-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GZui4TR+Vqf6KOmpXTBFb7vxbj269hmCCvh0+IStOXmOHPt17ax/d4AfjuW/R4eG p+yABYZiS+yrjfQ16GgRvw== 0001047469-98-042797.txt : 19981204 0001047469-98-042797.hdr.sgml : 19981204 ACCESSION NUMBER: 0001047469-98-042797 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19981117 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19981202 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VDI MEDIA CENTRAL INDEX KEY: 0001014733 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MOTION PICTURE & VIDEO TAPE PRODUCTION [7812] IRS NUMBER: 954272619 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 000-21917 FILM NUMBER: 98763112 BUSINESS ADDRESS: STREET 1: 6920 SUNSET BOULEVARD CITY: HOLLYWOOD STATE: CA ZIP: 90028 BUSINESS PHONE: 2139575500 MAIL ADDRESS: STREET 1: 6920 SUNSET BLVD CITY: HOLLYWOOD STATE: CA ZIP: 90028 8-K 1 FORM 8-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) NOVEMBER 17, 1998 VDI MEDIA (Exact Name of Registrant as Specified in its Charter) CALIFORNIA 0-21917 95-4272619 (State or Other Jurisdiction (Commission (I.R.S. Employer of Incorporation) File Number) Identification No.)
6920 SUNSET BOULEVARD HOLLYWOOD, CALIFORNIA 90028 (Address of Principal Executive Offices) (Zip Code) (213) 957-5500 Registrant's telephone number, including area code ITEM 2. ACQUISITION OF ASSETS On November 17, 1998 VDI Media (the "Company") consummated an Asset Purchase Agreement (the "Agreement"), dated as of November 9, 1998, with DUBS Incorporated (the "Seller") and the Seller's shareholders. Pursuant to the Agreement, the Company purchased substantially all of the assets of the Seller, including all of the business, properties, assets and rights of any kind, whether tangible or intangible, real or personal, owned by the Seller or in which the Seller has any interest on the closing date. The Seller provides technical media services (including the duplication and distribution of broadcast quality video tapes) primarily to owners, independent producers and distributors of television programming, feature films and other entertainment content, which business the Company intends to continue. The purchase price for this acquisition consisted of (i) a cash payment of approximately $6.9 million (of which $1.5 million was held back to secure any required post-closing purchase price adjustments), (ii) the assumption of the Seller's trade payables, and (iii) the repayment of approximately $4.0 million of the Seller's long term debt. In addition, the Company may be required to make a contingent earn-out payment (payable in shares of its common stock) if the acquired business achieves specified EBITDA targets, subject to certain limitations described in the Agreement (up to a maximum contingent payment of $3.3 million worth of common stock, valued generally as of the closing date). The Company paid the cash and repaid indebtedness portion of the purchase price from the proceeds of its amended and restated credit agreement with Union Bank of California, N.A., as Agent, which it entered into on November 17,1998. The description of the Agreement contained herein, which does not purport to be complete, is qualified in its entirety by reference to the Agreement, which is attached as an exhibit hereto. ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS (a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED. Financial statements relating to this purchase are not currently available. To the extent required, the Company intends to file such financial statements by an amendment to this Current Report on Form 8-K within 60 days of the date of the filing of this Report. (b) PRO FORMA FINANCIAL INFORMATION. Pro forma financial information relating to this purchase is not currently available. To the extent required, the Company intends to file such pro forma financial information by an amendment to this Current Report on Form 8-K within 60 days of the date of the filing of this report. (c) EXHIBITS -2- 10.19 Asset Purchase Agreement, dated as of November 9, 1998, by and between VDI Media, DUBS Incorporated, Vince Lyons and Barbara Lyons. 10.20 Amended and Restated Credit Agreement, dated as of November 17, 1998, by and between VDI Media, as Borrower, Fast Forward, Inc. and Multi-Media Services as Guarantors, and Union Bank of California, N.A., as Agent.
-3- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. VDI MEDIA Date: December 2, 1998 /s/ Donald R. Stine ------------------------------------- Donald R. Stine Chief Financial Officer and Treasurer -4- EX-10.19 2 EXHIBIT 10.19 ASSET PURCHASE AGREEMENT Dated as of November 9, 1998 by and among VDI MEDIA, as Purchaser and DUBS, INCORPORATED, VINCENT LYONS AND BARBARA LYONS, as Sellers Execution Copy ASSET PURCHASE AGREEMENT THIS ASSET PURCHASE AGREEMENT (this "Agreement") is made and entered into as of November 9, 1998, by and among VDI Media, a California corporation ("Purchaser"), DUBS Incorporated, a California corporation (the "Company"), Vincent Lyons and Barbara Lyons (each a "Shareholder" and collectively, the "Shareholders") (the Shareholders and the Company each a "Seller" and collectively, the "Sellers"). R E C I T A L S A. The Shareholders are the only record holders and beneficial owners of the capital stock of the Company. B. The Company is the owner of the Assets (as hereinafter defined). C. Purchaser desires to purchase from the Company, and the Company desires to sell, convey, transfer, assign and deliver to Purchaser, the Assets of the Company upon the terms and subject to the conditions of this Agreement. A G R E E M E N T NOW, THEREFORE, in consideration of the foregoing and the provisions set forth below, and subject to the terms and conditions set forth herein, the parties agree as follows: ARTICLE I DEFINITIONS As used in this Agreement, the following terms shall have the meanings indicated below: "ACCOUNTS RECEIVABLE" shall have the meaning set forth in Section 5.10. "ACTION" shall mean any action, claim, suit, litigation, proceeding, labor dispute, arbitral action, governmental audit, inquiry, criminal prosecution, investigation or unfair labor practice charge or complaint. "AFFILIATE" shall mean, in respect of any specified Person, any other Person that, directly or indirectly, controls, is controlled by, or is under common control with, such specified Person or if such specified Person bears a familial relationship with such other Person. "AFFILIATED PARTIES" shall have the meaning set forth in Section 11.2. "AGREEMENT" shall have the meaning set forth in the Preamble. "AGREEMENT NOT TO COMPETE" shall mean the agreement in the form attached hereto as Exhibit C. "ANCILLARY AGREEMENTS" shall mean the Employment Agreement, the Agreement Not to Compete, the Bill of Sale, the Assignment and Assumption of Leases, the Assignment and Assumption of Personal Property Leases, the Assignment and Assumption of Contracts, the Assignment of Business Name, the Release of Encumbrances, the Shareholder Release and the Assumption of Liabilities substantially in the forms attached hereto as Exhibits A, B, C, D, E, F, G, H, and I respectively. "ASSETS" shall mean all of the right, title and interest in and to all of the business, properties, assets and rights of any kind, whether tangible or intangible, real or personal, owned by the Company or in which the Company has any interest on the Closing Date, excluding the Excluded Assets and any asset in which a customer of the Company has an ownership or possessory interest (to the extent of such ownership or possessory interest), but including without limitation all of the Company's right, title and interest in the following: (1) all accounts and notes receivable and contingent rights relating thereto (whether current or noncurrent), cash-on-hand, refunds, deposits, advances, advance payments, prepaid expense items and credits, prepayments or prepaid expenses and all other receivables; (2) all Contract Rights (to the extent assignable and consistent with Section 7.18 hereof); (3) all Leases and Leasehold Estates and Personal Property Leases; (4) all Leasehold Improvements; (5) all Fixtures and Equipment; (6) all Inventory; (7) all Books and Records; (8) all Proprietary Rights; (9) all Permits (to the extent assignable to Purchaser); (10) all computers and software; (11) all Insurance Policies and rights thereunder, including rights to insurance proceeds (to the extent assignable to Purchaser), but only in connection with the Assumed Liabilities, the Assets and the Business or (ii) occurrences or events arising on or after the Closing for which the Sellers have no indemnification obligation pursuant to Article XI. 3 (12) all supplies, sales literature, promotional literature, customer, supplier and distributor lists, art work, display units, telephone and fax numbers and purchasing records related to the Business; (13) all rights under or pursuant to all warranties, representations and guarantees made by suppliers in connection with products or services furnished to the Company in connection with (i) the Assumed Liabilities or the Assets or (ii) events or occurrences arising on or after the Closing; (14) all claims, causes of action, choses in action, rights of recovery and rights of set-off of any kind related to the Assets or the Assumed Liabilities, against any person or entity, including without limitation any liens, security interests, pledges or other rights to payment or to enforce payment in connection with products delivered or services provided by the Company on or prior to the Closing Date, except to the extent that any of the foregoing relate to the Excluded Assets or the Excluded Liabilities; and (15) all of the Business as a going concern and the goodwill pertaining thereto. "ASSIGNED CONTRACT" shall mean those Contracts of the Company identified on Schedule 1 hereto, which, by their terms, are assignable to the Purchaser without the consent of the other contracting party and any other Contract which is assigned to Purchaser in writing following the Closing with the consent of the other contracting party. "ASSUMED LIABILITIES" shall have the meaning set forth in Section 2.3. "ASSUMPTION AGREEMENT" shall have the meaning set forth in Section 4.2(b). ""AUDIT"" shall have the meaning set forth in Section 3.1(b). "AUDITED CLOSING BALANCE SHEET" shall have the meaning set forth in Section 3.1(b). "BALANCE SHEET" or "BALANCE SHEETS" shall have the meaning set forth in Section 5.7(a). "BILL OF SALE" shall have the meaning set forth in Section 4.2(a)(3). "BOOKS AND RECORDS" shall mean correct and complete copies of (a) all records, files and lists of each Seller pertaining to the Assets, (b) all records and lists pertaining to the Business, customers, suppliers, vendors, clients or personnel of the Company, (c) all product, business and marketing plans of the Company, (d) all books, ledgers, files, reports, plans, drawings, merchandise and sales promotion literature and promotional and advertising materials, all catalogues, research material, management information systems, software, technology and specifications and operating records of every kind maintained by the Company and (e) the Company's minute books, stock books, books of account and tax returns, but only to the extent reasonably necessary or appropriate in order for Purchaser to operate the Business, to benefit from the ownership of the Assets, to discharge the Assumed Liabilities or to enforce its rights with respect to the foregoing and pursuant to this Agreement. 4 "BUSINESS" shall mean the business of the Company, including video and audio tape storage, post-production, duplication, distribution (including physical, satellite and fiber optic means of distribution), editing, telecine, color correction, audio sweetening and layback and ancillary services. "CASH PAYMENT" shall mean have the meaning set forth in Section 2.5. "CLOSING" shall have the meaning set forth in Section 4.1. "CLOSING DATE" shall mean (a) November __, 1998 or (b) such other date as Purchaser and the Sellers shall mutually agree upon. "COBRA" shall have the meaning set forth in Section 5.15(e). "CODE" shall mean the Internal Revenue Code of 1986, as amended. "COMPANY" shall have the meaning set forth in the Preamble. "CONTRACT" shall mean, other than any Lease or Personal Property Lease, any agreement, contract, note, loan, evidence of indebtedness, purchase order, undertaking, obligation or commitment to which the Company is a party or is bound and which relates to the Business or the Assets, whether oral or written, including, without limitation, purchase commitments for materials and other services, whether or not entered into in the ordinary course of business, relating to the Business, any Company's rights under any confidentiality agreements relating to the Business (if and to the extent assignable), all unfilled sales orders, invoices, contracts and commitments with customers relating to the Business, all unfilled purchase orders, invoices, contracts and commitments with suppliers relating to the Business. "CONTRACT RIGHTS" shall mean all of the Company's rights and obligations under the Contracts, excluding any such Contracts evidencing Financing Obligations which do not constitute Assumed Liabilities. "COPYRIGHTS" shall mean registered copyrights, copyright applications and unregistered copyrights. "COURT ORDER" shall mean any judgment, decision, consent decree, injunction, ruling or order of any federal, state or local court or governmental agency, department or authority that is binding on any person or its property under applicable law. "DEFAULT" shall mean (a) a breach of or default under any Contract, Lease or Permit, (b) the occurrence of an event that with the passage of time or the giving of notice or both would constitute a breach of or default under any Contract, Lease or Permit, or (c) the occurrence of an event that with or without the passage of time or the giving of notice or both would give rise to a right of termination, renegotiation or acceleration under any Contract, Lease or Permit. 5 "DISCLOSURE SCHEDULE" shall mean the schedule delivered by the Company to Purchaser as of the date hereof which sets forth the exceptions to the representations and warranties contained in Article V hereof and certain other information called for by this Agreement. Unless otherwise specified, each reference in this Agreement to any numbered schedule is a reference to that numbered schedule which is included in the Disclosure Schedule. "DISCONTINUED OPERATIONS" shall mean any businesses or operations previously sold or otherwise disposed of by any of the Sellers and any ongoing indemnification obligations in connection therewith. "EARN-OUT PERIOD" shall mean the period commencing on the first day of the second full calendar month following the Closing and ending on the first anniversary of such date. "EARN-OUT STOCK"shall have the meaning set forth in Section 2.5(a)(iii). "EMPLOYMENT AGREEMENT" shall mean the employment agreement between Purchaser and Vincent Lyons, dated the Closing Date, and substantially in the form of attached hereto as Exhibit A. "ENCUMBRANCE" shall mean any claim, lien, pledge, option, charge, easement, security interest, deed of trust, mortgage, right-of-way, encroachment, building or use restriction, conditional sales agreement, encumbrance or other right of third parties, whether voluntarily incurred or arising by operation of law, and includes, without limitation, any agreement to give any of the foregoing in the future, and any contingent sale or other title retention agreement or lease in the nature thereof. "ENVIRONMENTAL LIABILITIES FOR PRE-CLOSING MATTERS" shall mean any and all liabilities, damages, losses, costs and expenses arising from any Pre-Closing Environmental Matters, including, without limitation, costs of investigation, cleanup, removal, remedial, corrective or response action, the costs associated with posting financial assurances for the completion of investigation, cleanup, removal, remedial, corrective or response actions, attorneys' fees, the preparation of any closure or other necessary or required plans or analyses, or other necessary reports or analyses submitted to or prepared for regulating agencies. "ENVIRONMENTAL PROTECTION LAWS" shall mean all federal, state, local and foreign laws, statutes, regulations having the force and effect of law, permits, court decrees, judgments, injunctions and written orders concerning (i) public health and safety relating to exposure of humans to toxic or hazardous substances or otherwise relating to Regulated Substances or (ii) pollution or protection of the environment or natural resources, including, without limitation, the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA") (42 U.S.C. Section 9601 ET SEQ.); the Hazardous Materials Transportation Act (49 U.S.C. Section 1801 ET SEQ.); the Resource Conservation and Recovery Act ("RCRA") (42 U.S.C. Section 6901 ET SEQ.); the Clean Water Act (33 U.S.C. Section 1251 ET SEQ.); the Safe Drinking Water Act (14 U.S.C. Section 1401 ET SEQ.); the Toxic Substances Control Act (15 U.S.C. Section 2601 ET SEQ.), the Federal Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. Section 136 ET SEQ.), the Clean Air Act (42 U.S.C. Section 7401 ET SEQ.); the Emergency Planning and Community Right-to-Know Act (42 U.S.C. Sections 11001-11005, 6 11021-11023, and 11041-11050); the Porter-Cologne Water Quality Act (California Water Code Sections 13000-13999.19); the Hazardous Waste Control Law (California Health & Safety Code Sections 25100-25250.25); the Safe Drinking Water and Toxic Enforcement Act (California Health & Safety Code Sections 25249.5-25249.13); California Health & Safety Code Sections 25280-25299.81 (regarding Underground Storage of Hazardous Substances) and Sections 25500-25545 (regarding Hazardous Materials Inventories and Emergency Plans); the Hazardous Substance Account Act (California Health & Safety Code Sections 25300-25393); and California Health & Safety Code Sections 39000-44384 regarding Air Resources; in each case including the regulations promulgated thereunder, including, without limitation, the regulations promulgated by the South Coast Air Quality Management District; each as supplemented or amended from time to time. "EPA" shall mean the United States Environmental Protection Agency, or any successor United States governmental agency. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as the same may be amended from time to time. "ERISA AFFILIATE" shall mean with respect to any person (a) any corporation that is a member of a controlled group of corporations, within the meaning of Section 414(b) of the Code, of which that person is a member, (b) any trade or business (whether or not incorporated) that is a member of a group of trades or businesses under common control, within the meaning of Section 414(c) of the Code, of which that person is a member, and (c) any member of an affiliated service group, within the meaning of Section 414(m) and (o) of the Code, of which that person or any entity described in clause (a) or (b) is a member. "ESTIMATED CLOSING BALANCE SHEET" shall have the meaning set forth in Section 2.5. "EXCLUDED ASSETS" shall have the meaning set forth in Section 2.2 "EXCLUDED EMPLOYEE" shall have the meaning set forth in Section 2.4. "EXCLUDED LIABILITIES" shall have the meaning set forth in Section 2.3. "FACILITIES" shall mean all plants, offices, manufacturing facilities, stores, warehouses, improvements, administration buildings, and all real property and related facilities which are used or held for use in connection with the Business as of the date of the Letter of Intent. "FINAL CLOSING BALANCE SHEET" shall have the meaning set forth in Section 3.1(b)(3). "FINANCIALS" shall have the meaning set forth in Section 5.7(b). "FINANCING OBLIGATIONS" shall mean (a) indebtedness of any Seller for borrowed money, (b) obligations of any Seller evidenced by bonds, notes, debentures, letters of credit or similar instruments, (c) obligations under capitalized leases, (d) obligations under conditional sale, title retention or similar agreements or arrangements creating an obligation of any Seller with respect to the deferred purchase price of property (other than customary trade credit), (e) interest rate 7 and currency obligation swaps, hedges and similar arrangements and (f) all obligations of any Seller to guaranty any of the foregoing types of obligations on behalf of others, in each case as related to the Business. "FIXTURES AND EQUIPMENT" shall mean all of following that are owned or leased by the Sellers in connection with the Business as of the date of the Letter of Intent: (a) all audiovisual, audio and visual recordings and other materials produced by any technology, manner or means relating to the Business, including, without limitation, prints, negatives, duplicating negatives, fine grains, music and sound effects tracks, master tapes and other duplicating materials of any kind, all various language dubbed and titled versions, prints and negatives of stills, trailers and television spots, all promos and other advertising and publicity materials, stock footage, trims, tabs, outtakes, cells, drawings, (b) all physical properties relating to the Business, including, without limitation, all editing, telecine, distribution and duplication equipment, in each case, including, without limitation, any of the foregoing in the possession, custody or control of the Company, or in the possession of its assigns, or any film laboratories, storage facilities or other Persons, (c) any and all revisionary rights the Company has to the master and duplicate masters of any original negative or master tape or elements plus (d) furniture, fixtures, furnishings, machinery, automobiles, trucks, spare parts, supplies, equipment, tooling, molds, patterns, dies and other tangible personal property owned by the Company and used, held for use or useful in connection with the Business, wherever located, and including any such Fixtures and Equipment in the possession of the Company's suppliers, together with all warranty rights with respect thereto. "FORMER FACILITY" shall mean each plant, office, manufacturing facility, store, warehouse, improvement, administrative building and all real property and related facilities that were owned, leased or operated by the Company at any time prior to the date hereof, but excluding any Facilities. "GAAP" shall mean generally accepted accounting principles consistently applied as in effect at the time in question. "HOLDBACK AMOUNT" shall have the meaning set forth in Section 3.1(d). "HOLLYWOOD LEASE" shall mean the Third Amendment and Restatement of Lease, dated as of October 6, 1998 between Leon Vahn, as trustee of the Leon Vahn Living Trust, as sublessor, and the Company, Vincent J. Lyons, Barbara Lyons, George Cooney and Cynthia Cooney, as sublessees, with respect to that real property located at 1220 North Highland Avenue, Los Angeles, California, in the form attached hereto as Exhibit A. "INDEMNIFIED PARTY" shall have the meaning set forth in Section 11.7. "INDEMNIFYING PARTY" shall have the meaning set forth in Section 11.7. "INDEPENDENT ACCOUNTING FIRM" shall have the meaning set forth in Section 3.1(b)(3). 