholder" and
      collectively the "Noteholders") to exchange any and all Notes for New Notes.
      In
      conjunction with the Exchange Offer, the Company will solicit consents (the
      "Consent Solicitation") to proposed amendments to the Indenture to eliminate
      substantially all of the restrictive covenants (including all such covenants
      which do not require the consent of each affected holder for amendment),
      eliminate or modify certain events of default and eliminate or modify related
      provisions in the Indenture (the "Proposed Amendments") and a waiver of any
      alleged default or existing default under the Indenture that is known to or
      has
      been asserted by the Consenting Noteholders and an agreement from taking certain
      actions under any other debt agreement or instrument of the Company
      (collectively, the "Waiver").

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

       

    

    
      	(b)  	
              The
                Company's obligation to consummate the Exchange Offer will be conditioned
                upon (i) the entering into by the Company of a credit agreement with
                respect to the refinancing, including pursuant to any substitution,
                amendment or replacement thereof, of the Company's existing senior
                credit
                facilities, on substantially similar terms to those set forth in
                a
                commitment letter that shall have been obtained prior to commencement
                of
                the Exchange Offer, (ii) the receipt by the Company of the Waiver
                from
                holders of at least a majority of the Notes, (iii) the execution
                and
                delivery by the Trustee of a supplemental indenture (the "Supplemental
                Indenture") to the Indenture implementing the Proposed Amendments,
                (iv)
                the qualification under the Trust Indenture Act of 1939 of the indenture
                for the New Notes, if required, and the availability of an exemption
                under
                the Securities Act of 1933, as amended, with respect to the Exchange
                Offer, and (v) other customary conditions which are reasonable and
                customary in exchange offers such as the Exchange Offer. The Company
                will
                use its reasonable efforts to satisfy the conditions to the Exchange
                Offer.

            

    

     

    
      	(c)  	
              As
                promptly as practicable on or after the tenth business day after
                the
                commencement of the Exchange Offer the Company shall, and shall procure
                that the guarantors to the Existing Indenture shall, execute and
                deliver
                the Supplemental Indenture. Following the execution and delivery
                of the
                Supplemental Indenture and the satisfaction of the other conditions
                to the
                Exchange Offer, the Company will accept for exchange and exchange
                all
                Notes that have been validly tendered by Consenting Noteholders as
                of such
                time (the date of such exchange, the "Settlement Date"). Subject
                to the
                terms and conditions of the Exchange Offer, the Company will accept
                for
                exchange and exchange all Notes validly tendered and not validly
                withdrawn
                in the Exchange Offer.

            

    

     

    2.  Agreement
      to Forebear.
      Each
      Consenting Noteholder hereby agrees that it shall not, and shall not permit
      any
      of its affiliates to, or direct, solicit or encourage any other person to,
      exercise, or seek to exercise, whether individually or jointly with any other
      Noteholder, any rights or remedies, including any rights under Section 6.02
      or
      6.05 of the Indenture, that Noteholders or the Trustee may have under the
      Indenture or otherwise in connection with any Default or Event of Default (each
      as defined in the Indenture) that exists on the date of this Agreement that
      is
      known to or has been asserted by the Consenting Noteholders, as a result of
      the
      Company failing to comply with any of its covenants (other than any payment
      covenants) set forth in the Indenture or the Notes, and further agrees not
      to
      take, or permit any of its affiliates, or direct, solicit or encourage any
      other
      person, to take, any action, including the giving of any notice, under any
      other
      debt agreement or instrument of the Company that would be inconsistent with
      the
      foregoing agreements had such action been taken under the Indenture. Each
      Consenting Noteholder also agrees to the rescission of any declaration of
      acceleration which may be made by the Trustee or any holders of Notes with
      respect to such Defaults or Events of Default during the term of this
      Agreement.

     

    3.  Agreement
      to Exchange.
      Promptly following commencement of the Exchange Offer, each Consenting
      Noteholder will tender its Notes for exchange in the Exchange Offer and not
      revoke such tender, and consent to the Proposed Amendments and the Waiver and
      not revoke such consent.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

       

    

    4.  Certain
      Conditions.
      The
      obligations of each Consenting Noteholder under this Agreement are conditioned
      upon (i) the Company having received signed commitments from a lender or lenders
      with respect to the refinancing, substitution, amendment or replacement of
      the
      Company’s senior credit facilities; (ii) the representations and warranties of
      the Company contained herein being true and correct as of the date hereof,
      as at
      the date of entry into a supplemental indenture giving effect to the Proposed
      Amendments and as at any Settlement Date; (iii) the terms and conditions of
      the
      exchange of the Notes in the Exchange Offer and the terms of the New Notes
      being
      in all material respects as set forth herein, and with respect to terms not
      set
      forth herein, reasonably acceptable to the Consenting Noteholders, and disclosed
      in an Exchange Offer Document (that shall include information customary for
      similar exchange offers); and (iv) this Agreement not having been terminated
      pursuant to Section 11 hereof.

     

    5.  Representations
      of Consenting Noteholder.
      Each
      Consenting Noteholder represents and warrants, severally and not jointly, to
      the
      Company as follows:

     

    
      	(a)  	
              The
                Consenting Noteholder has all requisite corporate, partnership, or
                limited
                liability company power and authority to enter into this Agreement
                and to
                carry out the transactions contemplated hereby, and to perform its
                obligations under this Agreement.

            

    

     

    
      	(b)  	
              The
                execution and delivery of this Agreement have been duly and validly
                authorized, and all necessary action has been taken to make this
                Agreement
                a legal, valid and binding obligation of the Consenting Noteholder,
                enforceable in accordance with its
                terms.

            

    

     

    
      	(c)  	
              The
                Consenting Noteholder (together with its affiliates) owns of record
                and/or
                beneficially, and/or has investment authority or discretion with
                respect
                to, the aggregate principal amount of Notes set forth next to such
                Consenting Noteholder's name on the signature pages hereto, and such
                aggregate principal amount of Notes constitutes all of the Notes
                so owned
                or controlled by such Consenting Noteholder and its affiliates as
                of the
                date hereof.

            

    

     

    
      	(d)  	
              The
                Consenting Noteholder owns the Notes free and clear of all claims,
                Liens,
                title defects and objections of any kind and nature
                whatsoever.

            

    

     

    
      	(e)  	
              The
                proposed sale of the Notes in exchange for the New Notes by such
                Consenting Noteholder was privately negotiated in an independent
                transaction and was not solicited by or on behalf of the Company
                or any of
                their affiliates. The terms of this Agreement were the result of
                negotiations between the Consenting Noteholder and the
                Company.

            

    

     

    
      	(f)  	
              Neither
                the Consenting Noteholder nor anyone acting on its behalf has received
                or
                is entitled to receive any commission or remuneration directly or
                indirectly in order to solicit or facilitate the Exchange
                Offer.

            

    

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    
      	(g)  	
              This
                Agreement represents the only agreement or arrangement between the
                Company, on the one hand, and the Consenting Noteholder on the other
                hand,
                with respect to the Exchange Offer.

            

    

     

    6.  Representations
      of the Company.
      The
      Company represents and warrants to the Consenting Noteholders as
      follows:

     

    
      	(a)  	
              The
                Company has all requisite corporate, power and authority to enter
                into
                this Agreement and to carry out the transactions contemplated hereby,
                and
                to perform its obligations under this
                Agreement;

            

    

     

    
      	(b)  	
              The
                execution and delivery of this Agreement have been duly and validly
                authorized, and all necessary action has been taken to make this
                Agreement
                a legal, valid and binding obligation of the Company, enforceable
                in
                accordance with its terms;

            

    

     

    
      	(c)  	
              Subject
                to the accuracy of the representations and warranties of the Consenting
                Noteholders contained in Section 5 hereof and of the Company, the
                issuance
                of New Notes is exempt from the registration and prospectus delivery
                requirements of the Securities Act;

            

    

     

    
      	(d)  	
              There
                is no broker, investment banker, financial advisor, finder or other
                person
                which has been retained by or is authorized to act on behalf of such
                Company who might be entitled to any fee or commission for which
                the
                Consenting Noteholders will be liable in connection with the execution
                of
                this Agreement or the transactions contemplated
                hereby;

            

    

     

    
      	(e)  	
              The
                Company is not in violation of (i) any provision of the charter or
                bylaws
                of the Company, (ii) (other than with respect to any Defaults or
                Events of
                Default referred to above) any of the terms, conditions or provisions
                of
                any material note, bond, mortgage, indenture, license, contract,
                agreement
                or other instrument or obligation to which the Company or any of
                its
                subsidiaries is a party or by which any of them or any of their properties
                or assets may be bound, or (iii) order, writ, injunction, decree,
                statute,
                law, rule or regulation applicable to the Company, any of its subsidiaries
                or any of their respective properties or
                assets;

            

    

     

    
      	(f)  	
              There
                is no action, suit, proceeding, inquiry or other investigation before
                or
                    brought by any court or governmental agency or body, domestic
                or foreign,
                now pending, or, to the knowledge of the Company or any subsidiary,
                threatened, against or affecting the Company or its subsidiaries
                (other
                than any such action, suit, proceeding, inquiry or investigation
                as may
                relate to the Notes or any Default or alleged Default or Event of
                Default
                or alleged Event of Default) which, singly or in the aggregate, would
                materially and adversely the properties or assets of the Company
                and its
                subsidiaries;

            

    

     

    
      	(g)  	
              The
                Company and its Affiliates have not, directly or indirectly, solicited
                any
                offer to buy, sold or offered to sell or otherwise negotiated in
                respect
                of, and will not, directly or indirectly, solicit any offer to buy,
                sell
                or offer or otherwise negotiate in respect of, in the United States
                or to
                any United States citizen or resident, any security which is or would
                be
                integrated with the New Notes in a manner that would require the
                New Notes
                to be registered under the Securities Act;

            

    

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    
      	(h)  	
              On
                or prior to the date hereof, the Company has received signed commitments
                from a lender or lenders, subject to customary conditions, sufficient
                to
                enable it to amend, substitute, replace or refinance its existing
                senior
                credit facilities.

            

    

     

    7.  Additional
      Notes Subject.
      Nothing
      in this Agreement shall be deemed to limit or restrict the ability or right
      of
      any Consenting Noteholder from acquiring any additional Notes (the "Additional
      Notes") from and after the issuance of the press release referenced in Section
      9(a) of this Agreement; provided,
      however,
      that in
      the event that any Consenting Noteholder acquires any Additional Notes after
      such time and prior to the Settlement Date, such Additional Notes shall
      immediately upon acquisition, and without further action on the part of the
      Company or the Consenting Noteholders, become subject to the terms and
      conditions of this Agreement. Each Consenting
      Noteholder shall as promptly as practicable notify the Company
      of any
      such acquisition, and the Consenting Noteholder agrees to execute and deliver
      within five (5) business days of the closing of such acquisition any additional
      documents that the Company
      shall
      request to evidence that such Additional Notes are subject to the provisions
      of
      this Agreement as of the date of acquisition.

     

    8.  No
      Transfer.
      Except
      as set forth below, each Consenting Noteholder agrees, without the prior written
      consent of the Company, not to sell, transfer, assign or otherwise dispose
      of
      any Notes, including any Additional Notes, on or prior to the Settlement Date,
      unless the transferee accepts such Notes subject to the terms of this Agreement.
      In the event that a Consenting Noteholder transfers Notes on or prior to the
      Settlement Date, such transferee shall comply with and be subject to the terms
      of this Agreement, including but not limited to, the Consenting Noteholder's
      obligations to tender the Notes pursuant to the Exchange Offer and consent
      to
      the Proposed Indenture and the Waiver, and as a condition precedent to the
      transfer, execute a signature page hereto upon which it shall become a party
      hereto and a Consenting Noeteholder hereunder. Any sale, transfer, assignment,
      or other disposition of any Notes in violation of this Section shall be void
      ab
      initio. Concurrently with any such transfer, a Consenting Noteholder shall
      notify the Company pursuant to the notice provisions contained in Section 13
      hereof, in writing, of such transfer and promptly thereafter provide the
      executed documents as provided for in this paragraph.

