Document:

Exhibit 10.2

 

		AMENDED AND RESTATED

LOAN AND SECURITY

AGREEMENT	POINT.360,

a California corporation,

as “Borrower”

 

This AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT(this “Agreement”), dated as of July 13, 2016, is entered into between AUSTIN FINANCIAL
SERVICES, INC., a Delaware corporation (“Lender”), and POINT.360, a California Corporation (“Borrower”).

 

Summit Financial Resources,
L.P., a Hawaii limited partnership (“Assignor”) and Borrower entered into that certain Agreement dated February
13, 2015, as amended by that certain First Amendment to Agreement dated September 16, 2015, that certain Second Amendment to Agreement
dated March 28, 2016, and that certain Third Amendment to Agreement dated April 13, 2016 (as amended, the “Summit Loan
and Security Agreement”), pursuant to which Assignor provided loans and other financial accommodations to Borrower (the
“Financing”).

 

Pursuant to that certain
Assignment and Assumption of Financing and Financing Documents dated July 13, 2016, among Assignor, Borrower and Lender (the “Assignment
Agreement”), Assignor assigned, transferred, and conveyed the Financing, the Financing Documents (as defined in the Assignment
Agreement), and all of Assignor’s right, title, and interest therein, along with any and all of Assignor’s claims,
demands, actions, causes of action, damages, costs, expenses, and other rights and interests of any nature whatsoever, whether
known or unknown, arising thereunder or related thereto, to Lender.

 

Borrower has requested
that Lender continue to make available the Financing, and Lender has agreed to do so as provided in this Agreement. This Agreement
amends and restates the Summit Loan and Security Agreement. All indebtedness outstanding under the Summit Agreement is deemed outstanding
under this Agreement and no cancellation of the Summit Agreement shall be deemed to evidence the discharge of the indebtedness
thereunder.

 

Borrower and Lender
desire for Lender to provide secured financing to Borrower in an amount up to the Total Commitment. In consideration of the mutual
promises set forth in this Agreement, Borrower and Lender hereby agree as follows:

 

ARTICLE
1

 

DEFINED
TERMS AND CONSTRUCTION

 

1.1         Defined
Terms. All initially capitalized terms used in this Agreement have the meanings given to such terms in Schedule A
attached to this Agreement and incorporated herein by reference.

 

1.2         UCC
Terms. All non-initially capitalized terms used herein that are defined in the UCC have the meanings given to such terms in
the UCC.

 

1.3         Construction.
Unless the context of this Agreement clearly requires otherwise, references to the plural include the singular and to the singular
include the plural, references to any gender include any other gender, the part includes the whole, the term including is not limiting,
and the term or has, except where otherwise indicated, the inclusive meaning represented by the phrase and/or. The words hereof,
herein, hereby, hereunder, and similar terms in this Agreement refer to this Agreement as a whole and not to any particular provision
of this Agreement. Article, section, subsection, clause, exhibit and schedule references are to this Agreement, unless otherwise
specified. Any reference in this Agreement or any of the Loan Documents to this Agreement or any of the Loan Documents includes
any and all permitted alterations, amendments, changes, extensions, modifications, renewals, or supplements thereto or thereof,
as applicable.

 

     

     

    

 

1.4         Exhibits
and Schedules. All of the exhibits and schedules attached hereto shall be deemed incorporated herein by reference.

 

ARTICLE
2

 

LOAN
FACILITIES

 

2.1         Revolving
Advances.

 

(a)          Provided
that no Default or Event of Default has occurred and is continuing and subject to the terms and conditions of this Agreement, Lender
hereby agrees to make revolving Advances to Borrower from time to time up to but not including the Final Maturity Date. The aggregate
amount of Advances outstanding after giving effect to any proposed new Advance shall not exceed the lesser of (i) the Line of Credit
Commitment, or (ii) the Borrowing Base. Borrower may repay outstanding Advances and, subject to the terms and conditions of this
Agreement, any amounts so repaid may be reborrowed. On the Final Maturity Date, Borrower shall pay to Lender the entire unpaid
principal balance of the Advances together with all accrued but unpaid interest thereon. The Advances, and Borrower’s obligation
to repay the same, shall be evidenced by this Agreement and the books and records of Lender.

 

(b)          Borrower
may request one or more Advances on any Business Day. Concurrent with such request, Borrower shall provide to Lender a duly completed
and signed Daily Availability Report that supports the requested Advance amount. Provided that the terms and conditions for the
requested Advance have been met, Lender will make the requested Advance available to Borrower on the Business Day of request; provided
that the request is received by 9:30 a.m., Pacific time, and Borrower has provided to Lender a Daily Availability Report on a daily
basis for the prior 30 days. In all other cases, Lender will make the requested Advance available to Borrower on the Business Day
following the Business Day of request; provided that the request is received by 12:00 p.m., Pacific time.

 

2.2         Overadvances.
If, at any time or for any reason, the amount of Advances outstanding exceeds the lesser of the Line of Credit Commitment or the
Borrowing Base (an “Overadvance”), Borrower shall immediately pay to Lender, upon Lender’s election and
demand, in cash, the amount of such Overadvance to be used by Lender to repay outstanding Advances.

 

2.3         Reserved.

 

2.4         Reserved.

 

2.5         Reserved.

 

2.6         Fees.
Borrower shall pay to Lender:

 

(a)          Facility
Fee. An annual facility fee in the amount set forth in Section 2.6(a) of Schedule B. Such annual facility
fee shall be due and payable in advance and fully earned by Lender on the date of the initial Advance and each anniversary of the
date of this Agreement.

 

(b)          Unused
Line Fee. An unused line fee in an amount equal to the Unused Line Fee Percentage times the difference between the (i)
Line of Credit Commitment and (ii) the sum of average outstanding Advances during the period from the first day of the prior month
to the date payment is due (the “Unused Line Fee”). The Unused Line Fee shall be payable monthly in arrears
on the first day of each month and on the Final Maturity Date. The Unused Line Fee shall be calculated on the basis of a year of
360 days for the actual days elapsed.

 

(c)          Collateral
Exam Fees. In connection with any collateral exams, audits or inspections conducted by or on behalf of Lender at the current
rates established from time to time by Lender as its collateral exam fees (which fees are currently $850.00 per day per collateral
examiner), together with all actual out-of-pocket costs and expenses incurred in conducting any collateral examination or inspection.

 

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(d)          Collateral
Management Fees. A collateral management fee in an amount equal to the percentage indicated Section 2.6(d) of Schedule B
times the average outstanding Loans during the prior month, due and payable monthly in arrears on the first day of the month and
on the Final Maturity Date.

 

(e)          Line
of Credit Early Termination and/or Reduction Fees. If (i) Lender terminates the Line of Credit Commitment after the occurrence
and during the continuance of an Event of Default, or if (ii) Borrower terminates the Line of Credit Commitment pursuant to Section
9.2, or if (iii) Borrower fails to pay the Obligations in full on the Final Maturity Date, or if (iv) Borrower and Lender agree
to reduce the Line of Credit Commitment without terminating this Agreement, then Borrower shall pay Lender an early termination
or reduction fee in an amount equal to a percentage of the Line of Credit Commitment (or the reduction of the Line of Credit Commitment,
as the case may be) calculated as set forth in Section 2.6(e) of Schedule B.

 

(f)          Overadvance
Fees. An Overadvance fee in an amount of not less than two percent (2%) of the average balance of any Overadvances that may
exist during any month, payable monthly in arrears; provided that Lender’s acceptance of the payment of such fees
shall not constitute either consent to the Overadvance or waiver of the resulting Event of Default.

 

2.7         Interest;
Interest Payments.

 

(a)          Interest
Rate. Subject to the terms and conditions hereof, all Loans shall bear interest at the Interest Rate.

 

(b)          Default
Rate. Upon the occurrence and during the continuation of an Event of Default, including Borrower’s breach of Section
9.3, Lender, at its option, may, as permitted under applicable law, add any unpaid accrued interest, Fees and Expenses to the principal
balance of the Loans. Also, upon the occurrence and during the continuation of an Event of Default, including Borrower’s
breach of Section 9.3, Lender, at its option, may, as permitted under applicable law, increase the interest rate on the Loans to
the Default Rate.

 

(c)          Minimum
Interest. Notwithstanding the other terms of Section 2.7(a) to the contrary, and except as limited by the usury savings provision
of Section 2.7(f), Borrower shall pay Lender at least the Minimum Interest of interest each calendar month during the term of this
Agreement, and Borrower shall pay any deficiency between the Minimum Interest and the amount of interest otherwise payable on the
first day of each month and on the Final Maturity Date. When calculating this deficiency, the Default Rate shall be disregarded.

 

(d)          Clearance
Days. Payments received by Lender shall be applied to the Advances as provided in Section 2.8, but the principal amount paid
down shall continue to accrue interest through the end of the number of Business Day indicated in Section 2.7(d) of Schedule B
following the Business Day that the payment was applied to the Advances.

 

(e)          Computation
of Interest. All computations of interest shall be calculated on the basis of a year of three hundred sixty (360) days for
the actual days elapsed. Interest on each Loan shall accrue from the date such Loan is made to the date of repayment of such Loan
in accordance with the provisions of this Agreement, subject to Section 2.7(c); provided, however, if a Loan is repaid
on the same day on which it is made, then one (1) day’s interest shall be paid on that Loan. Any and all interest not paid
when due shall thereafter be deemed to be an Advance made under Section 2.1 and shall bear interest thereafter as provided for
in Section 2.7(b).

 

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(f)          Interest
Rate Floor; Maximum Interest Rate.

 

(i)          Under
no circumstances shall the Interest Rate on the Advances ever be less than the Minimum Interest Rate indicated in Section 2.7(f)(i)
of Schedule B; and

 

(ii)         Under
no circumstances shall the interest rate and other charges hereunder exceed the highest rate permissible under any law which a
court of competent jurisdiction shall, in a final determination, deem applicable hereto. In the event that such a court determines
that Lender has received interest and other charges hereunder in excess of the highest rate applicable hereto, such excess shall
be deemed received on account of, and shall automatically be applied to reduce the Obligations, other than interest, in the inverse
order of maturity, and the provisions hereof shall be deemed amended to provide for the highest permissible rate. If there are
no Obligations, Lender shall refund to Borrower such excess.

 

(g)          Payments
of Interest. All accrued but unpaid interest on the Advances, calculated in accordance with this Section 2.7, shall be due
and payable, in arrears, on the first day of each month and on the Final Maturity Date.

 

2.8         Collection
Account and Application to Advances. On a daily basis, Borrower shall deposit all payments received on the Accounts, and all
other proceeds of Collateral, into the Collection Account. Until deposited, Borrower shall hold all such payments and proceeds
in trust for Lender without commingling with other funds or property. Lender will withdraw all monies deposited to the Collection
Account and pay down outstanding Advances on the first Business Day following the Business Day of deposit to the Collection Account,
subject to Section 2.7(d).

 

2.9         Payments
Due on Non Business Days. If any payment due hereunder falls on a day that is not a Business Day, such payment shall be made
on the next Business Day, and interest shall continue to accrue during that time period.

 

2.10       Monthly
Statements. Lender shall render monthly statements to Borrower, including statements of all principal and interest owing on
the Loans, and all Fees and Expenses owing, and such statements shall be presumed to be correct and accurate and constitute an
account stated between Borrower and Lender, absent manifest error, unless, within thirty (30) days after receipt thereof by Borrower,
Borrower delivers to Lender written objection thereof specifying the error or errors, if any, contained in any such statement.

 

2.11       Taxes
on Payments. All payments in respect of the Obligations shall be made free and clear of and without any deduction or withholding
for or on account of any present and future taxes, levies, imposts, deductions, charges, withholdings, assessments or governmental
charges, and all liabilities with respect thereto, imposed by the United States of America, any foreign government, or any political
subdivision or taxing authority thereof or therein, excluding any taxes imposed on Lender under the Internal Revenue Code or similar
state and local laws and determined by Lender’s net income, and any franchise taxes imposed on Lender by any state (or any
political subdivision thereof) (all such non excluded taxes, levies, imposts, deductions, charges, withholdings, assessments, charges
and liabilities being hereinafter referred to as “Taxes”). If any Taxes are imposed and required by law to be
deducted or withheld from any amount payable to Lender, then Borrower shall (i) increase the amount of such payment so that Lender
will receive a net amount (after deduction of all Taxes) equal to the amount due hereunder, and (ii) pay such Taxes to the appropriate
taxing authority for the account of Lender prior to the date on which penalties attach thereto or interest accrues thereon; provided,
however, if any such penalties or interest shall become due, Borrower shall make prompt payment thereof to the appropriate taxing
authority.

 

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ARTICLE
3

 

GRANT
OF SECURITY INTEREST

 

3.1         Grant
of Security Interest. Borrower hereby grants to Lender a continuing security interest in all presently existing and hereafter
acquired or arising Collateral in order to secure the prompt payment and performance of all of the Obligations. Borrower acknowledges
and affirms that such security interest in the Collateral has attached to all Collateral without further act on the part of Lender
or Borrower. Promptly following Lender’s request, Borrower shall grant Lender a security interest in all commercial tort
claims that it may have against any Person.

 

3.2         Notifying
Account Debtors; Collection of Collateral. Lender may at any time (after the occurrence and during the continuance of an Event
of Default) give notice to Account Debtors or other Persons obligated to pay an Account, a general intangible, or other amount
due, that the Account, general intangible, or other amount due has been assigned to Lender for security and must be paid directly
to Lender. Borrower shall join in giving such notice upon Lender’s request. After Borrower or Lender gives such notice, Lender
may, but need not, in Lender’s or in Borrower’s name, demand, sue for, collect or receive any money or property at
any time payable or receivable on account of, or securing, such Account, general intangible, or other amount due, or grant any
extension to, make any compromise or settlement with or otherwise agree to waive, modify, amend or change the obligations (including
collateral obligations) of any Account Debtor or other obligor. Lender may at any time (after the occurrence and during the continuance
of an Event of Default), in Lender’s name or in Borrower’s name, as Borrower’s agent and attorney-in-fact, notify
the United States Postal Service to change the address for delivery of Borrower’s mail to any address designated by Lender,
otherwise intercept Borrower’s mail, and receive, open and dispose of Borrower’s mail, applying all Collateral as permitted
under this Agreement and holding all other mail for Borrower’s account or forwarding such mail to Borrower’s last known
address.

 

3.3         Further
Assurances; Power of Attorney.

 

(a)          Borrower
shall execute and deliver to Lender from time to time at the reasonable request of Lender, all security agreements, chattel mortgages,
assignments, and all other documents that Lender may reasonably require, in form reasonably satisfactory to Lender, to perfect
and maintain perfected Lender’s security interests in the Collateral. Borrower hereby irrevocably makes, constitutes, and
appoints Lender (and Lender’s officers, employees, or agents) as Borrower’s true and lawful attorney with power to
sign the name of Borrower on any of the above described documents or on any other similar documents which need to be executed,
recorded, or filed, and to do any and all things necessary in the name and on behalf of Borrower in order to perfect, or continue
the perfection of, Lender’s security interests in the Collateral. Borrower agrees that neither Lender, nor any of its designees
or attorneys-in-fact, will be liable for any act of commission or omission, or for any error of judgment or mistake of fact or
law with respect to the exercise of the power of attorney granted under this Section 3.3, other than as a result of its or their
gross negligence or willful misconduct. THE POWER OF ATTORNEY GRANTED UNDER THIS SECTION 3.3 IS COUPLED WITH AN INTEREST AND SHALL
BE IRREVOCABLE UNTIL THE TERMINATION DATE.

 

(b)          Without
limiting the generality of the foregoing Section 3.3(a) or any of the provisions of this Agreement, Borrower shall appear in and
defend any action or proceeding which may affect Borrower’s title to, or the security interest of Lender in, any of the Collateral.

 

(c)          With
respect to the negotiable instruments among the Collateral (other than drafts received in the ordinary course of business), Borrower
shall, immediately upon reasonable request by Lender, endorse (where appropriate) and assign the negotiable instrument over to
Lender, and deliver to Lender actual physical possession of the negotiable instrument to Lender.

 

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(d)          Borrower
shall deliver to Lender a duly executed control agreement in form and substance reasonably satisfactory to Lender with respect
to all of its deposit accounts, electronic chattel paper, investment property, and letter of credit rights.

 

(e)          Borrower
shall promptly notify Lender of any commercial tort claims it may bring against any Person, including the name and address of each
defendant, a summary of the facts, an estimate of damages, copies of any complaint or demand letter submitted by Borrower, and
in connection therewith, Borrower and Lender shall enter into an amendment to this Agreement granting a security interest to Lender
in each such commercial tort claim to secure the Obligations.

 

3.4         Insurance.
Borrower shall maintain general liability and product liability insurance with financially sound and reputable insurance companies
or associations in such amounts and covering such risks as are usually carried by companies engaged in the same or a similar business
and similarly situated. Such policies shall provide for a minimum thirty (30) days written cancellation notice to Lender. Upon
request, policies or certificates attesting to such coverage shall be delivered to Lender.

 

3.5         Borrower’s
Premises.

 

(a)          [Reserved].

 

(b)          Lender’s
Use of Borrower’s Premises. Lender may use all locations where Borrower conducts its business, including all locations
listed in Section 5.2 of Schedule C, or has any rights of possession (the “Premises”) to store, process,
manufacture, sell, use, and liquidate or otherwise dispose of items that are Collateral, and for any other incidental purposes
deemed appropriate by Lender in good faith.

 

(c)          Borrower’s
Obligation to Reimburse Lender. Lender shall not be obligated to pay rent or other compensation for the possession or use of
any Premises, but if Lender elects to pay rent or other compensation to the owner of any Premises in order to have access to the
Premises, then Borrower shall promptly reimburse Lender all such amounts, as well as all taxes, fees, charges and other expenses
at any time payable by Lender with respect to the Premises by reason of the execution, delivery, recordation, performance or enforcement
of any terms of this Agreement.