8 "INSURANCE POLICIES" shall mean the insurance policies related to the Assets and/or the Business listed in Section 5.22 of the Disclosure Schedule. "INTANGIBLE PERSONAL PROPERTY" shall have the meaning set forth in Section 5.13(a). "INVENTORY" shall have the meaning set forth in Section 5.17. "IRS" shall mean the Internal Revenue Service. "JULY 1998 BALANCE SHEET" shall have the meaning set forth in Section 5.7(b). "KNOWLEDGE OF SELLER" with reference to any of the representations and warranties of any Seller means the actual knowledge of Vincent Lyons or Barbara Lyons or any employee of the Company. "LEASE" shall have the meaning set forth in Section 5.11. "LEASED PERSONAL PROPERTY" shall mean all leased property described in the Personal Property Leases. "LEASED REAL PROPERTY" shall mean all leased property described in the Leases. "LEASEHOLD ESTATES" shall mean all of each Seller's rights and obligations as lessee under the Leases. "LEASEHOLD IMPROVEMENTS" shall mean all leasehold improvements situated in or on the Leased Real Property and owned by the Company. "LETTER OF INTENT" shall mean that certain letter agreement among Purchaser and the Company dated September 23, 1998. "LIABILITIES" shall mean any liability, including, without limitation, any direct or indirect liability, indebtedness, obligation, commitment, expense, claim, deficiency, guaranty or endorsement of or by any person of any type, whether accrued, absolute, contingent, matured, unmatured, known, unknown or other, in each case as related to the Business. "LICENSES" shall have the meaning set forth in Section 5.13(a). "MATERIAL" when used in connection with a representation, warranty and/or covenant shall mean (i) an adverse effect which, whether considered individually or in the aggregate with all other circumstances or events related to the same representation, warranty and/or covenant, involves an economic effect of more than $10,000, or (ii) material to the Business currently being conducted by the Company, taken as a whole. 9 "MATERIAL ADVERSE EFFECT" means a material adverse effect on (a) the operations, property, prospects or condition (financial or other) of the Business, taken as a whole or (b) the ability of the Sellers to consummate the Transactions. "MATERIAL CONTRACTS" shall have the meaning set forth in Section 5.16. "MULTI-EMPLOYER PLANS" shall have the meaning set forth in Section 5.14(a). "NET WORKING CAPITAL" shall mean, as of a particular date, the Company's account and trade receivables, inventory, cash and cash equivalents, deposits, prepaid expenses and other current assets less its current and short-term liabilities as of such date, in each case as determined in accordance with GAAP and consistent with the presentation on the July 1998 Balance Sheet. "ORDINARY COURSE OF BUSINESS" or "ORDINARY COURSE" or any similar phrase shall mean the ordinary course of the Business and consistent with the Company's past practices. "PACIFIC LOAN" shall have the meaning set forth in Section 2.5(a)(ii). "PATENTS" shall mean all patents and patent applications and registered designs and registered design applications. "PENDING" shall mean, with respect to a representation or warranty, any claim, action, proceeding or investigation which, to the Knowledge of Seller, has been or will be asserted or initiated against the Company. "PERMITS" shall mean all licenses, permits, franchises, approvals, authorizations, consents or orders of, or filings with, any governmental authority, whether foreign, federal, state or local, or any other person, necessary or desirable for the past, present or anticipated conduct of, or relating to the operation of, the Business. "PERMITTED ENCUMBRANCES" shall mean (i) the Assumed Liabilities (except to the extent required to be released pursuant to Section 4.2), (ii) mechanics', carriers', workmen's, repairmen's or other like Encumbrances arising by operation of law in the ordinary course of business and which secure liabilities (but not for money borrowed or guaranteed) reflected on the July 1998 Financials that are not due and payable with appropriate reserves set aside therefor; (iii) Encumbrances for Taxes which are not due and payable with appropriate reserves set aside therefor; (iv) zoning, rights of way, easements, building, encroachments, use restrictions and other similar restrictions encumbering the real property which is leased to the Company pursuant to the Leases; (v) Encumbrances arising through the Purchaser or as a result of the Purchaser's actions on or after the Closing Date (other than in connection with or relating to the Transactions; provided that the Encumbrance securing Purchaser's financing of the Transaction with Union Bank of California, N.A., as Agent shall constitute a Permitted Encumbrance) and (vi) COBRA benefits that are required by law on the Closing Date to be offered by Purchaser to any Excluded Employee. 10 "PERSON" shall mean any natural person or any corporation, partnership, joint venture, limited liability company or other entity. "PERSONAL PROPERTY" shall have the meaning set forth in Section 5.26. "PERSONAL PROPERTY LEASES" shall have the meaning set forth in Section 5.26. "PLANS" shall have the meaning set forth in Section 5.15(a). "PRE-CLOSING ENVIRONMENTAL MATTERS" shall mean (a) the production, use, generation, storage, treatment, recycling, disposal or other handling or disposition at any time prior to the Closing Date (collectively "Handling") of any Regulated Substance, either in, on, under or from any Facility or Former Facility, including, without limitation, the effects of such Handling of Regulated Substances on resources, persons or property within or outside the boundaries of any Facility or Former Facility, (b) any release of Regulated Substances at any time prior to the Closing Date occurring in, on or under any Facility or Former Facility regardless of how the Regulated Substances came to rest in, on or under the Facility or Former Facility, (c) the failure prior to the Closing Date of any Facility or Former Facility or any operation of Sellers to be in compliance with any Environmental Laws, and (d) any other act or omission occurring, or condition existing, with respect to the Assets or the Business prior to the Closing Date which gives rise to liability under any Environmental Protection Law. "PRIME RATE" shall mean the prime rate as reported from time to time by THE WALL STREET JOURNAL. "PROPRIETARY RIGHTS" shall mean all of the Company's Copyrights, Patents, Trademarks, technology rights and licenses, computer software (including without limitation any source or object codes therefor or documentation relating thereto), trade secrets, franchises, know-how, inventions, designs, specifications, plans, drawings and intellectual property rights, in each case as relates to the Business. "PURCHASE PRICE" shall have the meaning set forth in Section 2.5(a). "PURCHASE PRICE ADJUSTMENT" shall have the meaning set forth in Section 2.5(a). "PURCHASER" shall have the meaning set forth in the Preamble. "REAL PROPERTY" shall have the meaning set forth in Section 5.11. "REGULATED SUBSTANCE" shall mean any chemical or substance subject to or regulated under any Environmental Protection Law including, without limitation, any "pollutant or contaminant" or "hazardous substance" as those terms are defined in CERCLA, any "hazardous waste" as that term is defined in RCRA, and any other hazardous or toxic wastes, substances, or materials, petroleum (including crude oil and refined and unrefined fractions thereof), polychlorinated biphenyls ("PCBs"), infectious waste, special waste, pesticides, fungicides, 11 solvents, herbicides, flammables, explosives, asbestos and asbestos containing material, and radioactive materials, whether injurious by themselves or in combination with other materials. "REGULATIONS" shall mean any laws, statutes, ordinances, regulations, rules, notice requirements, court decisions and orders of any foreign, federal, state or local government and any other governmental department or agency. "RELEASE DOCUMENTS" shall have the meaning set forth in Section 4.2(a)(8). "REPRESENTATIVE" shall mean any officer, director, principal, attorney, agent, employee or other representative. "SELLER" or "SELLERS" shall have the meaning set forth in the Preamble. "SHAREHOLDER" or "SHAREHOLDERS" shall have the meaning set forth in the Preamble. "TAX" or "TAXES" shall mean any and all taxes imposed or required to be collected by any federal, state or local taxing authority in the United States, or by any foreign taxing authority under any statute or regulation, including, without limitation, all income, gross receipts, sales, use, personal property, use and occupancy, business occupation, mercantile, ad valorem, transfer, license, withholding, payroll, employment, excise, real estate, environmental, capital stock, franchise, alternative or add-on minimum, estimated or other tax of any kind whatsoever, including any interest, penalties and other additions thereto. "TRADEMARKS" shall mean registered trademarks, registered service marks, trademark and service mark applications and unregistered trademarks and service marks. "TRANSACTIONS" shall mean, in respect of any party, all transactions contemplated by this Agreement or the Ancillary Agreements that involve, relate to or affect such party. "TRANSFERRED EMPLOYEES" shall have the meaning set forth in Section 7.6(a). "UNITED STATES GOVERNMENT" shall mean the government of the United States, including any agencies, commissions, branches, instrumentalities and departments thereof. "WARN ACT" shall have the meaning set forth in Section 2.4(a). ARTICLE II PURCHASE AND SALE OF ASSETS SECTION 2.1 TRANSFER OF ASSETS. Upon the terms and subject to the conditions contained herein, at the Closing, the Company shall sell, convey, transfer, assign and deliver to Purchaser, and Purchaser shall acquire from the Company, the Assets (including, without limitation, those assets of the Company listed on Schedule 2.1 hereto), free and clear of all Encumbrances other than Permitted Encumbrances. 12 SECTION 2.2 ASSETS NOT TRANSFERRED. Notwithstanding anything herein to the contrary, the following assets are not included in the Assets and shall be retained by the Company (the "Excluded Assets"): (a) rights to or claims for refunds or rebates of Taxes and the benefit of net operating loss carryforwards or carrybacks or credits, with respect to the period ending the day prior to the Closing Date, whether or not attributable to the Assets, including, without limitation, any right to or claim for refund or rebate of the Company in respect of Taxes payable in connection with the consummation of the Transactions (except that any refund or rebate of sales or transfer Taxes imposed upon the transfer of the Assets from the Company to Purchaser will be allocated 50% to the Company and 50% to Purchaser); (b) claims or rights against third parties for indemnification, contribution or reimbursement with respect to events, losses or breaches occurring prior to the Closing Date, including breaches under the Contracts, to the extent such claims or rights reduce the amount payable pursuant to the Company's obligations to indemnify the Purchaser under Article XI; (c) all Insurance Policies and rights thereunder to the extent attributable to events or occurrences arising prior to the Closing Date (other than in respect of the Assumed Liabilities), and any life insurance policies on the life of Vincent Lyons and any rebates or refunds for premiums previously paid in connection therewith; (d) the original Books and Records of the Company; (e) any benefits accruing under the Company's Employee Benefit Plans; (f) the Company's claim and/or action to recover damages for stolen property which was initiated prior to December 31, 1997, the proceeds and liabilities of which shall remain with the Company; and (g) all rights of the Company under this Agreement and the Ancillary Agreements. The Excluded Assets shall not be reflected on the Estimated Closing Balance Sheet. SECTION 2.3 ASSUMPTION OF LIABILITIES. Upon the terms and subject to the conditions contained herein, at the Closing, Purchaser shall assume (i) the liabilities reflected on the Estimated Closing Balance Sheet and (ii) the Company's obligations and Liabilities under the Leases, the Personal Property Leases, and the Assigned Contracts (collectively, "Assumed Liabilities"). SECTION 2.4 EXCLUDED LIABILITIES. Notwithstanding any other provision of this Agreement, except for the Assumed Liabilities specified in Section 2.3 and the expenses or fees to be paid by Purchaser as specified herein, Purchaser shall not assume, or otherwise be responsible for, any Liabilities of the Company, whether liquidated or unliquidated, or known or unknown, whether arising out of occurrences prior to, at or after the date hereof (the "Excluded Liabilities"), which Excluded Liabilities include, without limitation, the following: 13 (a) any Liability to or in respect of any employees or former employees of the Company not listed on Schedule 2.4 attached hereto and any employee listed on Schedule 2.4 who does not accept employment with Purchaser (collectively, the "Excluded Employees") including without limitation (i) any employment agreement, whether or not written, between the Company and any Excluded Employee, (ii) any Liability under any Employee Benefit Plan at any time maintained, contributed to or required to be contributed to by or with respect to the Company or under which the Company may incur Liability, or any contributions, benefits or Liabilities therefor, or any Liability with respect to the Company's withdrawal or partial withdrawal from or termination of any Employee Benefit Plan, (iii) any claim of an unfair labor practice, or any claim under any state unemployment compensation or worker's compensation law or regulation or under any federal or state employment discrimination law or regulation, which shall have been asserted on or prior to the Closing Date or is based on acts or omissions which occurred prior to the Closing Date and (iv) any liabilities or obligations under the WARN Act including the rules and regulations promulgated thereunder with respect to actions taken by the Sellers prior to the Closing with respect to any Excluded Employee; (b) any Liability of the Company in respect of (i) any income tax or any interest, penalties or additions pertaining thereto or (ii) any other Tax relating to any period or portion thereof prior to the Closing Date; (c) any warranty claims and any Liability arising from any injury to any person or damage to or destruction of any property, whether based on negligence, breach of warranty, express or implied representation, strict liability, enterprise liability or any other legal or equitable theory arising from defects in products manufactured or from services performed by or on behalf of the Company prior to the Closing Date; (d) any Liability of any Seller arising out of or related to any Action against any Seller or any Action which adversely affects the Assets and which shall have been asserted prior to the Closing Date or the basis of which shall have arisen prior to the Closing Date; (e) any Liability of any Seller resulting from entering into, performing its obligations pursuant to or consummating the transactions contemplated by, this Agreement (including without limitation any Liability of any Seller for fees or expenses incurred in connection with such transactions (except to the extent otherwise provided herein, I.E., WARN Act liabilities arising from post-closing actions by Purchaser, transfer taxes and audit expenses) and any Liability of any Seller pursuant to Article XI hereof); (f) any Liability related to any Former Facility or any of the Discontinued Operations; (g) except to the extent provided for herein, any Financing Obligation other than the Assumed Liabilities; (h) any Environmental Liabilities for Pre-Closing Environmental Matters, whether or not disclosed in the Disclosure Schedule; 14 (i) any Liability of any Seller for fees or expenses incurred by Sellers in connection with the consummation of the Transactions (except to the extent otherwise provided herein, I.E., WARN Act liabilities arising from post-closing actions by Purchaser, transfer taxes and audit expenses) ; (j) any Liability of any Seller not directly related or incurred with respect to the conduct of the Business; (k) except to the extent provided for herein, any indebtedness for borrowed money; (l) any amounts payable to any Affiliate of any Seller; (m) any cash overdraft liability; and (n) except to the extent provided for herein, I.E. WARN Act liabilities arising from post-closing actions by Purchaser, transfer taxes and audit expenses, any liabilities accruing prior to the Closing Date. SECTION 2.5 PURCHASE PRICE. (a) PURCHASE PRICE. The purchase price for the Assets and Agreement Not to Compete (as adjusted as set forth below, the "Purchase Price") shall consist of: (i) (x) the sum of (a) Six Million Nine Hundred Sixty Three Thousand Dollars ($6,963,000), and (b) the Company's long-term debt reflected on the July 1998 Balance Sheet, (y) plus or minus, as the case may be, the increase or decrease, as the case may be, in Net Working Capital reflected on the Estimated Closing Balance Sheet as compared with the Net Working Capital Reflected on the July 1998 Balance Sheet, minus (z) the payments required by Section 2.5(a)(ii) below and the amount of any other long-term debt shown on the Estimated Closing Balance Sheet (the sum of the payments set forth in (x), (y) and (z) the "Cash Payment"); provided, that One Million Five Hundred Thousand Dollars ($1,500,000) (the "Holdback Amount") will be withheld from the Cash Payment; (ii) payment to Pacific Century Bank, N.A. (the "Company's Lender") of the indebtedness owed to it by the Company (the "Pacific Loan") in the amount reflected on the pay-off letter specified in Section 4.2(a)(10); (iii) the assumption of the other Assumed Liabilities; and (iv) if earned, the shares of Purchaser's common stock (the "Earn-Out Stock") specified on Schedule 3.2(a)(1), subject to the terms and conditions set forth in Section 3.2. In addition, Purchaser shall pay in cash to the Company at Closing interest accrued on the Cash Payment from the date hereof to and including the Closing Date calculated at an annual rate of 5.0% and the interest accrued on the Pacific Loan between the date hereof and the Closing Date. The Purchase Price shall be increased or decreased following the Closing 15 pursuant to Section 3.1(c) (such net adjustments are referred to herein collectively as the "Purchase Price Adjustment"). (b) ALLOCATION OF PURCHASE PRICE. Purchaser and the Company shall allocate the Purchase Price, any Purchase Price Adjustments (to the extent identifiable or reasonably estimable as of the date hereof) and the Assumed Liabilities (to the extent properly includible in the tax basis of the Assets) to broad categories of the Assets and the Agreement Not to Compete in accordance with Schedule 2.5(b). Purchaser and the Sellers shall report the purchase and sale of the Assets in accordance with the agreed upon allocation among such broad categories of Assets for all Tax purposes (including for sales tax purposes and the filing of the forms prescribed under Section 1060 of the Code and the Treasury Regulations promulgated thereunder). Purchaser, the Shareholders and the Company shall each file with their respective federal income tax return for the tax year in which the Closing occurs, IRS Form 8594 containing the information agreed upon by the parties pursuant to the immediately preceding sentence. Purchaser agrees to report the purchase of the Assets, and Sellers agree to report the sale of such Assets for income tax purposes (including but not limited to, on their respective income tax returns, before any governmental agency charged with the collection of income tax or in any judicial proceeding concerning the income tax consequences of Purchaser's purchase or Sellers' sale of the Assets hereunder) in a manner consistent with the information agreed upon by the parties pursuant to this Section 2.5(b) and contained in its IRS Form 8594. SECTION 2.6 CLOSING COSTS; TRANSFER TAXES AND FEES. Purchaser and the Company shall cooperate in preparing, executing and filing all tax returns relating to, and Purchaser and the Company shall share equally and pay when due any and all sales or transfer taxes and vehicle title registration fees payable with regard to the purchase and sale of the Assets to Purchaser. Such tax returns shall be prepared in a manner that is consistent with the allocation of the Purchase Price and Assumed Liabilities contemplated by Section 2.5(b). Purchaser shall also furnish Sellers with a form of resale certificate that complies with the requirements of California and other applicable California taxation laws with respect to the inventory constituting part of the Assets. Purchaser and the Company shall share equally any and all refunds or rebates of the Taxes or fees covered by this Section 2.6 to the extent paid in respect of the purchase and sale of the Assets. ARTICLE III PURCHASE PRICE ADJUSTMENT AND EARN-OUT STOCK SECTION 3.1 PURCHASE PRICE ADJUSTMENT. (a) ESTIMATED CLOSING BALANCE SHEET. Schedule 3.1(a) contains an estimated balance sheet dated as of the Closing Date (the "Estimated Closing Balance Sheet") which sets forth, among other things, the current assets, current liabilities and outstanding long term debt of the Company as of such date. The Estimated Closing Balance Sheet shall be prepared in accordance with GAAP and in a manner consistent with the presentation of the July 1998 Balance Sheet. The Estimated Closing