     

    9.  Other
      Agreements of the Company.
      (a)
      The
      Company will issue a press release or press releases reasonably acceptable
      to
      the Consenting Noteholders announcing its intention to conduct the Exchange
      Offer and the receipt of its commitment to the refinancing of its senior credit
      facilities not later than 8:00 a.m. (New York Time) on March 12, 2007; and
      will
      file or furnish such press release to the SEC on Form 8-K promptly thereafter,
      which Form 8-K will include as an exhibit this Agreement. The Company shall
      provide the Consenting Noteholders a draft of such announcement or announcements
      at least 24 hours prior to release, and in any event shall provide the
      Consenting Noteholders a reasonable opportunity to review and comment on such
      press release or releases.

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

       

    

    (b)  The
      Company will reimburse the Consenting Noteholders for all reasonable
      out-of-pocket fees and expenses of Bingham McCutchen LLP, counsel to the
      Consenting Noteholders, and of one counsel to the Trustee, incurred by the
      Consenting Noteholders (i) prior to the date hereof in connection with their
      analysis and assertion of Defaults and Events of Default and (ii) subsequent
      to
      the date hereof and prior to the Settlement Date in connection with the
      transactions contemplated by this Agreement (including, for the avoidance of
      doubt, the reasonable fees and expenses of Bingham McCutchen LLP with respect
      to
      the review and comment on, and negotiation with respect to, this
      Agreement).

     

    (c)  The
      Company will pay accrued interest on the Notes to the Consenting Noteholders
      in
      cash on the Settlement Date.

     

    (d)  The
      Company will use its reasonable best efforts (i) to effect the qualification
      of
      the indenture for the New Notes under the Trust Indenture Act of 1939 and (ii)
      to enable the Exchange Offer to be exempt from the registration requirements
      under the Securities Act of 1933, as amended. 

     

    10.  Not
      an
      Amendment or Waiver.
      It is
      acknowledged and agreed, that except as expressly provided for herein, the
      entering into this Agreement does not constitute a full or partial amendment
      or
      waiver of any of such Consenting Noteholder's rights or remedies under the
      Indenture, the Notes or at law or otherwise, and each Consenting Noteholder
      hereby reserves such rights and remedies.

     

    11.  Termination
      of Agreement.
      (a)
      This
      Agreement may be terminated by the Company or Consenting Noteholders
      beneficially owning at least 70% of the aggregate principal amount of the Notes
      held by all Consenting Noteholders by notice by the Company or the Consenting
      Noteholders, as applicable, to the other, (i) upon the breach by the
      non-terminating party of any of the representations, warranties or covenants
      in
      this Agreement and (ii) at any time from and after April 10, 2007 in the event
      that the Settlement Date has not occurred on or prior thereto; provided,
      however, that the right to terminate this Agreement shall not be available
      to
      the Company or the Consenting Noteholders where the failure of the Settlement
      Date to so occur has resulted from the breach by the party wishing to terminate
      of its respective obligations hereunder.

     

    (b)  None
      of
      the representations, warranties and agreements contained herein shall survive
      the termination of this Agreement or the consummation of the Exchange Offer,
      unless the termination pursuant to (a)(ii) above is being challenged by one
      of
      the parties hereto and specific performance is being pursued pursuant to
      paragraph 14 below .

     

    12.  Amendments
      and Waivers.
      This
      Agreement may not be modified, amended, or supplemented or any provision herein
      waived without the prior written consent of the Company and the Consenting
      Noteholders of at least a majority in aggregate principal amount of the Notes
      held by all Consenting Noteholders.

     

    13.  Notices.
      All
      notices, requests, consents and other communications hereunder shall be in
      writing, shall be addressed to the receiving party's address set forth herein,
      or to such other address as a party may designate by written notice hereunder,
      and shall be either (i) delivered by hand, (ii) made by facsimile transmission,
      (iii) sent by overnight courier, or (iv) sent by registered or certified mail,
      return receipt requested, postage prepaid.

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

       

    

    If
      to the
      Company, to:

     

    Spectrum
      Brands, Inc.

    Six
      Concourse Parkway

    Suite
      3300 

    Atlanta,
      Georgia 30328

    Attention:
      General Counsel

    

    If
      to the
      Consenting Noteholders, to:

    

    The
      addresses noted on Exhibit B hereto.

     

    All
      notices, requests, consents and other communications hereunder shall be deemed
      to be received (i) if by hand, at the time of the delivery thereof to the
      receiving party at the address of such party, set forth herein, (ii) if made
      by
      facsimile transmission, at the time that the receipt thereof has been
      acknowledged by electronic confirmation or otherwise, (iii) if sent by overnight
      courier, on the next business day following the day such written notice is
      delivered to the courier service, or (iv) if sent by registered or certified
      mail, return receipt requested, postage prepaid, on the third business day
      following the day such mailing is mailed.

    

    14.  Governing
      Law; Jurisdiction.
      This
      Agreement shall be governed by and construed in accordance with the laws of
      the
      State of New York, without regard to any conflicts of law provisions. By its
      execution and delivery of this Agreement, each of the parties hereto irrevocably
      and unconditionally agrees for itself that any legal action, suit or proceeding
      against it with respect to any matter under or arising out of or in connection
      with this Agreement or for recognition or enforcement of any judgment rendered
      in any such action, suit or proceeding, may be brought in the United States
      District Court for the Southern District of New York. By execution and delivery
      of this Agreement, each of the parties hereto irrevocably accepts and submits
      itself to the nonexclusive jurisdiction of such court, generally and
      unconditionally, with respect to any such action, suit or
      proceeding.

     

    15.  Specific
      Performance.
      It is
      understood and agreed by each of the parties hereto that any breach of this
      Agreement would give rise to irreparable harm for which money damages would
      not
      be an adequate remedy and accordingly, and the parties hereto agree that in
      addition to any other remedies, each party shall be entitled to enforce the
      terms of this Agreement by a decree of specific performance or injunctive relief
      without the necessity of proving the inadequacy of money damages as a remedy
      or
      posting a bond or other security.

     

    16.  Headings.
      The
      headings of the sections of this Agreement are inserted for convenience only
      and
      shall not affect the interpretation of this Agreement.

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

    17.  Successors
      and Assigns.
      This
      Agreement is intended to bind and inure to the benefit of the parties hereto
      and
      their respective successors, assigns, heirs, executors, administrators and
      representatives.

     

    18.  Entire
      Agreement.
      This
      Agreement constitutes the entire agreement of the parties hereto with respect
      to
      the subject matter of this Agreement and supersedes all other prior
      negotiations, agreements, and understandings, whether written or oral, among
      the
      parties with respect to the subject matter of this Agreement.

     

    19.  Counterparts.
      This
      Agreement may be executed and delivered (including by facsimile transmission)
      in
      one or more counterparts, each of which shall be deemed an original and all
      of
      which shall constitute one and the same Agreement.

     

    20.  No
      Third-Party Beneficiaries.
      This
      Agreement shall be solely for the benefit of the parties hereto and no other
      person or entity shall be a third-party beneficiary of this
      Agreement.

     

    21.  Severability.
      Any
      term or provision of this Agreement that is invalid or unenforceable in any
      jurisdiction, shall, as to that jurisdiction, be ineffective to the extent
      of
      such invalidity or unenforceability without rendering invalid or unenforceable
      the remaining terms and provisions of this Agreement or affecting the validity
      or enforceability of any of the terms or provisions of this Agreement in any
      other jurisdiction. If any provision of this Agreement is so broad as to be
      unenforceable, the provision shall be interpreted to be only so broad as is
      enforceable.

     

    22.  Expenses.
      Except
      as otherwise provided herein, each of the parties hereto shall pay its own
      expenses in connection with this Agreement and the transactions contemplated
      hereby.

     

    23.  Public
      Announcements.
      Without
      the prior written consent of the Company, no Consenting Noteholder shall issue,
      and each Consenting Noteholder shall instruct its officers, directors,
      affiliates, associates, employees, investment bankers, attorneys and other
      advisers or representatives not to issue, any press release to a non-affiliated
      third party with regard to this Agreement or any of the transactions
      contemplated herein, except to the extent disclosure may be required by
      applicable law or stock exchange or inter-dealer quotation system rules
      applicable to a party (subject to giving the Company written notice of the
      intention to make such disclosure prior to such disclosure) or except to the
      extent such information has already been publicly disclosed by a non-affiliated
      person.

     

    24.  Certain
      Terms.
      The
      term “affiliate” as used hereunder shall mean
      with
      respect to a specified person or entity, a person or entity that directly or
      indirectly, through one or more intermediaries, controls, or is controlled
      by,
      or is under common control with, the person or entity specified.

     

    BEFORE
      EXECUTING THIS AGREEMENT, THE CONSENTING NOTEHOLDER SHOULD CONSULT WITH ITS
      TAX
      AND LEGAL ADVISORS REGARDING THE CONSEQUENCES OF THE EXCHANGE OFFER AND
      OWNERSHIP OF THE NEW NOTES.

     

    The
      balance of this page has been intentionally left
      blank.

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

    IN
      WITNESS WHEREOF, each of the parties has caused this Agreement to be executed
      and delivered by its duly authorized officer as of the date first above
      written.

     

    
      	 	 	 
	ISSUER/COMPANY: 	
              SPECTRUM
                BRANDS, INC.

            
	 
 	 
 	 
 
	
            	By:  	/s/
              Randall J. Steward
	 	
              

              Name:
                Randall J. Steward

            
	 	
              Title:
                Executive Vice President and Chief 
                  Financial
                  Officer

              

            

    

     

    
      	 	 	 
	
              HOLDERS: 

            	
              SANDELMAN
                PARTNERS, LP

            
	 
 	 
 	 
 
	
            	By:  	
              //s//

            
	 	
              

              Name:
                

            
	 	
              Title:

            

    

     

    
      	 	 	 
	
            	
              In
                its capacity as investment manager with discretionary authority in
                respect
                of:

               

              
                SANDELMAN
                  PARTNERS MULTI- STRATEGY MASTER FUND,
                  LTD.

              

            
	 
 	 
 	 
 
	
            	 	
            
	 	Principal
              amount of Notes Held: $150,710,000
	 	
              Held
                in DTC Participant Code: 0005, 0573, 0050

               

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      	 	 	 
	
            	
              SANDELL
                ASSET MANAGEMENT CORP.

            
	 
 	 
 	 
 
	
            	By:  	
              //s//

            
	 	
              

              Name:
                

            
	 	
              Title:

            

    

     

    
      	 	 	 
	
            	
              
                In
                  its capacity as investment manager with discretionary authority
                  in respect
                  of:

                 

                
                  CASTLERIGG
                    MASTER INVESTMENTS, LTD.

                

              

            
	 
 	 
 	 
 
	
            	 	
            
	 	
              Principal
                amount of Notes Held: $26,000,000

              
                Held
                  in DTC Participant Code:
                  7378

              

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    EXHIBIT
      B

     

    CONSENTING
      NOTEHOLDERS

     

    
      	
              Name

            	 	
               Address

            	 
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 

    

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    EXHIBIT
      A

     

    SPECTRUM
      BRANDS, INC.