 

(d)          Collateral
Access Agreements. Upon Lender’s request, Borrower shall promptly deliver to Lender a Collateral Access Agreement with
respect to each of its Premises, or any other locations where any Collateral is in the possession of a third Person, duly executed
by the owner or operator of such Premises or other location, and otherwise in form and substance satisfactory to Lender.

 

3.6         License.
Borrower hereby grants to Lender a non-exclusive, worldwide and royalty-free license to use or otherwise exploit all intellectual
property of Borrower for the purpose of: (a) completing the manufacture of any in-process materials so that such materials become
saleable Inventory, all in accordance with the same quality standards previously adopted by Borrower for its own manufacturing
and subject to Borrower’s reasonable exercise of quality control; and (b) selling, leasing or otherwise disposing of any
or all Collateral.

 

3.7         Financing
Statements.

 

(a)          Authorization
to File. Borrower authorizes Lender to file financing statements describing Collateral to perfect Lender’s security interest
in the Collateral, and Lender may describe the Collateral as “all personal property” or “all assets” or
describe specific items of Collateral including without limitation any commercial tort claims.

 

(b)          Termination.
On the Termination Date Lender shall, at Borrower’s expense, release or terminate any filings or other agreements that perfect
Lender’s security interest, upon Lender’s receipt of the following, in form and content satisfactory to Lender: (i)
a release of all claims against Lender by Borrower relating to Lender’s performance and obligations under the Loan Documents,
and (ii) an agreement by Borrower, and any new lender to Borrower to indemnify Lender for any payments received by Lender that
are applied to the Obligations as a final payoff that may subsequently be returned or otherwise not paid for any reason.

 

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ARTICLE
4

 

EFFECTIVENESS
OF AGREEMENT; CONDITIONS TO LOANS

 

4.1         Effectiveness
of Agreement. This Agreement shall be effective when it has been duly executed by Borrower and Lender, and accepted by Lender.

 

4.2         Conditions
Precedent to All Loans. Lender’s obligation to make any Loan (including the initial Loans) is subject to and contingent
upon the fulfillment of each of the following conditions to the satisfaction of Lender: (a) the fact that, both immediately before
and immediately after the making of such Loan, no Default or Event of Default shall have occurred or be continuing; and (b) the
fact that the representations and warranties of Borrower contained in this Agreement and the Loan Documents shall be true and correct
on and as of the date of making of such Loan, except to the extent that any such representation or warranty expressly relates to
an earlier date.

 

ARTICLE
5

 

REPRESENTATIONS
AND WARRANTIES

 

In order to induce
Lender to enter into this Agreement and to make Loans, Borrower represents and warrants to Lender that on the Closing Date and
on the date of making of each Loan:

 

5.1         Legal
Status. Borrower is the type of legal entity indicated in the preamble to this Agreement, and is duly organized and existing
under the laws of the state indicated in Section 5.1 of Schedule C. Borrower has the power and authority to
own its own assets and to transact the business in which it is engaged, and is properly licensed, qualified to do business and
in good standing in every jurisdiction in which it is doing business where failure to so qualify could have a Material Adverse
Effect. Borrower’s exact legal name, state of incorporation, FEIN and charter or organizational identification number is
as indicated in Section 5.1 of Schedule C.

 

5.2         Locations
of Borrower’s Books and Records, Collateral. The location of Borrower’s chief executive office, books and records,
and all other locations where Borrower conducts business or Collateral is kept are set forth in Section 5.2 of Schedule C.

 

5.3         Trade
Names and Trade Styles. All trade names and trade styles under which Borrower presently conduct their business operations are
set forth below, and, except as set forth in Section 5.3 of Schedule C, Borrower has not, at any time during
the five years preceding the date of this Agreement: (i) been known as or used any other corporate, trade or fictitious name; (ii)
changed its name; (iii) been the surviving or resulting corporation in a merger or consolidation; or (iv) acquired through asset
purchase or otherwise any business of any Person.

 

5.4         No
Violation; Compliance. The execution, delivery and performance of this Agreement and the Loan Documents to which Borrower is
a party are within Borrower’s powers, are not in conflict with the terms of the Governing Documents of Borrower, and do not
result in a breach of or constitute a default under any contract, obligation, indenture or other instrument to which Borrower is
a party or by which Borrower is bound or affected, which breach or default could reasonably be expected to have a Material Adverse
Effect. There is no law, rule or regulation (including Regulations T, U and X of the Federal Reserve Board), nor is there any judgment,
decree or order of any court or Governmental Authority binding on Borrower which would be contravened by the execution, delivery,
performance or enforcement of this Agreement and the Loan Documents to which Borrower is a party.

 

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5.5         Authorization;
Enforceability. Borrower has taken all corporate, partnership or limited liability company, as applicable, action necessary
to authorize the execution and delivery of this Agreement and the Loan Documents to which Borrower is a party, and the consummation
of the transactions contemplated hereby and thereby. Upon their execution and delivery in accordance with the terms hereof, this
Agreement and the Loan Documents to which Borrower is a party will constitute legal, valid and binding agreements and obligations
of Borrower enforceable against Borrower in accordance with their respective terms, except as enforceability may be limited by
bankruptcy, insolvency, and similar laws and equitable principles affecting the enforcement of creditors’ rights generally.

 

5.6         Approvals;
Consents. No approval, consent, exemption or other action by, or notice to or filing with, any Governmental Authority is necessary
in connection with the execution, delivery, performance or enforcement of this Agreement or the Loan Documents. All requisite Governmental
Authorities and third parties have approved or consented to the transactions contemplated by this Agreement and the Loan Documents
to the extent the failure to obtain such approval or consent would reasonably be likely to have a Material Adverse Effect, and
all applicable waiting periods have expired and there is no governmental or judicial action, actual or threatened, that has or
could have a reasonable likelihood of restraining, preventing or imposing burdensome conditions on the transactions contemplated
by this Agreement and/or the Loan Documents.

 

5.7         Liens.
Borrower has good and marketable title to, or valid leasehold interests in, all of the Collateral, free and clear of all Liens
or rights of others, except for Permitted Liens. Borrower has rights in and the power to transfer the Collateral. 

 

5.8         Indebtedness.
Borrower has no indebtedness other than the Obligations and the indebtedness listed in Section 5.8 of Schedule C.

 

5.9         Financial
Condition; No Adverse Change. Borrower has furnished to Lender its financial statements indicated in Section 5.9 of Schedule B,
and those statements fairly present Borrower’s financial condition as of those dates and the results of Borrower’s
operations and cash flows for the periods then ended and were prepared in accordance with GAAP. Since the date of the most recent
financial statements, there has been no Material Adverse Effect.

 

5.10       Litigation.
Except as set forth in Section 5.10 of Schedule C, there are no material suits, proceedings, claims or disputes
pending or, to the knowledge of Borrower, threatened, against or affecting Borrower or any of Borrower’s assets which are
not fully covered by applicable insurance and as to which no reservation of rights has been taken by the insurer thereunder.

 

5.11       No
Default. No Default or Event of Default has occurred and is continuing or would result from the incurring of obligations by
Borrower under this Agreement or the Loan Documents.

 

5.12       Taxes.
All tax returns required to be filed by Borrower in any jurisdiction have in fact been filed, except for such tax returns where
the failure to file would not reasonably be expected to have a Material Adverse Effect. All material taxes, assessments, fees and
other governmental charges upon Borrower or upon any of its assets, income or franchises, which are due and payable have been paid,
other than such taxes, assessments, fees and other governmental charges being contested in good faith by appropriate proceedings,
and for which adequate reserves have been set aside with respect thereto as required by GAAP and, by reason of such contest or
nonpayment, no property is subject to a material risk of loss or forfeiture. The provisions for taxes on the books of Borrower
are adequate for all open years, and for Borrower’s current fiscal period.

 

5.13       Projections.
Any forecasts of future financial performance delivered by Borrower to Lender have been made in good faith and are based on reasonable
assumptions and investigations by Borrower.

 

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5.14       Other
Obligations. Borrower is not in default on any (i) material indebtedness or (ii) any other lease, commitment, contract, instrument
or obligation which is material to the operation of its business.

 

5.15       Patents,
Trademarks, Copyrights, and Intellectual Property, etc. Borrower has all necessary patents, patent rights, licenses, trademarks,
trademark rights, trade names, trade name rights, copyrights, permits, and franchises in order for it to conduct its business and
to operate its assets, without known conflict with the rights of third Persons, and all of same are valid and subsisting. The consummation
of the transactions contemplated by this Agreement will not alter or impair any of such rights of Borrower. Borrower has not been
charged or, to Borrower’s knowledge, threatened to be charged with any infringement or, after due inquiry, infringed on any,
unexpired trademark, trademark registration, trade name, patent, copyright, copyright registration, or other proprietary right
of any Person.

 

5.16       Environmental
Condition. Except as set forth in Section 5.16 of Schedule C, to Borrower’s knowledge, (i) none of
Borrower’s assets has ever been used by Borrower by previous owners or operators in the disposal of, or to produce, store,
handle, treat, release, or transport, any Hazardous Materials, except in compliance, in all material respects, with applicable
laws; (ii) none of Borrower’s assets has ever been designated or identified in any manner pursuant to any environmental protection
statute as a Hazardous Materials disposal site, or a candidate for closure pursuant to any environmental protection statute; (iii)
no Lien arising under any environmental protection statute has attached to any revenues or to any real or personal property owned
or operated by Borrower; and (iv) Borrower has not received a summons, citation, notice, or directive from the Environmental Protection
Agency or any other federal or state governmental agency concerning any action or omission by Borrower resulting in the releasing
or disposing of Hazardous Materials into the environment.

 

5.17       Solvency.
Borrower is solvent. No transfer of property is being made by Borrower and no obligation is being incurred by Borrower in connection
with the transactions contemplated by this Agreement or the Loan Documents with the intent to hinder, delay, or defraud either
present or future creditors of Borrower.

 

5.18       Eligible
Accounts. Each Account included in the Borrowing Base is an “Eligible Account” as defined herein, and conforms
to the definition thereof. Without limiting the generality of the foregoing, (a) each Eligible Account represents valid, binding
and enforceable obligations of the Account Debtor obligated thereon, except as enforceability may be limited by bankruptcy, insolvency,
and similar laws and equitable principles affecting the enforcement of creditors’ rights generally, representing undisputed,
bona fide transactions completed in accordance with the terms and provisions contained in any documents related thereto, and is
and will be genuine, free from Liens (other than Permitted Liens), adverse claims, counterclaims, setoffs, defaults, disputes,
defenses, retainages, holdbacks and conditions precedent of any kind of character, (b) to Borrower’s knowledge, the Account
Debtor is solvent and generally paying its debts as they come due, (c) each Eligible Account complies with all applicable laws
concerning form, content and manner of preparation and execution, including where applicable any federal and state consumer credit
laws, (d) Borrower has not assigned any of its rights to collect the Accounts other than to Lender pursuant to this Agreement,
(e) all statements made, all unpaid balances and all other information in Borrower’s books and records and other documentation
relating to the Accounts are true and correct and what they purport to be, (f) and Borrower has no knowledge of any fact or circumstance
which would materially impair the validity or collectability of any Eligible Account.

 

5.19       [Reserved].

 

5.20       [Reserved].

 

5.21       Deposit
Accounts. The names and addresses of all financial institutions at which Borrower maintains its deposit accounts, and the account
numbers and account names of such deposit accounts, are set forth Section 5.21 of Schedule C.

 

    	 	9	 

     

    

 

5.22       Securities
and Commodities Accounts. The names and addresses of all brokerages at which Borrower maintains its securities and commodities
accounts, and the account numbers and account names of such accounts, are set forth in Section 5.22 of Schedule C.

 

5.23       Security
Interest. This Agreement creates a security interest which is enforceable against the Collateral in which Borrower now has
rights and will create a security interest which is enforceable against the Collateral in which Borrower hereafter acquires rights
at the time Borrower acquires any such rights, and (ii) Lender has a perfected security interest (to the fullest extent perfection
can be obtained by filing, possession or control) and a first priority security interest in the Collateral in which Borrower now
has rights (subject only to Permitted Liens), and will have a perfected and first priority security interest (to the fullest extent
perfection can be obtained by filing, possession or control) in the Collateral in which Borrower hereafter acquires rights at the
time Borrower acquires any such rights (subject only to Permitted Liens), in each case securing the payment and performance of
the Obligations.

 

5.24       Other
Financing Statements. Other than financing statements in favor of Lender and financing statements filed in connection with
Permitted Liens, to the knowledge of Borrower, no effective financing statement naming Borrower as debtor, assignor, lessee, mortgagor,
pledgor or the like and covering all or any part of the Collateral is on file in any filing or recording office in any jurisdiction.

 

ARTICLE
6

 

AFFIRMATIVE COVENANTS

 

Borrower covenants
and agrees that from the Closing Date and thereafter until the Termination Date, Borrower shall:

 

6.1         Punctual
Payments. Punctually pay the interest and principal on the Loans, the Fees and all Expenses and any other fees and liabilities
due under this Agreement and the Loan Documents at the times and place and in the manner specified in this Agreement or the Loan
Documents.

 

6.2         Books
and Records. Keep complete and accurate books and records with respect to the Collateral and Borrower’s business and
financial condition and any other matters that Lender may request, in accordance with GAAP, including ledger and account cards
and/or computer tapes and computer discs, computer printouts and computer records pertaining to the Accounts which contain such
information as may from time to time be requested by Lender. Borrower shall keep its books and records, at all times, at the premises
location set forth in Section 5.2 of Schedule C. Borrower shall permit any employee, attorney, accountant or other
agent of Lender to audit, review, make extracts from and copy any of its books and records at any time during normal business hours,
and to discuss Borrower’s affairs with any of its directors, officers, employees, owners or agents. If now or at any time
hereafter during the term of this Agreement, Borrower’s records are prepared or retained by a computer service company or
any accountant or accounting service, Borrower authorizes such company or individual to deliver to Lender, and grants Lender the
absolute and irrevocable right to inspect, said records, receive duplicate copies of all information furnished to Borrower and
prepared by such company or individual, and Borrower agrees to furnish such further consents as may be necessary to effectuate
same. Borrower further agrees to promptly notify Lender of the name and address of any such company or individual and of any change
of such company or individual.

 

6.3         Financial
Reports; Collateral Reporting. Furnish to Lender the following in form and detail satisfactory to Lender:

 

(a)          as
soon as available but in any event no later than Friday of each week, and concurrent with each request for an Advance pursuant
to Section 2.1, a Daily Availability Report covering the period since the date of the last Daily Availability Report delivered
to Lender;

 

    	 	10	 

     

    

 

(b)          as
soon as available but in any event no later than Friday of each week for the prior seven days, daily schedules of sales made, credits
issued, and cash received and deposited with Lender;

 

(c)          as
soon as available but in any event no later than 20 days after the end of each month, or more frequently if required by Lender,
(i) an accounts receivable aging and accounts payable aging as of the end of such month and (ii) a balance sheet for such month
and a year to date income statement;

 

(d)          upon
Lender’s request, copies of customer statements, purchase orders, sales invoices, credit memos, remittance advices and reports,
and copies of deposit slips and bank statements, copies of shipping and delivery documents, and copies of purchase orders, invoices
and delivery documents for inventory;

 

(e)          as
soon as available but in any event no later than 30 days after the end of each month, all financial and operating statements as
may be requested from time to time by Lender for such month;

 

(f)          as
soon as available but in any event no later than 120 days after the end of each fiscal year of Borrower, if requested by Lender,
financial and operating statements for such fiscal year, audited by a Certified Public Accountant selected by Borrower but acceptable
to Lender, and of the type indicated in Section 6.3(f) of Schedule B;

 

(g)          at
such times as Lender may request, all information and documentation relating to the Collateral certified by an authorized employee
of Borrower as to its accuracy, as Lender may request;

 

(h)          upon
Lender’s request, no later than 30 days prior to each fiscal year end, Borrower’s projected balance sheet and income
statement, and statement of retained earnings and cash flows, for each month of the next fiscal year, certified as accurate by
Borrower’s chief financial officer or like officer, and accompanied by a statement of assumptions and supporting schedules
and information; and

 

(i)          as
soon as available but in any event no later than 30 days after filing, copies of Borrower’s federal income tax returns (including
any Schedule K-1s) or evidence of any extensions.

 

6.4         Location
of Borrower’s Books and Other Collateral. Keep all of Borrower’s books and records and other Collateral only at
the locations set forth in Section 5.2 of Schedule C.

 

6.5         Existence;
Preservation of Licenses; Compliance With Laws. Preserve and maintain its corporate existence and good standing in the state
of its organization, qualify and remain qualified as a foreign corporation in every jurisdiction where the failure to be so qualified
would reasonably be expected to have a Material Adverse Effect; and preserve all of its licenses, permits, governmental approvals,
rights, privileges and franchises required for its operations except where the failure to so preserve would not reasonably be expected
to have a Material Adverse Effect; and comply with the provisions of its Governing Documents; and comply with the requirements
of all applicable laws, rules, regulations, orders of any Governmental Authority having authority or jurisdiction over it except
where the failure to so comply would not reasonably be expected to have a Material Adverse Effect; and comply with all requirements
for the maintenance of its business, insurance, licenses, permits, governmental approvals, rights, privileges and franchises except
where the failure to so comply would not reasonably be expected to have a Material Adverse Effect.

 

6.6         Collateral
Examinations; Inspections. Permit Lender’s employees, accountants, attorneys or other Persons acting as its agent, to
examine and inspect any Collateral or any other property of Borrower at any time during ordinary business hours.