Balance Sheet does not reflect any provision for income Taxes (whether as an asset or a liability), and all Excluded Assets (and all related depreciation and reserves) and 16 Excluded Liabilities (and related reserves) have been eliminated. The Cash Payment shall be adjusted pursuant to Section 2.5 based upon the Net Working Capital and long-term debt shown on the Estimated Closing Balance Sheet. (b) AUDITED CLOSING BALANCE SHEET. (1) Within 60 days after the Closing Date, Purchaser shall cause to be prepared and delivered to the Company an audited balance sheet of the Company as of the Closing Date in the manner set forth in Section 3.1(a) (the "Audited Closing Balance Sheet"), which shall set forth the Net Working Capital and long-term debt of the Company, if any, as of the Closing Date, and Purchaser's calculation of the Purchase Price Adjustment. (2) Following delivery of the Audited Closing Balance Sheet to the Company, the Company shall have a period of 15 days to present in writing to Purchaser any objections or disagreement with respect to the calculation of the Purchase Price Adjustment. Such notice shall specify, in reasonable detail, the nature and extent of such disagreement. (3) If the Company and Purchaser are unable to resolve any such disagreement with respect to the calculation of the Purchase Price Adjustment within 15 days after delivery by the Company of the notice referred to in Section 3.l(b)(2), the disagreement shall be submitted for final determination to a "Big Five" accounting firm mutually acceptable to the Company and Purchaser (the "Independent Accounting Firm"). The Independent Accounting Firm shall follow such procedures as it deems appropriate for obtaining the necessary information in considering the positions of the Company and Purchaser but shall not conduct an independent audit. The Independent Accounting Firm shall render its determination on the matter within 30 days of its submission by the Company and Purchaser, and such determination shall be final, conclusive and binding upon Purchaser and Sellers. The closing balance sheet of the Company finally agreed upon by the parties shall be the Final Closing Balance Sheet (the "Final Closing Balance Sheet"); the parties intend to reach such agreement no later than four months after the Closing Date. (4) The fees and expenses of the Independent Accounting Firm shall be borne by the party whose asserted Purchase Price Adjustment is more at variance from the actual Purchase Price Adjustment ultimately determined by the Independent Accounting Firm. (c) PURCHASE PRICE ADJUSTMENT. The Purchase Price shall be (i) increased or decreased, on a dollar-for-dollar basis, by the amount by which Net Working Capital reflected on the Final Closing Balance Sheet exceeds, or is less than, respectively, the Net Working Capital reflected on the Estimated Closing Balance Sheet, and (ii) increased or decreased, on a dollar-for-dollar basis, by the amount by which the outstanding long term debt repaid or assumed by Purchaser at Closing, is less than, or exceeds, respectively, the long term debt reflected on the Final Closing Balance Sheet (such adjustments, the "Purchase Price Adjustment"). If the Purchase Price Adjustment requires a payment to the Company, Purchaser shall make such payment in cash within ten days of the agreement as to the Final Closing Balance Sheet. If the Purchase Price Adjustment requires a payment to the Purchaser, Purchaser shall be entitled to deduct such payment from the Holdback Amount. 17 (d) HOLDBACK AMOUNT. In order to secure (but not to limit) the Company's payment obligations regarding any Purchase Price Adjustment and Sellers' indemnity obligations in this Agreement, Purchaser shall retain the Holdback Amount from the Cash Portion for the period described below. Purchaser shall release One Million Dollars ($1,000,000) of the Holdback Amount, less any Purchase Price Adjustment owed by the Company upon final determination of the Purchase Price Adjustment, within ten days of the acceptance of the Final Closing Balance Sheet. Purchaser shall return the balance of the Holdback Amount, plus any interest earned on the Holdback Amount, less the amount of any indemnity claims asserted by Purchaser, if any, to the Company on the date one year from the Closing Date, unless a dispute then exists in which case Purchaser shall continue to hold the disputed funds until the dispute is resolved. The Holdback Amount shall be maintained by Purchaser in one of its bank account and shall bear interest at the rate earned by Purchaser thereon; Purchaser shall not be required to segregate such amount from its other funds. SECTION 3.2 EARN-OUT STOCK. (a) Purchaser shall calculate the EBITDA (as defined herein) of the Company as a division of Purchaser for the Earn-Out Period. If the Company's EBITDA for such period is equal to or greater than $3,500,000 (the "Target"), Purchaser shall issue to the Company shares of its common stock having a market value equal to $3,300,000, with such value to be calculated based on the average closing price of Purchaser's common stock for the 30 days immediately preceding the Closing (such number of shares to be equitably adjusted in the event of any intervening stock dividend, stock split, recapitalization, capital reorganization, reverse stock split or similar transaction). If the Company's EBITDA for the Earn-Out Period is less than the Target, Purchaser shall issue such fewer shares of Earn-Out Stock as detailed on Schedule 3.2(a)(1) hereto. Calculation of EBITDA is set forth on Schedule 3.2(a)(2) hereto. Purchaser agrees to operate the Company as a division of Purchaser in a manner in which EBITDA can reasonably be determined. Purchaser shall maintain accurate books, records and documents reasonably necessary for the calculation of the Company's EBITDA. The Company shall, upon request delivered to Purchaser in writing, have reasonable access during normal business hours to inspect such books and records at its cost. (b) Subject to Purchaser's right of offset set forth in Section 11.9, Purchaser shall issue to the Company the Earn-Out Stock, if earned, within 45 business days after the last day of the last month of the Earn-Out Period. If Purchaser shall determine, after consultation with its independent auditors, that the minimum EBITDA set forth on Schedule 3.2(a)(2) was not achieved, it shall so notify the Company or the Shareholders on or before the 45th business day after the last day of the last month of the Earn-Out Period, and include in such notification its calculation of EBITDA. The Company shall have a period of 30 days thereafter to present in writing to Purchaser any objections or disagreement with respect to the calculation of EBITDA. Such notice shall specify, in reasonable detail, the nature and extent of such disagreement. (c) If the Company and Purchaser are unable to resolve any such disagreement with respect to the calculation of EBITDA within ten days after delivery by the Company of the notice referred to above, the disagreement shall be submitted for final determination of the Independent Accounting Firm. The Independent Accounting Firm shall follow such procedures as it deems appropriate for obtaining the necessary information in considering the positions of 18 the Company and Purchaser but shall not conduct an independent audit. The Independent Accounting Firm shall render its determination on the matter within thirty 30 days of its submission by the Company and Purchaser, and such determination shall be final, conclusive and binding upon Purchaser and Sellers. (d) The fees and expenses of the Independent Accounting Firm with respect to a dispute of the Company's EBITDA during the Earn-Out Period shall be borne by the party whose asserted EBITDA calculation is more at variance from the actual EBITDA ultimately determined by the Independent Accounting Firm. SECTION 3.3 OPERATION OF BUSINESS AFTER CLOSING. From and after the Closing Date until the end of the Earn-Out Period, Purchaser agrees to (a) operate, or cause to be operated, the Assets as a separate division unconsolidated with and apart from Purchaser's other businesses and assets or (b) to account on the books and records of Purchaser for all such Assets as a separate division unconsolidated with and apart from Purchaser's other businesses and assets and (c) to use commercially reasonable efforts to maximize the profitability of such separate division. 19 ARTICLE IV CLOSING SECTION 4.1 CLOSING. The Closing of the transactions contemplated herein (the "Closing") shall be held at 9:00 a.m. local time on the Closing Date at the offices of Katten Muchin & Zavis, 1999 Avenue of the Stars, Los Angeles, California, unless the parties hereto otherwise agree. SECTION 4.2 CONVEYANCES AT CLOSING. (a) COMPANY DELIVERIES. To effect the sale of the Assets, in addition to the conditions set forth in Article VIII, the Company shall, at the Closing, execute and deliver to Purchaser: (1) Employment Agreement in the form attached hereto as Exhibit A; (2) Agreement Not to Compete in the form attached hereto as Exhibit B; (3) one or more bills of sale, each in the form attached hereto as Exhibit C (collectively, the "Bill of Sale"); (4) Assignment and Assumption of Real Property Lease, each in the form attached hereto as Exhibit D (which shall include an indemnity of Mr. and Mrs. Vincent Lyons and Mr. and Mrs. George Cooney with regard to their respective obligations under the Hollywood Lease); (5) Assignment and Assumption of Personal Property Leases, each in the form attached hereto as Exhibit E; (6) Assignment and Assumption of Contracts, each in the form attached hereto as Exhibit F; (7) Assignment of Business Name, assigning to Purchaser the Company's rights, title and interest to the name "DUBS" and all variations thereof) in the form of Exhibit G; (8) the releases of any Encumbrances on the Assets other than Permitted Encumbrances, in the form of UCC-2 Termination Statements executed by Sony Electronics, Northern Telecom, and IBM Credit (the "Release Documents"); 20 (9) release of claims (the "Shareholder Release") executed by all former shareholders of the Company, including George and Cynthia Cooney, in the form of Exhibit H hereto; (10) (a) a pay-off letter from the Company's Lender calculated as of the Closing Date, including a statement that upon repayment of the Pacific Loan, it will release its lien on the Assets and (b) an executed UCC-2 Termination Statement (provided that delivery of these items to Purchaser's lender or its counsel in escrow prior to the Closing Date shall satisfy this delivery requirement); and (11) such other instruments as shall be reasonably requested by Purchaser to vest in Purchaser title in and to the Assets in accordance with the provisions hereof. (b) PURCHASER DELIVERIES. To effect the sale of the Assets and assumption of the Assumed Liabilities referred to in Article II hereof, in addition to the conditions set forth in Article IX herein, Purchaser shall at the Closing deliver to the Company (1) the Cash Payment, plus the payment in respect of interest as specified in the penultimate sentence of Section 2.5(a), less the Holdback Amount; (2) the payment required under Section 2.5(a)(ii) to the Company's Lender; (3) an instrument or instruments of assumption substantially in the form attached as an Exhibit I, evidencing Purchaser's assumption, pursuant to Section 2.3, of the Assumed Liabilities (the "Assumption Agreement");and (4) the Ancillary Agreements to which it is a party; and Pursuant to the Assumption Agreement, Purchaser shall assume and agree to pay, perform and discharge when due, the Assumed Liabilities. (c) FORM OF INSTRUMENTS. To the extent that a form of any document to be delivered hereunder is not attached as an exhibit hereto, such documents shall be in form and substance, and shall be executed and delivered in a manner, reasonably satisfactory to Purchaser and the Company. (d) CERTIFICATES; OPINION. On the Closing Date, Purchaser and Sellers shall deliver the certificates, opinion of counsel and other matters described in Articles VIII and IX. (e) CONSENTS. The Company shall deliver all Permits that are transferrable and any other third party consents required for the valid transfer of the Assets and assumption of the Assumed Liabilities as contemplated by this Agreement, including any consents specified on Schedule 5.4. 21 ARTICLE V REPRESENTATIONS AND WARRANTIES OF SELLERS Each Seller, jointly and severally, hereby represents and warrants to Purchaser that: SECTION 5.1 ORGANIZATION AND GOOD STANDING. The Company is a corporation, duly organized, validly existing and in good standing under the laws of the jurisdiction of California, and the Company is duly qualified or authorized to do business in each jurisdiction in which it does business, or owns property, or where such qualification or authorization is otherwise required by virtue of its presence or activities. Schedule 5.l sets forth a complete and correct list of all jurisdictions in which the Company is required to be qualified or authorized to transact business or own property. SECTION 5.2 ASSETS. Excluding the Leased Real Property and the Leased Personal Property and any asset in which a customer has an ownership or possessory interest, the Company owns, and will transfer good and marketable title to, the Assets and upon the consummation of the Transactions, Purchaser will acquire good and marketable title to all of the Assets, free and clear of any Encumbrances other than Permitted Encumbrances. The Assets include without limitation all assets used in the conduct of the Business or located at the Facilities as of the date of the Letter of Intent (other than assets, such as inventory, sold or consumed in the ordinary course of business). Schedule 2.1 contains accurate lists and summary descriptions of all tangible Assets where the value of an individual item exceeds $5,000. All tangible assets and properties which constitute the Assets conform in all material respects to all applicable Regulations (including Environmental Laws) relating to their construction, use and operation. The only Assets in which a customer of the Company has an ownership or possessory interest are tape masters or duplicates stored in the Company's vault and products which are in the process of being worked on. SECTION 5.3 LICENSES AND PERMITS. The Company is duly licensed, with all requisite permits and qualifications, as required by applicable law for the purpose of conducting its business or owning its properties or both, in each jurisdiction in which it does business or owns property or in which such license, permit or qualification is otherwise required and where the failure to have such license, permit or qualification would have a Material Adverse Effect. The Company is in compliance with all such licenses, permits and qualifications. Schedule 5.3 sets forth a list of all such licenses, permits and qualifications, and the expiration dates thereof. There are no proceedings pending or, to the Knowledge of Seller, threatened, to revoke or terminate any such presently existing license, permit or qualification, and each such presently existing license, permit or qualification can be renewed in the ordinary course of business. SECTION 5.4 NO BREACH. Except as set forth on Schedule 5.4, neither the execution and delivery of this Agreement nor the consummation of the Transactions will (i) violate, result in a breach of any of the terms or provisions of, constitute a Default (or any event that, with the giving of notice or the passage of time or both, would constitute a Default) under, result in the acceleration of any indebtedness under or performance required by, result in any right of termination of, increase any amounts payable under, decrease any amounts receivable under, change any other rights pursuant to, or conflict with, any provision of the Company's articles 22 of incorporation or bylaws, any agreement, indenture or other instrument to which any of the Sellers is a party or by which any of its properties are bound, or any judgment, decree, order or award of any court, governmental body or arbitrator (domestic or foreign) applicable to any of the Sellers, or (ii) require the Company to obtain any authorization, consent, approval or waiver from, or make any filing with, any Person, court or public body or authority. SECTION 5.5 AUTHORITY. The Company has the right to sell, convey, transfer, assign and deliver the Assets to Purchaser hereunder. This Agreement and all agreements and instruments herein contemplated to be executed by any Seller have been duly authorized, executed and delivered by each such Seller and constitutes the valid and binding obligation of each Seller, enforceable in accordance with its terms. There exist no outstanding options, warrants, equity securities, calls, rights, preemptive rights, commitments or agreements of any character to which the Company is a party or by which it is bound obligating the Company to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of capital stock of the Company. There are no voting trusts, proxies or other agreements or understandings with respect to the shares of capital stock of the Company. SECTION 5.6 SUBSIDIARIES. The Company has no equity interest in any corporation, partnership, limited liability company or similar entity. SECTION 5.7 FINANCIAL STATEMENTS. (a) The balance sheets of the Company, at December 31, 1997, December 31, 1996 and December 31, 1995 (individually, a "Balance Sheet" and collectively, the "Balance Sheets") and the statements of operations and retained earnings and the statements of cash flows of the Company for each of the 12 month periods then ended and notes thereto, true and correct copies of which are attached hereto as Schedule 5.7(a), (i) have been prepared from the books and records of the Company in accordance with GAAP consistently applied with prior periods, and (ii) are complete and correct in all material respects in accordance with GAAP and fairly present the financial condition and results of operations of the Company as of the dates and for the periods indicated thereon. The statements of operations included in such financials do not contain any items of extraordinary income or any other income not earned in the ordinary course of business. (b) The unaudited balance sheet as of July 31, 1998 (the "July 1998 Balance Sheet"), and notes thereto (collectively, the "July 1998 Financials" and, together with the balance sheets and related statements of operations and retained earnings described in paragraph 5.7 (a) above, the "Financials"), true and correct copies of which are attached hereto as Schedule 5.7(b), (i) have been prepared from the books and records of the Company in accordance with GAAP consistently applied with prior periods, and (ii) are complete and correct in all material respects in accordance with GAAP and fairly present the assets, liabilities and shareholders equity of the Company as of July 31, 1998. (c) The Financials have been reviewed by Nabil Barsoum, Certified Public Accountant whose reports thereon are part of Schedule 5.7. The books of accounts of the Company have been maintained in all material respects in accordance with sound business practices, and there have been no transactions involving the Company that properly should have 23 been set forth therein in accordance with generally accepted accounting principles that have not been accurately so set forth. SECTION 5.8 ABSENCE OF CERTAIN CHANGES. Except as set forth in Schedule 5.8, since July 31, 1998, there has not occurred: (a) Any adverse change in the assets, liabilities (whether absolute, accrued, contingent or otherwise), condition (financial or otherwise), results of operations, prospects or business of the Company not reflected in the July 1998 Financials and that has resulted in or reasonably could result in a Material Adverse Effect; (b) Except as disclosed in the Estimated Closing Balance Sheet, any increase in indebtedness over the level reflected on the July 1998 Balance Sheet, any guarantee by any of the Sellers of any obligation, or any mortgage, pledge or encumbrance on any of the properties or assets of the Company other than the Permitted Encumbrances; (c) Any amendment or modification of any Material Contract (as defined below), or any termination of any agreement that would have been a Material Contract were such agreement in existence on the date hereof (other than through performance of the agreement in the ordinary course of business, such as a purchase order); (d) Any entering into of any written or oral agreements, contracts, commitments or transactions that extend beyond the first anniversary hereof or have obligations thereunder in excess of $5,000, including any purchase or sale of any assets (other than in the ordinary course of business); (e) Any increase in the compensation (including, without limitation, the rate of commissions) payable to, or any payment of a cash bonus to, any employee or agent of, or consultant to the Company; (f) Any alteration in the manner of keeping the books, accounts or records of the Company, or in the accounting practices therein reflected; (g) Any declaration or payment of any dividends or distributions by the Company, any acquisition or redemption by the Company of any of its equity securities or any loan by the Company to any Seller; (h) To the Knowledge of Seller, any loss or, threatened loss of a customer or customers to which the Company had annual sales in excess of $5,000 during the past two years or to which the Company expects to have annual sales in excess of $5,000 during calendar years 1999-2000; (i) Any material damage or destruction to, or loss of, any assets or property owned, leased or used by the Company (whether or not covered by insurance); or (k) Any agreement to do any of the things described in the preceding clauses (a) - (h) of this Section 5.8. 