    2013
      Toggle PIK Exchange Notes

    Summary
      of Terms and Conditions

    [Capitalized
      terms not otherwise defined herein have the same meanings

    as
      specified therefor in the Indenture]

     

    
      
        	
                ISSUER:

              	 	
                Spectrum
                  Brands, Inc. (f/k/a Rayovac Corporation), a Wisconsin corporation
                  (the
                  "Issuer").

              
	 	 	 
	
                GUARANTORS:

              	 	
                Same
                  as in the Indenture.

              
	 	 	 
	
                TRUSTEE:

              	 	
                Wells
                  Fargo Bank, N.A. (the "Trustee").

              
	 	 	 
	
                INTEREST PAYMENT
                  DATES:

              	 	
                April
                  1 and October 1.

              
	 	 	 
	
                UNSECURED
                  TOGGLE- PIK NOTES:

              	 	
                An
                  aggregate principal amount of up to U.S. $350 million will be available
                  through the New Notes (the "Unsecured
                  Toggle-PIK Notes").

              
	 	 	 
	
                COUPON
                  SCHEDULE:

              	 	
                Provisions
                  for payment of interest and coupon shall be as further described
                  on
                  Schedule A attached hereto.

              
	 	 	 
	
                MATURITY:

              	 	
                The
                  Unsecured Toggle-PIK Notes shall be subject to repayment of all
                  amounts
                  outstanding, plus
                  accrued interest, on October 2, 2013.

              
	 	 	 
	
                ELECTION
                  NOTIFICATION
                  DATE:

              	 	
                The
                  election notification date with respect to an Interest Period will
                  be the
                  second trading day preceding the first day of the Interest
                  Period.

              
	 	 	 
	
                INTEREST
                  PERIOD:
                  

              	 	
                An
                  Interest Period shall mean the period commencing on and including
                  an
                  interest payment date and ending on and including the day immediately
                  preceding the next succeeding interest payment date.

              
	 	 	 
	
                MINIMUM
                  VALUE
                  FOR PIK PAY
                  OPTION
                  CALCULATION:

              	 	
                 

                Commences
                  10 Trading days prior to the Election Notification
                  Date.

              

      

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      
        	
                MINIMUM
                  EQUITY
                  VALUE
                  FOR PIK
                  PAY
                  OPTION:

              	 	
                 

                Closing
                  price of SPC common stock must close greater than, for each of
                  the 10
                  consecutive trading days prior to the election notification date
                  for
                  interest payments on the following dates: (a) $3.00 for October
                  1, 2007,
                  April 1, 2008 and October 1, 2008; (b) $4.00 for April 1, 2009
                  and October
                  1, 2009; and (c) $5.00 for April 1, 2010 and October 1, 2010. Post
                  October
                  1, 2010, no PIK option.

              
	 	 	 
	
                OPTIONAL
                  REDEMPTION
                  SCHEDULE:

              	 	
                As
                  further described on Schedule A attached hereto.

              
	 	 	 
	
                ASSET
                  SALES:

              	 	
                Same
                  as in the Indenture.

              
	 	 	 
	
                CHANGE
                  OF CONTROL:

              	 	
                Redemption
                  premium equivalent to the optional redemption premium.

              
	 	 	 
	
                SECTION
                  4.09,
                  INCURRENCE
                  OF INDEBTEDNESS;
                  CLAUSES
                  (b)(i)
                  AND (b)(viii):

              	 	
                 

                 

                Not
                  to exceed $1.6 billion; and $50 million. 

              
	 	 	 
	
                EVENTS
                  OF DEFAULT:

              	 	
                Same
                  as in the Indenture.

              
	 	 	 
	
                WAIVERS
                  AND AMENDMENTS:

              	 	
                Same
                  as in the Indenture.

              

      

    

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    Schedule
      A

    Unsecured
      Toggle Note 

    Coupon
      Schedule,

    Toggle
      Interest 

    and

    Optional
      Redemption Schedule

    

    
      	 	 	
              100%
                Cash Pay Note

            	 	
              PIK

            	 
	 	 	 	 	 	 
	
              Coupon
                Schedule

            	 	 	 	 	 
	
              While
                Company is below 2:1 Fixed Charge Coverage Ratio

            	 	 	 	 	 
	
              Effective
                Date through April 1, 2007

            	 	
              11.00%

            	 	
              11.50%

            	 
	
              April
                2, 2007 through October 1, 2007

            	 	
              11.25%

            	 	
              11.75%

            	 
	
              October
                2, 2007 through April 1, 2008

            	 	
              11.50%

            	 	
              12.00%

            	 
	
              April
                2, 2008 through October 1, 2008

            	 	
              12.00%

            	 	
              12.50%

            	 
	
              October
                2, 2008 through April 1, 2009

            	 	
              12.50%

            	 	
              13.00%

            	 
	
              April
                2, 2009 through October 1, 2009

            	 	
              12.75%

            	 	
              13.25%

            	 
	
              October
                2, 2009 through April 1, 2010

            	 	
              13.50%

            	 	
              14.00%

            	 
	
              April
                2, 2010 through October 1, 2010

            	 	
              13.75%

            	 	
              14.25%

            	 
	
              October
                2, 2010 through April 1, 2011

            	 	
              14.00%

            	 	
              Cash
                Pay thereafter

            	 
	
              April
                2, 2011 through October 1, 2011

            	 	
              14.25%

            	 	 	 
	
              October
                2, 2011 through April 1, 2012

            	 	
              14.50%

            	 	 	 
	
              April
                2, 2012 through October 1, 2012

            	 	
              14.75%

            	 	 	 
	
              October
                2, 2012 through April 1, 2013

            	 	
              15.00%

            	 	 	 
	
              April
                2, 2013 through October 1, 2013

            	 	
              15.25%

            	 	 	 
	 	 	 	 	 
	
              As
                soon as the Company is Above 2:1 Fixed Charge Coverage
                Ratio

            	 	 	 	
              The
                then applicable rate increases by 100 bps

            
	 	 	 	 	 	 
	
              Optional
                Redemption Schedule

            	 	 	 	 	 
	
              Effective
                Date through Sept 31, 2007

            	 	
              110%
                of face plus accrued

            	 	
              110%
                of face plus accrued

            	 
	
              October
                1, 2007 through Sept 31, 2008

            	 	
              109%
                of face plus accrued

            	 	
              109%
                of face plus accrued

            	 
	
              October
                1, 2008 through Sept 31, 2009

            	 	
              102%
                of face plus accrued

            	 	
              102%
                of face plus accrued

            	 
	
              October
                I, 2009 through Sept 31, 2010

            	 	
              101%
                of face plus accrued

            	 	
              101%
                of face plus accrued

            	 
	
              October
                1, 2010 and thereafter

            	 	
              100%
                of face plus accrued

            	 	
              100%
                of face plus accruedASSET
      PURCHASE AGREEMENT

     

    This
      Asset Purchase Agreement (the “Agreement”)
      is
      entered into as of March __, 2007, by and among Point.360, a California
      corporation (“Buyer”),
      Eden
      FX., a California corporation (“Seller”),
      Mark
      Miller, as an individual, and John Gross, as an individual (the individuals
      shall hereinafter be collectively referred to as “Shareholders”).
      

     

    RECITAL

     

    Seller
      is
      engaged in the business of 3D animation for the broadcast and film industries.
      Buyer desires to purchase, and Seller and Shareholders desire to sell to Buyer,
      substantially all of the assets and goodwill of Seller upon the terms and
      conditions of this Agreement. Buyer’s and Seller’s intent is that Buyer will
      purchase Seller’s goodwill and only the assets that are identified in schedules
      to this Agreement in exchange for cash, other potential consideration and the
      assumption of only those liabilities of Seller specifically set forth
      herein.

     

    NOW,
      THEREFORE, in
      consideration of the foregoing and other good and valuable consideration, the
      receipt of which hereby is acknowledged, Buyer, Seller and Shareholders hereby
      agree as follows:

     

    ARTICLE
      1 

    PURCHASE
      AND SALE OF ASSETS

     

    1.1  Purchased
      Assets.
      Subject
      to the terms and conditions of this Agreement, at the Closing (as defined in
      Section 5.1 below), Buyer agrees to purchase from Seller, and Seller agrees
      to
      sell and convey to Buyer, good and marketable title and interest in and to
      Seller’s goodwill and substantially all of Seller’s assets, including without
      limitation, those assets listed in Schedule 1.1, (but excluding those accounts
      receivable, personal property of Seller or Shareholders and other assets listed
      in Schedule 1.2), including any and all rights to the name “Eden FX”
(collectively, the “Purchased
      Assets”),
      provided that the Purchased Assets shall be transferred to Buyer free and clear
      of all liens, claims, security interests and other encumbrances. It is
      understood that the Purchased Assets will be operated as a stand alone,
      independent division of Buyer (“the Division”), the assets, liabilities and
      employees of which may vary from time to time.

     

    1.2  No
      Other Assets Purchased by Buyer; Accounts Receivable and Accounts
      Payable.
      Buyer
      has not agreed to purchase (and under no circumstances shall be deemed to have
      purchased) any of Seller’s assets that are listed in Schedule 1.2; however,
      Buyer will purchase Seller’s goodwill. The following sets forth the parties’
agreement with respect to accounts receivable and accounts payable:

     

    (a)  The
      Purchased Assets do not include accounts receivable and loans receivable of
      Seller to the extent the goods and services or loans they relate to have been
      provided to the customer or debtor on or before the Closing Date (the “Retained
      Receivables”). The Purchased Assets do include accounts receivable of the Seller
      to the extent the goods and services they relate to have not been provided
      to
      the customer on or after the Closing Date (the “Transferred
      Receivables”).

     

    
      
         

        
        

      

      
        1

        
          

        

      

      
        
        

      

    

     

    (b)  Buyer
      shall initially assume responsibility for collecting all Receivables (the
      Retained Receivables and Transferred Receivables).

     

    (c)  Seller
      and Buyer shall cooperate in the collection of the Retained Receivables and
      Transferred Receivables, and in the event Seller receives payment of any
      Transferred Receivables, Seller shall promptly remit the same to Buyer, and
      in
      the event Buyer receives payment of any Retained Receivables, Buyer shall
      promptly remit the same to Seller.

     

    (d)  Payments
      from a customer shall be allocated to the work order being paid. Each of Seller
      and Buyer shall provide an accounting to the other, in reasonable detail,
      showing the amount of Retained Receivables and Transferred Receivables received
      by each, on the request of the other, with copies of all applicable back-up
      and
      documentation.

     

    (e)  Seller
      shall be responsible for the payment of, and shall timely pay, accounts payable
      and accrued expenses for services performed prior to the Closing Date (“Prior
      Costs”). To the extent that such Prior Costs exceed Retained Receivables, Seller
      shall pay Buyer the difference in cash.

     

    (f)  Schedule
      1.2(f) contains a complete and accurate list of Retained Receivables, accounts
      payables of Seller and Prior Costs of Seller as of March 6, 2007.

     

    1.3  Limited
      Assumption of Liabilities.
      With
      the
      exception of those certain liabilities more particularly described in Schedule
      1.3 attached hereto, Buyer shall not assume or be liable for any debts,
      obligations or liabilities of Seller or Shareholders, whether related to the
      Purchased Assets or to Seller’s other assets and whether known or unknown, and
      Seller shall indemnify Buyer from and against all such debts, obligations and
      liabilities not described in Schedule 1.3. Without limiting the generality
      of
      the preceding sentence, Buyer shall not assume or be liable for (i) any tax
      liabilities of Seller related to the operation by Seller at any time of its
      business, (ii) any tax liabilities assessed on or related to the Purchased
      Assets for the period prior to Closing; (iii) any tax liabilities assessed
      on or
      related to Seller’s other assets for the period prior to and after the Closing,
      (iv) any other liabilities of Seller with respect to the period prior to the
      Closing, or (v) any liabilities of Seller to its employees with respect to
      the
      period prior to or after the Closing. At the Closing, Buyer shall assume,
      discharge and perform and be solely liable for the liabilities described in
      Schedule 1.3 attached hereto (the “Assumed Liabilities”).