 

    	 	11	 

     

    

 

6.7         Account
Verification; Payment of Permitted Liens. Permit Lender or its agents to (a) contact Account Debtors and other obligors at
any time to verify Borrower’s Accounts; and (b) require Borrower to send requests for verification of Accounts or send notices
of assignment of Accounts to Account Debtors and other obligors. Borrower shall pay when due each account payable due to any Person
holding a Permitted Lien (as a result of such payable) on any Collateral.

 

6.8         Payment
of Taxes and Other Claims. Pay or discharge, when due, (a) all taxes, assessments and governmental charges levied or imposed
upon it or upon its income or profits, upon any properties belonging to it (including without limitation the Collateral) or upon
or against the creation, perfection or continuance of Lender’s security interest in the Collateral, prior to the date on
which penalties attach, (b) all federal, state and local taxes required to be withheld by it, and (c) all lawful claims for labor,
materials and supplies which, if unpaid, might by law become a Lien upon any properties of Borrower, although Borrower shall not
be required to pay any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good
faith by appropriate proceedings and for which proper reserves have been made.

 

6.9         Maintenance
of Collateral and Properties. Keep and maintain the Collateral and all of its other properties necessary or useful in its business
in good condition, repair and working order (normal wear and tear excepted). Borrower shall defend the Collateral against all Liens,
claims and demands of all third Persons claiming any interest in the Collateral. Borrower shall keep all Collateral free and clear
of all Liens except Permitted Liens.

 

6.10       Insurance.
At all times maintain insurance with insurers acceptable to Lender, in such amounts and on such terms (including deductibles) as
Lender in its sole discretion may require and including, as applicable and without limitation, business interruption insurance
(including force majeure coverage), hazard coverage on an “all risks” basis for all tangible Collateral. Each policy
of insurance shall contain a clause requiring the insurer to give not less than ten days’ written notice to Lender in the
event of cancellation of the policy for any reason whatsoever and a clause that the interest of the Lender shall not be impaired
or invalidated by any act or omission of Borrower or the owner of the property nor by the occupation of the premises wherein such
property is located for purposes more hazardous than are permitted by said policy. If Borrower fails to provide and pay for such
insurance, Lender may procure the same at Borrower’s expense, but shall not be required to do so. Borrower agrees to deliver
to Lender, promptly as rendered, true copies of all monthly reports made to insurance companies.

 

6.11       Notice
to Lender. Promptly, upon Borrower acquiring knowledge thereof, give written notice to Lender of:

 

(a)          all
litigation affecting Borrower where the amount in controversy is in excess of $100,000,
and thereafter an update on such litigation on a quarterly basis;

 

(b)          any
dispute which may exist between Borrower and any Governmental Authority;

 

(c)          any
labor controversy resulting in or threatening to result in a strike against Borrower;

 

(d)          any
proposal by any Governmental Authority to acquire the assets or business of Borrower, or to compete with Borrower;

 

(e)          any
Default or Event of Default; and

 

(f)          any
other matter which has resulted or could reasonably be expected to result in a Material Adverse Effect.

 

    	 	12	 

     

    

 

6.12       Delivery
of Instruments, etc. Upon request by Lender, promptly deliver to Lender in pledge all instruments, documents and chattel paper
constituting Collateral, endorsed or assigned by Borrower.

 

6.13       Environment.
Be and remain, and cause each operator of any of Borrower’s assets to be and remain, in compliance in all material respects
with the provisions of all federal, state and local environmental, health and safety laws, codes and ordinances, and all rules
and regulations issued thereunder; notify Lender promptly of any notice of a hazardous discharge or environmental complaint received
from any Governmental Authority or any other Person; notify Lender promptly of any material hazardous discharge from or affecting
its premises not in compliance in all material respects with applicable laws; promptly contain and remove the same, in compliance
in all material respects with all applicable laws; promptly pay any fine or penalty assessed in connection therewith other than
such fines or penalties being contested in good faith by appropriate proceedings, and for which adequate reserves have been set
aside with respect thereto as required by GAAP and, by reason of such contest or nonpayment, no property is subject to a material
risk of loss or forfeiture; permit Lender to inspect the premises and to inspect all books, correspondence, and records pertaining
thereto; and at Lender’s reasonable request, and at Borrower’s expense, provide a report of a qualified environmental
engineer, reasonably satisfactory in scope, form and content to Lender, and such other and further assurances reasonably satisfactory
to Lender that the condition has been corrected.

 

6.14       Returns.
Cause returns and allowances, as between Borrower and its Account Debtors, to be on the same basis and in accordance with the usual
customary practices of Borrower, as they exist at the time of the execution and delivery of this Agreement.

 

6.15       Bank
Accounts. Maintain its cash on hand and cash equivalent investments solely in deposit accounts held at the financial institutions
listed in Section 5.21 of Schedule C.

 

6.16       Attorney
in Fact. To facilitate Lender’s performance or observance of Borrower’s obligations under this Agreement, Borrower
hereby irrevocably appoints Lender and Lender’s agents, as Borrower’s attorney in fact (which appointment is coupled
with an interest) with the right (but not the duty) to create, prepare, complete, execute, deliver, endorse or file on behalf of
Borrower any instruments, documents, assignments, security agreements, financing statements, applications for insurance and any
other agreements, instruments or documents required to be obtained, executed, delivered or endorsed by Borrower in accordance with
the terms of this Agreement. 

 

ARTICLE
7

 

NEGATIVE
COVENANTS

 

Borrower covenants
and agrees that from the Closing Date and thereafter until the Termination Date, Borrower shall not:

 

7.1         Use
of Proceeds of Loans; Margin Regulation.

 

(a)          Use
any proceeds of the Loans for any purpose other than for working capital and general corporate purposes; or

 

(b)          Use
any portion of the proceeds of the Loans in any manner which might cause the Loans, the application of the proceeds thereof, or
the transactions contemplated by this Agreement to violate Regulation T, U, or X of the Board of Governors of the Federal Reserve
System, or any other regulation of such board, or to violate the Securities and Exchange Act of 1934, as amended or supplemented.

 

7.2         Indebtedness.
Create, incur, assume or suffer to exist any indebtedness except the Obligations, and the indebtedness listed in Section 5.8 of
Schedule C.

 

    	 	13	 

     

    

 

7.3         Liens.
Create, incur, assume or suffer to exist any Lien (including the lien of an attachment, judgment or execution) on any of its assets,
whether now owned or hereafter acquired, except Permitted Liens; or authorize to file under the UCC as adopted in any jurisdiction
a financing statement which names Borrower as a debtor, except with respect to Permitted Liens.

 

7.4         Merger,
Consolidation, Transfer of Assets. Wind up, liquidate or dissolve, reorganize, reincorporate, merge or consolidate with or
into any other Person, or acquire all or substantially all of the assets or the business of any other Person unless approved by
Lender.

 

7.5         Sales
and Leasebacks. Sell, transfer, or otherwise dispose of any real or personal property to any Person, and thereafter directly
or indirectly leaseback the same or similar property unless approved by Lender.

 

7.6         Asset
Sales. Conduct any asset sale other than (a) sales or other dispositions in the ordinary course of business of equipment that
is substantially worn, damaged, or obsolete or no longer useful, and (b) sales of Inventory to buyers in the ordinary course of
business.

 

7.7         Investments
and Subsidiaries. Make or permit to exist any loans or advances to, or make any investment or acquire any interest whatsoever
in, any Person, including without limitation any partnership or joint venture, nor purchase or hold beneficially any stock or other
securities or evidence of indebtedness of any Person, except:

 

(a)          Investments
in direct obligations of the United States of America or any of its political subdivisions whose obligations constitute the full
faith and credit obligations of the United States of America and have a maturity of one year or less, commercial paper issued by
U.S. corporations rated “A 1” or “A 2” by Standard & Poor’s Ratings Services or “P 1”
or “P 2” by Moody’s Investors Service or certificates of deposit or bankers’ acceptances having a maturity
of one year or less issued by members of the Federal Reserve System having deposits in excess of $100,000,000 (which certificates
of deposit or bankers’ acceptances are fully insured by the Federal Deposit Insurance Corporation);

 

(b)          Loans
to Borrower’s officers and employees not exceeding at any one time an aggregate of $50,000, or $10,000 for any single advance
or loan;

 

(c)          Prepaid
rent or security deposits; and

 

(d)          Current
investments in Borrower’s subsidiaries in existence on the date of this Agreement.

 

(e)          As
permitted in Section 7.4 of this Agreement.

 

7.8         Character
of Business. Engage in any business activities or operations substantially different from or unrelated to its present business
activities and operations.

 

7.9         Dividends
and Distributions.

 

(a)          Except
as otherwise permitted in Sections 7.9(b), (c) and (d), declare or pay any dividends (other than dividends payable solely in stock
of Borrower) on any class of its stock, or make any payment on account of the purchase, redemption or retirement of any shares
of its stock, or other securities or evidence of its indebtedness or make any distribution regarding its stock, either directly
or indirectly.

 

(b)          If,
and only if, Borrower is a “pass-through” tax entity for United States federal income tax purposes, and after first
providing such supporting documentation as Lender may request (including the personal state and federal tax returns (and all related
schedules) of each owner of Borrower net of any prior year loss carry-forward, Borrower may pay Tax Distributions.

 

    	 	14	 

     

    

 

(c)          Borrower
may declare and pay cash dividends to its owners in an amount not to exceed 50% of Borrower’s after-tax net income if, and
only if, on the date of any such payment, (1) no Default or Event of Default has occurred and is continuing or will result from
such payment, (2) both immediately before and immediately after giving effect to such payment, availability under Section 2.1 is
at least 10% of the lesser of (i) the Line of Credit Commitment, or (ii) the Borrowing Base, and (3) all of Borrower’s accounts
payable are paid within 60 days of terms.

 

(d)          Borrower
may issue securities pursuant to shareholder approved stock option plans.

 

7.10      [Reserved.]

 

7.11       Guaranty.
Assume, guaranty, endorse (other than checks and drafts received by Borrower in the ordinary course of business), or otherwise
be or become directly or contingently responsible or liable for the obligations of any other Person; or pledge or hypothecate any
of its Assets as security for any liabilities or obligations of any other Person.

 

7.12       Transactions
with Affiliates. Enter into any transaction, including borrowing or lending and the purchase, sale, or exchange of property
or the rendering of any service (including management services), with any affiliate of Borrower, other than in the ordinary course
of and pursuant to the reasonable requirements of Borrower’s business and upon fair and reasonable terms no less favorable
to Borrower than would obtain in a comparable arm’s length transaction with a Person not an affiliate.

 

7.13       Accounting.
Adopt any material change in accounting principles except as permitted by GAAP, consistently applied. Borrower shall not change
its fiscal year.

 

7.14       Discounts,
etc. After notice from Lender, not grant any discount, credit or allowance to any customer of Borrower or accept any return
of goods sold. Borrower shall not at any time modify, amend, subordinate, cancel or terminate any Account.

 

7.15       Constituent
Documents; S Corporation Status; Change of Name. Not amend its Governing Documents. Borrower shall not change its legal name
or change the state of its incorporation or formation. If Borrower is an S Corporation, Borrower shall not change or rescind its
status as an S Corporation. If Borrower is not an S Corporation, Borrower shall not become an S Corporation.

 

ARTICLE
8

 

EVENTS OF DEFAULT AND REMEDIES

 

8.1         Events
of Default. The occurrence of any one or more of the following events, acts or occurrences shall constitute an event of default
(an “Event of Default”) hereunder:

 

(a)          Borrower
fails to pay when due any payment of principal or interest due on the Loans, the Fees, any Expenses, or any other amount payable
hereunder or under any Loan Document;

 

(b)          Borrower
fails to observe or perform any of the covenants and agreements set forth in Section 6.3, or any Section within Article 7;

 

(c)          Borrower
fails to observe or perform any covenant or agreement set forth in this Agreement or the Loan Documents (other than those covenants
and agreements described in Sections 8.1(a) and 8.1(b)), and such failure continues for five (5) days after the earlier to occur
of (i) Borrower obtaining knowledge of such failure or (ii) Lender’s dispatch of notice to Borrower of such failure;

 

(d)          Any
representation, warranty or certification made by Borrower or any officer or employee of Borrower or any Guarantor in this Agreement
or any Loan Document, in any certificate, financial statement or other document delivered pursuant to this Agreement or any Loan
Document proves to have been misleading or untrue in any material respect when made or if any such representation, warranty or
certification is withdrawn;

 

    	 	15	 

     

    

 

(e)          Borrower
fails to pay when due any payment in respect of its indebtedness (other than under this Agreement);

 

(f)          Any
event or condition occurs that: (i) results in the acceleration of the maturity of any of Borrower’s indebtedness described
in Section 8.1(e); or (ii) permits (or, with the giving of notice or lapse of time or both, would permit) the holder or holders
of such indebtedness or any Person acting on behalf of such holder or holders to accelerate the maturity thereof;

 

(g)          Borrower
commences a voluntary Insolvency Proceeding seeking liquidation, reorganization or other relief with respect to itself or its indebtedness
or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official over it or any substantial part
of its property, or consents to any such relief or to the appointment of or taking possession by any such official in an involuntary
Insolvency Proceeding or fails generally to pay its indebtedness as it becomes due, or takes any action to authorize any of the
foregoing;

 

(h)          An
involuntary Insolvency Proceeding is commenced against Borrower seeking liquidation, reorganization or other relief with respect
to it or its Debt or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any
substantial part of its property and any of the following events occur: (i) the petition commencing the Insolvency Proceeding is
not timely controverted; (ii) the petition commencing the Insolvency Proceeding is not dismissed within 30 calendar days of the
date of the filing thereof; (iii) an interim trustee is appointed to take possession of all or a substantial portion of the assets
of, or to operate all or any substantial portion of the business of, Borrower; or (iv) an order for relief shall have been issued
or entered therein;

 

(i)          Borrower
suffers (i) one or more money judgments over applicable insurance coverage (including any reasonable deductible) or (ii) one or
more writs, warrants of attachment, or similar process;

 

(j)          A
judgment creditor obtains possession of any of the assets of Borrower;

 

(k)          Any
order, judgment or decree is entered decreeing the dissolution of Borrower Borrower is enjoined, restrained or in any way prevented
by court order from continuing to conduct all or any material part of its business affairs;

 

(l)          A
notice of lien, levy or assessment is filed of record with respect to any or all of Borrower’s assets by any Governmental
Authority, or any taxes or debts owing at any time hereafter to any Governmental Authority becomes a Lien, whether inchoate or
otherwise, upon any or all of Borrower’s or any Guarantor’s assets and the same is not paid on the payment date thereof;

 

(m)          Borrower
makes any payment on account of any subordinated debt except as otherwise permitted under the terms of any applicable subordination
agreement;

 

(n)          Any
Change of Control occurs without Lender’s approval, which approval will not be unreasonably withheld;

 

(o)          Any
of the Loan Documents fails to be in full force and effect for any reason, or Lender, fails to have a perfected, first priority
Lien in and upon all of the Collateral, or a breach, default or an event of default occurs under any Loan Document;

 

    	 	16	 

     

    

 

(p)          Any
loss, theft, substantial damage, destruction, or misappropriation of any Collateral or other assets or property of Borrower that
is not fully covered (subject to applicable reasonable deductibles or retentions) by insurance;

 

(q)          Any
misappropriation, conversion, diversion or fraud as to Lender or its interests;

 

(r)          Lender
shall, at any time, deem itself insecure or unsafe or shall fear diminution, removal or waste of the Collateral;

 

(s)          The
indictment of Borrower by any governmental authority under any criminal statute or the commencement of any civil proceedings by
any governmental authority against Borrower where the remedies sought or available include the forfeiture of any property of Borrower;
or

 

(t)          Any
other Material Adverse Effect occurs.

 

8.2         Termination
of Commitments; Acceleration. Upon the occurrence of any Event of Default described in Section 8.1(g) or 8.1(h), Lender’s
obligation hereunder to make Loans to Borrower shall immediately terminate and the Obligations shall become immediately due and
payable without any election or action on the part of Lender without presentment, demand, protest or notice of any kind, all of
which Borrower hereby expressly waives. Upon the occurrence and continuance of any other Event of Default, either or both of the
following actions may be taken: (i) Lender may, without notice of its election and without demand, immediately terminate its obligation
to make Loans to Borrower; and (ii) Lender may, without notice of its election and without demand, declare the Obligations to be
due and payable, whereupon the Obligations shall become immediately due and payable, without presentment, demand, protest or notice
of any kind, all of which Borrower hereby expressly waives.

 

8.3         Rights
Against Collateral. Upon the occurrence of any Event of Default, Lender may, without notice or demand, do any one or more of
the following, all of which are authorized by Borrower, and all of which Borrower agrees are commercially reasonable:

 

(a)          Lender
may proceed directly against Borrower to collect the Obligations without prior recourse to any of the Collateral.

 

(b)          Lender
may require Borrower to assemble the Collateral and make it available to Lender at a place to be designated by Lender which is
reasonably convenient to both parties, and Lender shall have the right to take immediate possession of the Collateral and may enter
any of the premises of Borrower or wherever the Collateral shall be located with or without process of law wherever the Collateral
may be and to keep and store the same on said premises until sold, and if said premises be the property of Borrower, Borrower agrees
not to charge Lender for storage thereof. Borrower and Lender agree that ten days’ notice to Borrower of any public or private
sale or other disposition of Collateral shall be reasonable notice thereof, and any such public sale shall be at such location(s)
as Lender shall designate in said notice. Lender shall have the right to bid at any such public sale on its own behalf. Out of
proceeds arising from such sale, Lender shall retain all costs and charges, including attorneys’ fees for advice, counsel
or other legal services or for pursuing, reclaiming, seeking to reclaim, taking, keeping, removing, storing and advertising the
Collateral for sale, selling and any and all other charges and expenses in connection therewith and any prior liens thereon, and
any balance shall be applied upon the Obligations of Borrower to Lender. Borrower shall remain liable to Lender for any deficiency.
In the event of any surplus, such surplus shall be paid to Borrower or such other person as may be legally entitled thereto. If
any of the Collateral is sold or leased by Lender upon credit terms or for future delivery, the Obligations shall not be reduced
as a result thereof until payment in cash therefor is finally collected by Lender. In the event Lender institutes an action to
recover any Collateral or seeks recovery of any Collateral by way of prejudgment remedy, Borrower waives the posting of any bond
which might otherwise be required.