24 SECTION 5.9 ABSENCE OF UNDISCLOSED LIABILITIES. There are no liabilities of the Company whether absolute, accrued, contingent or otherwise, and whether due or to become due, not reflected on or reserved for on the July 1998 Balance Sheet, except as set forth on the Estimated Closing Balance Sheet and except for executory obligations under Contracts identified to Purchaser pursuant to Schedule 5.16(a), the Leases, the Personal Property Leases. There are no commitments, contracts or undertakings covering the purchases of items of inventory in excess of the Company's normal operating requirements or covering the purchases of items of machinery and equipment in excess of the requirements of the Company. The Company is not a party to, nor bound by, nor has bid upon any contract or agreement with any customer that by its terms will require future expenditures (including incurred costs and allocated overhead and selling, general and administrative expense) in excess of reasonably anticipated receipts by more than $5,000 in the aggregate. SECTION 5.10 ACCOUNTS RECEIVABLE. Schedule 5.10 is an accurate aging of the accounts, notes and other receivables of the Company (the "Accounts Receivable") at July 31, 1998 which represent valid obligations arising from sales actually made or services actually performed in the ordinary course of business. To the Knowledge of Seller, the Accounts Receivable as of such date and any Accounts Receivable arising since such date are fully collectible, net of the reserves set forth in the Estimated Closing Balance Sheet, all of which reserves are adequate and in accordance with GAAP. SECTION 5.11 REAL PROPERTY; REAL PROPERTY LEASES. Schedule 5.11 sets forth a complete and correct summary description of each parcel of real property (collectively, the "Real Property") owned by or leased to the Company or otherwise used by the Company in connection with the Business, which description consists of a legal description for each such parcel owned by the Company and an identification of each lease (a "Lease") of real property under which the Company is either a lessee, sublessee, lessor or sublessor. Except as set forth on Schedule 5.11: (a) The Company does not own any Real Property; (b) Each Lease is a valid and binding obligation of the Company, and to the Knowledge of Seller, each such Lease is a valid and binding obligation of each of the other parties thereto; (c) None of the Company nor, to the Knowledge of Seller, any other party to a Lease is in Default with respect to any material term or condition thereof, and no event has occurred that, with the passage of time or the giving of notice or both, would constitute a default thereunder or would cause the acceleration of any obligation of any party thereto or the creation of a lien or encumbrance upon any asset of any of the Company; (d) To the Knowledge of Seller, all of the buildings, fixtures and other improvements located on the Real Property are in good operating condition and repair, ordinary wear and tear excepted, and the operation thereof as presently conducted does not violate any applicable code, zoning ordinance or other applicable law or regulation, the violation of which would have a Material Adverse Effect; 25 (e) The Company holds valid and effective certificates of occupancy, underwriters' certificates relating to electrical work, zoning, building, housing, safety, fire and health approvals and all other permits and licenses, each of which is required by applicable law to conduct the Business on the Real Property; and (f) The Company has not experienced during the two years preceding the date hereof any material interruption in the delivery of adequate quantities of any utilities (including, without limitation, electricity, natural gas, potable water, and fuel oil) or other public services (including, without limitation, sanitary and industrial sewer service) required by it in the operation of its business during such period. SECTION 5.12 ENVIRONMENTAL MATTERS. (a) The Company is, and at all times has been, in full compliance with all Environmental Protection Laws; (b) The Company has obtained or has timely applied for all permits, licenses and other authorizations under Environmental Protection Laws which are required in connection with its business and operations, all of which are in full force and effect. The Company is in material compliance with all terms and conditions of such permits, licenses and authorizations, no action or proceeding which reasonably could be expected to result in the revocation or suspension of any such permits, licenses and authorizations is pending or threatened, and the Company has not engaged in any conduct which reasonably could be expected to cause revocation or suspension of any of its permits, licenses or authorizations under Environmental Protection Laws; (c) During the period of the Company's ownership, lease, occupation and operation of the Real Property or any other property previously owned, leased, occupied or operated by the Company, no portion of the Real Property or such other property (i) has been or is being used in any manner for the storage, disposal, or treatment of any Regulated Substance, except for the temporary storage of Regulated Substances in material compliance with Environmental Protection Laws; (ii) contained or contains underground tanks of any type, or any materials containing PCBs or any asbestos; or (iii) contained or contains any surface or sub-surface conditions that constitute, or that through the physical effects of the passage of time may constitute, a public or private nuisance or otherwise caused any liability under Environmental Protection Laws; (d) There is not now nor has there been any contamination of soil, groundwater or other environmental media by or with any Regulated Substance on, in, under or about the Real Property or any other property previously owned, leased, occupied or operated by any of the Sellers which could create liability under the Environmental Protection Laws; (e) Except for air emissions in material compliance with Environmental Protection Laws, during the period of the Company's ownership, lease, occupation and operation of the Real Property or any other property previously owned, leased, occupied or operated by the Company, there has been no spill, discharge, disposal, leak, emission, injection, escape, dumping or release of any Regulated Substance on, in, under or about the Real Property or such other property by the Company or for which the Company has any liability; 26 (f) No portion of the Real Property or any other property previously owned, leased, occupied or operated by the Company has been designated, listed, or identified in any manner by the EPA, or any other federal, state, local or other governmental agency or instrumentality, or under and pursuant to any Environmental Protection Law as a hazardous waste or hazardous substance disposal or removal site, Superfund or clean-up site, or candidate for clean-up, investigation, removal or closure pursuant to any Environmental Protection Law; (g) None of the Sellers has received at any time prior to the date hereof a summons, citation, notice, directive, letter or other communication, written or oral, from the EPA or any other federal, state, local or other governmental agency or instrumentality, authorized pursuant to an Environmental Protection Law, concerning any intentional or unintentional action or omission (except any pertaining to emissions of fugitive dust and other non-hazardous particulates that are routinely corrected) by any of the Sellers constituting a violation or potential violation of any Environmental Protection Law, including, without limitation, violations relating to the releasing, spilling, leaking, pumping, pouring, emitting, emptying, dumping or otherwise disposing of any Regulated Substance into the environment resulting in damage thereto or to the wildlife, biota and other natural resources, and there exist no facts that would form the basis for a finding of such a violation; (h) None of the Sellers has received at any time prior to the date hereof any summons, citation, notice, directive, letter or other communication, written or oral, of any potential claim or liability under any Environmental Protection Law, including, without limitation, any notification as a potentially responsible party with respect to any Superfund or other clean-up site. There are no events, conditions, circumstances, activities, practices, incidents, actions or plans at or concerning the Real Property or the operations of any of the Sellers which may (i) interfere with or prevent continued compliance by any of the Sellers with any Environmental Protection Law, (ii) give rise to any claim or liability under any Environmental Protection Law, or (iii) form the basis for any claim, action, suit, proceeding, hearing or investigation under any Environmental Protection Law; and (i) No Seller has received any notice from a governmental authority or otherwise of any health problem of any current or former employee which in any way is or is alleged to be related to the release, spill, leak, omission, or disposition of any Regulated Substance at the Real Property or the Facilities. SECTION 5.13 INTANGIBLE PERSONAL PROPERTY. (a) There are no (i) patent, patent applications, copyright, copyright applications, trademark, trademark applications (in any such case, whether registered or required to be registered in the United States of America or elsewhere), process, invention, trade secret, trade name, computer program, formula and customer list (collectively, the "Intangible Personal Property") of Sellers related to or necessary to continue the operation of the Business, or (ii) except as set forth on Schedule 5.13, licenses or similar agreements or arrangements ("Licenses") to which any of the Sellers is a party and which relates to the Business either as licensee or licensor for each such item of Intangible Personal Property. 27 (b) There are no pending actions or other judicial or adversary proceedings involving the Company concerning any item of Intangible Personal Property, and, to the Knowledge of Seller, no such action or proceeding is threatened and no claim or other demand has been made or, to the Knowledge of Seller, threatened by any Person relating to any item of Intangible Personal Property; (c) The Company has the right and authority to use each item of Intangible Personal Property in connection with the conduct of its business in the manner presently conducted and to convey such right and authority, and such use does not conflict with, infringe upon or violate any patent, trademark or registration of any other person or entity; (d) There are no outstanding or threatened disputes or disagreements with respect to any License; and (e) The conduct by the Company of its business does not conflict with the valid patents, trademarks, trade secrets or trade names of others. SECTION 5.14 LABOR AND EMPLOYMENT AGREEMENTS. (a) Schedule 5.14 sets forth a complete and correct list of the following: (1) Each employment, consulting, collective bargaining and similar agreement, whether written or oral, with respect to any Transferred Employee or consultant to which the Company has continuing rights or obligations; and (2) The name of (A) each employee of the Company who as of July 31, 1998 and subsequently, was or is being paid $50,000 or more per year, and (B) each agent of or consultant to the Company who during either the 1997 or 1998 fiscal year was or is being paid $25,000. As used in this Section 5.14, the word "agreement" includes both oral and written contracts, understandings, arrangements and other agreements. (b) The Company has complied with all applicable laws, rules and regulations relating to the employment of labor, including, without limitation, those related to wages, hours, collective bargaining and the payment and withholding of taxes and other sums as required by appropriate governmental authorities and has withheld and paid to the appropriate authorities, or is holding for payment not yet due to such authorities, all amounts required to be withheld from such employees and is not liable for any arrears of wages, taxes, penalties or other sums for failure to comply with any of the foregoing. (c) No unfair labor practice complaint is pending against the Company before the National Labor Relations Board or any federal, state or local agency and no labor strike, grievance or other labor dispute affecting the Company is pending or, or to the Knowledge of Seller, threatened. 28 (d) Except as set forth on Schedule 5.14, no material organization effort has been made, and no sex discrimination, racial discrimination, age discrimination or other employment-related allegation, claim, suit or proceeding is pending or, to the Knowledge of Seller, threatened with respect to the employees of the Company and no such effort has been made and no such allegation, claim, suit or proceeding has been brought or, to the Knowledge of Seller threatened within the three-year period prior to the date of this Agreement. (e) No arbitration proceeding arising out of or under any collective bargaining agreement applicable to the Company is pending and no basis for any such proceeding exists. (f) All reasonably anticipated obligations of the Company, whether arising by operation of law, contract, past custom or otherwise, for unemployment compensation benefits, pension benefits, advances, salaries, bonuses, vacation and holiday pay, sick leave and other forms of compensation payable to the employees or agents of any of the Company in respect of the services rendered by any of them on or prior to the date of the Financials have been paid or adequate accruals therefor have been made in the books and records of the Company and in the Financials. All such obligations in respect of services rendered on or prior to the date hereof have been paid as of the date hereof, or adequate accruals therefor have been made on the Estimated Closing Balance Sheet, in accordance with GAAP. All accrued obligations of the Company applicable to its employees, whether arising by operation of law, contract, past custom or otherwise, for payments to trusts or other funds or to any governmental agency, with respect to unemployment compensation benefits, social security benefits or any other benefits for employees, with respect to employment of said employees through the date of the Financials have been paid or adequate accruals therefor have been made on the books and records of the Company and in the Estimated Closing Balance Sheet or the Financials, as applicable, in accordance with GAAP. All such obligations with respect to employment of employees through the date hereof have been paid as of the date hereof, or adequate accruals therefor have been made on the Estimated Closing Balance Sheet, in accordance with GAAP. SECTION 5.15 EMPLOYEE BENEFIT PLANS: ERISA. (a) Except as disclosed in Schedules 5.14 and 5.16, the Company (i) does not maintain, contribute to or have any obligation with respect to, and none of the employees of the Business is covered by, any bonus, deferred compensation, severance pay, pension, profit-sharing, retirement, insurance, or other fringe benefit plan, arrangement or practice, written or otherwise, or any other "employee benefit plan," as defined in Section 3(3) of ERISA, whether formal or informal (collectively, the "Plans"), (ii) is not a party to a contract for the employment of any employee of the Business or any other person who renders services to the Business, or (iii) has no ERISA Affiliates other than another Seller. None of the Plans is, and the Company or any of its ERISA Affiliates has ever maintained or had an obligation to contribute to, (i) a plan subject to Section 412 of the Code or Title I, Subtitle B, Part 3 of ERISA, (ii) a "multi employer plan," as defined in Section 3(37) of ERISA (a "Multi- employer Plan"), (iii) a "multiple employer plan," as defined in ERISA or the Code, or (iv) a funded welfare benefit plan, as defined in Section 419 of the Code. The Company does not have any agreement or commitment to create or contribute to any additional Plan, enter into any additional employment agreement or, except as required by law, to modify or change any existing Plan or employment agreement. Schedule 5.15 contains a complete and accurate list of the following 29 information for each employee of the Business (including each employee who is on a leave of absence or on layoff status): name, job title(s), date of hire, current salary and current status (E.G., active employee, on leave, etc.). None of the employees of the Business is a "leased employee," as defined in Section 414(n) of the Code. (b) With respect to each Plan, the Company has heretofore delivered or caused to be delivered to Purchaser true, correct and complete copies of (i) all documents that comprise the most current version of such Plan, including any related trust agreements, insurance contracts, or other funding or investment agreements and any amendments thereto, and (ii) with respect to each Plan that is an "employee benefit plan," as defined in Section 3(3) of ERISA, (A) the three most recent Annual Reports (Form 5500 Series) and accompanying schedules for each of the Plans for which such a report is required, (B) the most current summary plan description (and any summary of material modifications), (C) the three most recent certified financial statements for each of the Plans for which such a statement is required or was prepared, and (D) for each Plan intended to be "qualified" within the meaning of Section 401(a) of the Code, all Internal Revenue Service determination letters issued with respect to such Plan. Since the date of the foregoing documents, there has not been any material change in the assets or liabilities of any of the Plans or any material change in their terms and operations that could reasonably be expected to materially affect or alter the tax status or materially affect the cost of maintaining such Plan, and none of the Plans has been or will be amended since the date of the Letter of Intent and prior to the Closing Date. Each of the Plans will be terminated by the Company within 60 days following the Closing Date without cost or liability to Purchaser. (c) The Company has performed and complied in all material respects with all of its obligations under and with respect to the Plans, and each of the Plans has, at all times, in form, operation and administration materially complied with its terms, and, where applicable, the requirements of all applicable laws. Each Plan that is intended to be "qualified" within the meaning of Section 401(a) of the Code has been determined by the Internal Revenue Service to be so qualified and nothing has occurred that reasonably could be expected to adversely affect such qualified status. (d) The Company has made all contributions with respect to a Plan that are required to have been made as of the date hereof under the terms thereof, or under the terms of any related insurance contract, or any applicable law. (e) All Plans that are group health plans have been operated in material compliance with the continuation coverage requirements of Section 4980B of the Code (and any predecessor provisions) and Part 6 of Title I of ERISA ("COBRA"). The Company has no obligation to provide health benefits or other non-pension benefits to any retired or other former employees, except as specifically required by COBRA. (f) None of the Sellers nor any other "disqualified person" or "party in interest," as defined in Section 4975 of the Code and Section 3(14) of ERISA, respectively, has engaged in any "prohibited transaction," as defined in Section 4975 of the Code or Section 406 of ERISA, with respect to any Plan, and none of the Sellers is aware of any fiduciary violations under ERISA with respect to any Plan, that in either case could subject a Seller (or any employee 30 thereof) to any material penalty or tax under Section 502(i) of ERISA or Sections 4971 and 4975 of the Code. (g) Except as set forth on Schedule 5.21, with respect to any Plan: (i) no filing, application or other matter is pending with the Internal Revenue Service, the Pension Benefit Guaranty Corporation, the United States Department of Labor or any other governmental body, (ii) there is no action, suit or claim pending (and the Company is unaware of any basis for such a claim), other than routine claims for benefits, and (iii) there are no outstanding liabilities for taxes, penalties or fees. (h) The Company has not incurred any liability or taken any action, and is not aware of any event that has occurred or is likely to occur, that could cause any one of them to incur any liability (i) under Section 412 of the Code or Title IV of ERISA with respect to any "single-employer plan" (as defined in Section 4001(a)(15) of ERISA), (ii) on account of a partial or complete withdrawal (as defined in Sections 4203 and 4205 of ERISA, respectively) with respect to any Multi-employer Plan, (iii) on account of unpaid contributions to any Multi-employer Plan, or (iv) on account of any reorganization, insolvency or termination of any Multi-employer Plan. (i) Assuming Purchaser hires the Transferred Employees in the manner set forth in this Agreement, neither the execution and delivery of this Agreement nor the consummation of any or all of the Transactions will: (i) entitle any Transferred Employee to severance pay, unemployment compensation or any similar payment, (ii) except with respect to a Plan termination (which will occur without cost or liability to Purchaser), accelerate the time of payment or vesting or increase the amount of any compensation due to any Transferred Employee, or (iii) directly or indirectly result in any payment made or to be made to or on behalf of any person to constitute an "excess parachute payment" within the meaning of Section 280G of the Code. SECTION 5.16 MATERIAL CONTRACTS AND RELATIONSHIPS. (a) Schedule 5.16(a) sets forth a complete and correct list or summary of the following: (1) All executory agreements (or groups of agreements with one or more related entities) between the Company and any customer or supplier pursuant to which the Company is required to expend $2,000 or more after the Closing Date, or is entitled to receive $2,000 or more, and all agreements and purchase orders extending beyond two months from the date of this Agreement; (2) All existing agreements that relate to the borrowing or lending by the Company of any money or that create or continue any material claim, lien, charge or encumbrance against, or right of any third party with respect to, any asset of the Company; (3) All existing agreements by which the Company leases any real property, has the right to lease any real property or leases capital equipment or leases any other personal property, and all other leases involving the Company as lessee or lessor; 31 (4) All existing agreements to which the Company is a party not in the ordinary course of business; (5) All existing contracts or commitments to which a Seller is a party (relating to the Business or the Assets) relating to commission arrangements with others; (6) All existing license agreements to which a Seller is a party (relating to the Business or the Assets), whether as licensor or licensee; (7) All existing agreements between the Company and its sales representatives; (8) All existing agreements between the Company and its customers relating to volume rebates or price reductions; (9) All other existing agreements to which the Company is a party or by which it is bound and that involve $2,000 or more or that extend for a period of two (2) months or more; (10) All other existing agreements to which the Company is a party or by which it is bound and that are or may be material to the assets, liabilities (whether absolute, accrued, contingent or otherwise), condition (financial or otherwise), results of operations, business or prospects of the Company; and (11) A current list of the Company's active customers with sales in excess of $10,000 for the current fiscal year. As used in this Section 5.16, the word "agreement" includes both oral and written contracts, leases, understandings, arrangements and all other agreements. The term "Material Contracts" means the agreements of any of the Sellers required to be disclosed on Schedule 5.16(a). (b) All of the Material Contracts are in full force and effect, are valid and binding and, as to the Company, are enforceable in accordance with their terms except as limited by (i) bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to creditors' rights generally or by equitable principles (whether considered in an action at law or in equity) and (ii) limitations imposed by federal or state law or equitable principles upon the availability of specific performance, injunctive relief or other equitable remedies. There are no material liabilities of any party to any Material Contract arising from any breach or Default of any provision thereof and no event has occurred that, with the passage of time or the giving of notice or both, would constitute a breach or default by any party thereto. (c) The Company (i) has fulfilled all material obligations required pursuant to each existing Material Contract to have been performed by it prior to the date hereof, and (ii) as far as reasonably foreseeable based on current conditions, will be able to fulfill all of its obligations under the Material Contracts that remain to be performed after the date hereof. (d) Except as set forth on Schedule 5.16(a), the Material Contracts by their terms are assignable to Purchaser without the consent of any party. 