     

    1.4  Purchase
      Price.
      The
      purchase price for the Purchased Assets shall be $2,158,133 minus $358,124.75
      (the amount of debt set forth on Schedule 1.3 assumed by Buyer), to be paid
      at
      Closing, plus any earnouts paid pursuant to Section 1.5 hereof (collectively,
      the “Purchase Price”). The Purchase Price shall be paid by bank wire of
      immediately available funds. 

     

    1.5  Earnout.
      Provided the actual EBITDA (i.e., earnings before interest, taxes, depreciation
      and amortization as determined under generally accepted accounting principles,
      but subject to adjustment as provided in this Agreement) of the Division exceeds
      70% of the following EBITDA targets of the Division in connection with the
      period from Closing through December 31, 2007, or the calendar years 2008
      or 2009, as applicable, Buyer shall make earnout payments to Seller within
      sixty
      (60) days after the end of any such calendar year as follows:

     

    
      
         

        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    (a)  With
      respect to calendar year 2007, $685,000 (“2007 Target Earnout”), if the
      Division’s actual EBITDA for 2007 (“2007 Actual EBITDA”) equals $951,000 (“2007
      Target EBITDA”). Notwithstanding any other provision of this Section 1.5, it is
      agreed that 2007 Target Earnout and 2007 Target EBITDA will be adjusted to
      amounts equal to the numbers in the preceding sentence multiplied by a fraction,
      the numerator of which shall be the number of days between the Closing Date
      and
      December 31, 2007, and the denominator of which is 365. 2007 Actual EBITDA
      will
      be EBITDA of the Division for the period from the Closing Date to December
      31,
      2007.

     

    (b)  With
      respect to calendar year 2008, $922,000 (“Year 2008 Target Earnout”), if the
      Division’s actual EBITDA for 2008 (“Year 2008 Actual EBITDA”) equals $1,279,000
      (“2008 Target EBITDA”);

     

    (c)  With
      respect to calendar year 2009, $1,185,000 (“2009 Target Earnout”), if the
      Division’s actual EBITDA for 2009 (“2009 Actual EBITDA”) equals $1,644,000
      (“2009 Target EBITDA”).

     

    (d)  If
      the
      Division achieves more than 70% but less than 100% of any Target EBITDA for
      Years 2007, 2008 or 2009, the earnout payments payable to Seller in connection
      with such year shall be computed by multiplying the applicable Target Earnout
      by
      a fraction, the numerator of which is the amount by which the applicable actual
      EBITDA exceeds 70% of the applicable Target EBITDA and the denominator of which
      is the difference between the applicable Target EBITDA and 70% of the applicable
      Target EBITDA. For illustration purposes only, if hypothetically year 2007
      actual EBITDA is $800,000 (before any adjustment for proration) the total
      earnout payment for 2007 would be computed as follows:

     

    
    

    
      
         

        
        

      

      
        3

        
          

        

      

      
        
        

      

    

    
      

        
          	
                  2007
                    Target Earnout

                	
                  $685,000

                	
                  (A)

                
	 	 	 
	
                  2007
                    Target EBITDA

                	
                  $951,000

                	 
	 	 	 
	
                  Numerator:

                	 	 
	 	 	 
	
                  2007
                    Actual EBITDA

                	
                  $800,000

                	 
	 	 	 
	
                  70%
                    of 2007 Target EBITDA

                	
                  (666,000)

                	 
	 	 	 
	
                  Difference

                	
                  $135,000

                	
                  (B)

                
	 	 	 
	
                  Denominator:

                	 	 
	 	 	 
	
                  2007
                    Target EBITDA

                	
                  $951,000

                	 
	 	 	 
	
                  70%
                    of 2007 Target EBITDA

                	
                  (666,000)

                	 
	 	 	 
	
                  Difference

                	
                  $285,000

                	
                  (C)

                
	 	 	 
	
                  Fraction
                    (B divided by C)

                	
                  47.02%

                	
                  (D)

                
	 	 	 
	
                  Earnout
                    To Be Paid (A x D)

                	
                  $322,000

                	 

        

         

      

    

    (e)  No
      earnout payments shall be made with respect to 2007, 2008 or 2009 for any such
      period in which the Division achieves 70% or less of Target EBITDA for 2007,
      2008 or 2009, respectively.

     

    (f)  If
      the
      Division achieves more than 100% of Target EBITDA for years 2007, 2008 or 2009,
      total earnout payment for such year shall be equal to the sum of the Target
      Earnout for such year plus 80% of the difference between the actual EBITDA
      achieved and the Target EBITDA.

     

    (g)  In
      the
      event the determination of the earnout for any applicable period has not become
      final within sixty (60) days from the end of any applicable period by reason
      of
      the implementation by Seller of the procedures for objecting to a Determination
      set forth in Section 1.7, then the amount of the earnout set forth in the
      Determination shall be paid within such sixty (60)-day period. The balance
      of
      the earnout, if any, shall be paid to Seller or refunded to Buyer, as
      applicable, within thirty (30) days after the Determination becomes
      final.

     

    (h)  Seller
      and Buyer shall act in good faith with respect to operations of the Division
      during the Earnout Period, as defined in Section 1.6 hereof, and Buyer shall
      use
      reasonably commercial efforts consistent with its past practices and policies
      to
      not negatively impact the earnout. 

     

    (i)  In
      the
      event that any Shareholder materially breaches the Noncompetition Agreement
      dated as of the date hereof to which he is a party (the “Noncompetition
      Agreement”) and, in the event such breach is curable, fails to cure such breach
      within 10 days after receipt of written notice of such breach from Buyer, Seller
      shall not be entitled to 50% of any further earnout payments pursuant to this
      Agreement. In the event that both Shareholders materially breach the
      Noncompetition Agreements, and, in the event such breach is curable, fails
      to
      cure such breach within 10 days after receipt of written notice of such breach
      from Buyer, Seller shall not be entitled to any further earnout payments
      pursuant to this Agreement.

     

    
      
         

        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    (j)  In
      determining actual EBITDA for purposes of the earnout, Buyer’s costs for
      accounting, legal and administrative functions shall be charged to the Division
      only to the extent such services are specifically provided to the Division
      as
      set forth in Section 1.6 hereof. Buyer shall not charge or allocate any other
      overhead of Buyer to the Division for the purpose of calculating
      EBITDA.

     

    1.6  Conduct
      of Business During Earnout Period.
      Immediately after the Closing, Buyer will form the Division, comprised of the
      Purchased Assets and the employees of Seller who will become employees of Buyer.
      Buyer shall make offers of employment to all employees of Seller (except for
      Mark Miller and John Gross whose services will be rendered pursuant to the
      terms
      of a Loan Out Agreement to be entered into between Seller and Buyer at the
      Closing). Such employees shall be offered at least the same compensation they
      are presently receiving and shall receive credit for time served as employees
      of
      Seller in determining their employee benefits under Buyer’s employee benefit
      plans. During the period commencing on the Closing Date and ending on
      December 31, 2009 (the “Earnout Period”):

     

    (a)  The
      Division shall be operated as a stand alone, independent division of Buyer.
      Buyer shall continue to conduct its business in the ordinary course of business,
      and the Division shall be subject to Buyer’s standard reporting
      requirements.

     

    (b)  Without
      limiting the generality of Section 1.6(a) hereof, Buyer agrees to provide the
      Division with at least the financial resources described in the pro-forma budget
      attached hereto as Schedule 1.6(b) and the capital investments described in
      the
      capital expenditures budget attached to such pro-forma budget (collectively,
      the
“Budget”). The Division will be allocated interest based upon the book value of
      its fixed assets compared to Buyer’s fixed assets; however, such interest
      allocation shall not affect the calculation of EBITDA.

     

    (c)  The
      Division will be charged with the expenses relating to employee benefit plans,
      including health, 401(k) matching, life insurance, vacation, sick pay, employer
      payroll taxes and other costs, relating to the Division’s
      employees.

     

    (d)  Except
      as
      otherwise provided herein, Buyer shall not charge or allocate any overhead
      of
      Buyer to the Division for the purpose of calculating EBITDA.

     

    (e)  Buyer
      may
      provide specific support services to the Division, such as engineering or
      information technology at the rates agreed to between Seller and Buyer. The
      Division may provide support services to Buyer at rates to be agreed to between
      Seller and Buyer.

     

    (f)  Buyer
      shall provide accounting and administrative services to the Division including,
      but not limited to, the provision of monthly financial statements within thirty
      (30) business days of any month other than December (for December the monthly
      financial statements shall be provided within forty-five (45) business days).
      For the purpose of this Agreement, cost of sales and general and administrative
      expenses directly related to the Division’s operations shall be determined in
      accordance with generally accepted accounting principles (“GAAP”). Buyer shall
      maintain a separate set of books for the Division. The Division shall also
      be
      charged for actual rent and other identifiable expenses consumed by the Division
      and shall be allocated a pro-rata portion of other expenses directly consumed
      by
      the Division (e.g., billing, human resources, payroll administration, credit
      and
      collection, and general accounting, etc.). 

     

    
      
        
           

        

        
        

      

      
        5

        
          

        

      

      
        
        

      

    

    

     

    (g)  Pursuant
      to the Loan Out Agreement, Mark Miller and John Gross will be responsible for
      the day-to-day operations of the Division, including the Budget, subject to
      the
      senior management and Board of Directors of Buyer. Buyer agrees that the working
      conditions of the Division will be substantially the same as the working
      conditions of Seller in accordance with Seller's past practices and Buyer
      acknowledges that the personnel of Seller are talent that work essentially
      on a
      project basis and that past practices with respect to work hours, vacation,
      time
      off and comp time will be continued.

     

    1.7  Earnout
      Determination.
      As soon
      as practical after December 31 of each year during each Earnout Period, but
      in
      no event later than sixty (60) days after Buyer shall have received from the
      Division all information, books and records reasonably requested in order to
      make an EBITDA calculation, the Buyer shall prepare a statement of the EBITDA
      of
      the Division for each period of the earnout, prepared in accordance with GAAP
      (the “Determination”). If Seller does not agree that such Determination
      correctly states EBITDA of the Division for the relevant period, Seller shall
      promptly (but not later than thirty (30) days after delivery of the
      Determination) give written notice to Buyer of any exception thereto. If the
      Seller and the Buyer reconcile their differences, the EBITDA for such period
      shall be adjusted accordingly and shall thereupon become final and conclusive
      upon all the parties hereto. If Seller and the Buyer are unable to reconcile
      their differences in writing within thirty (30) days after written notice of
      the
      exceptions is delivered to the Buyer, the items in dispute shall be submitted
      to
      a mutually acceptable accounting firm for final determination (the “Determining
      Accountants”) and the EBITDA shall be deemed adjusted in accordance with the
      determination of the Determining Accountants and shall become final and
      conclusive upon all parties hereto. The Determining Accountants shall consider
      only the items in dispute and shall be instructed to act within thirty (30)
      days
      (or such longer period as Seller and the Buyer may agree) to resolve all claims
      and dispute. If Seller does not give notice of any exception within thirty
      (30)
      days after the delivery of the Determination, or if Seller gives written notice
      of its acceptance of the Determination prior to the end of such thirty (30)
      day
      period, the EBITDA calculations set forth in the Determination shall thereupon
      become final and conclusive.