 

    	 	17	 

     

    

 

(c)          Lender
may enforce Borrower’s rights against any Account Debtor, secondary obligor or other obligor in respect of any of the Accounts.
Without limiting the generality of the foregoing, Lender may at such time or times, (i) notify any or all Account Debtors, secondary
obligors or other obligors in respect thereof that the Accounts have been assigned to Lender and that Lender has a security interest
therein, and Lender may direct any or all Account Debtors, secondary obligors and other obligors to make payment of the Accounts
directly to Lender, (ii) extend the time of payment of, compromise, settle or adjust for cash, credit, return of merchandise or
otherwise, and upon any terms or conditions, any and all receivables or other obligations included in the Collateral and thereby
discharge or release the Account Debtor or any secondary obligors or other obligors in respect thereof without affecting any of
the Obligations, (iii) demand, collect or enforce payment of any receivables or such other obligations, but without any duty to
do so, and Lender shall not be liable for its failure to collect or enforce the payment thereof nor for the negligence of its agents
or attorneys with respect thereto, and (iv) take whatever other action Lender may deem necessary or desirable for the protection
of its interests. At Lender’s request, all invoices and statements sent to any Account Debtor shall state that the Accounts
and such other obligations have been assigned to Lender and are payable directly and only to Lender and Borrower shall deliver
to Lender such originals of documents evidencing the sale and delivery of goods or the performance of services giving rise to any
Accounts as Lender may require. Lender shall not be required (i) to incur expenses to exercise collection remedies against Account
Debtors, secondary obligors or other persons obligated on Collateral or to remove liens or encumbrances on or any adverse claims
against Collateral.

 

(d)          Lender
shall not be required (i) to incur expenses to prepare Collateral for disposition, (ii) to obtain third party consents for access
to Collateral to be disposed of, or to obtain consents of any governmental authority or other third party for the collection or
disposition of Collateral to be collected or disposed of, or (iii) to exercise collection remedies against Account Debtors, secondary
obligors or other persons obligated on Collateral or to remove liens or encumbrances on any adverse claims against Collateral.

 

(e)          Lender
may (i) exercise collection remedies against Account Debtors and other persons obligated on Collateral directly or through the
use of collection agencies and other collection specialists, (ii) advertise dispositions of Collateral through publications or
media of general circulation, whether or not the Collateral is of a specialized nature, (iii) contact other persons, whether or
not in the same business as Borrower for expressions of interest in acquiring all or any portion of the Collateral, (iv) hire one
or more professional auctioneers to assist in the disposition of Collateral, whether or not the collateral is of a specialized
nature, (v) dispose of Collateral by utilizing internet sites that provide for the auction of assets of the types included in the
Collateral or that have the reasonable capability of doing so, or that match buyers and sellers of assets, (vi) dispose of assets
in wholesale rather than retail markets, (vii) disclaim any warranties of title or like disposition warranties, (viii) purchase
insurance or credit enhancements to insure Lender against risks of loss, collection or disposition of Collateral or to provide
to Lender a guaranteed return from the collection or disposition of Collateral, or (iv) to the extent deemed appropriate by Lender,
obtain the services of other brokers, investment bankers, consultants and other professionals to assist Lender in the collection
or disposition of any of the Collateral.

 

(f)          For
the purpose of enabling Lender to exercise the rights and remedies hereunder, Borrower hereby grants to Lender, to the extent assignable,
an irrevocable, non-exclusive license to use, assign, license or sublicense any of the trademarks, service-marks, trade names,
business names, trade styles, designs, logos and other source of business identifiers and other intellectual property and general
intangibles now owned or hereafter acquired by Borrower, wherever the same maybe located, including in such license reasonable
access to all media in which any of the licensed items may be recorded or stored and to all computer programs used for the compilation
or printout thereof.

 

(g)          All
expenses of protecting, storing, warehousing, insuring, handling and shipping the Collateral, any and all excise, property, sales
and use taxes imposed by any state, federal or local authority on any of the Collateral or in respect of the sale thereof, shall
be Expenses and if Borrower fails to promptly pay any thereof when due, Lender may, as its option, but shall not be required to,
pay the same and charge Borrower’s account thereof.

 

    	 	18	 

     

    

 

(h)        Lender
shall not be liable or responsible in any way for the safekeeping of any of the Collateral or for any loss or damage thereto or
for any diminution in the value thereof, or for any act or default of any warehouseman, carrier, forwarding agency or other person
whomsoever, but the same shall be at Borrower’s sole risk.

 

(i)          Lender
may terminate the authority of Borrower to collect Collateral, including without limitation Accounts, at any time whereupon Lender
is authorized, without further act, to notify any and all Account Debtors and other obligors to make payment thereon directly to
Lender, and to take possession of all proceeds from the Collateral, and to take any action which Borrower might or could take to
collect the Collateral, including without limitation the right to make any compromise, discharge, or extension. Upon request of
Lender, Borrower shall execute and deliver to Lender a notice to Account Debtors and other obligors instructing such obligors to
pay Lender. Borrower further agrees to execute and deliver to Lender, all other notices and similar documents requested by Lender
to facilitate collection of the Collateral. All costs of collection of the Collateral, if any, including, without limitation, attorneys’
fees and legal expenses, shall be borne solely by Borrower, whether such costs are incurred by or for Borrower or Lender. Borrower
agrees to deliver to Lender, if so requested, all books, records, and documents in Borrower’s possession or under its control
as may relate to the Collateral or as may be helpful to facilitate such collection. Lender shall have no obligation to cause an
attorney’s demand letter to be sent, to file any lawsuit, or to take any other legal action in collection of the Collateral.
It is agreed that collection of the Collateral in a commercially reasonable manner does not require that any such legal action
be taken.

 

(j)          Borrower
does hereby make, constitute, and appoint Lender and its designees as Borrower’s true and lawful attorney in fact, with full
power of substitution, such power to be exercised only upon an Event of Default and in the following manner: (i) Lender may receive
and open all mail addressed to Borrower and remove therefrom any payments of the Collateral, if any; (ii) Lender may cause mail
relating to the Collateral to be delivered to a designated address of Lender where Lender may open all such mail and remove therefrom
any payments of the Collateral; (iii) Lender may endorse Borrower’s name upon notes, checks, acceptances, drafts, money orders,
or other forms of payment of the Collateral; (iv) Lender may settle or adjust disputes or claims in respect to the Collateral for
amounts and upon such terms as Lender, in its sole discretion and in good faith, deems to be advisable, in such case crediting
Borrower with only the proceeds received and collected by Lender after deduction of Lender’s costs, including, without limitation,
reasonable attorneys’ fees and legal expenses; and (v) Lender may do any and all other things necessary or proper to carry
out the intent of this Agreement and to perfect and protect the liens and rights of Lender created under this Loan and Security
Agreement. This power of attorney is irrevocable and coupled with an interest.

 

(k)         Lender
shall have all the rights and remedies available under the UCC.

 

(l)          Lender
shall have the right to enter upon any premises where the Collateral or records relating thereto may be and take possession of
the Collateral and such records.

 

(m)        Upon
request of Lender, Borrower shall, at the expense of Borrower, assemble the Collateral and records relating thereto at a place
designated by Lender and tender the Collateral and such records to Lender.

 

(n)         Lender
may sell, lease or otherwise dispose of any or all of the Collateral and, after deducting the Liquidation Costs, apply the remainder
to pay, or to hold as a reserve against, the obligations secured by this Loan and Security Agreement.

 

(o)         Lender
may credit bid at any UCC, bankruptcy, trustee or other sale, including, without limitation, any sale under Section 363 of the
United States Bankruptcy Code.

 

(p)         Borrower
shall be liable for all deficiencies owing on any obligations secured by this Agreement after liquidation of the Collateral. Lender
shall not have any obligation to clean-up or otherwise prepare any Collateral for sale, lease, or other disposition.

 

    	 	19	 

     

    

 

8.4         Delinquent
Taxes. Upon the occurrence of an Event of Default or upon notification from any taxing authority, or if any notice is received
by Lender with respect to delinquent taxes outstanding, Borrower shall furnish Lender as requested with proof satisfactory of Borrower’s
making payment or deposit of F.I.C.A. withholding and other taxes required of it by applicable law. Such proof shall be furnished
within five days after the due date for each such payment or deposit. If Borrower fails to make any such payment or deposit when
due or furnish such proof when due, Lender may, in its sole discretion, and without notice to Borrower (a) make payment of same
or any part thereof, or (b) set up such additional reserves in Borrower’s account as may be necessary to satisfy the liability
therefor. Each amount so paid or deposited by Lender shall constitute an Advance under this Agreement. The setting up of a reserve
for making payment shall not constitute a waiver of any default under the terms of this Agreement, nor shall Lender be obligated
to make such payments or set up reserves in the future.

 

8.5         Appointment
of Receiver or Trustee. Borrower hereby irrevocably agrees that Lender has the right under this Agreement, upon the occurrence
of an Event of Default, to seek the appointment of a receiver, trustee or similar official over Borrower to effect the transactions
contemplated by this Agreement, and that Lender is entitled to seek such relief. Borrower hereby irrevocably agrees not to object
to such appointment on any grounds.

 

8.6         Remedies
Cumulative. The rights and remedies of Lender herein and in the Loan Documents are cumulative, and are not exclusive of any
other rights, powers, privileges, or remedies, now or hereafter existing, at law, in equity or otherwise. The failure or delay
of Lender to exercise or enforce any rights, liens, powers or remedies hereunder or under any of the aforesaid agreements or other
document or security or collateral shall not operate as a waiver of such liens, powers and remedies, but all such liens, rights,
powers and remedies shall continue in full force and effect until all loans and advances and all other Obligations owing or to
become owing from Borrower to Lender shall have been fully satisfied, and all liens, rights, powers and remedies herein provided
are cumulative and none is exclusive. All acts by Lender or its designee are hereby ratified and approved, and neither Lender nor
its designee shall be liable for any acts or omissions, nor for any error of judgment or mistake of fact or law other than for
gross negligence or willful misconduct by Lender.

 

ARTICLE
9

 

TERMINATION

 

9.1         Initial
Maturity Date; Final Maturity Date. Except as provided in Section 9.2, this Agreement shall continue in full force and effect
until 12:00 p.m., Pacific time, on the Initial Maturity Date. Unless either Borrower or Lender has sent to the other party a written
notice, not less than 60 days prior to the Initial Maturity Date, of such party’s intention to terminate this Agreement on
the Initial Maturity Date, this Agreement will continue in full force and effect after the Initial Maturity Date on a year-to-year
basis unless and until either Borrower or Lender has sent to the other party a written notice, not less than 60 days prior to the
next anniversary of the Initial Maturity Date, of such party’s intention to terminate this Agreement on such anniversary
of the Initial Maturity Date, in which event this Agreement shall terminate on 12:00 p.m., Pacific time, on such anniversary of
the Initial Maturity Date. The Initial Maturity Date, or any applicable anniversary thereof so designated by Borrower or Lender
as the date this Agreement shall terminate, or any date this Agreement is terminated pursuant to Section 9.2, is herein referred
to as the “Final Maturity Date”. Notwithstanding any such termination, all of Lender’s rights and remedies
hereunder and under the Loan Documents, at law and at equity, Lender’s security interest in the Collateral granted by Borrower
hereunder and under the Loan Documents, and all of Borrower’s obligations, agreements and covenants hereunder and under the
Loan Documents, shall continue in full force and effect until the Obligations have been paid in full, in cash and Lender has terminated
its UCC-1 financing statement. Borrower further agrees that to the extent either Borrower or any Guarantor makes a payment or payments
to Lender, which payment or payments or any part thereof are subsequently invalidated, declared to be fraudulent or preferential,
set aside and/or required to be repaid to a trustee, receiver or any other party under any bankruptcy act, state or federal law,
common law or equitable cause, then, to the extent of such payment or repayment, the obligation or part thereof intended to be
satisfied shall be revived and continue in full force and effect as if said payment had not been made.

 

    	 	20	 

     

    

 

9.2          Early
Termination. Notwithstanding Section 9.1, either Borrower or Lender may terminate this Agreement at any time upon sixty days’
prior written notice. In the event of such termination by Borrower pursuant to this Section 9.2, or in the event of a termination
by Lender following an Event of Default, or in the event this Agreement is terminated in accordance with Section 9.1 but Borrower
fails to pay the Obligations in full on the Final Maturity Date, Borrower shall pay to Lender the Early Termination Fee set forth
in Section 2.6(e).

 

9.3          Obligations
Due and Payable on Final Maturity Date. On the Final Maturity Date Borrower shall pay to Lender the outstanding principal balance
of the Loans, all accrued but unpaid interest thereon, all Fees and Expenses, and all other Obligations, in full, in cash.

 

9.4          Revival
and Reinstatement of Obligations. If the incurrence or payment of the Obligations by Borrower or the transfer to Lender of
any property should for any reason subsequently be asserted, or declared, to be void or voidable under any state or federal law
relating to creditors’ rights, including provisions of the Bankruptcy Code relating to fraudulent conveyances, preferences,
or other voidable or recoverable payments of money or transfers of property (each, a “Voidable Transfer”), and
if Lender is required to repay or restore, in whole or in part, any such Voidable Transfer, or elects to do so upon the reasonable
advice of its counsel, then, as to any such Voidable Transfer, or the amount thereof that Lender is required or elects to repay
or restore, and as to all reasonable costs, expenses, and attorneys fees of Lender related thereto, the liability of Borrower or
Guarantors automatically shall be revived, reinstated, and restored and shall exist as though such Voidable Transfer had never
been made.

 

ARTICLE
10

 

MISCELLANEOUS

 

10.1        Notices.
All notices, requests and other communications to any party hereunder shall be in writing (including facsimile transmission or
similar writing) and shall be given to such party at its address or facsimile number set forth on the signature pages hereof or
such other address or facsimile number as such party may hereafter specify by notice to the other party in accordance with this
Section 10.1. Each such notice, request or other communication shall be effective (a) if delivered in person, when delivered, (b)
if delivered by facsimile transmission, on the date of transmission if transmitted on a Business Day before 4:00 p.m., Pacific
time, otherwise on the next Business Day, (c) if delivered electronically, upon receipt thereof by the recipient; (d) if delivered
by overnight courier, one Business Day after delivery to the courier properly addressed, and (e) if mailed, upon the third Business
Day after the date deposited into the U.S. Mail, certified or registered; provided that actual notice, however and from
whomever given or received, shall always be effective on receipt; provided further that notices sent by Lender in connection
with Lender’s exercise of its enforcement rights against any Collateral shall be deemed given when deposited in the mail
or personally delivered, or, where permitted by law, transmitted by facsimile.

 

10.2       Expenses;
Documentary Taxes; Indemnification.

 

(a)          Borrower
shall pay all Expenses on demand.

 

(b)          Borrower
shall pay all and indemnify Lender against any and all transfer taxes, documentary taxes, assessments, or charges made by any Governmental
Authority and imposed by reason of the execution and delivery of this Agreement, any of the Loan Documents, or any other document,
instrument or agreement entered into in connection herewith.

 

    	 	21	 

     

    

 

(c)          Borrower
shall and hereby agrees to indemnify, protect, defend and hold harmless Lender and its directors, officers, agents, employees and
attorneys (collectively, the “Indemnified Persons” and individually, an “Indemnified Person”)
from and against (i) any and all losses, claims, damages, liabilities, deficiencies, judgments, costs and expenses (including reasonable
attorneys’ fees and reasonable attorneys’ fees incurred pursuant to Insolvency Proceedings) incurred by any Indemnified
Person (except to the extent that it is finally judicially determined to have resulted from the gross negligence or willful misconduct
of any Indemnified Person) arising out of or by reason of any litigations, investigations, claims or proceedings (whether administrative,
judicial or otherwise), including discovery, whether or not Lender is designated a party thereto, which arise out of or are in
any way related to (1) this Agreement, the Loan Documents or the transactions contemplated hereby or thereby, (2) any actual or
proposed use by Borrower of the proceeds of the Loans, or (3) Lender’s entering into this Agreement, the Loan Documents or
any other agreements and documents relating hereto; (ii) any such losses, claims, damages, liabilities, deficiencies, judgments,
costs and expenses arising out of or by reason of the use, generation, manufacture, production, storage, release, threatened release,
discharge, disposal or presence on, under or about Borrower’s operations or property or property leased by Borrower of any
material, substance or waste which is or becomes designated as Hazardous Materials; (iii) any such losses, claims, damages, liabilities,
deficiencies, judgments, costs and expenses incurred in connection with any remedial or other action taken by Borrower or Lender
in connection with compliance by Borrower with any federal, state or local environmental laws, acts, rules, regulations, orders,
directions, ordinances, criteria or guidelines (except to the extent that it is finally judicially determined to have resulted
from the gross negligence or willful misconduct of any Indemnified Person). If and to the extent that the obligations of Borrower
hereunder are unenforceable for any reason, Borrower hereby agrees to make the maximum contribution to the payment and satisfaction
of such obligations to Lender which is permissible under applicable law.