32 (e) Schedules 5.16(b), (c) and (d) set forth a complete and correct list of each (i) customer (or related group of customers) with whom the Company did $10,000 or more of business during the last fiscal year or the current fiscal year, (ii) supplier (or related group of suppliers) with whom the Company did $10,000 or more of business during the current fiscal year, and (iii) agent (or related group of agents) or Representative (or related group of Representatives) who was paid $10,000 or more by the Company during the last fiscal year or the current fiscal year, respectively. (f) To the Knowledge of the Seller, the Company and Vincent Lyons have maintained and continue to maintain good relations with the Company's customers, suppliers and agents and, except as set forth in Schedule 5.8, and the Company and Vincent Lyons do not reasonably expect that any customer (to which the Company had annual sales in excess of $10,000 in the 1997 fiscal year or the current fiscal year), supplier or agent will stop doing business with Purchaser as a successor to the Business or will materially change the terms on which such customer, supplier or agent has done business with the Company since the date of the Letter of Intent. SECTION 5.17 INVENTORY. Except for inventory that is excess, damaged, obsolete, or outdated or requires rework, for which the Company has established an adequate reserve in the July 1998 Balance Sheet in accordance with GAAP, and except as otherwise set forth in the Estimated Closing Balance Sheet, the inventory (the "Inventory") reflected in the July 1998 Balance Sheet and acquired since the date of such balance sheet (and not sold prior to the date hereof or reserved for in the July 1998 Balance Sheet) is good and merchantable material, of a quantity and quality useable in the ordinary course of business, and carried on the books and records of the Company on the lower of cost (on a first in, first-out basis) or market basis consistent with the past practices of the Company. SECTION 5.18 ABSENCE OF CERTAIN BUSINESS PRACTICES. Neither the Company nor any employee, agent or other person acting on behalf of the Company has, directly or indirectly, given or agreed to give any gift or similar benefit to any customer, supplier, competitor or governmental employee or official (domestic or foreign) (i) that would subject the Company to any damage or penalty in any civil, criminal or governmental litigation or proceeding or (ii) that, if not given in the past, would have had a Material Adverse Effect. SECTION 5.19 COMPLIANCE WITH LAWS. The operation, conduct and ownership of the property or business of the Company are being, and at all times have been, conducted, in all material respects, in full compliance with all federal, state, local and other (domestic and foreign) laws, rules, regulations and ordinances (including without limitation, those relating to employment discrimination, occupational safety, conservation or corrupt practices) and all judgments and orders of any court, arbitrator or governmental authority applicable to it. To the Knowledge of Seller, there are no proposed federal, state, local and other (domestic or foreign) law, rule, regulation, ordinance, order, judgment, decree, governmental taking, condemnation or other proceeding that would be applicable to the business, operations or properties of the Company and that could have a Material Adverse Effect. SECTION 5.20 LITIGATION. Except for litigation claims filed by the Company as a plaintiff (which constitute an Excluded Asset and an Excluded Liability), there are no lawsuits, claims, 33 legal, administrative, arbitration or other proceeding, or any governmental investigation, pending or, to the Knowledge of Seller, threatened against or otherwise affecting the Company, the Business or the Assets. SECTION 5.21 TAXES. Except as set forth on Schedule 5.21: (a) The Company has timely filed all Tax returns and reports required to have been filed by it for all taxable periods ending on or prior to the date hereof; (b) All Taxes of the Company for all taxable periods ending on or prior to the date hereof have been paid or have been adequately reserved for. The Tax returns and reports filed are true and correct in all material respects; (c) None of such returns contains, or will contain, a disclosure statement under Section 6662 of the Code (or any predecessor statute) or any similar provision of state, local or foreign law; (d) The Company has not received notice that the IRS or any other taxing authority has asserted against the Company any deficiency or claim for additional Taxes; (e) All Tax deficiencies asserted or assessed against the Company have been paid or finally settled; (f) There is no pending or, to the Knowledge of Seller, threatened action, audit, proceeding, or investigation with respect to (i) the assessment or collection of Taxes of the Company or a claim for refund made by the Company with respect to Taxes previously paid in connection therewith; (g) All amounts that are required to be collected or withheld by the Company or with respect to Taxes have been duly collected or withheld; all such amounts that are required to be remitted to any taxing authority have been duly remitted; (h) Within the last four years, neither the IRS nor any state, foreign or local taxing authority has audited any income tax return of the Company; (i) The Company has not waived any statute of limitations (that have not expired as of the date hereof) with respect to the assessment of any Tax; (j) The Company has not taken any action not in accordance with past practice that would have the effect of deferring any Tax liability of the Company, from any taxable period ending on or before the date hereof to any taxable period ending after such date; (k) The Company has not filed any consent agreement under Section 341(f) of the Code; (l) There are no liens for Taxes due and payable upon any assets of the Company; 34 (m) The Company has not participated in, or cooperated with, an international boycott within the meaning of Section 999 of the Code; (n) The Company is not currently required to include in income any adjustment pursuant to Section 481(a) of the Code (or similar provisions of other law or regulations) by reason of a change in accounting method, and does not have any knowledge that the IRS (or other taxing authority) has proposed, or is considering, any such change in accounting method; (o) The Company is not a party to any agreement, contract, arrangement or plan that would result in the payment of any "excess parachute payment" within the meaning of Section 280G of the Code; (p) None of the assets of the Company is property that is required to be treated as owned by any other person pursuant to the "safe harbor lease" provisions of former Section 168(f)(8) of the Internal Revenue Code of 1954 as amended and in effect immediately prior to the enactment of the Tax Reform Act of 1986 and none of the assets of the Company is "tax exempt use property" within the meaning of Section 168(h) of the Code; and (q) None of the assets of the Company secures any debt the interest on which is tax exempt under Section 103 of the Code. SECTION 5.22 INSURANCE MATTERS. (a) Schedule 5.22 sets forth a complete and correct list of all insurance policies currently in force with respect to the Company, the Business or the Assets and of all claims made by the Company on any liability or other insurance policies during the past two fiscal years and the current fiscal year (other than worker's compensation claims). True and correct copies of the insurance policies currently in force have been submitted to the Purchaser's Representatives; (b) There are no outstanding requirements or recommendations by any insurance company that issued any policy of insurance to the Company or by any board of underwriters or other similar body exercising similar functions or by any governmental authority exercising similar functions that require or recommend any changes in the conduct of the Business or any repairs or other work to be done on or with respect to the Company's assets that have not been performed by the Company. (c) No notice or other communication has been received by the Company from any insurance company within the two years preceding the date hereof canceling or materially amending or materially increasing the annual or other premiums payable under any of its insurance policies, and, to the best of the Company's knowledge, no such cancellation, amendment or increase of premiums is threatened. (d) During the past two years, the Company has maintained claims made comprehensive general liability and continued operations insurance (including product liability insurance) with a general aggregate limit of at least $1,000,000, and no claims have been made 35 or paid, and no claims are currently pending, under any of such comprehensive general liability insurance policies. (e) No lawsuits have been filed and no claims have been made or, to the best of Sellers' knowledge, threatened against the Company as a result of accidents which occurred during the one-year period prior to the date hereof that would give rise to a claim with respect to any services provided by or products designed, manufactured, or sold by the Company or the operations of the Company. SECTION 5.23 NO POWERS OF ATTORNEY OR SURETYSHIPS. The Company has not granted any general or special powers of attorney which are currently in effect nor does it have any obligation or liability (whether actual, contingent or otherwise) as guarantor, surety, co-signer, endorser, co-maker, indemnitor, obligor on an asset or income maintenance agreement or otherwise in respect of the obligation of any person, corporation, partnership, joint venture, association, organization or other entity. SECTION 5.24 BROKERAGE FEES. No Person is entitled to any brokerage or finder's fee or other commission from any of the Sellers in respect of this Agreement or the Transactions. SECTION 5.25 BANKING FACILITIES. Schedule 5.25 sets forth a complete and correct list of: (a) Each bank, savings and loan or similar financial institution in which the Company has an account or safety deposit box and the numbers of such accounts or safety deposit boxes maintained thereat; and (b) The names of all persons authorized to draw on each such account or to have access to any such safety deposit box, together with a description of the authority (and conditions thereto, if any) of each person with respect thereto. SECTION 5.26 MACHINERY, EQUIPMENT AND OTHER PERSONAL PROPERTY; PERSONAL PROPERTY LEASES. Except for the Leased Real Property and the Leased Personal Property and except as set forth in Schedule 5.26, the Company owns all of the machinery, equipment, vehicles, furniture, fixtures, leasehold improvements, repair parts, tools and other property (collectively, the "Personal Property") used by or relating to the Company. All such Personal Property is in good operating condition and sufficient to carry on the business of the Company in the normal course as it is presently conducted subject to ordinary wear and tear and is free from material defects, whether patent or, to the Knowledge of Seller, latent. Schedule 5.26 sets forth a complete and correct summary description and identification of each lease (a "Personal Property Lease") of personal property under which the Company is either a lessee, sublessee, lessor or sublessor. Except as set forth in Schedule 5.26: (a) Each Personal Property Lease is a valid and binding obligation of the Company, and to the Knowledge of Seller, each such Personal Property Lease is a valid and binding obligation of each of the other parties thereto; and 36 (b) The Company is not in default with respect to any material term or condition thereof, and no event has occurred that, with the passage of time or the giving of notice or both, would constitute a Default thereunder or would cause the acceleration of any obligation of any party thereto or the creation of a lien or encumbrance upon any asset of the Company. SECTION 5.27 PRODUCT WARRANTY AND LIABILITY. Each product designed, manufactured, or sold by the Company and all services performed by the Company have been in conformity in all material respects with all applicable contractual commitments and all express and implied warranties. The Company has no liability, and there is no basis for any present or future action, suit or other proceeding giving rise to any liability, (i) for replacement or repair of any such product or other damages in connection therewith, or (ii) arising out of any injury to persons or property as a result of any such product or any services performed by the Company. None of the Sellers has received any notice that an action, suit or proceeding has been, or in the future may be, made alleging that products or services of the Company are or were defective in any material respect. SECTION 5.28 STANDARDS AND CERTIFICATIONS. Products previously designed, manufactured, sold and leased by the Company met and had received at the time of their design, manufacture and sale, and products currently designed, manufactured, sold and leased by the Company meet and have received, all material standards established by relevant standard-setting organizations and all certifications from all relevant safety and standards testing and certifying organizations, if any, as were or are, as the case may be, necessary for such products to comply with all applicable fire, safety and similar codes and regulations. SECTION 5.29 DISCLOSURE. The information provided by Sellers in this Agreement, including, without limitation, the Disclosure Schedule, and in any other writing delivered pursuant hereto does not and will not contain any untrue statement of a material fact or, omit to state a material fact required to be stated herein or therein or necessary to make the statements and facts contained herein or therein, in light of the circumstances under which they are made, not false or misleading. Copies of all documents heretofore or hereafter delivered or made available by Sellers to Purchaser pursuant hereto were or will be complete and accurate records of such documents. SECTION 5.30 EARN-OUT STOCK. The Company is an "accredited investor" as such term is defined in Regulation D promulgated under the Securities Act of 1933, as amended. The Company understands that Purchaser has made no representation regarding the Company other than as set forth herein. The Company has made such further investigation as it deems appropriate to evaluate the merits and risks of receiving common stock in Purchaser. The Company will acquire, if earned, the Earn-Out Stock for its own account, for investment purposes only, and not with a view towards the sale or other distribution thereof (other than to a Shareholder who is also an "accredited investor"). The Company agrees that there are restrictions under federal and state securities laws on the transferability of the Earn-Out Stock that may be issued pursuant to Section 3.2. The Sellers agree and acknowledge that certificates for the Earn-Out Stock shall bear substantially the following legend: The Shares represented by this certificate are subject to restrictions on transferability and resale any may not be transferred or resold except as permitted 37 under the Securities Act of 1933, pursuant to registration under said Act or pursuant to another applicable exemption from the requirements of said Act. SECTION 5.31 EMPLOYEES. As of the Closing Date, the Company has 192 employees, all of whom work within a 75 mile radius of 1220 North Highland Avenue. SECTION 5.32 ACKNOWLEDGMENT BY PURCHASER. Without limiting the representations, warranties, covenants and agreements set forth herein, except as expressly provided herein, Sellers make no representation or warranty concerning the Assets or the Business, including as to the quality, condition, merchantability, salability, obsolescence, working order or fitness for a particular purpose thereof. It is therefore expressly understood and agreed that the Purchaser shall accept the condition of the Assets "as is, where is" without any representation, warranty or guarantee, express or implied, as to merchantability, fitness for a particular purpose or otherwise as to the condition, size, extent, quantity, quality, type, value or status of such Assets; provided, that the Purchaser may rely on the representations and warranties of the Sellers set forth in Article V and the foregoing shall not limit the agreements and covenants set forth herein. ARTICLE VI REPRESENTATIONS AND WARRANTIES OF PURCHASER The Purchaser hereby represents and warrants to the Company that: SECTION 6.1 ORGANIZATION AND CORPORATE AUTHORITY. Purchaser is a corporation duly incorporated, validly existing and in good standing under the laws of the State of California. Purchaser has all requisite corporate power and authority to enter into this Agreement and to consummate the Transactions. SECTION 6.2 AGREEMENT. This Agreement and the Ancillary Agreements to which it is a party are the valid and binding agreements of Purchaser, enforceable against Purchaser in accordance with their respective terms subject to bankruptcy, insolvency, reorganization, moratorium and other laws of general applicability relating to or affecting creditors' rights and to general equitable principles (whether considered in a proceeding at law or otherwise). The execution, delivery and performance of this Agreement and the Ancillary Agreement to which the Purchaser is a party, and the consummation of the Transactions contemplated hereby to be consummated by it, will not (i) conflict with the articles of incorporation, bylaws or other corporate governance documents of the Purchaser, or (ii) result in the violation of any provisions of law applicable to the Purchaser the violation of which could have a material adverse effect upon the business, operations or assets of Purchaser or upon the consummation of the Transactions. SECTION 6.3 AUTHORITY. The execution, delivery and performance of this Agreement by the Purchaser, and all other Ancillary Agreements to which the Purchaser is a party, and the consummation by the Purchaser of the Transactions, have been duly authorized by all requisite corporate action and no further action or approval is required by or in respect of, or filing with, 38 any federal or state governmental body, agency, official or authority in order to permit Purchaser to consummate the Transactions contemplated hereby to be consummated by Purchaser. SECTION 6.4 BROKERAGE FEES. No Person is entitled to any brokerage or finder's fee or other commission from Purchaser in respect of this Agreement or the Transactions. ARTICLE VII COVENANTS Sellers and Purchaser each covenant with the other as follows: SECTION 7.1 FURTHER ASSURANCES. Upon the terms and subject to the conditions contained herein, the parties agree, both before and after the Closing, (i) to use all reasonable efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable to consummate and make effective the transactions contemplated by this Agreement, (ii) to execute any documents, instruments or conveyances of any kind which may be reasonably necessary or advisable to carry out any of the transactions contemplated hereunder, and (iii) to cooperate with each other in connection with the foregoing. Without limiting the foregoing, the parties agree to use their respective reasonable efforts (A) to obtain all necessary waivers, consents and approvals from other parties to the Contracts and Leases to be assumed by Purchaser; PROVIDED, HOWEVER, that neither Purchaser nor the Company shall be required to make any payments, commence litigation or agree to modifications of the terms thereof in order to obtain any such waivers, consents or approvals, (B) to obtain all necessary Permits as are required to be obtained under any Regulations, (C) to