     

    (a)  The
      Determining Accountants shall determine the party (i.e., the Buyer or Seller
      as
      the case may be) whose asserted position as to the EBITDA for the period under
      examination before the Determining Accountants is furthest from the
      determination of EBITDA by the Determining Accountants, which non-prevailing
      party shall pay the reasonable fees and expenses of the Determining Accountants.
      

     

    (b)  In
      the
      event the parties are unable to agree upon a mutually acceptable accounting
      firm
      to act as Determining Accountant, either Seller or Buyer may request that the
      Determining Accountant be selected by JAMS. Seller and Buyer shall each
      designate up to three accounting firms. JAMS shall select one of such accounting
      firms to act as the Determining Accountants. To the extent consistent with
      the
      foregoing, and the limited role of JAMS, the Streamlined Arbitration Rules
      and
      Procedures of JAMS shall be applicable. In the first instance, each party shall
      pay one-half (1/2) of the fees and expenses of JAMS. The non-prevailing party,
      as determined pursuant to Subsection 1.7(a) shall reimburse the other party
      for
      such fees and expenses (including JAMS) paid by such other party upon delivery
      of the Determination by the Determining Accountants.

     

    
      
          

        
        

      

      
        6

        
          

        

      

      
        
        

      

    

    

      1.8  Taxes.
        Seller
        and Buyer shall each be liable for the payment of 50% of any and all sales
        and
        use taxes arising out of the transfer of the Purchased Assets and Seller
        shall
        be liable for all other taxes related to the Purchased Assets with respect
        to
        the period prior to the Closing.

       

      1.9  Relocation
        of the Division.
        In the
        event that Buyer relocates the Division to Buyer’s existing WoodHolly facility
        in Hollywood, California, Buyer shall pay all costs and expenses of the
        relocation and build-out of such facility (including infrastructure, cabling,
        signage, etc.), including without limitation, the cost for movers and tenant
        improvements to such facility, and the Division’s resulting rent expense shall
        not exceed the square foot charge contained in Buyer’s current lease or as such
        lease may be extended. To the extent Buyer relocates the Division to a location
        other than the WoodHolly facility, Buyer shall pay all moving costs in
        connection with such relocation, and the Division shall pay the lease costs
        for
        such location.

       

      1.10  Allocation
        of Purchase Price.
        The
        Purchase Price shall be allocated among the Purchased Assets as set forth
        in
        Schedule 1.10 hereof, which has been arrived at by arm’s length negotiation as
        required by Section 1060 of the Code and the Treasury regulations promulgated
        thereunder. Buyer and Seller shall (i) timely file all forms and tax returns
        required to be filed in connection with such allocation, and (ii) prepare
        and
        file tax returns on a basis consistent with such allocation. Seller and Buyer
        hereby agree to allocate $20,000 to the Noncompetition Agreements. 

       

      ARTICLE
        2

      SELLER’S
        AND SHAREHOLDERS’ REPRESENTATIONS AND WARRANTIES 

       

      Seller
        and each Shareholder, jointly and severally, hereby represent and warrant
        to
        Buyer as follows:

       

      2.1  Organization
        and Good Standing of Seller.
        Seller
        is
        a corporation duly organized, validly existing and in good standing under
        the
        laws of the State of California. 

       

      2.2  Capitalization
        of Seller.
        The
        percentage ownership interest in Seller held by each Shareholder, is listed
        in
        Schedule 2.2 attached hereto. 

       

      2.3  Powers.
        Seller
        has and holds the appropriate right and power, and all licenses, permits,
        authorizations and approvals (governmental or otherwise), necessary to entitle
        it to use its name and to own the Purchased Assets.

       

      2.4  Authority.
        Seller
        has the full right, power and authority to execute and deliver this Agreement
        and to consummate the transactions contemplated hereby. All acts and other
        proceedings required to be taken by Seller in order to enable it to carry
        out
        this Agreement and the transactions contemplated hereby have been taken.
        Shareholders have approved in writing Seller’s execution and delivery of this
        Agreement and consummation of the transactions contemplated hereby.

       

      
        
          
          

        

        
          7

          
            

          

        

        
          
          

        

      

       

      2.5  Binding
        Effect.
        This
        Agreement has been duly executed and delivered by Seller and Shareholders
        and
        constitutes a legal, valid and binding obligation of Seller and Shareholders,
        enforceable in accordance with its terms, except as enforceability may be
        limited by applicable bankruptcy, insolvency and other similar laws affecting
        the enforcement of creditors’ rights generally, general equity principles and
        the discretion of courts in granting equitable remedies.

       

      2.6  No
        Breach.
        Neither
        the execution and delivery of this Agreement nor the consummation of any
        transaction contemplated hereby will (i) violate any law, regulation, judgment
        or order applicable to Seller, (ii) result in the acceleration of obligations,
        breach or termination of, or constitute a default under, any operating
        agreement, loan agreement, articles of organization, other charter document,
        lease, deed of trust or other agreement to which Seller is subject, or (iii)
        result in the creation of any lien or other encumbrance upon any of the
        Purchased Assets, except that the consent of (a) Technicolor Creative Services,
        the sublessor under the Sublease between sublessor and Seller, (b) the lessors
        of equipment leased or rented by Seller, (c) the licensors of third party
        software used by Seller (e.g., Microsoft) and (d) Sony Pictures Imageworks
        under
        the Independent Contractor Deal Memorandum dated February 15, 2007 is required
        but has not been sought nor obtained. To Seller's and Shareholder's knowledge,
        there are no defaults under the contracts to which Seller is a party (except
        for
        the uncashed rent checks issued to Tehnicolor Creative Services as described
        in
        Schedule 1.3) and Seller expects such contracts to continue after the Closing.
        

       

      2.7  Consents.
        Neither
        the execution and delivery of this Agreement nor the consummation of any
        transaction contemplated hereby requires Seller to obtain any consent, permit
        or
        approval, or to make any filing or registration, under any law, regulation,
        judgment or order applicable to Seller or under any lease, deed of trust
        or
        other agreement to which Seller is subject, except that the consent of (a)
        Technicolor Creative Services, the sublessor under the Sublease between
        sublessor and Seller, (b) the lessors of equipment leased or rented by Seller,
        (c) the licensors of third party software used by Seller (e.g., Microsoft)
        and
        (d) Sony Pictures Imageworks under the Independent Contractor Deal Memorandum
        dated February 15, 2007 is required but has not been sought nor obtained.
        

       

      2.8  Charter
        Documents.
        Schedule
        2.8 is a copy of (i) the Articles of Incorporation of Seller, as amended
        to
        date, certified as true, correct and complete by the Secretary of State of
        California, and (ii) the Bylaws of Seller, as amended to date, certified
        as
        true, correct and complete by a duly authorized officer of Seller. 

       

      2.9  Interests
        of Shareholders.
        No
        Shareholder of Seller or any relative of any Shareholder of Seller has any
        direct or indirect ownership interest in any of the Purchased Assets (other
        than
        solely by reason of the Shareholder’s ownership interest in
        Seller).

       

      
        
          
          

        

        
          8

          
            

          

        

        
          
          

        

      

       

      2.10  Ownership
        and Use of Assets.
        Seller
        is the lawful owner of, and has the right to use and transfer to Buyer, the
        Purchased Assets; Seller owns each of the Purchased Assets free and clear
        of all
        liens, security interests or other claims or encumbrances; the delivery to
        Buyer
        of the instruments of transfer of ownership contemplated by this Agreement
        will
        vest good and marketable title to the Purchased Assets in Buyer, free and
        clear
        of all liens, security interests and other claims and encumbrances; and the
        Purchased Assets that consist of machinery, equipment or other tangible personal
        property or fixtures will be free of material defects, commercially usable
        and
        in good operating condition and repair. The leased or rented equipment of
        Seller
        is subject to the rights of the lessors/owners of such equipment.

       

      2.11  Litigation.
        Except
        as
        described in Schedule 2.11 attached hereto, there is no litigation, arbitration,
        investigation or other proceeding pending or, to the best knowledge of
        Shareholders, threatened against Seller or any of the Purchased
        Assets.

       

      2.12  Compliance
        with Laws.
        To
        the
        best knowledge of Shareholders, Seller is in compliance with all applicable
        statutes, regulations, ordinances and other laws pertaining to the Purchased
        Assets. No claim has been made to Seller by any governmental authority (and
        no
        such claim is anticipated) to the effect that a license, permit, certificate
        or
        authorization (which has not promptly thereafter been obtained) is required
        with
        respect to the Purchased Assets.

       

      2.13  Environmental
        Matters.
        All
        operations and activities of Seller with respect to the Purchased Assets
        have
        been in all material respects in compliance with all state, federal and local
        laws and regulations and any and all permits or authorizations governing,
        or in
        any way relating to, the generation, handling, manufacturing, treatment,
        storage, use, transportation, spillage, leakage, dumping, discharge, emission,
        release or disposal (whether accidental or intentional) of any toxic or
        hazardous substances, materials or wastes, any petroleum or oil or any pollutant
        (“Hazardous
        Substances”).
        Seller has not received any written notice of claims or actions pending or
        threatened against it by any governmental entity or agency or any person
        relating to Hazardous Substances.

       

      2.14  Proprietary
        Information.
        Schedule
        2.14 attached hereto sets forth a list of all United States and foreign
        copyrights, service marks, trademarks, trademark applications, trade names,
        logos, patents, patent applications, licenses and royalty rights that relate
        to
        the Purchased Assets and in which Seller possesses an interest (collectively,
        the “Proprietary
        Rights”).
        Except as described in Schedule 2.14: (i) there are no assignments, licenses
        or
        sublicenses with respect to any of the Proprietary Rights; (ii) there are
        no
        pending or, to the best knowledge of Shareholders, threatened claims by any
        person with respect to Seller’s use of the Proprietary Rights; (iii) the
        Proprietary Rights are in good standing and are freely transferable to Buyer;
        and (iv) to the best knowledge of Shareholders, the Proprietary Rights do
        not
        infringe on the rights of any other person.

       

      2.15  Finders
        and Brokers.
        No
        person
        has acted as a finder, broker or other intermediary on behalf of Seller or
        Shareholders in connection with this Agreement. No person is entitled to
        any
        broker’s or finder’s fee or similar fee with respect to this Agreement or such
        transactions as a result of actions taken by Seller or
        Shareholders.

       

      
        
          
          

        

        
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      2.16  Exclusivity.
        Seller
        shall not, through the Closing Date, negotiate with any other party for the
        sale
        of the Purchased Assets and shall not have entered or enter into any
        understanding about such a sale, whether binding or not. Unless this Agreement
        is first terminated, Seller shall not negotiate for the sale of or offer
        to sell
        the Purchased Assets to any other party without Buyer’s prior written consent.
        Through the Closing Date, Seller shall promptly notify Buyer if Seller is
        contacted by any person or group regarding a possible sale of the Purchased
        Assets.

       

      2.17  Accuracy
        and Completeness.
        No
        representation or warranty of Seller or Shareholders in this Agreement or
        in any
        schedule, exhibit, agreement or document delivered pursuant hereto contains,
        or
        will contain, any untrue statement of a material fact or omits, or will omit,
        to
        state a material fact necessary to make the statements contained therein,
        in
        light of the circumstances under which they are made, not
        misleading.

       

      2.18  EBITDA.
        Schedule
        2.18 is Seller’s income statement and a compilation of Seller’s EBITDA for the
        12 months ended December 31, 2006. Schedule 2.18: (i) was prepared from the
        books and records of Seller, presents fairly in all material respects, the
        operations and EBITDA of Seller, (ii) is in accordance with GAAP, and (iii)
        reflects the consistent application of such accounting principles throughout
        the
        12 month period presented.