 

(d)          Borrower’s
obligations under this Section 10.2 shall survive the Termination Date, and the payment in full of the Obligations, and are in
addition to, and not in substitution of, any other of its obligations set forth in this Agreement.

 

10.3        Amendments
and Waivers. Neither this Agreement nor any Loan Document, nor any terms hereof or thereof may be amended, supplemented or
modified except in accordance with the provisions of this Section 10.3. Lender may from time to time, (a) enter into with Borrower
or any other Person written amendments, supplements or modifications hereto and to the Loan Documents or (b) waive, on such terms
and conditions as Lender may specify in such instrument, any of the requirements of this Agreement or the Loan Documents or any
Event Default and its consequences, if, but only if, such amendment, supplement, modification or waiver is in writing and is signed
by the party asserted to be bound thereby, and then such amendment, supplement, modification or waiver shall be effective only
in the specific instance and specific purpose for which given.

 

10.4       Successors
and Assigns; Participations; Disclosure.

 

(a)          This
Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except
that Borrower may not assign or transfer any of their rights or obligations under this Agreement without the prior written consent
of Lender and any such prohibited assignment or transfer by Borrower shall be void.

 

(b)          Lender
may, at its own expense, assign all or a portion of its rights (including voting rights) and obligations under this Agreement and
the Loan Documents. In the event of any such assignment by Lender pursuant to this Section 10.4(b), Lender’s obligations
under this Agreement arising after the effective date of such assignment shall be released and concurrently therewith, transferred
to and assumed by Lender’s assignee to the extent provided for in the document evidencing such assignment.

 

(c)          Lender
may at any time sell to one or more banks or other financial institutions (each a “Participant”) participating
interests in the Loans, and in any other interest of Lender hereunder. In the event of any such sale by Lender of a participating
interest to a Participant, Lender’s obligations under this Agreement shall remain unchanged, Lender shall remain solely responsible
for the performance thereof, and Borrower shall continue to deal solely and directly with Lender in connection with Lender’s
rights and obligations under this Agreement. Borrower agrees that each Participant shall, to the extent provided in its participation
agreement, be entitled to the benefits of Section 2.11 with respect to its participating interest.

 

    	 	22	 

     

    

 

(d)          Borrower
authorizes Lender to disclose to any assignee under Section 10.4(b) or any Participant (either, a “Transferee”)
and any prospective Transferee any and all financial information in Lender’s possession concerning Borrower which has been
delivered to Lender by Borrower pursuant to this Agreement or which has been delivered to Lender by Borrower in connection with
Lender’s credit evaluation prior to entering into this Agreement.

 

10.5        Counterparts;
Effectiveness; Integration. This Agreement may be signed in any number of counterparts, each of which shall be an original,
with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement shall be effective when
executed by each of the parties hereto. This Agreement constitutes the entire agreement and understanding among the parties hereto
and supersedes any and all prior agreements and understandings, oral or written, relating to the subject matter hereof.

 

10.6        Severability.
The provisions of this Agreement are severable. The invalidity, in whole or in part, of any provision of this Agreement shall not
affect the validity or enforceability of any other of its provisions. If one or more provisions hereof shall be declared invalid
or unenforceable, the remaining provisions shall remain in full force and effect and shall be construed in the broadest possible
manner to effectuate the purposes hereof.

 

10.7        Additional
Waivers.

 

(a)          Borrower
agrees that checks and other instruments received by Lender in payment or on account of the Obligations constitute only conditional
payment until such items are actually paid to Lender and Borrower waives the right to direct the application of any and all payments
at any time or times hereafter received by Lender on account of the Obligations, and Borrower agrees that Lender shall have the
continuing exclusive right to apply and reapply such payments in any manner as Lender may deem advisable, notwithstanding any entry
by Lender upon its books.

 

(b)          Borrower
waives demand, protest, notice of protest, notice of default or dishonor, notice of payment and nonpayment, notice of any default,
nonpayment at maturity, release, compromise, settlement, extension or renewal of any or all commercial paper, accounts, documents,
instruments, chattel paper, and guarantees at any time held by Lender on which Borrower may in any way be liable.

 

(c)          Lender
shall not in any way or manner be liable or responsible for (a) the safekeeping of Collateral; (b) any loss or damage thereto occurring
or arising in any manner or fashion from any cause; (c) any diminution in the value thereof; or (d) any act or default of any carrier,
warehouseman, bailee, forwarding agency or other person whomsoever. All risk of loss, damage or destruction of Inventory shall
be borne by Borrower.

 

(d)          Borrower
waives the right and the right to assert a confidential relationship, if any, it may have with any accountant, accounting firm
and/or service bureau or consultant in connection with any information requested by Lender pursuant to or in accordance with this
Agreement, and agrees that an Lender may contact directly any such accountants, accounting firm and/or service bureau or consultant
in order to obtain such information.

 

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

 

10.8        Destruction
of Borrower’s Documents. Any documents, schedules, invoices or other papers delivered to Lender may be destroyed or otherwise
disposed of by Lender six months after they are delivered to or received by Lender, unless Borrower requests, in writing, the return
of the said documents, schedules, invoices or other papers and makes arrangements, at Borrower’s expense, for their return.

 

    	 	23	 

     

    

 

10.9       CHOICE
OF LAW AND VENUE; JURY TRIAL WAIVER.

 

(a)          THE
VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (UNLESS EXPRESSLY PROVIDED TO THE CONTRARY IN ANOTHER LOAN DOCUMENT IN
RESPECT OF SUCH OTHER LOAN DOCUMENT), THE CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF AND THEREOF, AND THE RIGHTS OF THE
PARTIES HERETO AND THERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER OR THEREUNDER OR RELATED HERETO OR THERETO SHALL BE DETERMINED
UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD FOR PRINCIPLES
OF CONFLICTS OF LAWS.

 

(b)          THE
PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE TRIED
AND LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, PROVIDED,
HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT LENDER’S OPTION,
IN THE COURTS OF ANY JURISDICTION WHERE LENDER ELECTS TO BRING SUCH ACTION OR WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND.
BORROWER AND LENDER WAIVE, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM
NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 10.9(b).

 

(c)          BORROWER
AND LENDER EACH HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT
OF THIS AGREEMENT OR ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN OR THEREIN, INCLUDING CONTRACT CLAIMS,
TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. BORROWER AND LENDER REPRESENT THAT EACH HAS REVIEWED
THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT
OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.

 

10.10     Reference
Provision. In the event the Jury Trial Waiver set forth above is not enforceable, the parties elect to proceed under this Judicial
Reference Provision.

 

(a)          With
the exception of the items specified in clause (b) below, any controversy, dispute or claim (each, a “Claim”)
between the parties arising out of or relating to this Agreement or any other Loan Document will be resolved by a reference proceeding
in California in accordance with the provisions of Sections 638 et seq. of the California Code of Civil Procedure (“CCP”),
or their successor sections, which shall constitute the exclusive remedy for the resolution of any Claim, including whether the
Claim is subject to the reference proceeding. Except as otherwise provided in the Loan Documents, venue for the reference proceeding
will be in the state or federal court in the county or district where the real property involved in the action, if any, is located
or in the state or federal court in the county or district where venue is otherwise appropriate under applicable law (the “Court”).

 

(b)          The
matters that shall not be subject to a reference are the following: (i) nonjudicial foreclosure of any security interests in real
or personal property, (ii) exercise of self-help remedies (including, without limitation, set-off), (iii) appointment of a receiver
and (iv) temporary, provisional or ancillary remedies (including, without limitation, writs of attachment, writs of possession,
temporary restraining orders or preliminary injunctions). This reference provision does not limit the right of any party to exercise
or oppose any of the rights and remedies described in clauses (i) and (ii) or to seek or oppose from a court of competent jurisdiction
any of the items described in clauses (iii) and (iv). The exercise of, or opposition to, any of those items does not waive the
right of any party to a reference pursuant to this reference provision as provided herein.

 

    	 	24	 

     

    

 

(c)          The
referee shall be a retired judge or justice selected by mutual written agreement of the parties. If the parties do not agree within
ten (10) days of a written request to do so by any party, then, upon request of any party, the referee shall be selected by the
Presiding Judge of the Court (or his or her representative). A request for appointment of a referee may be heard on an ex parte
or expedited basis, and the parties agree that irreparable harm would result if ex parte relief is not granted. Pursuant to CCP
§ 170.6, each party shall have one peremptory challenge to the referee selected by the Presiding Judge of the Court (or his
or her representative).

 

(d)          The
parties agree that time is of the essence in conducting the reference proceedings. Accordingly, the referee shall be requested,
subject to change in the time periods specified herein for good cause shown, to (i) set the matter for a status and trial-setting
conference within fifteen (15) days after the date of selection of the referee, (ii) if practicable, try all issues of law or fact
within one hundred twenty (120) days after the date of the conference and (iii) report a statement of decision within twenty (20)
days after the matter has been submitted for decision.

 

(e)          The
referee will have power to expand or limit the amount and duration of discovery. The referee may set or extend discovery deadlines
or cutoffs for good cause, including a party’s failure to provide requested discovery for any reason whatsoever. Unless otherwise
ordered based upon good cause shown, no party shall be entitled to “priority” in conducting discovery, depositions
may be taken by either party upon seven (7) days written notice, and all other discovery shall be responded to within fifteen (15)
days after service. All disputes relating to discovery which cannot be resolved by the parties shall be submitted to the referee
whose decision shall be final and binding.

 

(f)          Except
as expressly set forth herein, the referee shall determine the manner in which the reference proceeding is conducted including
the time and place of hearings, the order of presentation of evidence, and all other questions that arise with respect to the course
of the reference proceeding. All proceedings and hearings conducted before the referee, except for trial, shall be conducted without
a court reporter, except that when any party so requests, a court reporter will be used at any hearing conducted before the referee,
and the referee will be provided a courtesy copy of the transcript. The party making such a request shall have the obligation to
arrange for and pay the court reporter. Subject to the referee’s power to award costs to the prevailing party, the parties
will equally share the cost of the referee and the court reporter at trial.

 

(g)          The
referee shall be required to determine all issues in accordance with existing case law and the statutory laws of the State of California.
The rules of evidence applicable to proceedings at law in the State of California will be applicable to the reference proceeding.
The referee shall be empowered to enter equitable as well as legal relief, enter equitable orders that will be binding on the parties
and rule on any motion which would be authorized in a court proceeding, including without limitation motions for summary judgment
or summary adjudication. The referee shall issue a decision at the close of the reference proceeding which disposes of all claims
of the parties that are the subject of the reference. Pursuant to CCP § 644, such decision shall be entered by the Court as
a judgment or an order in the same manner as if the action had been tried by the Court and any such decision will be final, binding
and conclusive. The parties reserve the right to appeal from the final judgment or order or from any appealable decision or order
entered by the referee. The parties reserve the right to findings of fact, conclusions of laws, a written statement of decision,
and the right to move for a new trial or a different judgment, which new trial, if granted, is also to be a reference proceeding
under this provision.

 

(h)          If
the enabling legislation which provides for appointment of a referee is repealed (and no successor statute is enacted), any dispute
between the parties that would otherwise be determined by reference procedure will be resolved and determined by arbitration. The
arbitration will be conducted by a retired judge or justice, in accordance with the California Arbitration Act §1280 through
§1294.2 of the CCP as amended from time to time. The limitations with respect to discovery set forth above shall apply to
any such arbitration proceeding.

 

    	 	25	 

     

    

 

(i)          THE
PARTIES RECOGNIZE AND AGREE THAT ALL CONTROVERSIES, DISPUTES AND CLAIMS RESOLVED UNDER THIS REFERENCE PROVISION WILL BE DECIDED
BY A REFEREE AND NOT BY A JURY. AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF ITS, HIS OR HER OWN
CHOICE, EACH PARTY KNOWINGLY AND VOLUNTARILY, AND FOR THE MUTUAL BENEFIT OF ALL PARTIES, AGREES THAT THIS REFERENCE PROVISION WILL
APPLY TO ANY CONTROVERSY, DISPUTE OR CLAIM BETWEEN OR AMONG THEM ARISING OUT OF OR IN ANY WAY RELATED TO, THIS AGREEMENT OR THE
OTHER LOAN DOCUMENTS.

 

10.11     Patriot
Act Notification. Lender is subject to the USA Patriot Act, Title III of Pub. L. 107-56, signed into law October 26, 2001 (the
“Patriot Act”) and hereby notifies Borrower that pursuant to the requirements of the Patriot Act, Lender is
required to obtain, verify and record information that identifies Borrower, which information includes the names and addresses
of Borrower and other information that will allow Lender to identify Borrower in accordance with the Patriot Act.

 

[REMAINDER OF THIS PAGE INTENTIONALLY LEFT
BLANK]

 

    	 	26	 

     

    

 

IN WITNESS WHEREOF,
the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year
first above written.

 

	AUSTIN FINANCIAL SERVICES, INC.	 	POINT.360
	a Delaware corporation	 	a California corporation
	 	 	 
	By:	 	/s/ Donald Caskey	 	By:	 	/s/ Alan Steel
	Name:	Donald Caskey	 	Name:	Alan R. Steel
	Its:	Senior Vice President	 	Its:	Chief Financial Officer
	 	 	 
	Address for notices:	 	Address for notices:
	 	 	 
	Austin Financial Services, Inc.	 	Point.360
	11111 Santa Monica Blvd. Suite 900	 	2701 Media Center Drive
	Los Angeles, CA 90025-9823	 	Los Angeles, CA  90065
	Attn:  Donald Caskey	 	Attn:  Alan Steel
	Telephone:  (310) 444-7939	 	Telephone: 323-987-9444
	Facsimile:  (310) 444-7959	 	Facsimile:  818-847-2503

 

    	 	S-1
 Loan And Security Agreement	 

     

    

 

Schedule
A

TO

LOAN AND SECURITY AGREEMENT

 

DEFINED
TERMS

 

    	 	Schedule A
	 

     

    

 

		
        schedule
        a

        to

        AMENDED AND RESTATED

        LOAN AND SECURITY

        AGREEMENT

         

        DEFINED
        TERMS
	POINT.360,

a California corporation, 

as “Borrower”

 

As used in the Amended
and Restated Loan and Security Agreement to which this Schedule A is attached, the following terms shall have the
meanings indicated:

 

“Account”
and “Account Debtor” are defined in the UCC.

 

“Accounts
Advance Rate” is defined in Section 2.1 of Schedule B.

 

“Advance”
means the revolving advances extended to Borrower by Lender pursuant to Section 2.1.

 

“Assignment
Agreement” is defined in the Recitals to the Agreement.

 

“Assignor”
is defined in the Recitals to the Agreement.

 

“Bankruptcy
Code” means the United States Bankruptcy Code (11 U.S.C. Sections 101 et seq.).

 

“Borrower”
is defined in the Preamble.

 

“Borrowing
Base” means the sum of: (a) up to the Accounts Advance Rate or such lesser percentage of the Net Amount of Eligible Accounts
as Lender in its sole discretion may deem appropriate if it determines that there has been a Material Adverse Effect; less a dilution
reserve as determined by Lender in its sole discretion, plus (b) the lesser of (i) up to the Inventory Advance Rate or such lesser
percentage of Eligible Inventory as Lender in its sole discretion may deem appropriate if it determines that there has been a Material
Adverse Effect, or (ii) the Inventory Sublimit, minus (c) the Borrowing Base Reserve.

 

“Borrowing
Base Reserve” means, as of any date of determination, an amount or a percent of a specified category or item that Lender
establishes in its sole discretion from time to time to reduce availability under the Borrowing Base (a) to reflect events, conditions,
contingencies or risks which affect the assets, business or prospects of Borrower, or the Collateral or its value, or the enforceability,
perfection or priority of Lender’s security interest in the Collateral, as the term “Collateral” is defined in
this Agreement, or (b) to reflect Lender’s judgment that any collateral report or financial information relating to Borrower
and furnished to Lender may be incomplete, inaccurate or misleading in any material respect.

 

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

 

“Change of
Control” means (a) if there shall be a sale or sales in the aggregate of more than 49% of the issued and outstanding
shares of capital stock or other equity interests of Borrower held by Haig S. Bagerdjian (or related entity) and his successors
and his assigns, (b) any of the individuals performing the functions of the Chief Executive Officer, President or Chief Financial
Officer, respectively, on the Closing Date shall cease for any reason to perform such functions, whether by reason of death, disability,
resignation, action by the Board of Directors or shareholders of Borrower, or otherwise.

 

    	 	1	 

     

    

 

“Closing Date”
means the date of the assignment of the Financing and the “Financing Documents” (defined in the Assignment Agreement)
by Assignor to Lender pursuant to that certain Assignment Agreement.

 

“Collateral”
means the following personal property of Borrower, wherever located, now owned or existing or hereafter acquired or created, all
additions and accessions thereto, all replacements, insurance or condemnation proceeds, all documents covering any of the Collateral,
all leases of any of the Collateral, all rents, revenues, issues, profits and proceeds arising from the sale, lease, license, encumbrance,
collection, or any other temporary or permanent disposition of any of the Collateral or any interest therein, all amendments, modifications,
renewals, extensions, and replacements thereof, and all products and proceeds thereof: (a) all lnventory; (b) all Accounts; (c)
all equipment, goods and motor vehicles (collectively, the "Equipment"); (d) all general intangibles, including, without
limitation, any and all patents, trademarks and copyrights (registered or unregistered}, trade secrets, domain names and addresses,
and intellectual property licenses; (e) any and all promissory notes and instruments payable to or owing to Borrower or held by
Borrower; any and all leases under which Borrower is the lessor; any and all chattel paper in favor of, owing to, or held by Borrower,
including, without limitation, any and all conditional sale contracts or other sale agreements, whether Borrower is the original
party or the assignee; and any and all security agreements, collateral and titles to motor vehicles which secure any of the foregoing
obligations; all deposit accounts, including, without limitation, all interest, dividends or distributions accrued or to accrue
thereon, whether or not due; all investment property, including, without limitation, all interest, dividends or distributions accrued
or to accrue thereon, whether or not due, all documents; all letter-of-credit rights; and all other Obligations; and (f) all balances,
deposits, debts or any other amounts or obligations of Lender owing to Borrower, including, without limitation, any reserve, whether
or not due.