give all notices to, and make all registrations and filings with third parties, including without limitation submissions of information requested by governmental authorities, and (D) to fulfill all conditions to this Agreement. Purchaser and Sellers shall cooperate with each other and shall cause their officers, employees, agents, auditors and representatives to cooperate with each other after the Closing to ensure the orderly transition of the Business to Purchaser and to minimize any disruption to the Business that might result from the Transactions. SECTION 7.2 NO SOLICITATION. (a) NO SOLICITATION. From the date hereof through the Closing or the earlier termination of this Agreement, each of the Sellers and their Representatives shall not, and shall cause each of their respective Representatives (including, without limitation, investment bankers, attorneys and accountants), not to, directly or indirectly, enter into, solicit, initiate or continue any discussions or negotiations with, or encourage or respond to any inquiries or proposals by, or participate in any negotiations with, or provide any information to, or otherwise cooperate in any other way with, any corporation, partnership, person or other entity or group, other than Purchaser and its Representatives concerning, any sale of all or a portion of the Assets or the Business, or any merger, consolidation, liquidation, dissolution or similar transaction involving any Seller (each such transaction being referred to herein as a "Proposed Acquisition Transaction"); PROVIDED, HOWEVER, that Sellers may disclose the transactions contemplated by this Agreement to customers of the Company in connection with Sellers' efforts to obtain the benefit 39 of any Contract, Lease or Permit for Purchaser. The parties agree that in the event the Company, Sellers or any individual Seller breaches its obligation under this Section 7.2, the Company shall immediately pay to Purchaser the sum of (a) Purchaser's expenses incurred in connection with the Transactions, and (b) $200,000; PROVIDED, HOWEVER, that such amount shall not exceed $300,000. Each Seller hereby represents that it is not now engaged in discussions or negotiations with any party other than Purchaser with respect to any of the foregoing. Each Seller agrees not to release any third party from, or waive any provision of, any confidentiality or standstill agreement to which such Seller is a party. (b) NOTIFICATION. Sellers shall immediately notify Purchaser (orally and in writing) if any discussions or negotiations are sought to be initiated, any inquiry or proposal is made, or any information is requested with respect to any Proposed Acquisition Transaction. SECTION 7.3 NOTIFICATION OF CERTAIN MATTERS. From the date hereof through the Closing, Sellers and Purchaser shall give prompt notice to the other of (i) the occurrence, or failure to occur, of any event which occurrence or failure would be likely to cause any representation or warranty contained in this Agreement or in any exhibit or schedule hereto to be untrue or inaccurate in any respect and (ii) any failure by it to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it under this Agreement or any exhibit or schedule hereto; PROVIDED, HOWEVER, that such disclosure shall not be deemed to cure any breach of a representation, warranty, covenant or agreement or to satisfy any condition. SECTION 7.4 INVESTIGATION BY PURCHASER. From the date hereof through the Closing Date each Seller shall, and shall cause any and all of its respective employees and agents to, afford the Representatives of Purchaser and its Affiliates complete access at all reasonable times to the Assets for the purpose of inspecting the same, and to the employees, agents, attorneys, accountants, properties, Books and Records, Contracts and Leases of the Company, and shall furnish Purchaser and its Representatives all financial, operating and other data and information as Purchaser or its Affiliates, through their respective Representatives, may reasonably request, including unaudited balance sheets and the related statements of income, retained earnings and cash flow for August and September 1998 which financial statements shall (i) fairly present in all material respects, the financial condition of the Company, (ii) be in accordance with the books and records of the Company, and (iii) accurately set forth the assets, Liabilities and financial condition, results of operations and other information purported to be set forth therein in accordance with generally accepted accounting principles consistently applied. SECTION 7.5 CONDUCT OF BUSINESS. From the date hereof through the Closing, the Company shall, except as contemplated by this Agreement, or as consented to by Purchaser in writing, operate the Business in the ordinary course of business and in accordance with past practice and use commercially reasonable efforts to preserve intact the Business and its goodwill, and preserve the goodwill and business relationships with suppliers, distributors, customers and others having business relationships with the Company, and shall not take any action inconsistent with this Agreement or with the consummation of the Closing. Without limiting the generality of the foregoing, the Company shall not, except as specifically contemplated by this Agreement or as consented to by Purchaser in writing: 40 (a) enter into, extend, materially modify, terminate or renew any Contract or Lease, except in the ordinary course of business; (b) sell, assign, transfer, convey, lease, mortgage, pledge or otherwise dispose of or encumber any of the Assets, or any interests therein, except in the ordinary course of business, and without limiting the generality of the foregoing, each Seller shall continue to operate the Business consistent with its past practices; (c) incur any indebtedness for borrowed money or commitment to borrow money, other than Financing Obligations, guarantee the obligations of others, indemnify others or, except in the ordinary course of business, incur any other Liability; (d) (1) take any action with respect to the grant of any bonus, severance or termination pay or with respect to any increase of benefits payable under the Company's severance or termination pay policies or agreements in effect on the date hereof or increase in any manner the compensation or fringe benefits of any employee or pay any benefit not required by any existing Employee Benefit Plan or policy; (2) make any change in the key management structure of the Company, including without limitation the hiring of additional management personnel or the termination of existing management personnel (except with respect to the Excluded Employees); (3) adopt, enter into or amend any Employee Benefit Plan, agreement (including without limitation any collective bargaining or employment agreement), trust, fund or other arrangement for the benefit or welfare of any employee, except for any such amendment as may be required or, in the Company's reasonable determination, desirable to comply with applicable Regulations; or (4) fail to maintain all Employee Benefit Plans in accordance with applicable Regulations in any material respect; (e) cause the Company to acquire by merger or consolidation with, or merge or consolidate with, or purchase all or substantially all of the assets of, or otherwise acquire any material assets or business of any corporation, partnership, association or other business organization or division thereof; (f) declare, set aside, make or pay any dividends; (g) expend funds for budgeted capital expenditures or commitments for or on behalf of the Company otherwise than in accordance with the capital budget agreed to by Purchaser and the Company; (h) willingly allow or permit to be done, any act by which any of the Insurance Policies may be suspended, impaired or canceled; (i) (1) fail to pay its accounts payable and any debts owed or obligations due to it, or pay or discharge when due any Liabilities, in the ordinary course of business; or 41 (2) fail to collect its accounts receivable in the ordinary course of business; (j) fail to maintain the Assets in substantially their current state of repair, excepting normal wear and tear or fail to replace consistent with the Company's past practice inoperable, worn-out or obsolete or destroyed Assets; (k) make any loans or advances on behalf of the Company to any partnership, firm or corporation, or, except for expenses incurred in the ordinary course of business, any individual; (l) make any income tax election or settlement or compromise with tax authorities on behalf of the Company; (m) fail to comply with all Regulations applicable to it, the Assets and the Business; (n) intentionally do any other act which would cause any representation or warranty of any Seller in this Agreement to be or become untrue in any material respect; (o) sell, transfer, assign, pledge or encumber in, or any other ownership interests of, the Company or repurchase or commit to repurchase, partnership interests in, or any other ownership interests of, the Company held by any of the Sellers; (p) fail to use commercially reasonable efforts to (i) retain the Company's employees (other than the Excluded Employees) and (ii) maintain the Business so that such employees will remain available to the Company on and after the Closing Date, (iii) maintain existing relationships with suppliers, customers and others having business dealings with any Seller and (iv) otherwise to preserve the goodwill of the Business so that such relationships and goodwill will be preserved on and after the Closing Date; (q) enter into any agreement, or otherwise become obligated, to do any action prohibited hereunder; (r) make or change any tax election affecting the Assets in the hands of Purchaser; or (s) fail to pay, or cause to be paid, when due all Taxes for which the Company is or may become liable or that are or may become payable with respect to any taxable period ending on or prior to the Closing Date. SECTION 7.6 EMPLOYMENT MATTERS. (a) Purchaser and Vincent Lyons shall enter into an Employment Agreement, to be effective as of the Closing, in substantially the form of Exhibit A hereto. Purchaser shall not be required to hire or offer employment to any other employee of the Company other than the persons identified on Schedule 2.4. Those employees of the Company identified on Schedule 2.4 who accept employment with Purchaser are the "Transferred Employees" for the purposes of this Agreement. 42 (b) Effective as of the Closing (or the date an employee becomes a Transferred Employee, if later), all Transferred Employees shall cease to participate in, or accrue benefits under, any of the Company's Plans, and the Company shall be solely responsible for all of its Plans and all obligations and liabilities thereunder. Purchaser shall not assume any Plan of the Company or any obligation or liability thereunder, it being understood that Purchaser will extend to all Transferred Employees coverage under its employee benefit plans on the same basis and to the same extent and on the same terms as such coverage is offered to Purchaser's new employees. The Company shall be responsible for (i) terminating all of its employees, and (except as provided elsewhere herein) shall be responsible for any and all obligations and liabilities arising in connection with the terminations of the Excluded Employees, including without limitation, any severance or other termination pay, retirement and welfare benefits, (ii) providing the appropriate notices to the employees of the Business pursuant to Section 4980B of the Code and Part 6 of Title I of ERISA, (iii) all liabilities, including without limitation, the cost of extended insurance coverage, for any employee of the Company not actively employed by the Company on the Closing Date until such time, if ever, that such employee returns to active employment and is employed by Purchaser. (c) Nothing contained in this Agreement shall confer upon any Transferred Employee (other than Vincent Lyons whose rights shall be set forth in the Employment Agreement) any right with respect to continuance of employment by Purchaser, nor shall anything herein interfere with the right of Purchaser to terminate the employment of any Transferred Employee at any time, with or without cause, or restrict Purchaser in the exercise of its independent business judgment in modifying any of the terms and conditions of the employment of the Transferred Employees after the Closing Date. (d) No provision of this Agreement shall create any third party beneficiary rights in any Transferred Employee, any beneficiary or dependents thereof, or any collective bargaining representative thereof, with respect to the compensation, terms and conditions of employment and benefits that may be provided to any Transferred Employee by Purchaser or under any benefit plan which Purchaser may maintain. (e) Prior to and until Closing, each Shareholder employee of the Company shall receive his or her salary and hospitalization, medical, surgical, dental, life insurance and any other welfare and benefits plans and programs, comparable to what such Shareholder, as an employee of the Company, is receiving as of the date of this Agreement. SECTION 7.7 COLLECTION OF ACCOUNTS RECEIVABLE AND LETTERS OF CREDIT. At the Closing, Purchaser shall acquire hereunder, and thereafter Purchaser or its designee shall have the right and authority to collect for Purchaser's or its designee's account, all receivables, letters of credit and other items which constitute a part of the Assets, and each Seller shall within 48 hours after receipt of any payment in respect of any of the foregoing, properly endorse and deliver to Purchaser any letters of credit, documents, cash or checks received on account of or otherwise relating to any such receivables, letters of credit or other items related to the Company or the Business. Each Seller shall promptly transfer or deliver to Purchaser or its designee any cash or other property that such Seller may receive in respect of any deposit, prepaid expense, claim, contract, license, lease, commitment, sales order, purchase order, letter of credit or receivable of any character, or any other item, constituting a part of the Assets. 43 SECTION 7.8 BOOKS AND RECORDS; TAX MATTERS. (a) BOOKS AND RECORDS. Purchaser shall retain all Books and Records in the possession of Purchaser after the Closing Date relating to the operation of the Facilities and the Business prior to the Closing in accordance with all applicable records retention Regulations, including without limitation, all Environment Laws and occupational health and safety laws and regulations. Each party agrees that it shall cooperate with and make available to the other party, during normal business hours, all Books and Records, information and employees (without substantial disruption of employment) retained and remaining in existence after the Closing which are necessary or useful in connection with any tax, environmental or occupational health and safety inquiry, audit, investigation or dispute, any litigation or investigation or any other matter requiring any such Books and Records, information or employees for any reasonable business purpose. The party requesting any such Books and Records, information or employees shall bear all of the out-of-pocket costs and expenses (including without limitation attorneys' fees) reasonably incurred in connection with providing such Books and Records, information or employees. All information received pursuant to this Section 7.8(a) shall be treated as confidential and not disclosed to any person or entity other than the Representatives of Sellers or Purchaser, as the case may be, who need to know such information in connection with the proceedings contemplated by this Section 7.8(a). (b) COOPERATION AND RECORDS RETENTION. Sellers and Purchaser shall (i) each provide the other with such assistance as may reasonably be requested by any of them in connection with the preparation of any return, audit, or other examination by any taxing authority or judicial or administrative proceedings relating to Liability for Taxes in connection with the Assets or the Business, (ii) each retain and provide the other with any records or other information that may be relevant to such return, audit or examination, proceeding or determination, and (iii) each provide the other with any final determination of any such audit or examination, proceeding, or determination that affects any amount required to be shown on any tax return of the other for any period. Without limiting the generality of the foregoing, Purchaser and each Seller shall each retain, until the applicable statutes of limitations (including any extensions) have expired, copies of all tax returns, supporting work schedules, and other records or information that may be relevant to such returns for all tax periods or portions thereof ending on or before the Closing Date and shall not destroy or otherwise dispose of any such records without first providing the other party with a reasonable opportunity to review and copy the same. SECTION 7.9 BULK SALES. It may not be practicable to comply or attempt to comply with the procedures of the "Bulk Sales Act" or similar law of any or all of the states in which the Assets are situated or of any other state which may be asserted to be applicable to the transactions contemplated hereby. Accordingly, to induce Purchaser to waive any requirements for compliance with any or all of such laws, each Seller hereby agrees that the indemnity provisions of Section 11.2 hereof shall apply to any Damages of Purchaser or any institution providing financing to Purchaser arising out of or resulting from the failure of any Seller or Purchaser to comply with any such laws. SECTION 7.10 CONFIDENTIALITY. The terms of the Confidentiality Agreement between the Company and Purchaser dated April 22, 1998 shall continue to remain in full force and effect during the period between the date hereof and the Closing Date, unless earlier terminated. 44 SECTION 7.11 PACIFIC CENTURY BANK GUARANTY. At the Closing, the indebtedness owed by the Company to Pacific Century Bank, N.A., which the Company represents to be approximately $4.0 million as of the date hereof, will be fully paid by Purchaser. As soon as practicable after the Closing, Purchaser shall make commercially reasonable efforts to obtain the release of the guarantees of Mr. and Mrs. Vincent Lyons with respect to such loan. SECTION 7.12 AMENDMENT TO LEASE. Purchaser agrees that it shall not amend the Leases in a manner adverse to the Shareholders or Mr. and Mrs. George Cooney without the prior consent of the Shareholders and Mr. and Mrs. Cooney, which consent shall not be unreasonably withheld or delayed. SECTION 7.14 EMPLOYEE RETENTION. Purchaser shall offer employment to commence as of the Closing Date to each Transferred Employee at a salary and other terms commensurate with such person's corresponding position at Purchaser. Purchaser assumes all obligations and liabilities, if any, under the WARN Act relating to or arising out of the termination by Purchaser of the Transferred Employees (or any employee of Purchaser) following the Closing Date (including liabilities owed to Excluded Employees as a result of any such terminations by Purchaser). SECTION 7.15 PLANS. Effective as of the Closing Date, all Transferred Employees shall cease accruing any benefits under any Plan of the Company, and the Company shall take, or cause to be taken, all such action, if any, as may be necessary or appropriate to effect such cessation of participation. Effective as of the Closing Date, Purchaser shall offer the Transferred Employees coverage under the Purchaser's employee benefit plans and shall provide that any expenses incurred on or after the Closing Date by a Transferred Employee or his covered dependents with respect to events or occurrences arising after the Closing shall be taken into account under such employee benefit plans for purposes of satisfying applicable deductible, coinsurance and maximum out-of-pocket provisions. SECTION 7.16 VACATION, HOLIDAY, SICK AND SEVERANCE PAY. As of the Closing Date, Purchaser shall integrate the Transferred Employees into its vacation, holiday and sick pay policies. The Company shall be responsible for all the Company's obligations with respect to sick, vacation, holiday or severance pay for (i) any Excluded Employee, and (ii) any Transferred Employee for any period ending prior to the Closing Date. SECTION 7.17 REQUIRED MODIFICATIONS OR REPLACEMENTS OF PRODUCTS. The provisions of this Section shall govern the responsibilities of Purchaser and the Company regarding the Company's warranty obligations with respect to products delivered or services provided prior to the Closing Date: (a) Purchaser shall advise the Company promptly after becoming aware of any required modifications (the "Required Modifications") to the products shipped or services provided by the Business prior to the Closing Date to the extent Purchaser intends to assert any claim under Article XI hereof in respect of such products. (b) Purchaser shall make any Required Modifications to products shipped or services provided by the Business prior to the Closing Date which are necessary or advisable, in the reasonable discretion of the Company and at the Company's expense. If the cost to the 45 Company of implementing any such Required Modification exceeds the cost to the Company of replacing such products, Purchaser shall replace such products at the Company's expense. The obligation of Purchaser hereunder shall include, but not be limited to, such actions as the Company may reasonably request for (i) the notification of customer and other third parties in possession of the applicable products, (ii) the shipping of such products, if necessary, to and from Purchaser's facilities, (iii) the production of replacement products, parts or supplies necessary for the implementation of the Required Modification, (iv) the installation, modification or replacement of the product by personnel of Purchaser, either at the customer's location or at Purchaser's facilities, as appropriate, and (v) recordkeeping and reports with respect to such Required Modifications, to the extent required by law or reasonably requested by the Company. (c) The Company shall reimburse Purchaser for materials, labor and overhead incurred by Purchaser in installing or implementing any Required Modification or in producing any replacement products, parts or supplies, together with all out-of-pocket shipping, postage and printing costs incurred by Purchaser in connection therewith. (d) The foregoing provisions and Purchaser's compliance or attempted compliance therewith shall in no way diminish or otherwise alter Sellers' indemnity obligations set forth elsewhere herein. SECTION 7.18 ACTIONS WITH RESPECT TO CERTAIN CONTRACTS. Purchaser acknowledges that the Company has not obtained the consent of the other contracting party to the Contracts specified in Schedule 5.16 which require such party's consent in order for the contract to be assigned to Purchaser. Purchaser acknowledges that the Transactions will be consummated without such consents in part to accommodate the parties' desired closing schedule. With respect to each such Contract, after the Closing Date, Purchaser shall, to the extent necessary, continue to deal with the other contracting parties to such Contracts as the prime contracting party, and the Company shall obtain the consent of all required parties to the assignment of such Contracts. Such Contracts shall be deemed assigned by the Company to Purchaser after receipt of such consent. Any Contract as to which consent is obtained after the Closing Date shall thereupon comprise an Assigned Contract. Notwithstanding the absence of any such consent, Purchaser shall be entitled to the benefits of such Contract accruing after the Closing Date to the extent that the Company may provide Purchaser with such benefits without violating the terms of such Contract; and to the extent such benefits are so provided, Purchaser agrees to perform all of the obligations of the Company to be performed under such Contract after the Closing Date, such obligations to comprise Assumed Liabilities hereunder. To the extent such benefits are not so provided or such consents are not obtained, the Sellers shall remain responsible for all of the obligations and liabilities of the Company under such Contract after the Closing Date, such benefits to constitute Excluded Assets and such obligations and liabilities to comprise Excluded Liabilities hereunder. SECTION 7.19 POST-CLOSING VAULT INVENTORY. Within two weeks after the Closing Date Purchaser and Vince Lyons shall commence a joint inventory of the Company's vaults to ascertain the video tapes on hand as of the Closing Date. Upon conclusion of such inventory, Purchaser and Mr. Lyons shall agree upon a listing of all tapes on hand as of the Closing, which itemization shall be conclusively presumed accurate thereafter for all purposes of this Agreement. 