       

      2.19  No
        Other Representations or Warranties.
        EXECPT
        AS SET FORTH IN THIS ARTICLE 2, (a) SELLER AND SHAREHOLDERS MAKE NO OTHER
        REPRESENTATIONS OR WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED, ALL OF WHICH
        ARE
        HEREBY DISCLAIMED, INCLUDING, WITHOUT LIMITATION, WARRANTIES REGARDING
        MERCHANTABILITY, NON-INFRINGEMENT OR FITNESS FOR A PARTICULAR PURPOSE,
        SUITABILITY, DURABILITY, CONDITION, QUALITY, OR ANY OTHER CHARACTERISTIC,
        AND
        (b) BUYER TAKES THE PURCHASED ASSETS AND ASSUMED LIABILITIES “AS IS,” “WHERE IS”
AND “WITH ALL FAULTS.”

       

      ARTICLE
        3

      REPRESENTATIONS
        AND WARRANTIES OF BUYER

       

      Buyer
        represents and warrants to Seller as follows:

       

      3.1  Organization
        and Good Standing.
        Buyer
        is
        a corporation duly organized, validly existing and in good standing under
        the
        laws of the State of California. 

       

      3.2  Corporate
        Powers.
        Buyer
        has
        and holds the corporate right and power, and all licenses, permits,
        authorizations and approvals (governmental or otherwise), necessary to entitle
        it to use its corporate name, to own and operate its properties and to carry
        on
        its business as such business exists as of the date hereof.

       

      3.3  Authority.
        Buyer
        has
        the full right, power and authority to execute and deliver this Agreement
        and to
        consummate the transactions contemplated hereby. All acts and other proceedings
        required to be taken by Buyer in order to enable it to carry out this Agreement
        and the transactions contemplated hereby have been taken.

       

      
        
          
          

        

        
          10

          
            

          

        

        
          
          

        

      

       

      3.4  Binding
        Effect.
        This
        Agreement has been duly executed and delivered by Buyer and constitutes its
        legal, valid and binding obligation, enforceable in accordance with its
        terms.

       

      3.5  Consents.
        Neither
        the execution and delivery of this Agreement nor the consummation of any
        transaction contemplated hereby requires Buyer to obtain any consent, permit
        or
        approval, or to make any filing or registration, under any law, regulation,
        judgment or order applicable to Buyer or under any lease, deed of trust or
        other
        agreement to which Buyer is subject, other than any filings that are required
        under applicable securities laws and regulations.

       

      3.6  Finders
        and Brokers.
        No
        person
        has acted as a finder, broker or other intermediary on behalf of Buyer in
        connection with this Agreement or the transactions contemplated hereby, and
        no
        person is entitled to any broker’s or finder’s fee or similar fee with respect
        to this Agreement or such transactions as a result of actions taken by
        Buyer.

       

      ARTICLE
        4

      AGREEMENTS
        OF THE PARTIES

       

      In
        addition to their agreements contained in other sections of this Agreement,
        Buyer and Seller agree that:

       

      4.1  Access
        to Purchased Assets.
        Prior to
        the Closing, Buyer and its authorized representatives shall have full access
        to
        the Purchased Assets, the liabilities of Seller reflected in Schedule 1.3
        hereto
        and the books, records, agreements and other documents of Seller at all
        reasonable hours, and Buyer shall be furnished with copies of all such books,
        records, agreements and all other documents as may be requested by it. Prior
        to
        the Closing, Buyer shall maintain the confidentiality of such books, records,
        agreements and documents and information about Seller that it acquires in
        connection with such investigation, except to the extent that disclosure
        thereof
        is required by applicable law or such books, records, agreements, documents
        and
        information are otherwise publicly known. Prior to the Closing, Buyer (and
        its
        authorized representatives) shall also have the right to discuss the Purchased
        Assets with the officers, Shareholders and managers of Seller.

       

      4.2  Seller’s
        Use of Purchased Assets Prior to the Closing.
        Prior to
        the Closing, Seller shall use the Purchased Assets only in the ordinary and
        regular course of business consistent with previous practices without any
        material change and shall not take any action with respect to any Purchased
        Asset or liability of Seller assumed by Buyer that is adverse to Buyer’s
        interests. 

       

      4.3  Reasonable
        Efforts.
        Each
        party to this Agreement agrees to provide reasonable cooperation to the other
        party in the performance of all obligations under this Agreement. Each party
        shall use its reasonable efforts to satisfy or cause to be satisfied, at
        or
        prior to the Closing, the conditions to the other party’s Closing obligations
        under this Agreement. 

       

      4.4  Publicity.
        Without
        the prior written approval of the other party, neither party shall disclose
        the
        existence and/or contents of any discussions between Buyer and Seller herein
        nor
        issue any press release or other public disclosure regarding the transactions
        contemplated by this Agreement, except as required by applicable securities
        or
        other laws. Notwithstanding the foregoing, the parties to this Agreement
        may
        disclose the contents of this Agreement in any legal proceedings between
        the
        parties relating to this Agreement.

       

      
        
          
          

        

        
          11

          
            

          

        

        
          
          

        

      

       

      4.5  Confidentiality.
        Seller
        and Shareholders agree that neither Seller nor any of its Shareholders shall,
        either before or after the Closing, use or disclose to any person, directly
        or
        indirectly, any confidential information concerning the business of Buyer,
        including, without limitation, any business secret, trade secret, financial
        information, software, internal procedure, business plan, marketing plan,
        pricing strategy or policy or client list, except to the extent that such
        use or
        disclosure is (i) required by an order of a court of competent jurisdiction,
        or
        (ii) authorized in writing by a duly authorized executive officer of Buyer.
        The
        prohibition that is contained in the preceding sentence shall not apply to
        any
        information that is or becomes generally available to the public other than
        through a disclosure by Seller or Shareholders.

       

      ARTICLE
        5

      CLOSING

       

      5.1  Time,
        Place and Date.
        The
        closing of the transactions contemplated by this Agreement (the “Closing”)
        shall
        occur effective as of 12:01 a.m. on the date on which this Agreement is executed
        and delivered by Buyer and Seller (the “Closing
        Date”).
        

       

      5.2  Conditions
        Precedent to Buyer’s Closing Obligations.
        Each
        of
        the following shall be a condition to the obligation of Buyer to consummate
        the
        transactions contemplated by this Agreement, except to the extent that Buyer
        may
        elect to waive any of such conditions in writing: 

       

      (a)  Each
        representation and warranty of Seller and Shareholders contained in this
        Agreement (including any exhibit, schedule or other agreement or document
        delivered pursuant hereto) shall be true and correct in all material respects
        on
        and as of the Closing Date with the same effect as if such representation
        and
        warranty had been made on and as of the Closing Date, and Seller and
        Shareholders shall have performed or complied in all material respects with
        all
        agreements required by this Agreement to be performed or complied with by
        Seller
        prior to or at the Closing.

       

      (b)  Seller
        and Shareholders shall have executed and delivered to Buyer a certificate
        to the
        effect that the conditions described in Section 5.2(a) above have been
        satisfied. Seller’s certificate shall be signed by its duly authorized
        officer.

       

      (c)  Seller
        shall have executed and delivered the agreements and documents that are
        described in Section 5.4 below.

       

      (d)  No
        claim,
        action, investigation or other proceeding shall be pending or threatened
        before
        any court or governmental agency that presents a substantial risk of the
        restraint or rescission of the transactions contemplated by this Agreement
        or
        that imposes a substantial risk to Buyer’s ability to obtain title to and
        possession of the Purchased Assets on the terms and conditions contemplated
        by
        this Agreement.

       

      
        
          
          

        

        
          12

          
            

          

        

        
          
          

        

      

       

      (e)  There
        shall have been obtained all permits, approvals and consents from governmental
        agencies and third parties that Buyer determines are required in order to
        transfer the Purchased Assets to it. 

       

      (f)  All
        actions required to be taken by Seller to authorize the execution, delivery
        and
        performance of this Agreement shall have been duly and validly
        taken.

       

      (g)  Buyer
        shall have conducted, at its expense, a due diligence examination of the
        Purchased Assets and, in its sole discretion, shall not have disapproved
        of the
        results of its review. 

       

      (h)  Each
        of
        the Shareholders shall have entered into a Noncompetition Agreement in the
        forms
        attached hereto as Exhibits A-1 and A-2.

       

      (i)  Seller
        shall have entered into Loan Out Agreement in the form attached hereto as
        Exhibits B pertaining to the services of Mark Miller and John
        Gross.

       

      5.3  Conditions
        Precedent to Seller’s and Shareholders’ Closing
        Obligations.
        Each of
        the following shall be a condition to the obligation of Seller to consummate
        the
        transactions contemplated by this Agreement, except to the extent that Seller
        may elect to waive any of such conditions in writing: 

       

      (a)  Each
        representation and warranty of Buyer contained in this Agreement (including
        any
        exhibit, schedule or other agreement or document delivered pursuant hereto)
        shall be true and correct in all respects on and as of the Closing Date with
        the
        same effect as if such representation and warranty had been made on and as
        of
        the Closing Date, and Buyer shall have performed or complied with all agreements
        required by this Agreement to be performed or complied with by it prior to
        or at
        the Closing.

       

      (b)  No
        claim,
        action, investigation or other proceeding shall be pending or threatened
        before
        any court or governmental agency that presents a substantial risk of the
        restraint or rescission of the transactions contemplated by this
        Agreement.

       

      (c)  All
        actions required to be taken by Buyer to authorize the execution, delivery
        and
        performance of this Agreement shall have been duly and validly
        taken.

       

      (d)  Buyer
        shall have entered into Loan Out Agreement with Seller pertaining to the
        services of Mark Miller and John Gross.

       

      (e)  Buyer
        shall have executed and delivered to Seller a certificate to the effect that
        the
        conditions described in Section 5.3 have been satisfied. 

       

      5.4  Closing
        Deliveries of Seller. 

       

      (a)  At
        or
        prior to the Closing, Seller shall execute and deliver to Buyer: 

       

      (i)  Bills
        of
        sale and other such assignment instruments, in form and substance reasonably
        satisfactory to Buyer, covering the Purchased Assets and effecting the full
        sale
        and conveyance of the Purchased Assets to Buyer, free and clear of all liens,
        security interests and other encumbrances;

       

      
        
          
          

        

        
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      (ii)  All
        books, records, correspondence and other documents in Seller’s possession or
        control that evidence or relate to the Purchased Assets; 

       

      (iii)  The
        Closing certificate described above in Section 5.2(b); 

       

      (iv)  A
        copy of
        resolutions of Shareholders and of the governing body of Seller authorizing
        the
        execution, delivery and performance of this Agreement and the other agreements
        and transactions contemplated hereby, which resolutions shall be certified
        by
        the Secretary (or comparable officer) of Seller and which certificate shall
        state that such resolutions have not subsequently been amended or
        rescinded;

       

      (v)  Such
        other closing documents as Buyer may reasonably request in order to consummate
        the transactions contemplated by this Agreement.

       

      5.5 Termination
        of the Agreement.
        If the
        Closing has not occurred, for any reason, prior to the close of business
        on
        March 1, 2007 or prior to such later Closing deadline as the parties may
        mutually agree upon in writing, this Agreement automatically shall terminate
        and, except as provided in this Section 5.6, the parties hereto shall have
        no
        further rights or obligations hereunder. Notwithstanding the termination
        of this
        Agreement pursuant to the preceding sentence, the obligations of the parties
        described in the following Sections of this Agreement shall survive: 4.1
        (second
        sentence); 4.4; 4.5; 7.11; 7.14; 7.15, and 7.16. Furthermore, the termination
        of
        this Agreement shall not adversely affect any right that a party may have
        against another party for breach of contract.