 

“Collateral
Access Agreement” means a landlord waiver, mortgagee waiver, bailee letter, or acknowledgement agreement of any warehouseman,
processor, lessor, consignee, or other Person in possession of, having a Lien upon, or having rights or interests in the Collateral,
in each case, in form and substance satisfactory to Lender.

 

“Collection
Account” means Lender’s deposit account for purposes or receiving payments from Borrower.

 

“Daily Availability
Report” means Lender’s standard form of Daily Availability Report.

 

“Default”
means any condition or event which with the giving of notice or lapse of time or both would, unless cured or waived, become an
Event of Default.

 

“Default Rate”
means the sum of the Interest Rate plus three (3.0) percentage points.

 

“Dollars”
and “$” means lawful currency of the United States of America.

 

“Eligible
Accounts” means those Accounts created by Borrower in the ordinary course of business, that arise out of Borrower’s
sale of goods or rendition of services, that strictly comply with each and all of the representations and warranties respecting
Accounts made by Borrower to Lender in this Agreement, and that are and at all times continue to be acceptable to Lender in all
respects; provided, however, that standards of eligibility may be fixed and revised from time to time by Lender in
Lender’s sole and absolute discretion. In determining the amount to be included, Eligible Accounts shall be calculated net
of customer deposits and unapplied cash remitted to Borrower. Eligible Accounts shall not include the following:

 

(i)          Accounts
that the Account Debtor has failed to pay within 90 days of invoice date or Accounts with selling terms of more than 60 days;

 

    	 	2	 

     

    

 

(ii)         Accounts
owed by an Account Debtor or its affiliates where 30% or more of all Accounts owed by that Account Debtor (or its affiliates) are
deemed ineligible under clause (i) above;

 

(iii)        Accounts
with respect to which the Account Debtor is an officer, director, shareholder, employee, affiliate, or agent of Borrower;

 

(iv)        Accounts
with respect to which goods are placed on consignment, guaranteed sale, sale or return, sale on approval, bill and hold, or other
terms by reason of which the payment by the Account Debtor may be conditional;

 

(v)         Accounts
that are not payable in Dollars or with respect to which the Account Debtor: (i) does not maintain its chief executive office in
the United States or Canada, or (ii) is not organized under the laws of the United States or any state thereof, or (iii) is the
government of any foreign country or sovereign state, or of any state, province, municipality, or other political subdivision thereof,
or of any department, agency, public corporation, or other instrumentality thereof, unless (y) the Account is supported by an irrevocable
letter of credit satisfactory to Lender (as to form, substance, and issuer or domestic confirming bank) that has been delivered
to Lender and is directly drawable by Lender;

 

(vi)        Accounts
with respect to which the Account Debtor is either (i) the United States or any department, agency, or instrumentality of the United
States (exclusive, however, of Accounts with respect to which Borrower has complied, to the reasonable satisfaction of Lender,
with the Assignment of Claims Act, 31 USC § 3727), or (ii) any state of the United States (exclusive, however, of (y) Accounts
owed by any state that does not have a statutory counterpart to the Assignment of Claims Act, or (z) Accounts owed by any state
that does have a statutory counterpart to the Assignment of Claims Act as to which Borrower has complied to Lender’s satisfaction);

 

(vii)       Accounts
with respect to which the Account Debtor is a creditor of Borrower, has or has asserted a right of setoff, has disputed its liability,
or has made any claim with respect to the Account, to the extent of such setoff, dispute or claim;

 

(viii)      Accounts
with respect to the Account Debtor whose total obligations owing to Borrower exceed 30% of all Eligible Accounts (except as otherwise
provided in Section B of Schedule B), to the extent of the obligations owing by such Account Debtor in excess of
such percentage;

 

(ix)         Accounts
with respect to which the Account Debtor is subject to an Insolvency Proceeding, is not solvent, has gone out of business, or as
to which Borrower has received notice of an imminent Insolvency Proceeding or a material impairment of the financial condition
of such Account Debtor, or whose credit standing is unacceptable to Lender;

 

(x)          Accounts
the collection of which Lender, in its sole and absolute discretion, believes to be doubtful by reason of the Account Debtor’s
financial condition;

 

(xi)         Accounts
not supported by any written contract;

 

(xii)        Accounts
which are in default or collection;

 

(xiii)       Accounts
on C.O.D. terms;

 

(xiv)      Accounts
with respect to which the goods giving rise to such Account have not been shipped and billed to the Account Debtor, the services
giving rise to such Account have not been performed and accepted by the Account Debtor, or the Account otherwise does not represent
a final sale;

 

    	 	3	 

     

    

 

(xv)       Accounts
that are not subject to a valid and perfected first priority Lien in favor of Lender;

 

(xvi)      Accounts
with respect to which the Account Debtor is located in the states of New Jersey, Minnesota, Indiana, or West Virginia (or any other
state that requires a creditor to file a Business Activity Report or similar document in order to bring suit or otherwise enforce
its remedies against such Account Debtor in the courts or through any judicial process of such state), unless Borrower has qualified
to do business in New Jersey, Minnesota, Indiana, West Virginia, or such other states, or has filed a Notice of Business Activities
Report with the applicable division of taxation, the department of revenue, or with such other state offices, as appropriate, for
the then-current year, or is exempt from such filing requirement;

 

(xvii)     Accounts
that represent progress payments or other advance billings that are due prior to the completion of performance by Borrower of the
subject contract for goods or services;

 

(xviii)    Accounts
evidenced by chattel paper or an instrument (as such terms are defined in the UCC) unless such chattel paper or instrument has
been duly assigned and delivered to Lender; and

 

(xix)       Any
other Accounts that Lender in its sole discretion deems ineligible.

 

“Event of
Default” is defined in Section 8.1.

 

“Expenses”
means (i) all reasonable expenses of Lender paid or incurred in connection with their due diligence and investigation of Borrower,
including appraisal, filing, recording, documentation, publication and search fees and other such expenses, and all reasonable
attorneys’ fees and expenses (including reasonable attorneys’ fees incurred pursuant to proceedings arising under the
Bankruptcy Code) incurred in connection with the structuring, negotiation, drafting, preparation, execution and delivery of this
Agreement, the Loan Documents, and any and all other documents, instruments and agreements entered into in connection herewith;
(ii) all reasonable expenses of Lender, including reasonable attorneys’ fees and expenses (including reasonable attorneys’
fees incurred pursuant to proceedings arising under the Bankruptcy Code) paid or incurred in connection with the negotiation, preparation,
execution and delivery of any waiver, forbearance, consent, amendment or addition to this Agreement or any Loan Document, or the
termination hereof and thereof; (iii) all costs or reasonable expenses paid or advanced by Lender which are required to be paid
by Borrower under this Agreement or the Loan Documents, including taxes and insurance premiums of every nature and kind of Lender;
and (iv) if an Event of Default occurs, all expenses paid or incurred by Lender, including reasonable attorneys’ fees and
expenses (including reasonable attorneys’ fees incurred pursuant to proceedings arising under the Bankruptcy Code), costs
of collection, suit, arbitration, judicial reference and other enforcement proceedings, and any other out-of-pocket expenses incurred
in connection therewith or resulting therefrom, whether or not suit is brought, (v) all reasonable expenses paid or incurred by
Lender or in connection with any refinancing or restructuring of the Obligations, any of the Loan Documents, or any other document,
instrument or agreement entered into in connection herewith in the nature of a workout, (vi) the reasonable costs and expenses
incurred if Lender shall hire or pay someone else to help enforce this Agreement and/or the Loan Documents; and (vii) all court
costs and such additional fees as may be directed by the court.

 

“Fees”
means the various fees owing by Borrower to Lender set forth in Section 2.6.

 

“Financing”
is defined in the Recitals to the Agreement.

 

    	 	4	 

     

    

 

“Final Maturity
Date” is defined in Section 9.1.

 

“GAAP”
means generally accepted accounting principles in the United States of America, consistently applied, which are in effect as of
the date of this Agreement.

 

“Governing
Documents” means the certificate or articles or certificate of incorporation, by-laws, articles or certificate of organization,
operating agreement, or other organizational or governing documents of any Person.

 

“Governmental
Authority” means any federal, state, local or other governmental department, commission, board, bureau, agency, central
bank, court, tribunal or other instrumentality or authority or subdivision thereof, domestic or foreign, exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining to government.

 

“Initial Maturity
Date” is defined in Section 9.1 of Schedule B.

 

“Insolvency
Proceeding” means any proceeding commenced by or against any Person, under any provision of the Bankruptcy Code, or under
any other bankruptcy or insolvency law, including, but not limited to, assignments for the benefit of creditors, formal or informal
moratoriums, compositions, or extensions with some or all creditors.

 

“Interest
Rate” is defined in Section 2.7(a) of Schedule B.

 

“Inventory”
is defined in the UCC.

 

“Lender”
is defined in the Preamble.

 

“Lien”
means any mortgage, deed of trust, pledge, security interest, hypothecation, assignment, deposit arrangement or other preferential
arrangement, charge or encumbrance (including, any conditional sale or other title retention agreement, or finance lease) of any
kind.

 

“Line of Credit
Commitment” is defined in Section 2.1 of Schedule B.

 

“Loans”
means the Advances and any other loans or extensions of credit that Lender, in its sole discretion, may determine to provide to
Borrower (each, a “Loan”).

 

“Loan Documents”
means this Agreement, any Guarantees, together with every other agreement, note, document, contract or instrument to which Borrower
now or in the future may be a party and which may be required by Lender in connection with, or as a condition to, the execution
of this Agreement.

 

“Material
Adverse Effect” means a material adverse effect on (i) the business, Assets, condition (financial or otherwise), or results
of operations of Borrower; (ii) the ability of Borrower to perform its obligations under this Agreement and the Loan Documents
to which it is a party (including, without limitation, repayment of the Obligations as they come due), or the ability of any Guarantor
to perform its obligations under the Loan Documents to which it is a party, (iii) the validity or enforceability of this Agreement,
the Loan Documents, or the rights or remedies of Lender hereunder and thereunder, (iv) the value of the Collateral, or (v) the
priority of Lender’s Liens in the Collateral.

 

“Minimum Interest”
is defined in Section 2.7(c) of Schedule B.

 

“Minimum Interest
Rate” is defined in Section 2.7(f) of Schedule B.

 

“Net Amount
of Eligible Accounts” means the gross amount of the Eligible Accounts less returns, discounts, credits or offsets of
any nature.

 

    	 	5	 

     

    

 

“Obligations”
means any and all indebtedness, liabilities, and obligations of Borrower owing to Lender, and to its successors and assigns, previously,
now, or hereafter incurred, and howsoever evidenced, whether direct or indirect, absolute or contingent, joint or several, liquidated
or unliquidated, voluntary or involuntary, due or not due, legal or equitable, whether incurred before, during, or after any Insolvency
Proceeding and whether recovery thereof is or becomes barred by a statute of limitations or is or becomes otherwise unenforceable
or unallowable as claims in any Insolvency Proceeding, together with all interest thereupon (including interest accruing at the
Default Rate) and including any interest that, but for the provisions of the Bankruptcy Code, would have accrued during the pendency
of an Insolvency Proceeding. The Obligations shall include, without limiting the generality of the foregoing, all principal and
interest and other payment obligations owing under the Loans, all Expenses, the Fees, any other fees and expenses due hereunder
and under the Loan Documents (including any fees or expenses that, but for the provisions of the Bankruptcy Code, would have accrued
during the pendency of an Insolvency Proceeding), and all other indebtedness evidenced by this Agreement and/or the Loan Documents.

 

“Overadvance”
is defined in Section 2.2.

 

“Owner”
means each Person having legal or beneficial title to an ownership interest in Borrower, or a right to acquire such an interest.

 

“Permitted
Liens” means (i) Liens for current taxes, assessments or other governmental charges which are not delinquent or remain
payable without any penalty, or are being contested in good faith by appropriate proceedings, provided that, if delinquent, adequate
reserves have been set aside with respect thereto as required by GAAP and, by reason of nonpayment, no property is subject to a
material risk of loss or forfeiture; (ii) Liens in favor of Lender, in accordance with the Loan Documents, (iii) statutory Liens,
such as inchoate mechanics’, inchoate materialmen’s, landlord’s, warehousemen’s, and carriers’ liens,
and other similar liens, other than those described in clause (i) above, arising in the ordinary course of business with respect
to obligations which are not delinquent or are being contested in good faith by appropriate proceedings, provided that, if delinquent,
adequate reserves have been set aside with respect thereto as required by GAAP and, by reason of nonpayment, no property is subject
to a material risk of loss or forfeiture, (iv) a Lien in favor of Bank of the West on Collateral consisting of certain real property
located at 1133 and 1122 N. Hollywood Way, Burbank CA 91505, (v) a Lien in favor of Medley Capital Corporation and Medley Opportunity
Fund II, LP pursuant to that Term Loan Agreement dated as of July 8, 2015, and (vi) Liens pursuant to certain capital lease financing
agreements relating to specific equipment not financed, in whole or in part, by funds loaned or provided by Lender.

 

“Person”
means and includes natural persons, corporations, limited partnerships, general partnerships, limited liability companies, limited
liability partnerships, joint stock companies, joint ventures, associations, companies, trusts, banks, trust companies, land trusts,
business trusts, or other organizations, irrespective of whether they are legal entities, and governments and agencies and political
subdivisions thereof.

 

“Premises”
is defined in Section 3.5(a).

 

“Prime Rate”
means that variable interest rate which is subject to change from time to time based upon changes in the independent index which
is the Prime Rate as published in the Money Rates Section of the Western Edition of the Wall Street Journal (the “Index”).
The Index is not necessarily the lowest rate charged by Lender on its commercial loans. If the Index becomes unavailable during
the term of this loan, Lender may designate a substitute index after notice to Borrower. Lender will advise Borrower of the current
Index rate upon request. The Prime Rate shall be rounded to the closest 1⁄4th of 1% with no adjustments to be made in the
rate for changes of less than 1⁄4th of 1%. All adjustments will be made on the last day of each month based on the highest
Prime Rate announced at any time during that month.

 

    	 	6	 

     

    

 

“Summit Loan
and Security Agreement” is defined in the Recitals to the Agreement.

 

“Tax Distributions”
means distributions declared and paid by Borrower to its Owners, or which could have been declared and paid by Company, in an amount
not to exceed the lesser of 40% of Company’s Pre-Tax Distribution Net Income, determined as at the end of each fiscal year
of Company, or the Pass-Through Tax Liabilities.

 

“Termination
Date” means the date when this Agreement has been terminated and Lender has received the payment, performance and satisfaction
in full in cash of the Obligations.

 

“Total Commitment”
is defined in Section A of Schedule B.

 

“UCC”
means the California Uniform Commercial Code, as amended or supplemented from time to time.

 

“Unused Line
Fee” is defined in Section 2.6(b).

 

“Unused Line
Fee Percentage” is defined in Section 2.6(b) of Schedule B.

 

    	 	7	 

     

    

 

Schedule
B

TO

LOAN AND SECURITY AGREEMENT

 

CERTAIN
CREDIT TERMS

 

    	 	Schedule B
	 

     

    

 

		
        schedule
        B

        to

        AMENDED AND RESTATED

        LOAN AND SECURITY

        AGREEMENT

         

        CERTAIN
        CREDIT TERMS
	POINT.360,

a California corporation, 

as “Borrower”

 

	
        Amended and Restated Loan and

Security
        Agreement Section

         
	Credit Terms
	Section A – Total Commitment	
        $4,000,000

         

	Section B – Exceptions to Concentration Limit:	
        Concentration limits for certain Account Debtors:

        (a) Disney: 50%

        (b) Warner Bros.: 50%

        (c) Twentieth Century Fox: 50%

	Section 2.1 – Line of Credit Commitment:	
        $4,000,000.00

         

	Section 2.1 – Accounts Advance Rate:	
        80% of Eligible Accounts Receivable

         

	Section 2.6(a) – Annual Facility Fee:	
        An amount equal to one-half percent (0.50%) of the Line of Credit
        Commitment as of the Closing Date;

         

        One-half percent (0.50%) of the Line of Credit Commitment upon
        renewal at the first anniversary date after the Closing Date; and

         

        Four-tenths of one percent (0.40%) of the Line of Credit Commitment
        upon renewal at the second anniversary date after the Closing Date and each anniversary date thereafter.

         

	
        Section 2.6(b) – Unused Line Fee Percentage:

         
	0.00%
	
        Section 2.6(d) – Collateral Management Fee Percentage:

         
	Forty-two hundredths of one percent (0.42%)
	Section
    2.6(e) –  Line of Credit Termination and/or Reduction Fees:	
        Two percent (2.00%) if the termination or reduction occurs on
        or before the first anniversary of the Closing Date;

         

        One percent (1.00%) if the termination or reduction occurs after
        the first anniversary of the Closing Date, but on or before the second anniversary of the Closing Date; and

         

        The lesser of (i) One-half percent (0.50%) or (ii) the product
        of the number of months remaining prior to the Final Maturity Date multiplied by the minimum monthly charge.

         

	Section 2.7(a) – Interest Rate: 

                                                                                 
	The Interest Rate for all Advances shall be the sum of the Prime Rate plus one percent (1.0%).

                                                                                 

 

    	1	 

     

    

 

	
        Amended and Restated Loan and

Security
        Agreement Section

         
	Credit Terms
	
        Section 2.7(c) – Minimum Interest:

         
	
        $3,000.00, inclusive of interest and fees earned on the Line
        of Credit.