46 ARTICLE VIII CONDITIONS TO THE COMPANY'S OBLIGATIONS The obligations of the Company to consummate the transactions provided for hereby are subject, in the discretion of the Company, to the satisfaction, on or prior to the Closing Date, of each of the following conditions, any of which may be waived by the Company by written notice to Purchaser: SECTION 8.1 REPRESENTATIONS, WARRANTIES AND COVENANTS. All representations and warranties of Purchaser contained in this Agreement shall be true and correct at and as of the date of this Agreement and at and as of the Closing Date, except as and to the extent that the facts and conditions upon which such representations and warranties are based are expressly required or permitted to be changed by the terms hereof, and Purchaser shall have performed and satisfied all requirements to be performed by it prior to or on the Closing Date. SECTION 8.2 NO ACTIONS OR COURT ORDERS. No Action by any governmental authority or other person shall have been instituted or threatened which questions the validity or legality of the transactions contemplated hereby and which could reasonably be expected to damage the Company materially if the transactions contemplated hereby are consummated. There shall not be any Regulation or Court Order that makes the purchase and sale of the Business or the Assets contemplated hereby illegal or otherwise prohibited. SECTION 8.3 ASSUMPTION AGREEMENT. Purchaser shall have executed the Assumption Agreement. SECTION 8.4 ANCILLARY AGREEMENTS. Purchaser shall have executed and delivered the Ancillary Agreements and any other agreements to which it is a party in the forms attached as exhibits hereto. SECTION 8.5 CASH PAYMENT. Purchaser shall have delivered the Cash Payment, plus accrued interest thereon, less the Holdback Amount pursuant to Section 2.5 and the payment required by Section 2.5(a)(ii). SECTION 8.7 CERTIFICATES. Purchaser shall furnish the Company with such certificates to evidence compliance with the conditions set forth in this Article VIII as may be reasonably requested by the Company. ARTICLE IX CONDITIONS TO PURCHASER'S OBLIGATIONS The obligations of Purchaser to consummate the transactions provided for hereby are subject, in the discretion of Purchaser, to the satisfaction, on or prior to the Closing Date, of each of the following conditions, any of which may be waived by Purchaser by written notice to the Company: 47 SECTION 9.1 REPRESENTATIONS, WARRANTIES AND COVENANTS. All representations and warranties of Sellers contained in this Agreement shall be true and correct in all respects at and as of the date of this Agreement and at and as of the Closing Date, except as and to the extent that the facts and conditions upon which such representations and warranties are based are expressly required or permitted to be changed by the terms hereof, and Sellers shall have performed and satisfied all agreements and covenants required hereby to be performed by them prior to or on the Closing Date. SECTION 9.2 CONSENTS; REGULATORY COMPLIANCE AND APPROVAL. Any necessary consents to the assignment of all Contracts and Leases and the assumption of the Assumed Liabilities shall have been obtained. All Permits, consents, approvals and waivers from governmental authorities necessary to the consummation of the Transactions shall have been obtained (other than compliance with bulk sales law). Purchaser shall be satisfied that all approvals required under any Regulations to carry out the Transactions shall have been obtained and that the parties shall have complied with all Regulations applicable to such transactions. SECTION 9.3 NO ACTIONS OR COURT ORDERS. No Action by any governmental authority or other person shall have been instituted or threatened which questions the validity or legality of the Transactions and which could reasonably be expected to damage Purchaser, the Assets or the Business materially if the Transactions are consummated, including without limitation any material adverse effect on the right or ability of Purchaser to own, operate, possess or transfer the Assets after the Closing. There shall not be any Regulation or Court Order that makes the purchase and sale of the Business or the Assets contemplated hereby illegal or otherwise prohibited. SECTION 9.4 OPINION OF COUNSEL. The Company shall have delivered to Purchaser an opinion of Gibson, Dunn & Crutcher LLP, Company counsel, dated as of the Closing Date, in form and substance reasonably satisfactory to Purchaser, and upon which Purchaser's lender (Union Bank of California, N.A., as Agent, may expressly rely) to the effect that: (a) The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of California; (b) The Company has necessary power and authority to enter into this Agreement and the Ancillary Agreements to which it is a party and to consummate the Transactions; (c) The execution, delivery and performance of this Agreement and the Ancillary Agreements by the Company have been duly authorized by all necessary action, and this Agreement and each of the Ancillary Agreements to which each Seller is a party (other than the Employment Agreement, the Shareholder Release, the Assignment of Business Name (to the extent such purports to transfer rights not held by the Company) and the Agreement Not to Compete) constitute legally valid and binding obligations of the Seller party to such agreement, enforceable against each of the Company and the Sellers party to such agreements, in accordance with their terms, except as limited by (i) bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to creditors' rights generally or by equitable principles (whether considered in an action at law or in equity) and (ii) limitations imposed by federal or state law 48 or equitable principles upon the availability of specific performance, injunctive relief or other equitable remedies; (d) The documents to be delivered by the Company at the Closing to effect the transfer and assignment to Purchaser of all right, title and interest in and to the Assets are effective to do so (other than the Assignment of Business Name (to the extent such purports to transfer rights not held by the Company)), subject to the Permitted Encumbrances, except to the extent a third party consent is required in connection with a particular Asset which third party consent has not been obtained as of the Closing, the transfer and assignment to Purchaser may not be effective as to that particular Asset unless and until such consent is obtained. SECTION 9.5 CERTIFICATES. The Company shall furnish Purchaser with such certificates to evidence compliance with the conditions set forth in this Article IX as may be requested by Purchaser. SECTION 9.6 MATERIAL CHANGES. In the reasonable judgment of Purchaser, as of the Closing Date, since July 31, 1998, there shall not have been any actual or threatened event which could constitute a Material Adverse Effect. SECTION 9.7 CONVEYANCING DOCUMENTS; RELEASE OF ENCUMBRANCES. Sellers shall have executed and delivered each of the documents described in Section 4.2 hereof so as to effect the transfer and assignment to Purchaser of all right, title and interest in and to the Assets, and Sellers shall have filed (where necessary) and delivered to Purchaser all documents necessary to release the Assets from all Encumbrances, other than Permitted Encumbrances, which documents shall be in a form reasonably satisfactory to Purchaser's counsel. SECTION 9.8 PERMITS. Purchaser shall have obtained or been granted the right to use all Permits required to operate the Business. SECTION 9.9 OTHER AGREEMENTS. Sellers shall have executed and delivered the Ancillary Agreements to which they are a party to in the forms attached as exhibits hereto. SECTION 9.10 FRANCHISE TAX BOARD CERTIFICATE. As promptly as possible after the Closing (it being understood that the foregoing shall not be a condition to Closing), the Company shall provide Purchaser with a good standing certificate or similar document(s) issued by the California Franchise Tax Board in form and content acceptable to Purchaser. SECTION 9.11 NONFOREIGN AFFIDAVIT. Each Seller shall furnish Purchaser with an affidavit, stating, under penalty of perjury, such Seller's United States taxpayer identification number (or social security number) and that such Seller is not a foreign person, pursuant to Section 1445(b)(2) of the Code. SECTION 9.12 CERTAIN FINANCIAL ARRANGEMENTS. Purchaser shall have obtained financing and other credit arrangements with a third party satisfactory to Purchaser, in its sole discretion, in connection with the Purchase Price payments and any other costs, fees and expenses of Purchaser hereunder or in connection with any other document or instrument required to be 49 executed and delivered by Purchaser in connection herewith, and the transactions contemplated hereby or thereby. ARTICLE X RISK OF LOSS SECTION 10.1 RISK OF LOSS. From the date hereof through and including the Closing Date, all risk of loss or damage to the Assets shall be borne by the Company, and thereafter shall be borne by Purchaser. If any material portion of the Assets is destroyed or damaged by fire or any other cause on or prior to the Closing Date, other than use, wear or loss in the ordinary course of business, Sellers shall give written notice to Purchaser as soon as practicable after, but in any event within five (5) calendar days of, discovery of such damage or destruction, which notice shall set forth in detail the nature of such damage or destruction, the amount of insurance, if any, covering such Assets and the amount, if any, which Sellers are otherwise entitled to receive as a consequence. Prior to the Closing, Purchaser shall have the option, which shall be exercised by written notice to Sellers within ten (10) calendar days after receipt of Sellers' notice or if there is not ten (10) calendar days prior to the Closing Date, as soon as practicable prior to the Closing Date, of (i) accepting such Assets in their destroyed or damaged condition in which event Purchaser shall be entitled to the proceeds of any insurance or other proceeds payable with respect to such loss and the Purchase Price shall be reduced by the amount, if any, mutually agreed upon between the parties, (ii) excluding such Assets from this Agreement, in which event the Purchase Price shall be reduced by the amount allocated to such Assets, as mutually agreed between the parties or (iii) terminating this Agreement in accordance with Section 12.1. If Purchaser accepts such Assets, then after the Closing, any insurance or other proceeds shall belong, and shall be assigned to, Purchaser without any reduction in the Purchase Price; otherwise, such insurance proceeds shall belong to the Company. 50 ARTICLE XI INDEMNIFICATION SECTION 11.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES OF SELLERS. The representations and warranties made by Sellers in Article V of this Agreement and any schedule or exhibit attached hereto, respectively, shall survive the date hereof for a period of two years from the Closing Date. Notwithstanding anything contained in this Agreement, including, without limitation, this Section 11.1, any claims with respect to representations and warranties made by Sellers in this Agreement shall survive and continue following the expiration of the survival period stated above (i) if such claim is submitted in writing to the Company prior to the end of the survival period stated in this Section 11.1 and identified as a claim for indemnification pursuant to this Agreement (in which case the claim shall survive indefinitely) or (ii) if such claim ultimately determined to be based upon fraud or willful breach or misrepresentation by any Seller, in which event such claims shall survive for a two year period following its discovery by Purchaser. SECTION 11.2 INDEMNIFICATION BY SELLERS. Each Seller shall, jointly and severally, indemnify and hold harmless Purchaser and each of Purchaser's Affiliates, directors, officers, employees, attorneys, agents and Representatives (collectively, the "Affiliated Parties") in respect of any and all claims, losses, damages, liabilities, declines in value of the assets, penalties, and interest, including, without limitation, reasonable attorneys', accountants' and consultants' fees and other costs and expenses (collectively, "Damages"), incurred by Purchaser or Purchaser's Affiliated Parties, together with interest on cash disbursements in connection therewith, at an annual rate equal to the Prime Rate then in effect, from the date such cash disbursements were made by Purchaser or its Affiliated Parties until paid by such Seller, in connection with, or resulting from, any or all of the following: (a) Any breach or inaccuracy of any representation or warranty made by such Seller in Article V of this Agreement, the Ancillary Agreements or any Disclosure Schedule; (b) Any failure to perform or comply with any covenant, agreement or obligation of such Seller contained in this Agreement or the Ancillary Agreements; (c) Any injury to persons or death or property damage resulting from or contributed to by any products designed, manufactured, sold or leased by the Company or any services performed by any of the Sellers if the accident, incident or occurrence giving rise to such claim, action, lawsuit or proceeding occurred prior to the Closing Date; (d) With respect to any claim arising out of the failure of any Seller to comply with the bulk transfer or bulk sales laws of any jurisdiction in accordance with Section 7.9 (other than by reason of Purchaser's failure to pay an Assumed Liability); and (e) Except as provided elsewhere herein, Liabilities of the Sellers resulting from events occurring prior to the Closing Date, other than a liability or obligation which is included in the Assumed Liabilities. 51 Sellers' obligations set forth in this Section shall not apply to any Damages that arise from or are related to (i) any willful misconduct or gross negligence by Purchaser or its Affiliated Parties, or (ii) any Action asserted between the Purchaser and/or Purchaser's Affiliated Parties. Notwithstanding anything to the contrary stated herein, Vincent Lyons' and Barbara Lyons' indemnification obligations under this Agreement shall not exceed Six Million Nine Hundred Sixty Three Thousand Dollars ($6,963,000). SECTION 11.3 INDEMNIFICATION BY SELLERS FOR TAX LIABILITIES. In addition to, and not by way of limitation on, the indemnities set forth in Section 11.2, except as provided in Section 2.6 Sellers shall, jointly and severally, indemnify and hold harmless on an after-tax basis Purchaser against all unpaid Taxes of the Company for all taxable periods ending before the Closing Date or otherwise attributable to the operations, transactions, assets, or income of the Company or its predecessors prior to the Closing Date or otherwise arising from the consummation of the Transactions as of the date hereof (but excluding any income or franchise or similar Taxes imposed on Purchaser as a result of the consummation of the Transactions, including the transfer of the Earn-Out Stock to the Company), together with any expenses (including, without limitation, reasonable attorneys', accountants' and consultants' fees and other expenses) incurred in connection with the contesting, collection or assessment of such Taxes, and together with interest at an annual rate equal to the Prime Rate then in effect. SECTION 11.4 INDEMNIFICATION BY SELLERS FOR ENVIRONMENTAL MATTERS. For a period of five years, in addition to, and not by way of limitation on, the indemnities set forth in Section 11.2, Sellers shall, jointly and severally, indemnify and hold harmless Purchaser and Purchaser's Affiliated Parties in respect of any and all Damages incurred by Purchaser or Purchaser's Affiliated Parties, together with interest on cash disbursements in connection therewith, at an annual rate equal to the Prime Rate then in effect, from the date such cash disbursements were made by Purchaser or any of Purchaser's Affiliated Parties until paid by Sellers, in connection with, or resulting from, any Environmental Liabilities for Pre-Closing Matters including, without limitation, any of the matters described on Schedule 5.12, regardless of the diligence performed or investigation made by Purchaser or its Representatives with respect thereto. SECTION 11.5 INDEMNIFICATION BY PURCHASER. Purchaser shall indemnify and hold harmless the Company, each Seller and each of the Company's employees, directors, officers, attorneys, agents and Representatives (collectively, the "Company Indemnitees") in respect of any and all Damages incurred by the Company Indemnitees, together with interest on cash disbursements in connection therewith, at an annual rate equal to the Prime Rate then in effect, from the date that such cash disbursements were made by any Company Indemnitee until paid by Purchaser, in connection with, or resulting from, any or all of the following: (a) Any breach of any representation or warranty made by Purchaser in Article VI of this Agreement or in the Ancillary Agreements; (b) Any breach of any covenant, agreement or obligation of Purchaser contained in this Agreement or the Ancillary Agreements; 52 (c) Except as provided elsewhere herein, Liabilities arising in relation to the Business, the Assets or the Assumed Liabilities resulting from events occurring on or after the Closing Date; and (d) Any injury to persons or death or property damage resulting from or contributed to by any products designed, manufactured, sold or leased by Purchaser or any services performed by Purchaser if the accident, incident or occurrence giving rise to such claim, action, lawsuit or proceeding occurred on or after the Closing Date. Purchaser's obligations set forth in this Section shall not apply to any Damages that arise from or are related to any willful misconduct or gross negligence by any Seller or Company Indemnitee. SECTION 11.6 CLAIMS FOR INDEMNIFICATION. Whenever any claim shall arise for indemnification under this Agreement, the party entitled to indemnification (the "Indemnified Party") shall promptly notify the party obligated to provide indemnification (the "Indemnifying Party") of the claim and, when known, the facts constituting the basis for such claim; PROVIDED, HOWEVER, that the failure to so notify the Indemnifying Party shall not relieve the Indemnifying Party of its obligation hereunder to the extent such failure does not materially prejudice the Indemnifying Party. In the event of any claim for indemnification hereunder resulting from or in connection with any claim or legal proceedings by a third party, the notice to the Indemnifying Party shall specify, if known, the amount or an estimate of the amount of the liability arising therefrom. The amount of any Damages for which indemnification is provided under this Article XI shall be net of any amounts recovered by the Indemnified Party under any agreement with any third party or any insurance policy with respect to such Damages. If the Indemnifying Party makes any payment under this Article XI in respect of any Damages, the Indemnifying Party shall be subrogated, to the extent of such payment, to the rights of the Indemnified Party against any insurer or third party with respect to such Damages. The Indemnified Party shall execute any required documents or instruments or take any other similar steps necessary to effectuate such subrogation. SECTION 11.7 DEFENSE OF CLAIMS. In connection with any claim giving rise to indemnity under this Agreement resulting from or arising out of any claim or legal proceeding by a person who is not a party to this Agreement, the Indemnifying Party at its sole cost and expense and with counsel reasonably satisfactory to the Indemnified Party may, upon written notice to the Indemnified Party, assume the defense of any such claim or legal proceeding