       

      ARTICLE
        6

      INDEMNIFICATION

       

      6.1  Survival
        of Representations and Warranties.
        All
        representations and warranties of the parties hereto (except for those set
        forth
        in Sections 2.2 and 2.13) shall survive until December 31, 2009.
        Representations and warranties set forth in Sections 2.2. and 2.13 hereof
        shall
        survive until the relevant statute of limitations has run. All representations,
        warranties and agreements of the parties made in any exhibit or schedule
        to this
        Agreement or in any other agreement or document delivered pursuant to this
        Agreement shall be deemed to be contained in this Agreement. A claim with
        respect to a breach of a representation or a warranty shall not be foreclosed
        if
        the maker of such claim shall have made such claim in writing to the other
        party
        prior to the expiration of the survival period described above.

       

      6.2  
        Indemnification by Seller and Shareholders.
        Subject
        to the provisions of this Article 6, Seller and each Shareholder, individually,
        shall indemnify and hold harmless Buyer from and against any and all losses,
        damages, liabilities, costs and expenses, including, without limitation,
        settlement costs and reasonable legal, accounting and other expenses for
        investigating or defending any actions (collectively, “Losses”)
        that
        Buyer may incur resulting from (i) any breach of any representation or warranty
        of Seller or Shareholders made in this Agreement or the Bill of Sale, (ii)
        any
        breach of any agreement of Seller or Shareholders contained in this Agreement
        or
        the Bill of Sale, (iii) any violation of California’s Bulk Sales Law (if
        applicable to this Agreement by Seller or Shareholders), (iv) any claim by
        a
        finder, broker or other intermediary representing Seller or Shareholders,
        directors or officers in connection with this Agreement or the transactions
        contemplated hereby; and (v) any liability of Seller not specifically described
        in Schedule 1.3 attached hereto (including, without limitation, any claim
        or
        lawsuit by any governmental agency or other person or entity that is brought
        against Buyer and that relates to a liability of Seller). 

       

      
        
          
          

        

        
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      6.3  Indemnification
        by Buyer.
        Subject
        to the provisions of this Article 6, Buyer shall indemnify and hold harmless
        Seller and Shareholders from and against any and all Losses that Seller may
        incur based upon, arising out of or resulting from (i) any breach of any
        representation or warranty of Buyer made in this Agreement or the Bill of
        Sale
        or (ii) any breach of any agreement of Buyer contained in this Agreement
        or the
        Bill of Sale, (iii) the Assumed Liabilities, and (iv) the ownership or
        operation of the Division after the Closing.

       

      6.4  Notice
        of Claims; Contest of Claims.
        

       

      (a)  If
        the
        indemnified party believes that it has incurred any Losses, or if any action
        at
        law or suit in equity is instituted by a third party with respect to which
        the
        indemnified party intends to claim any Losses under this Article 6, the
        indemnified party shall so notify the indemnifying party. The notice shall
        describe such Losses, the amount thereof, if known, and the method of
        computation thereof, all with reasonable particularity and shall contain
        a
        reference to the provisions of this Agreement in respect of which such Losses
        shall have been incurred; and, in the case of an action or suit by a third
        party, shall include a copy of all documents received by the indemnified
        party
        in connection therewith and any other information known to the indemnified
        party
        with respect to such action or suit or the basis therefor. Such notice shall
        be
        given promptly after the indemnified party becomes aware of each such Loss,
        action or suit, but failure to give such prompt notice shall not affect the
        indemnifying party’s obligations hereunder unless such party has been prejudiced
        thereby. 

       

      The
        indemnifying party shall, within thirty days after receipt of such notice
        of
        Losses, (i) pay or cause to be paid to the indemnified party the amount of
        Losses specified in such notice which the indemnifying party does not contest,
        or (ii) notify the indemnified party if it wishes to contest the existence
        or
        amount of part or all of such Losses, stating with particularity the basis
        upon
        which it contests the existence or amount thereof. The indemnifying party
        shall,
        within thirty days after receipt of each notice with respect to an action
        or
        suit by a third party, notify the indemnified party if it elects to conduct
        and
        control such action or suit. If the indemnifying party does not give such
        notice
        in the case of an action or suit by a third party, the indemnified party
        shall
        have the right to defend, contest, settle or compromise such action or suit,
        and
        the indemnifying party shall, upon request from such indemnified party, promptly
        pay to such indemnified party, in accordance with the other terms of this
        Article 6, the amount of any Losses resulting from its liability to the third
        party claimant. If the indemnifying party gives such notice in the case of
        an
        action or suit by a third party, the indemnifying party shall have the right
        to
        undertake, conduct and control, through counsel of its own choosing and at
        the
        sole expense of the indemnifying party, the conduct and settlement of such
        action or suit, and the indemnified party shall cooperate with such indemnifying
        party in connection therewith. So long as the indemnifying party is contesting
        any such action or suit in good faith, the indemnified party shall not pay
        or
        settle any such action or suit. Notwithstanding the foregoing, the indemnified
        party shall have the right to pay or settle any such action or suit, provided
        that in such event the indemnified party shall waive any right to indemnity
        therefor by the indemnifying party, and no amount in respect thereof shall
        be
        claimed as a Loss under this Article 6.

       

      
        
          
          

        

        
          15

          
            

          

        

        
          
          

        

      

       

      6.5  Limitations.
        Notwithstanding any other provisions of this Agreement, including in this
        Article 6 above, but subject to Section 6.5(h) below:

       

      (a)  No
        party
        to this Agreement shall have any liability under this Article 6 unless and
        until the indemnified party has incurred Losses in excess of $40,000 (the
        “Basket Amount”) and such party’s liability under this Article 6 shall apply
        only to the amount in excess of the Basket Amount.

       

      (b)  Except
        for actual fraud, no party to this Agreement shall have any liability under
        this
        Article 6 in excess of 80% of the Purchase Price (including the earnout
        portion) paid by the Buyer.

       

      (c)  The
        provisions of Section 6.2 and 6.3 shall not apply to any breaches that have
        been
        waived by the party claiming indemnification.

       

      (d)  EXCEPT
        TO
        THE EXTENT REQUIRED UNDER SECTIONS 6.2 AND 6.3 WITH RESPECT TO THIRD PARTY
        CLAIMS, IN NO EVENT WILL ANY PARTY’S LIABILITY OF ANY KIND INCLUDE ANY SPECIAL,
        INDIRECT, INCIDENTAL, CONSEQUENTIAL OR PUNITIVE LOSSES OR DAMAGES, INCLUDING,
        WITHOUT LIMITATION, LOST PROFITS, EVEN IF SUCH PARTY HAS BEEN ADVISED OF
        THE
        POSSIBILITY OF SUCH DAMAGES.

       

      (e)  The
        calculation of Buyer’s Losses will be net of any tax benefits received or to be
        received by Buyer in respect of such Buyer Losses.

       

      (f)  The
        parties hereto shall have no obligations under this Article 6 for any claim
        for
        indemnification that is not made in compliance with this Article 6 prior
        to
December
        31, 2009, provided; however, that Buyer may bring claims for indemnification
        for
        Seller’s or Shareholders’ breaches of Sections 2.2 and 2.13 at any time prior to
        the expiration of the applicable statute of limitations.

       

      (g)  The
        indemnification provisions of this Article 6 shall be the parties’ sole and
        exclusive remedy for any claims arising from this Agreement.

       

      (h)  The
        provisions of Sections 6.5(a)-(g) above do not apply to Buyer’s obligation to
        pay the Purchase Price, including the earnout, under this Agreement, and
        such
        obligation shall be independent of the provisions of Section 6.5(a)-(g)
        above.

       

      ARTICLE
        7

      GENERAL
        PROVISIONS

       

      7.1  Injunctive
        Relief.
        Each
        party to this Agreement agrees that damages would be an inadequate remedy
        for
        the other party’s breach of Section 4.5 hereof, and that the breach of such
        provision will result in immeasurable and irreparable harm to such party.
        Therefore, in addition to damages and any other remedy to which a party may
        be
        entitled by reason of a breach of any such provision, such party shall be
        entitled to seek and obtain temporary, preliminary and permanent injunctive
        relief from any court of competent jurisdiction restraining the other party
        from
        committing or continuing any breach of Section 4.5 hereof.

       

      
        
          
          

        

        
          16

          
            

          

        

        
          
          

        

      

       

      7.2  Notices.
        Any
        notice required or permitted by this Agreement to be given by one party to
        the
        other must be in writing and personally delivered or sent by registered or
        certified United States mail (postage prepaid and return receipt requested),
        by
        reputable overnight delivery service or by facsimile transmission, addressed
        to
        the address shown below or to such other address as such party may designate
        in
        the foregoing manner to the other party. Any such notice that is sent in
        the
        foregoing manner shall be deemed to have been delivered upon actual personal
        delivery or actual receipt by facsimile transmission or three days after
        deposit
        in the United States mail or one day after delivery to an overnight delivery
        service.

       

      
        	 	
                If
                  to Buyer:

              	
                Point.360

                Attn:
                  CFO

                2777
                  North Ontario Street

                Burbank,
                  CA 91504

                 

                With
                  a copy to:

                William
                  D. Gould

                Troy
                  & Gould Professional Corp.

                1801
                  Century Park East

                Los
                  Angeles, CA 90067

              
	 	
                 

                If
                  to Seller:

              	
                 

                Eden
                  FX, Inc.

                1438
                  N. Gower Street

                Box
                  19, Building 50

                Hollywood,
                  CA 90028

              
	 	
                 

                 

                If
                  to Mark Miller:

              	
                
                   

                  Mark
                    Miller

                

                494
                  Vineyard Drive

                Simi
                  Valley, CA 93065

              
	 	
                 

                If
                  to John Gross:

              	
                 

                John
                  Gross

                800
                  Huntley Drive

                West
                  Hollywood, CA 90069

              
	 	
                 

                With
                  a copy to:

              	
                 

                Silver
                  & Freedman, APLC

                2029
                  Century Park East, 19th
                  Floor

                Los
                  Angeles, CA 90067

                Attn:
                  Gregory N. Weisman, Esq.

              

      

      

       

      
        
          
          

        

        
          17

          
            

          

        

        
          
          

        

      

       

      7.3  Amendments
        and Termination; Entire Agreement.
        This
        Agreement may be amended or terminated only by a writing executed by each
        party
        hereto. Together with the exhibits, schedules and other agreements and documents
        delivered pursuant hereto, this Agreement constitutes the entire agreement
        of
        the parties hereto relating to the subject matter hereof and supersedes all
        prior oral and written understandings and agreements relating to such subject
        matter.

       

      7.4  Successors
        and Assigns.
        This
        Agreement shall be binding upon, and shall benefit, the parties hereto and
        their
        respective successors and assigns. Notwithstanding the foregoing, (i) the
        obligations of Seller and Shareholders hereunder are not assignable to another
        person without Buyer’s prior written consent, and (ii) Buyer’s obligations
        hereunder are assignable to another person without obtaining any other party’s
        consent only in connection with a transfer of substantially all of the assets
        of
        the Division or similar transaction in which Buyer’s successor or assign assumes
        all of Buyer’s obligations hereunder (whether by agreement or by operation of
        law).

       

      7.5  Calculation
        of Time.
        Wherever
        in this Agreement a period of time is stated in a number of days, it shall
        be
        deemed to mean calendar days. However, when any period of time so stated
        would
        end upon a Saturday, Sunday or legal holiday, such period shall be deemed
        to end
        upon the next day following that is not a Saturday, Sunday or legal
        holiday.