         

	
        Section 2.7(d) – Clearance Days:

         
	Four (4) Business Days
	
        Section 2.7(f)(i) – Minimum Interest Rate for Advances:

         
	
        Four and one-half percent (4.50%) per annum

         

	Section 5.9 Financial Statements Delivered at Closing:	
        Audited financial statements for its fiscal year ended June
        30, 2015, and Borrower prepared financial statements for the fiscal-year-to-date period ended March 31, 2016.

         

	Section 6.3(f) – Annual Financial Statements:	
        Audited

         

	Section 9.1 – Initial Maturity Date:	
        July 13, 2019

         

         

 

    	2	 

     

    

 

Schedule
C

TO

LOAN AND SECURITY AGREEMENT

 

DISCLOSURE
SCHEDULE

 

    	 	Schedule C
	 

     

    

 

	 	
        schedule
        C

        to

        LOAN AND SECURITY

        AGREEMENT

         

        DISCLOSURE
        SCHEDULE
	POINT.360,

a California corporation, 

as “Borrower

 

Section 5.1 – Legal Status:

 

	Borrower’s Exact

 Legal Name	
        Jurisdiction of

 Organization or Formation

         
	
        Organizational

 Identification

 Number

         
	FEIN
	Point.360	CA	2967825	01-0893376

 

Section 5.2 – Locations of Chief Executive Office, Books
and Records, Collateral:

 

	Location of Borrower’s Chief

 Executive Office	Location of Books and

 Records	
        Other Locations Where

 Collateral is
        Kept

         

	2701 Media Center Drive, Los Angeles, CA 90065	2701 Media Center Drive, Los Angeles, CA 90065	 
	 	1133 N. Hollywood Way, Burbank, CA 91505	 
	 	2300 Empire Avenue, Burbank, CA 91505	 

 

Section 5.3 – Trade Names; Trade Styles:

 

	Trade Names, Fictitious Business Names
	
        Point.360

        Digital Film Labs

        Visual Sound Closed Captioning Services,
        Inc.

        Eden FX

        Movie >Q

        International Video Conversions, Inc.

        DVDs on the Run, Inc.

        Modern VideoFilm

 

Section 5.8 – Indebtedness:

 

	Other Indebtedness
	(a) a debt owed to Bank of the West in the principal amount of $4,716,800, secured by a Lien on Collateral consisting of certain real property located at 1133 and 1122 N. Hollywood Way, Burbank, CA 91505
	(b) a debt not to exceed the sum of a principal amount of $6,000,000.00 and PIK owed to Medley Capital Corporation and Medley Opportunity Fund II, LP pursuant to that Term Loan Agreement dated as of July 8, 2015
	(c) certain debt pursuant to certain capital lease financing agreements relating to leases of or secured by liens encumbering specific equipment financed by such agreements and not financed, in whole or in part, by funds loaned or provided by Lender

 

    	 	1	 

     

    

 

	(d) trade accounts payable of Borrower incurred in the ordinary course of Borrower’s business and consisting of customary terms in the industry and to the extent not secured by a lien or security interest in favor of such credit
	 
	 

 

Section 5.10 – Litigation:

 

	Litigation
	
        POINT.360 vs CA-COLORADO CENTER, LLC

        Los Angeles County Superior Court Case #
        BC595088

	 
	 
	 
	 

 

Section 5.16 – Environmental Condition:

 

	Environmental Condition
	None
	 
	 
	 
	 

 

Section 5.21 – Deposit Accounts:

 

	Bank Name and Address	Account Number(s)
	
        BANK OF THE WEST

        1977 Saturn St., Monterey Park, CA 91755

        ROUTING# 121100782

        SWIFT: BWSTUS66

        POINT.360
	
        ACCT.# 028287375

        ACCT.# 028287474 (payroll)

         

	 	 
	 	 

 

Section 5.22 – Securities and Commodities Accounts:

 

	Brokerage Name and Address	Account Number(s)
	None	 
	 	 
	 	 

 

    	 	2ex10_1.htm

EXHIBIT 10.1

 

STANDSTILL AND VOTING AGREEMENT

 

This Standstill and Voting Agreement (this “Agreement”) dated July 13, 2016 is by and among the persons and entities listed on Schedule A (collectively, the “Kanen Group”, and each individually a “member” of the Kanen Group) and Data I/O Corporation (the “Company”).

 

WHEREAS, the Kanen Group anticipates that it will beneficially own 2,240,000 of the common stock of the Company (the “Common Stock”), which represents approximately 28.35% of the issued and outstanding shares of Common Stock based upon the Company’s Form 10-Q for the quarterly period ending on March 31, 2016, and will reflect such holdings in a Schedule 13D to be filed by members of the Kanen Group with the United States Securities and Exchange Commission (the “SEC”);

 

WHEREAS, the Company’s Board of Directors (the “Board”) have considered the request of the Kanen Group for an exemption under the Company’s Rights Agreement, dated as of April 4, 1998, between the Company and Computershare Inc. (successor-in-interest to Computershare Shareowner Services LLC (f/k/a Mellon Investor Services LLC)), as Rights Agent, as amended (the “Rights Agreement”) such that the anticipated beneficial ownership of greater than 15% of the Common Stock will not trigger the Rights Agreement;

 

NOW, THEREFORE, in consideration of and reliance upon the mutual covenants and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:

 

1.           Rights Agreement Amendment. The Company shall amend the Rights Agreement by adopting Amendment No. 3 to the Rights Agreement in the form attached as Exhibit A hereto.

 

2.           Voting Agreement.

 

(a)           From the date hereof through the termination of this Agreement in accordance with its terms, at every meeting of the shareholders of the Company called with respect to any reason, and at every adjournment thereof, and on every action or approval by written consent of the shareholders of the Company with respect to any reason, the Kanen Group shall vote or consent the Shares (as defined below) (or cause the Shares to be voted or consented) on any matter in the same proportion as all voting securities of the Company (other than the Shares or any other securities beneficially owned by the Kanen Group) are voted on such matter.  In addition to the other covenants and agreements of the Kanen Group provided for elsewhere in this Agreement, from the execution of this Agreement until the termination of this Agreement, the Kanen Group and each member shall not enter into any agreement, arrangement or understanding with any Person (as defined below) to take any action that would be inconsistent with the voting arrangement set forth in the foregoing sentence or that would otherwise have the effect of violating the provisions and agreements contained herein. Section 2 of this Agreement is intended to bind the Kanen Group and each member as shareholder(s) of the Company only with respect to the Shares and only in the manner expressly provided herein. Except as otherwise set forth in this Agreement, the Kanen Group and each member shall not be restricted from voting in favor of, voting against or abstaining with respect to, any other matter presented to the shareholders of the Company at a meeting thereof or in any action by written consent of the shareholders. Notwithstanding the foregoing, the Kanen Group and each member shall not be precluded from voting and exercising all voting and related rights of all securities of the Company then Beneficially Owned by the Kanen Group in respect of an Extraordinary Transaction.

 

(b)           Concurrently with the execution of this Agreement, the Kanen Group agrees to deliver to the Chief Executive Officer and the Chief Financial Officer of the Company a proxy in the form attached hereto as Exhibit B (the “Proxy”) covering the Shares, which shall be irrevocable to the extent provided in the Washington Business Corporation Act; provided, that such Proxy shall be automatically suspended at such time that the Kanen Group files a Schedule 13D with the SEC showing that its Beneficial Ownership is less than 15% of the then outstanding Common Stock; provided further, that

 

 

  

  

  

 

such suspended Proxy shall be automatically reinstated with full force and effect at any time during the term of the Agreement that Beneficial Ownership of the outstanding shares of the Company’s Common Stock by the Kanen Group (together with the Kanen Group’s Affiliates and Associates) equals or exceeds 15% of the then outstanding Common Stock.

 

3.           Standstill.

 

(a)           Each member of the Kanen Group agrees that, during the term of this Agreement, it shall not, and shall cause each of its Affiliates or Associates (as such terms are defined in Rule 12b-2 promulgated by the SEC under the Exchange Act) (collectively and individually, the “Kanen Affiliates”) to not:

 

(i)           (A) make, engage in, or in any way participate in, directly or indirectly, any “solicitation” of proxies (as such terms are used in the proxy rules of the SEC but without regard to the exclusion set forth in Rule 14a-1(l)(2)(iv) of the Exchange Act) or consent to vote or advise, encourage or influence any person with respect to the voting of any securities of the Company or any securities convertible or exchangeable into or exercisable for any such securities (collectively, “securities of the Company”) for the election of individuals to the Board or to approve shareholder proposals, or become a “participant” in any contested “solicitation” for the election of directors with respect to the Company (as such terms are defined or used under the Exchange Act), other than a “solicitation” or acting as a “participant” in support of all of the nominees of the Board at any shareholder meeting or voting its shares at any such meeting in its sole discretion (subject to compliance with this Agreement), (B) make or be a proponent of any shareholder proposal (pursuant to Rule 14a-8 under the Exchange Act or otherwise) or (C) initiate, encourage or participate in any “withhold” or similar campaign, directly or indirectly;

 

(ii)           form, join, encourage, influence, advise or in any way participate in any Group (as such term is defined in Section 13(d)(3) of the Exchange Act) with any persons who are not Kanen Affiliates with respect to any securities of the Company or otherwise in any manner agree, attempt, seek or propose to deposit any securities of the Company in any voting trust or similar arrangement, or subject any securities of the Company to any arrangement or agreement with respect to the voting thereof, except as expressly set forth in this Agreement;

 

(iii)           sell, offer or agree to sell directly or indirectly, through swap or hedging transactions or otherwise, the securities of the Company or any rights decoupled from the underlying securities of the Company held by the Kanen Group or any Kanen Affiliate to any person or entity not a (A) party to this agreement, (B) member of the Board, (C) officer of the Company or (D) a Kanen Affiliate (a “Third Party”) that would knowingly result in such Third Party, together with its affiliates and associates, owning, controlling or otherwise having any beneficial or other ownership interest in the aggregate of more than 4.9% of the shares of Common Stock outstanding at such, except in a transaction approved by the Board;

 

(iv)           effect or seek to effect, offer or propose to effect, cause or participate in, or in any way assist or facilitate any other person to effect or seek, offer or propose to effect or participate in, any tender or exchange offer, merger, consolidation, acquisition, scheme, arrangement, business combination, recapitalization, reorganization, sale or acquisition of material assets, liquidation, dissolution or other extraordinary transaction involving the Company or any of its subsidiaries or joint ventures or any of their respective securities (each, an “Extraordinary Transaction”), or frustrate or seek to frustrate any Extraordinary Transaction proposed or endorsed by the Company, or make any public statement with respect to an Extraordinary Transaction; provided, however, that this clause shall not preclude the (x) tender (or action not to tender) by the Kanen Group or a Kanen Affiliate of any securities of the Company into any tender or exchange offer or (y) vote by the Kanen Group or a Kanen Affiliate of any securities of the Company with respect to any Extraordinary Transaction (in accordance with the terms of this Agreement);

 

 

  

2

  

 

(v)           engage in any short sale or any purchase, sale or grant of any option, warrant, convertible security, stock appreciation right, or other similar right (including any put or call option or “swap” transaction) with respect to any security (other than a broad-based market basket or index) that includes, relates to or derives any significant part of its value from a decline in the market price or value of the securities of the Company;

 

(vi)           (A) call or seek to call any meeting of shareholders, including by written consent, (B) seek representation on, or nominate any candidate to, the Board, (C) seek the removal of any member of the Board, (D) solicit consents from shareholders or otherwise act or seek to act by written consent, or (E) conduct a referendum of shareholders;

 

(vii)           take any action in support of or make any proposal or request that constitutes: (A) controlling, changing or influencing the Board or management of the Company, including any plans or proposals to change the number or term of directors or to fill any vacancies on the Board; (B) any material change in the capitalization, stock repurchase programs and practices, capital or asset allocation programs and practices or dividend policy of the Company; (C) any other material change in the Company’s management, business or corporate structure; (D) seeking to have the Company waive or make amendments or modifications to the Company’s articles of incorporation or the by-laws, or other actions, that may impede or facilitate the acquisition of control of the Company by any person; (E) causing a class of securities of the Company to be delisted from, or to cease to be authorized to be quoted on, any securities exchange; or (F) causing a class of securities of the Company to become eligible for termination of registration pursuant to Section 12(g)(4) of the Exchange Act;

 

(viii)           make any statement or announcement that constitutes an ad hominem attack on, or otherwise disparages or causes to be disparaged, the Company, any of the Company’s Affiliates, or any of the Company’s past, present or future officers or directors appointed during the term of this Agreement;

 

(ix)           other than litigation to enforce the provisions of this Agreement, institute, solicit or assist or join as a party (or threaten to institute, solicit, assist or join as a party), any action, complaint, litigation, arbitration, or similar proceeding against or to which the Company, its Affiliates or any of their respective past, present or future directors, officers or employees appointed during the terms of this agreement (including derivative actions) is a party;

 

(x)           make any public disclosure, announcement or statement regarding any intent, purpose, plan or proposal with respect to the Board, the Company, its management, policies or affairs, any of its securities or assets or this Agreement that is inconsistent with the provisions of this Agreement;

 

(xi)           enter into any discussions, negotiations, agreements or understandings with any Third Party to take any action with respect to any of the foregoing, or advise, assist, knowingly encourage or seek to persuade any Third Party to take any action or make any statement with respect to any of the foregoing, or otherwise take or cause any action or make any statement inconsistent with any of the foregoing;

 

(xii)           take any action that would result in the Kanen Group or any member becoming an Acquiring Person under the Rights Agreement; or

 

(xiii)           request, directly or indirectly, any amendment or waiver of the foregoing.

 

The foregoing provisions of this Section 3(a) shall not be deemed to prohibit the Kanen Group or its directors, officers, partners, employees, members or agents (acting in such capacity)

 

  

3

  

(“Representatives”) from communicating privately with, or from privately requesting a waiver of any of the foregoing provisions of this Section 3(a) from, the Company’s directors or officers, so long as such communications or requests are not intended to, and would not reasonably be expected to, require any public disclosure of such communications or requests. Each member of the Kanen Group further agrees that the foregoing provisions shall apply, mutatis mutandis, with respect to (x) any and all of the Company’s subsidiaries and (y) any and all other entities in which the Company, to the knowledge of the Kanen Group, directly or indirectly, beneficially owns at least 20% of the outstanding capital stock, in each case to the same extent as such provisions apply with respect to the Company.

 

4.           Definitions.

 

(a)           “Beneficially Own”, “Beneficially Owned” or “Beneficial Ownership” shall have the meaning set forth in Rule 13d-3 of the rules and regulations promulgated under the Exchange Act,

 

(b)           “Change of Control” shall mean the occurrence of any of the following events: (i) there occurs a sale, transfer, conveyance or other disposition of all or substantially all of the consolidated assets of the Company, (ii) any Person or “group” (as such term is used in Section 13 of the Exchange Act) (in each case excluding (x) any member of the Kanen Group or any of their respective Affiliates and (y) any group arising solely by reason of this Agreement), directly or indirectly, obtains beneficial ownership of 50% or more of the outstanding Company Common Stock, (iii) the Company consummates any merger, consolidation or similar transaction, unless the shareholders of the Company immediately prior to the consummation of such transaction continue to hold (in substantially the same proportion as their ownership of the Common Stock immediately prior to the transaction, other than changes in proportionality as a result of any cash/stock election provided under the terms of the definitive agreement regarding such transaction) more than 50% of all of the voting power of the outstanding shares of Common Stock (and any other class of voting stock) of the surviving or resulting entity in such transaction immediately following the consummation of such transaction.

 

(c)           “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

 

(d)           “Person” shall mean any individual, firm, corporation, partnership, limited liability company, limited liability partnership, trust or other legal entity, group of persons making a “coordinated acquisition” of shares, and includes any successor (by merger or otherwise) of such individual or entity.

 

(e)           “Shares” shall mean, with respect to the Kanen Group, (i) all shares of Common Stock held beneficially or of record by the Kanen Group (together with the Kanen Group’s Affiliates and Associates), in excess of 15% of the Common Stock outstanding as of the record date of the applicable vote or action by written consent of the Company’s shareholders and (ii) any shares of capital stock of the Company other than Common Stock, or other securities of the Company having voting power generally, that the Kanen Group (together with Kanen Group’s Affiliates and Associates) purchases or with respect to which the Kanen Group otherwise acquires record or beneficial ownership after the date of this Agreement.

 

(f)           “Transfer” means, with respect to any share of Common Stock (or direct or indirect economic or other interest therein), a transfer, sale, assignment, pledge, hypothecation or other disposition, whether directly or indirectly (pursuant to the creation of a derivative security or otherwise), the grant of an option or other right or the imposition of a restriction on disposition or voting or by operation of law.

 

5.           Representations of the Company. The Company represents and warrants to the Kanen Group as follows: (a) the Company has the power and authority to execute, deliver and carry out the terms and provisions of this Agreement and to consummate the transactions contemplated hereby; and (b)

 

  

4

  

this Agreement has been duly and validly authorized, executed and delivered by the Company, constitutes a valid and binding obligation and agreement of the Company and is enforceable against the Company in accordance with its terms.