       

      7.6  Further
        Assurances.
        Each
        party shall perform any further acts and execute and deliver any further
        documents that may be reasonably necessary or advisable to carry out the
        provisions of this Agreement.

       

      7.7  Severability. 

       

      (a)  All
        provisions of this Agreement shall be applicable only to the extent that
        they do
        not violate any applicable law, and are intended to be limited to the extent
        necessary so that they will not render this Agreement invalid, illegal or
        unenforceable under any applicable law. If any provision of this Agreement
        or
        any application thereof shall be held to be invalid, illegal or unenforceable,
        the validity, legality and enforceability of other provisions of this Agreement
        or of any other application of such provision shall in no way be affected
        thereby. 

       

      (b)  Without
        limiting the generality of Section 7.7(a) above, if for any reason any term
        or
        provision containing a restriction set forth in this Agreement is held to
        cover
        an area or to be for a length of time which is unreasonable, or in any other
        way
        is construed to be too broad or to any extent invalid, such term or provision
        shall not be determined to be null, void and of no effect, but to the extent
        the
        same is or would be valid or enforceable under applicable law, any arbitrator
        or
        court of competent jurisdiction shall construe and interpret or reform this
        Agreement to provide for a restriction having the maximum enforceable area,
        time
        period and other provisions (not greater than those contained herein) as
        shall
        be valid and enforceable under applicable law.

       

      7.8  Waiver
        of Rights.
        No party
        to this Agreement shall be deemed to have waived any right or remedy that
        it has
        under this Agreement unless this Agreement expressly provides a period of
        time
        within which such right or remedy must be exercised and such period has expired,
        or unless such party has expressly waived the same in writing. The waiver
        by a
        party of a right or remedy hereunder shall not be deemed to be a waiver of
        any
        other right or remedy or of any subsequent right or remedy of the same
        kind.

       

      
        
          
          

        

        
          18

          
            

          

        

        
          
          

        

      

      7.9  Headings;
        Gender and Number.
        The
        headings contained in this Agreement are for reference purposes only and
        shall
        not affect in any manner the meaning or interpretation of this Agreement.
        Where
        appropriate to the context of this Agreement, use of the singular shall be
        deemed also to refer to the plural, and use of the plural to the singular,
        and
        pronouns of certain gender shall be deemed to comprehend either or both of
        the
        other genders. The terms “hereof,” “herein,” “hereby” and variations thereof
        shall, whenever used in this Agreement, refer to this Agreement as a whole
        and
        not to any particular section hereof. The term “person” refers to any natural
        person, corporation, partnership or other association or entity. Any form
        of the
        word “include” when used in this Agreement is not intended to be exclusive (that
        is, the word “include” means “including, without limitation”). The disclosure of
        any matter in any Schedule to this Agreement shall not be deemed to constitute
        an admission by Seller or Shareholders.

       

      7.10  Counterparts.
        This
        Agreement may be executed in counterparts, and by each party on a separate
        counterpart, each of which shall be deemed an original but all of which taken
        together shall constitute but one and the same instrument.

       

      7.11  Expenses
        Incurred in Preparing This Agreement.
        Each of
        Buyer and Seller shall bear its own costs and expenses incurred in connection
        with the negotiation and preparation of this Agreement, whether or not Closing
        occurs.

       

      7.12  No
        Strict Construction.
        The
        language of this Agreement is the language chosen by the parties hereto to
        express their mutual intent, and this Agreement shall be construed without
        regard to any presumption or rule requiring construction against the party
        causing the instrument to be drafted.

       

      7.13  No
        Third Party Beneficiaries.
        No
        provision of this Agreement is intended to or shall create any rights with
        respect to the subject matter of this Agreement in any third party.

       

      7.14  Governing
        Laws.
        This
        Agreement shall be governed by, and construed and enforced in accordance
        with,
        the internal laws of the State of California without giving effect to such
        state’s conflict-of-law principles.

       

      7.15  Attorneys’
        Fees and Other Expenses.
        The
        unsuccessful party to any arbitration proceeding or to any court action that
        is
        permitted by this Agreement shall pay to the prevailing party all costs and
        expenses, including, without limitation, reasonable attorneys’ fees, incurred
        therein by the successful party, all of which shall be included in and as
        a part
        of the award rendered in such proceeding or action. 

       

      
        
          
          

        

        
          19

          
            

          

        

        
          
          

        

      

       

      IN
        WITNESS WHEREOF,
        Buyer,
        Seller and Shareholders have executed and delivered this Agreement as of
        the
        date first above written.

       

      
        	 	 	 
	 	POINT.360
                (“BUYER”)
	 
 	 
 	 
 
	 	By:  	 
	 	
                
Alan
                R. Steel
	 	Chief
                Financial Officer

      

      
        	 	 	 
	 	 	 
	 	EDEN
                FX
                (“SELLER”)
	 
 	 
 	 
 
	 	By:  	 
	 	
                
Mark
                Miller 
	 	Co-President

        	 	 	 
	 	By:  	 
	 	
                
John
                Gross
	 	Co-President

        	 	 	 
	 	 	 
	 	
                Mark
                  Miller,

                as
                  an individual

              
	 
 	 
 	 
 
	 	By:  	 
	 	
                
Mark
                Miller,
	 	 

      

      
        	 	 	 
	 	
                John
                  Gross,

                as
                  an individual

              
	 
 	 
 	 
 
	 	By:  	/s/ 
	 	
                
John
                Gross
	 	 

      

       

      
        
          
          

        

        
          20

          
            

          

        

        
          
          

        

      

      Schedule
        1.1 (Purchased Assets)

      

      

      

      The
        following assets of Seller: 

      

      All
        of
        the assets of Seller other than the assets listed in Schedule 1.2. The physical
        assets of Seller are described in the attached spreadsheet.

       

      
        
          
          

        

        
          21

          
            

          

        

        
          
          

        

      

      Schedule
        1.2 (Excluded Assets)

      

      

      

      Corporate
        books and records

       

      Financial
        and tax records (copies to be provided to Buyer at Seller’s cost.) Originals to
        be made available to Buyer upon request. Seller will retain copies of such
        financial and tax records for five years after the Closing Date.

      

      Insurance
        contracts and claims

       

      Personal
        property and effects, including, but not limited to, laptop computers,
        furniture, awards, models, toys, accessories, etc.

      

      Accounts
        receivable in accordance with the Asset Purchase Agreement

       

      Bank
        accounts

       

      Security
        Deposits with landlords, which shall be paid over to Seller upon their return
        by
        the landlords. Seller shall be responsible for deductions from such security
        deposits resulting from damages caused on or before the Closing Date and
        Buyer
        shall be responsible for deductions from such security deposits resulting
        from
        damages caused on or after the Closing Date. 

      

      

      

      
        
          
          

        

        
          22

          
            

          

        

        
          
          

        

      

      Schedule
        1.2(f)

      Accounts
        Receivable and Accounts Payable 

      

      
        
          
          

        

        
          23

          
            

          

        

        
          
          

        

      

      

      Schedule
        1.3 (Assumed Liabilities/Debts to be Paid by Buyer)

      

      

      

      
        	
                Debt

              	
                Amount

              	
                Date
                  to be paid by Buyer

              
	
                1. Credit
                  Cards

                 

                American
                  Express Platinum

                 

                American
                  Express Blue

                 

                Advanta

                 

                Bank
                  of America

                 

                Fleet
                  Shell

              	
                 

                 

                $48,545.49
                  

                 

                $26,827.85

                 

                $19,426.72

                 

                $23,658

                 

                $1,200.00

              	
                 

                 

                Within
                  5 days after the Closing

                 

                Within
                  5 days after the Closing

                 

                Within
                  5 days after the Closing

                 

                Within
                  5 days after the Closing

                 

                Within
                  5 days after the Closing

              
	 	 	 
	
                2.
                  Jeff Ross

              	
                $23,300

              	
                On
                  the Closing Date by check

              
	 	 	 
	
                3.
                  John Gross

              	
                $39,000

              	
                On
                  the Closing Date by check

              
	 	 	 
	
                4.
                  City National Bank

              	
                $152,166.69

              	
                On
                  the Closing Date by wire transfer

              
	 	 	 
	
                5.
                  Wells Fargo Credit Line

              	
                $24,000

              	
                On
                  the Closing Date by check

              
	 	 	 
	
                Total:

              	
                $358,124.75

              	 
	 	 	 

      

      

      
        
          
          

        

        
          24

          
            

          

        

        
          
          

        

      

      Assumed
        Contracts

      

      1. All
        contracts and purchase orders with customers and vendors

      

      2. Sublease
        with Technicolor Creative Services - Hollywood for Building 50. This Sublease
        was not executed by the parties and calls for a month to month tenancy with
        a 5
        month notice of termination. 

      

      3. All
        equipment leases and rentals, which are as follows:

      

      a. Global
        Vantage (assigned to Tustin Community Bank)  

      

      Computer
        related hardware and software 

      

      $1,296.33
        per month

      

      

      b. Global
        Vantage (assigned to National City Commercial Capital Corporation)  

       

      Computer
        related hardware 

      

      $5,498.30
        per month

      

      4. All
        utilities after the Closing

      

      5. Uncashed
        Checks to Technicolor Build 50 for September, October, and December 2006
        rent
        ($48,616.55). Buyer
        shall assume this liability. To the extent that Technicolor claims all or
        a any
        portion of this amount and the Buyer pays Technicolor, such paid amount shall
        be
        deducted from the next earnout payment.

      

      
        
          
          

        

        
          25

          
            

          

        

        
          
          

        

      

      Schedule
        1.6(b)

      

      Budget

      

      See
        Attached

      
        
          
          

        

        
          26

          
            

          

        

        
          
          

        

      

      Schedule
        1.10

      

      Purchase
        Price Allocation

      

      See
        Attached

      
        
          
          

        

        
          27

          
            

          

        

        
          
          

        

      

      

      Schedule
        2.2 (Capitalization of Seller)

      

      

      

      

      Mark
        Miller =
        50%

      (500,000
        SHARES OF COMMON STOCK, $0- PAR VALUE)

      

      

      John
        Gross
        = 50% 

      (500,000
        SHARES OF COMMON STOCK, $0- PAR VALUE)

      

      

      

      TOTAL
        AUTHORIZED SHARES = 1,000,000- OF COMMON STOCK, $0- PAR
        VALUE

      
        
          
          

        

        
          28

          
            

          

        

        
          
          

        

      

      Schedule
        2.8 (Seller’s Charter Documents)

      

      See
        attached.

      
        
          
          

        

        
          29

          
            

          

        

        
          
          

        

      

      Schedule
        2.11 (Seller’s Litigation)

       

      

      

      NONE

      

      
        
          
          

        

        
          30

          
            

          

        

        
          
          

        

      

      Schedule
        2.14 (Seller’s Intellectual Property)

      

      

      
 

      The
        name
“Eden FX”

      

      Eden
        FX
        logo

      

      Shot
        Tracker software

      

      Render
        Controller software

      
        
          
          

        

        
          31

          
            

          

        

        
          
          

        

      

      Schedule
        2.18

      

      Financial
        Statements

      

      See
        Attached

      
        
          
          

        

        
          32

          
            

          

        

        
          
          

        

      

      EXHIBIT
        A-1

      

      NON-COMPETITION
        AGREEMENT WITH MARK MILLER

      
        
          
          

        

        
          33

          
            

          

        

        
          
          

        

      

      EXHIBIT
        A-2

      

      NON-COMPETITION
        AGREEMENT WITH JOHN GROSS

      
        
          
          

        

        
          34

          
            

          

        

        
          
          

        

      

      EXHIBIT
        B

      

      LOAN
        OUT AGREEMENT

       

       

      
        
          
          

        

        
          35

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