 

6.           Representations and Covenants of the Kanen Group. The Kanen Group, jointly and severally, represent and warrant to the Company as follows: (i) each member of the Kanen Group that is an entity is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, (ii) each member of the Kanen Group has the requisite power and authority to execute, deliver and carry out the terms and provisions of this Agreement and to consummate the transactions contemplated hereby; (iii) this Agreement has been duly and validly authorized, executed and delivered by each member of the Kanen Group, constitutes a valid and binding obligation and agreement of each member of the Kanen Group and is enforceable against each member of the Kanen Group in accordance with its terms; (iv) the Kanen Group, together with the Kanen Affiliates, anticipates that it will beneficially own, directly or indirectly, an aggregate of 2,240,000 shares of Common Stock and such shares of Common Stock will constitute all of the Common Stock beneficially owned by the Kanen Group and the Kanen Affiliates or in which the Kanen Group or the Kanen Affiliates have any interest or right to acquire, whether through derivative securities, voting agreements or otherwise; (v) the Kanen Group shall inform any party with shared voting or dispositive power over such securities of the terms of this Agreement; and (vi) as of the date of this Agreement, the Kanen Group beneficially owns less than 15% of the outstanding Common Stock.

 

	
  

	
7.

	
Suspension and Termination.

 

(a)           Notwithstanding the foregoing, Sections 2 and 3 of this Agreement shall be automatically suspended at such time that the Company enters into a definitive agreement providing for a Change of Control (a “Change of Control Agreement”); provided, however, that upon public announcement of the termination of the Change of Control Agreement by any party thereto, Sections 2 and 3 of this Agreement shall be automatically reinstated with full force and effect for the remainder of the term of this Agreement, unless further suspended or unless this Agreement is otherwise terminated pursuant to Section 7(b).

 

(b)           This Agreement is effective as of the date hereof and shall remain in full force and effect until the earlier of (i) the mutual written agreement of the Kanen Group and the Company, (ii) the second anniversary of the date of this Agreement or (iii) upon consummation of a Change of Control.

 

(c)           Pursuant to the provisions of this Section 7(c), Sections 9 through 16 shall survive the termination of this Agreement. No termination pursuant to Section 7(b) shall relieve any party hereto from liability for any breach of this Agreement prior to such termination.

 

	
  

	
8.

	
Public Announcement.

 

(a)           The Company shall file promptly a Form 8-K (the “Form 8-K”) reporting entry into this Agreement and appending or incorporating by reference this Agreement as an exhibit thereto.

 

(b)           The Kanen Group shall promptly, but in no case prior to the date of the filing of the Form 8-K by the Company pursuant to Section 6(a) hereof, prepare and file a Schedule 13D with respect to the Company reporting the beneficial ownership reflected in this Agreement and entry into this Agreement and amending the applicable items to conform to the obligations hereunder.

 

(c)           The parties shall mutually agree to a summary description of this Agreement which shall be used to describe this Agreement in both the Company’s Form 8-K and the Kanen Group’s Schedule 13D. The Kanen Group and Kanen Affiliates shall provide the Company with reasonable

 

  

5

  

 

opportunity to review and comment upon the Schedule 13D prior to filing, and shall consider in good faith any changes proposed by the Company.

 

(d)           The Company shall promptly issue a press release to be mutually agreed with the Kanen Group in connection with this Agreement.

 

(e)           None of the Kanen Group or the Kanen Affiliates shall (i) issue a press release in connection with this Agreement or the actions contemplated hereby or (ii) except as contemplated by Section 8(d), otherwise make any public statement, disclosure or announcement with respect to this Agreement or the actions contemplated hereby, other than as mutually agreed to by the Company and the Kanen Group.

 

9.           Miscellaneous. The parties agree that irreparable damage could occur in the event any of the provisions of this Agreement were not performed in accordance with the terms hereof and that such damage may not be adequately compensable in monetary damages. Accordingly, the parties hereto shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement exclusively in the federal or state courts of the State of Washington, in addition to any other remedies at law or in equity, and each party agrees it will not take any action, directly or indirectly, in opposition to another party seeking relief. Each of the parties hereto agrees to waive any bonding requirement under any applicable law, in the case any other party seeks to enforce the terms by way of equitable relief. Furthermore, each of the parties hereto (a) consents to submit itself to the personal jurisdiction of such federal or state courts of the State of Washington in the event any dispute arises out of this Agreement or the transactions contemplated by this Agreement, (b) agrees that it shall not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from any such court, (c) agrees that it shall not bring any action relating to this Agreement or the transactions contemplated by this Agreement in any court other than such federal or state courts of the State of Washington, and each of the parties irrevocably waives the right to trial by jury, and (d) each of the parties irrevocably consents to service of process by a reputable overnight mail delivery service, signature requested, to the address set forth in Section 12 hereof or as otherwise provided by applicable law. THIS AGREEMENT SHALL BE GOVERNED IN ALL RESPECTS, INCLUDING VALIDITY, INTERPRETATION AND EFFECT, BY THE LAWS OF THE STATE OF WASHINGTON APPLICABLE TO CONTRACTS EXECUTED AND TO BE PERFORMED WHOLLY WITHIN SUCH STATE WITHOUT GIVING EFFECT TO ANY CONFLICT OR CHOICE OF LAW PRINCIPLES THAT MAY RESULT IN THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION.

 

10.           Expenses. All attorneys’ fees, costs and expenses incurred in connection with this Agreement and all matters related hereto will be paid by the party incurring such fees, costs or expenses.

 

11.           Entire Agreement; Amendment. This Agreement and the Rights Agreement Amendment contain the entire agreement and understanding of the parties with respect to the subject matter hereof and supersede any and all prior and contemporaneous agreements, memoranda, arrangements and understandings, both written and oral, between the parties, or any of them, with respect to the subject matter hereof. This Agreement may be amended only by an agreement in writing executed by the parties hereto, and no waiver of compliance with any provision or condition of this Agreement and no consent provided for in this Agreement shall be effective unless evidenced by a written instrument executed by the party against whom such waiver or consent is to be effective. No failure or delay by a party in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any right, power or privilege hereunder.

 

12.           Notices. All notices, consents, requests, instructions, approvals and other communications provided for herein and all legal process in regard hereto shall be in writing and shall be

 

  

6

  

deemed validly given, made or served, if (a) delivered in person or sent by overnight courier, when actually received during normal business hours at the address specified in this subsection, or (b) if given by e-mail, when such e-mail is transmitted to the e-mail address set forth below and the appropriate confirmation is received:

 

	
  

	
if to the Company:

	
Data I/O Corporation

	
  

	
6645 185th Ave. N.E., Suite 100

	
  

	
Redmond, WA 98052

	
  

	
Attention: Chief Financial Officer

	
  

	
With a copy to the General Counsel of Data I/O Corporation at the same address

 

	
  

	
if to the Kanen Group:

	
Kanen Wealth Management LLC

	
  

	
10141 Sweet Bay Ct.

	
  

	
Parkland, Florida 33076

	
  

	
Attention: David Kanen

 

13.           Severability. If at any time subsequent to the date hereof, any provision of this Agreement shall be held by any court of competent jurisdiction to be illegal, void or unenforceable, such provision shall be of no force and effect, but the illegality or unenforceability of such provision shall have no effect upon the legality or enforceability of any other provision of this Agreement.

 

14.           Counterparts. This Agreement may be executed in two or more counterparts either manually or by electronic or digital signature (including by facsimile or electronic mail transmission), each of which shall be deemed to be an original and all of which together shall constitute a single binding agreement on the parties, notwithstanding that not all parties are signatories to the same counterpart.

 

15.           No Third Party Beneficiaries; Assignment. This Agreement is solely for the benefit of the parties hereto and is not binding upon or enforceable by any other persons. No party to this Agreement may assign its rights or delegate its obligations under this Agreement, whether by operation of law or otherwise, and any assignment in contravention hereof shall be null and void. Nothing in this Agreement, whether express or implied, is intended to or shall confer any rights, benefits or remedies under or by reason of this Agreement on any persons other than the parties hereto, nor is anything in this Agreement intended to relieve or discharge the obligation or liability of any third persons to any party.

 

16.           Interpretation and Construction. When a reference is made in this Agreement to a Section, such reference shall be to a Section of this Agreement, unless otherwise indicated. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words “include,” “includes” and “including” are used in this Agreement, they shall be deemed to be followed by the words “without limitation.” The words “hereof, “herein” and “hereunder” and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. The word “will” shall be construed to have the same meaning as the word “shall.” The words “dates hereof” will refer to the date of this Agreement. The word “or” is not exclusive. The definitions contained in this Agreement are applicable to the singular as well as the plural forms of such terms. Any agreement, instrument, law, rule or statute defined or referred to herein means, unless otherwise indicated, such agreement, instrument, law, rule or statute as from time to time amended, modified or supplemented. Each of the parties hereto acknowledges that it has been represented by counsel of its choice throughout all negotiations that have preceded the execution of this Agreement, and that it has executed the same with the advice of said independent counsel. Each party cooperated and participated in the drafting and preparation of this Agreement and the documents referred to herein, and any and all drafts relating thereto exchanged among the parties shall be deemed the work product of all of the parties and may not be construed against any party by reason of its drafting or preparation. Accordingly, any rule of law or any legal decision that would require interpretation of any ambiguities in this Agreement against any party that drafted or

 

  

7

  

prepared it is of no application and is hereby expressly waived by each of the parties hereto, and any controversy over interpretations of this Agreement shall be decided without regards to events of drafting or preparation.

 

[Signature Pages Follow]

 

  

8

  

IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement, or caused the same to be executed by its duly authorized representative as of the date first above written.

 

 

DATA I/O CORPORATION

 

 

 

By: /s/ Anthony Ambrose                                                                                     

Name:  Anthony Ambrose

Title:  President & CEO

 

By: /s/ David Kanen                                                                                               

David Kanen

 

KANEN WEALTH MANAGEMENT LLC

 

 

By: /s/ David Kanen                                                                                               

Name:  David Kanen

Title:  President

 

  

  

  

Schedule A

 

Members of Kanen Group

 

DAVID KANEN

 

KANEN WEALTH MANAGEMENT LLC

 

  

  

  

Exhibit A

 

Form of Rights Agreement Amendment

 

 

  

  

  

 

AMENDMENT NO. 3 TO RIGHTS AGREEMENT

 

THIS AMENDMENT NO. 3 TO RIGHTS AGREEMENT (this “Amendment") is made as of July 13, 2016, by and between Data I/O Corporation, a Washington corporation (the "Corporation"), and Computershare Inc. (successor-in-interest to Computershare Shareowner Services LLC (f/k/a Mellon Investor Services LLC)), a Delaware corporation (the “Rights Agent”), with respect to the following facts and circumstances.

 

WHEREAS, the Corporation and the Rights Agent entered into a rights agreement dated as of April 4, 1998, as amended by that certain Amendment No. 1 to Rights Agreement dated as of February 9, 1999, and as further amended by that certain Amendment No. 2 to Rights Agreement dated as of April 3, 2008 (collectively, the “Rights Agreement”);

 

WHEREAS, the Corporation and the Rights Agent desire to further amend the Rights Agreement on the terms and conditions set forth below;

 

WHEREAS, the Corporation hereby certifies to the Rights Agent that this Amendment is in compliance with the terms of Section 25.2 of the Rights Agreement; and

 

WHEREAS, all capitalized terms used and not defined in this Amendment shall have the respective meanings assigned to them in the Rights Agreement.

 

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

 

1.  Amendment to Name of Rights Agent.  The Rights Agreement is hereby amended by deleting each reference to “Mellon Investor Services LLC” and replacing each such reference with “Computershare Inc.”.

 

2. Amendment to Section 25.1.1. Section 25.1.1 of the Rights Agreement is hereby amended by deleting the Notices address and replacing it with the following address:

 

Data I/O Corporation

6645 185th Ave. N.E., Suite 100

Redmond, WA 98052

 

3. Amendment to Section 25.1.2. Section 25.1.2 of the Rights Agreement is hereby amended by deleting the Notices address and replacing it with the following address:

 

Computershare Inc.

P.O. Box 30170

College Station, TX 77842-3170

with overnight notification to:

Computershare Inc.

211 Quality Circle, Suite 210

College Station, TX 77845

4.  The definition of "Acquiring Person" set forth in Section 1.1 of the Rights Agreement is hereby amended by the deletion of the period that currently appears at the end of said Section 1.1, the 

 

 

  

  

  

 

replacement of such period with a semicolon and the addition of the following words after such semicolon:

 

"; and further provided, that none of David Kanen, and Kanen Wealth Management LLC (together the "Kanen Parties"), shall be treated for any purpose of this Agreement as an Acquiring Person unless and until any one or more of the Kanen Parties, individually or in the aggregate with any one or more of the other Kanen Parties, Beneficially Owns at least 28.5% of the then outstanding shares of Common Stock, it being expressly intended, however, that (i) each of the Kanen Parties shall be deemed an Acquiring Person in the event that any Kanen Party Beneficially Owns any other shares of Common Stock, which other shares, when aggregated with any shares of Common Stock Beneficially Owned by any of the Kanen Parties, represent 28.5% or more of the then outstanding Common Stock and (ii) the foregoing exception to the general definition of the term "Acquiring Person" set forth in this Agreement is exclusively for the benefit of the Kanen Parties and any determination  regarding the status of any other Person as an Acquiring Person for any purpose of this Agreement shall be made without reference to such exception.”.

 

5.  Except as specifically modified by this Amendment, the Rights Agreement shall remain in full force and effect in all respects.

 

6. This Amendment may be executed by the parties hereto in one or more counterparts, all of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument.  A signature to this Amendment executed and/or transmitted electronically shall have the same authority, effect, and enforceability as an original signature.

 

7.  This Amendment shall be deemed to be a contract made under the laws of the State of Washington and for all purposes shall be governed by and construed in accordance with the laws of such State applicable to contracts to be made and performed entirely within such State; provided, however, that all provisions regarding the rights, duties, liabilities and obligations of the Rights Agent shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed entirely within such State.

 

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and attested, all as of the date and year first above written.

 

DATA I/O CORPORATION

 

	  	  	  
	
By:

	  	

/s/ Anthony Ambrose

	
Name:

	  	
Anthony Ambrose

	
Title:

	  	
President & CEO

 

COMPUTERSHARE INC., as Rights Agent

 

	  	  	  
	
By:

	  	

/s/ Joseph S. Campbell

	
Name:

	  	
Joseph S. Campbell

	
Title:

	  	
Vice President

 

  

  

  

Exhibit B

IRREVOCABLE PROXY TO VOTE STOCK OF DATA I/O CORPORATION

 

	
1.

	
The undersigned shareholder of Data I/O Corporation, a Washington corporation (the “Company”), hereby irrevocably (to the full extent permitted by the Washington Business Corporation Act) appoints the Chief Executive Officer and Chief Financial Officer of the Company, and each of them, as the sole and exclusive proxies of the undersigned, with full power of substitution and resubstitution, to vote and exercise all voting and related rights (to the full extent that the undersigned is entitled to do so) with respect to the Shares (as defined in the Standstill and Voting Agreement, dated as of July 13, 2016 (the “Standstill and Voting Agreement”)), by and among the Company and the undersigned in accordance with the terms of this Proxy. Upon the undersigned’s execution of this Proxy, any and all prior proxies given by the undersigned with respect to any Shares are hereby revoked and the undersigned agrees not to grant any subsequent proxies with respect to the Shares until the termination of the Standstill and Voting Agreement.

 

	
2.

	
This Proxy is coupled with an interest, is irrevocable (to the extent permitted by the Washington Business Corporation Act), is granted pursuant to the Standstill and Voting Agreement and is granted in exchange for valid consideration.

 

	
3.

	
The proxies named above, and each of them, are hereby authorized and empowered by the undersigned, at any time prior to the termination of the Standstill and Voting Agreement, to act as the undersigned’s proxy to vote the Shares, and to exercise all voting rights of the undersigned with respect to the Shares (including, without limitation, the power to execute and deliver written consents pursuant to the Washington Business Corporation Act), at every annual, special, adjourned or postponed meeting of the shareholders of the Company and in every written consent in lieu of such meeting in the manner provided in the Standstill and Voting Agreement.

 

	
4.

	
Notwithstanding the foregoing, the undersigned shall not be precluded from voting and exercising all voting and related rights of all securities of the Company then Beneficially Owned by the Kanen Group in respect of an Extraordinary Transaction.  Further:

 

	
  

	
a)

	
This Proxy shall be automatically suspended at such time that the undersigned file a Schedule 13D with the U.S. Securities and Exchange Commission showing that their Beneficial Ownership of the outstanding shares of the Company’s common stock is less than 15%; provided, that such suspended Proxy shall be automatically reinstated with full force and effect at any time during the term of the Standstill and Voting Agreement that Beneficial Ownership of the outstanding shares of the Company’s common stock by the undersigned (together with the undersigned’s affiliates and associates) equals or exceeds 15% of the then outstanding common stock.

 

	
  

	
b)

	
This Proxy shall be automatically suspended at such time that the Company enters into a definitive agreement providing for a Change of Control; provided, however, that upon public announcement of the termination of the Change of Control Agreement by any party thereto, this Proxy shall be automatically reinstated with full force and effect for the remainder of the term of the Standstill and Voting Agreement, unless further suspended or unless the Standstill and Voting Agreement is otherwise terminated pursuant to Section 7(b) therein.

 

	
5.

	
All capitalized terms used but not defined herein shall have the meanings set forth in the Standstill and Voting Agreement.

 

	
6.

	
This Proxy shall automatically terminate and be of no further force and effect upon the termination of the Standstill and Voting Agreement.

 

 

  

  

  

 

	
7.

	
Any obligation of the undersigned hereunder shall be binding upon the successors and assigns of the undersigned.

(Remainder of page intentionally left blank.  Signature page to follow)

  

  

  

 

By: /s/ David Kanen                                                                                                  

David Kanen

 

 

KANEN WEALTH MANAGEMENT LLC

 

By: /s/ David Kanen                                                                                                  

Name:  David Kanen

Title:  President

Dated: July 13, 2016

(Signature Page to Irrevocable Proxy to Vote Stock of Data I/O Corporation)

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