if (i) the Indemnifying Party acknowledges to the Indemnified Party in writing, within fifteen (15) days after receipt of notice from the Indemnified Party, its obligations to indemnify the Indemnified Party with respect to all elements of such claim based upon the facts then reasonably known to such Indemnifying Party, (ii) the Indemnifying Party provides the Indemnified Party with evidence reasonably acceptable to the Indemnified Party that the Indemnifying Party will have the financial resources to defend against such third-party claims and fulfill its indemnification obligations hereunder, (iii) the third-party claim involves only money damages and does not seek an injunction or other equitable relief, and (iv) settlement or an adverse judgment of the third-party claim is not, in the good faith judgment of the Indemnified Party, likely to establish a pattern or practice adverse to the continuing business interests of the Indemnified Party. The Indemnified Party shall be entitled to participate in (but not control) the defense of any such 53 action, with its counsel and at its own expense; PROVIDED, HOWEVER, that if there are one or more legal defenses available to the Indemnified Party that conflict with those available to the Indemnifying Party, or if the Indemnifying Party fails to take reasonable steps necessary to defend diligently the claim after receiving notice from the Indemnified Party that it believes the Indemnifying Party has failed to do so, the Indemnified Party may assume the defense of such claim; PROVIDED, FURTHER, that the Indemnified Party may not settle such claim without the prior written consent of the Indemnifying Party, which consent may not be unreasonably withheld. If the Indemnified Party assumes the defense of the claim pursuant to this Section 11.7, the Indemnifying Party shall reimburse the Indemnified Party for the reasonable fees and expenses of counsel retained by the Indemnified Party and the Indemnifying Party shall be entitled to participate in (but not control) the defense of such claim, with its counsel and at its own expense. If the Indemnifying Party thereafter seeks to question the manner in which the Indemnified Party defended such third party claim or the amount or nature of any such settlement, the Indemnifying Party shall have the burden to prove by a preponderance of the evidence that the Indemnified Party did not defend or settle such third party claim in a reasonably prudent manner. The parties agree to render, without compensation, to each other such assistance as they may reasonably require of each other in order to insure the proper and adequate defense of any action, suit or proceeding, whether or not subject to indemnification hereunder. If the indemnification provided for in this Article XI is for any reason unenforceable, the party against whom indemnification was sought agrees to contribute to the claims for which such indemnification is unenforceable in such proportion as is appropriate to reflect the relative fault of such party, on the one hand, and the Indemnified Party, on the other hand, as well as any other relevant equitable considerations. SECTION 11.8 MANNER OF INDEMNIFICATION. All indemnification payments hereunder shall be effected by payment of cash or delivery of a certified or official bank check in the amount of the indemnification liability. SECTION 11.9 SET OFF. To the extent that Purchaser or Purchaser's Affiliated Parties suffer any Damages for which Sellers are liable to Purchaser or Purchaser's Affiliated Parties under the provisions of Section 11.2, 11.3 or 11.4, Purchaser shall have the right to set-off such Damages from the Holdback or the Earn-Out Stock. The parties acknowledge that such reduction shall not be the exclusive method of receiving indemnification from Sellers pursuant to this Article XI. ARTICLE XII MISCELLANEOUS SECTION 12.1 TERMINATION. (a) TERMINATION. This Agreement may be terminated at any time prior to Closing: (1) By mutual written consent of Purchaser and the Company; (2) By Purchaser or the Company if the Closing shall not have occurred on or before November 30, 1998; PROVIDED, HOWEVER, that this provision shall not be available to Purchaser if Sellers have the right to terminate this Agreement under clause (4) of this 54 Section 12.1, and this provision shall not be available to the Company if Purchaser has the right to terminate this Agreement under clause (3) of this Section 12.1; (3) By Purchaser if there is (i) a material breach of any representation or warranty set forth in Article V hereof or any covenant or agreement to be complied with or performed by any Seller pursuant to the terms of this Agreement prior to the Closing Date or (ii) the failure of a condition set forth in Article IX to be satisfied (and such condition is not waived in writing by Purchaser) on or prior to the Closing Date, or (iii) the occurrence of any event which results or would result in the failure of a condition set forth in Article IX to be satisfied on or prior to the Closing Date; PROVIDED that, Purchaser may not terminate this Agreement prior to the Closing Date if the Company has not had an adequate opportunity (in any event, not to exceed twenty (20) calendar days) to cure such failure; (4) By the Company if there is a material breach of any representation or warranty set forth in Article VI hereof or of any covenant or agreement to be complied with or performed by Purchaser pursuant to the terms of this Agreement or the failure of a condition set forth in Article VIII to be satisfied (and such condition is not waived in writing by the Company) on or prior to the Closing Date, or the occurrence of any event which results or would result in the failure of a condition set forth in Article VIII to be satisfied on or prior to the Closing Date, PROVIDED that, the Company may not terminate this Agreement prior to the Closing Date if Purchaser has not had an adequate opportunity (in any event, not to exceed twenty (20) calendar days) to cure such failure. (b) IN THE EVENT OF TERMINATION. In the event of termination of this Agreement: (1) Each party shall redeliver all documents, work papers and other material of any other party relating to the transactions contemplated hereby, whether so obtained before or after the execution hereof, to the party furnishing the same (and shall destroy all copies in their possession); and (2) No party hereto shall have any Liability to any other party to this Agreement, except as stated in subsections (i) and (ii) of this Section 12.1(b) and Sellers' obligations under Section 7.2, except for any willful breach of this Agreement occurring prior to the termination of this Agreement. SECTION 12.2 NOTICES. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed given if delivered personally or by facsimile transmission (with subsequent letter confirmation by mail) or three days after being mailed by certified or registered mail, postage prepaid, return receipt requested, to the parties, their successors in interest or their assignees at the following addresses, or at such other addresses as the parties may designate by written notice in the manner aforesaid: 55 If to Purchaser: VDI Media 6920 Sunset Boulevard Los Angeles, California 90028 Telecopy: (213) 957-2164 Attention: Donald R. Stine With a concurrent copy to: Katten Muchin & Zavis 1999 Avenue of the Stars, Suite 1600 Los Angeles, California 90067 Telecopy: (310) 788-4471 Attention: Brian M. Hoye, Esq. If to any Seller: DUBS, Incorporated 1220 N. Highland Avenue Los Angeles, California 90038 Telecopy: (213) 466-4024 Attention: Vincent Lyons With a concurrent copy to: Gibson Dunn & Crutcher LLP 333 S. Grand Avenue Los Angeles, California 90071 Telecopy: (213) 229-7520 Attention: J. Nicholson Thomas, Esq. SECTION 12.3 ASSIGNABILITY AND PARTIES IN INTEREST. This Agreement shall not be assignable by any of the parties, except that Purchaser may assign its rights hereunder to, and have its obligations hereunder assumed by a wholly-owned subsidiary of Purchaser, so long as Purchaser remains obligated to perform its obligations hereunder. This Agreement shall inure to the benefit of and be binding upon the parties and their respective permitted successors and assigns. SECTION 12.4 GOVERNING LAW. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of California. SECTION 12.5 COUNTERPARTS. This Agreement may be executed in several counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same instrument. SECTION 12.6 COMPLETE AGREEMENT. This Agreement, the Ancillary Agreements, the exhibits and schedules hereto and the documents delivered or to be delivered pursuant to this Agreement contain or will contain the entire agreement among the parties with respect to the Transactions and shall supersede all previous oral and written and all contemporaneous oral negotiations, commitments and understandings (other than the Confidentiality Agreement). SECTION 12.7 MODIFICATIONS, AMENDMENTS AND WAIVERS. This Agreement may be modified, amended or otherwise supplemented only by a writing signed by Purchaser and the Company. No waiver of any right or power hereunder shall be deemed effective unless and 56 until a writing waiving such right or power is executed by the party waiving such right or power. SECTION 12.8 EXPENSES. Except as otherwise expressly provided elsewhere in this Agreement, each party shall pay all fees and expenses incurred by it in connection with the transactions contemplated by this Agreement including, without limitation, legal, investment bankers' and brokers' fees, accounting fees and fees for tax-related work. SECTION 12.9 INVALIDITY. In the event that any one or more of the provisions contained in this Agreement or in any other instrument referred to herein, shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, then to the maximum extent permitted by law, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement or any other such instrument. SECTION 12.10 PUBLICITY. Except as provided in the next sentence, neither Purchaser, on the one hand, nor any Seller, including Representatives or Affiliates thereof, on the other hand, shall issue any press release or make any public statement regarding the transactions contemplated hereby, without prior written approval of the other parties, provided that Purchaser may describe the Transactions and the Company, and include the Financial Statements, in any document filed in connection with the offer and sale of its securities under applicable law. Purchaser and Sellers agree that upon execution of this Agreement, Purchaser may issue a press release announcing the execution of such agreement and the salient details thereof. SECTION 12.11 LIMIT ON INTEREST. Notwithstanding anything in this Agreement to the contrary, no party shall be obligated to pay interest at a rate higher than the maximum rate permitted by applicable law. In the event that at any time an interest rate provided in this Agreement exceeds the maximum rate permitted by applicable law, such interest rate shall be deemed to be reduced to such maximum permissible rate. SECTION 12.12 ATTORNEYS' FEES AND COSTS. Each party shall bear its own expenses arising from the preparation, negotiation and delivery of this Agreement and any other document required to be delivered in connection herewith; PROVIDED, should any party institute any arbitration, action, suit or other proceeding arising out of or relating to this Agreement, the prevailing party shall be entitled to receive from the losing party reasonable attorneys' fees and costs incurred in connection therewith. SECTION 12.13 JURISDICTION; SERVICE OF PROCESS. Any action or proceeding seeking to enforce any provision of, or based on any right arising out of, this Agreement may be brought against any of the parties in the courts of the State of California, County of Los Angeles, and the parties hereto irrevocably submit to the jurisdiction of such courts and waive any objection to venue laid therein. Process in any action or proceeding referred to in the preceding sentence may be served on any party anywhere in the world. SECTION 12.14 CONTRACT INTERPRETATION; CONSTRUCTION OF AGREEMENT. (a) 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. Article, section, 57 exhibit, schedule, preamble, recital and party references are to this Agreement unless otherwise stated. The words "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation". (b) No party, nor its respective counsel, shall be deemed the drafter of this Agreement for purposes of construing the provisions of this Agreement, and all language in all parts of this Agreement shall be construed in accordance with its fair meaning, and not strictly for or against any party. (c) Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. SECTION 12.15 THIRD PARTY BENEFICIARIES. Except with respect to the indemnification benefits permitted any Indemnified Party pursuant to Article XI and the indemnification by Purchaser of Mr. and Mrs. George Cooney under the Assignment and Assumption of Real Property Lease, there are no third party beneficiaries to this Agreement or the Ancillary Agreements. Furthermore, no provision of this Agreement shall create any third-party beneficiary rights in any employee or former employee of the Company (including any Transferred Employee or any beneficiary or dependent thereof), including, without limitation, any right to continued employment or employment in any particular position with Purchaser for any specified period of time after the Closing Date. [Signatures on next page] 58 IN WITNESS WHEREOF, each of the parties has executed this Agreement as of the date first above written. DUBS INCORPORATED, as a Seller By: /s/ Vincent Lyons ---------------------------------------- Name: Vincent Lyons Title: President /s/ Vincent Lyons -------------------------------------------- Vincent Lyons, as a Seller /s/ Barbara Lyons -------------------------------------------- Barbara Lyons, as a Seller VDI MEDIA, as Purchaser By: /s/ R. Luke Stefanko ----------------------------------------- Name: R. Luke Stefanko Title: Chief Executive Officer [Asset Purchase Agreement: Dubs] 59 Schedule 3.2(a)(1)
EBITDA EARN OUT STOCK 1/ % ------ ----------------- --- $3,500,000 $3,300,000 100% $3,400,000 3,200,000 97% $3,300,000 3,100,000 93% $3,200,000 3,000,000 90% $3,100,000 2,500,000 75% $3,000,000 2,000,000 60% $2,900,000 1,500,000 45% $2,800,000 1,000,000 29% $2,700,000 500,000 14% $2,625,000 75,000 2% < $2,625,000 0 0%
- ------------------------ 1/ Subject to the terms and conditions set forth in the Agreement, if the Company achieves the specified EBITDA targets, Purchaser shall issue to it a quantity of its Common Stock with a market value, calculated in accordance with the Agreement (generally, average closing price for the 30 day period prior to Closing), equal to the corresponding dollar amounts stated in this column. EX-10.20 3 EXHIBIT 10.20 =============================================================================== AMENDED AND RESTATED CREDIT AGREEMENT among VDI MEDIA as Borrower THE LENDERS PARTIES HERETO, and UNION BANK OF CALIFORNIA, N.A. as Agent Dated as of November 17, 1998 =============================================================================== TABLE OF CONTENTS
PAGE ---- SECTION 1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.1 Defined Terms. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.2 Other Definitional Provisions. . . . . . . . . . . . . . . . . . . .18 SECTION 2. AMOUNT AND TERMS OF LOANS AND LETTERS OF CREDIT; COMMITMENT AMOUNTS . . . . . . . . . . . . . . . . . . . . . . . . . . . .18 2.1 Revolving Loans and Letters of Credit; Revolving Loan Commitment Amounts . . . . . . . . . . . . . . . . . . . . . . . . . . . .18 2.2 Term Loans; Term Loan Commitment . . . . . . . . . . . . . . . . . .21 2.3 Issuance of Letters of Credit. . . . . . . . . . . . . . . . . . . .22 2.4 Optional Prepayments.. . . . . . . . . . . . . . . . . . . . . . . .26 2.5 Mandatory Prepayments. . . . . . . . . . . . . . . . . . . . . . . .26 2.6 Conversion and Continuation Options. . . . . . . . . . . . . . . . .26 2.7 Minimum Amounts of Tranches. . . . . . . . . . . . . . . . . . . . .27 2.8 Interest Rates and Payment Dates.. . . . . . . . . . . . . . . . . .27 2.9 Computation of Interest and Fees.. . . . . . . . . . . . . . . . . .28 2.10 Inability to Determine Interest Rate. . . . . . . . . . . . . .28 2.11 Pro Rata Treatment and Payments . . . . . . . . . . . . . . . .29 2.12 Illegality. . . . . . . . . . . . . . . . . . . . . . . . . . .29 2.13 Increased Costs . . . . . . . . . . . . . . . . . . . . . . . .30 2.14 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31 2.15 Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . .32 2.16 Mitigation of Costs . . . . . . . . . . . . . . . . . . . . . .33 SECTION 3. REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . . . .33 3.1 Organization and Good Standing.. . . . . . . . . . . . . . . . . . .33 3.2 Power and Authority. . . . . . . . . . . . . . . . . . . . . . . . .33 3.3 Validity and Legal Effect. . . . . . . . . . . . . . . . . . . . . .33 3.4 No Violation of Laws or Agreements.. . . . . . . . . . . . . . . . .34 3.5 Title to Assets; Existing Encumbrances; Legal Names. . . . . . . . .34 3.6 Capital Structure; Equity Ownership. . . . . . . . . . . . . . . . .34 3.7 Subsidiaries and Affiliates. . . . . . . . . . . . . . . . . . . . .34 3.8 Material Contracts.. . . . . . . . . . . . . . . . . . . . . . . . .34 3.9 Taxes and Assessments. . . . . . . . . . . . . . . . . . . . . . . .35 3.10 Litigation and Legal Proceedings. . . . . . . . . . . . . . . .35 3.11 Accuracy of Financial Information . . . . . . . . . . . . . . .35 3.12 Accuracy of Other Information . . . . . . . . . . . . . . . . .36 3.13 Compliance with Laws Generally. . . . . . . . . . . . . . . . .36 3.14 ERISA Compliance. . . . . . . . . . . . . . . . . . . . . . . .36 3.15 Environmental Compliance. . . . . . . . . . . . . . . . . . . .37 3.16 Federal Regulations . . . . . . . . . . . . . . . . . . . . . .38 3.17 Fees and Commissions. . . . . . . . . . . . . . . . . . . . . .38
-i- 3.18 Representations and Warranties in Acquisition Agreement . . . .38 3.19 Solvency. . . . . . . . . . . . . . . . . . . . . . . . . . . .39 3.20 Investment Company Act; Public Utility Holding Company Act. . .39 3.21 Nature of Business. . . . . . . . . . . . . . . . . . . . . . .39 3.22 Ranking of Loans. . . . . . . . . . . . . . . . . . . . . . . .39 SECTION 4. CONDITIONS PRECEDENT. . . . . . . . . . . . . . . . . . . . . .39 4.1 Conditions to Restatement Date . . . . . . . . . . . . . . . . . . .39 4.2 Conditions to Each Loan or Letter of Credit. . . . . . . . . . . . .41 4.3 Conditions Subsequent. . . . . . . . . . . . . . . . . . . . . . . .42 SECTION 5. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . .43 5.1 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . .43 5.2 Certificates; Other Information. . . . . . . . . . . . . . . . . . .44 5.3 Payment of Obligations.. . . . . . . . . . . . . . . . . . . . . . .45 5.4 Conduct of Business and Maintenance of Existence . . . . . . . . . .45 5.5 Maintenance of Property. . . . . . . . . . . . . . . . . . . . . . .46 5.6 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .46 5.7 Inspection of Property; Books and Records; Discussions . . . . . . .46 5.8 Environmental Laws . . . . . . . . . . . . . . . . . . . . . . . . .46 5.9 Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . .47 5.10 Compliance With Laws, Etc . . . . . . . . . . . . . . . . . . .47 5.11 Certain Obligations Respecting Subsidiaries; Prohibitions on Certain Agreements. . . . . . . . . . . . . . . . . . . . . . .48 5.12 Year 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . .48 SECTION 6. NEGATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . . .49 6.1 Financial Condition Covenants. . . . . . . . . . . . . . . . . . . .49 6.2 Limitation on Indebtedness . . . . . . . . . . . . . . . . . . . . .49 6.3 Limitation on Liens. . . . . . . . . . . . . . . . . . . . . . . . .50 6.4 Limitation on Fundamental Changes. . . . . . . . . . . . . . . . . .51 6.5 Limitation on Sale of Assets . . . . . . . . . . . . . . . . . . . .51 6.6 Limitation on Dividends. . . . . . . . . . . . . . . . . . . . . . .52 6.7 Limitation on Investments, Loans and Advances. . . . . . . . . . . .52 6.8 Transactions with Affiliates . . . . . . . . . . . . . . . . . . . .53 6.9 Fiscal Year. . . . . . . . . . . . . . . . . . . . . . . . . . . . .54 6.10 Sale-Leaseback Transactions . . . . . . . . . . . . . . . . . .54 6.11 Lines of Business . . . . . . . . . . . . . . . . . . . . . . .54 SECTION 7. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . .54 SECTION 8. THE AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . .57 8.1 Appointment. . . . . . . . . . . . . . . . . . . . . . . . . . . . .57 8.2 Delegation of Duties . . . . . . . . . . . . . . . . . . . . . . . .57 8.3 Exculpatory Provisions . . . . . . . . . . . . . . . . . . . . . . .58
-ii- 8.4 Reliance by the Agent. . . . . . . . . . . . . . . . . . . . . . . .58 8.5 Notice of Default. . . . . . . . . . . . . . . . . . . . . . . . . .59 8.6 Non-Reliance on the Agent and Other Lenders. . . . . . . . . . . . .59 8.7 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . .59 8.8 The Agent in Its Individual Capacity . . . . . . . . . . . . . . . .60 8.9 Successor Agent. . . . . . . . . . . . . . . . . . . . . . . . . . .60 8.10 Collateral Documents. . . . . . . . . . . . . . . . . . . . . .61 SECTION 9. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . .61 9.1 Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . .61 9.2 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .62 9.3 No Waiver; Cumulative Remedies . . . . . . . . . . . . . . . . . . .63 9.4 Survival of Representations and Warranties . . . . . . . . . . . . .63 9.5 Payment of Expenses and Taxes. . . . . . . . . . . . . . . . . . . .63 9.6 Successors and Assigns; Participations; Purchasing Lenders . . . . .65 9.7 Adjustments; Set-Off . . . . . . . . . . . . . . . . . . . . . . . .67 9.8 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . .68 9.9 Severability.. . . . . . . . . . . . . . . . . . . . . . . . . . . .68 9.10 Integration . . . . . . . . . . . . . . . . . . . . . . . . . .68 9.11 GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . .69 9.12 Acknowledgements. . . . . . . . . . . . . . . . . . . . . . . .69 9.13 Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . .69 9.14 Copies of Certificates, Etc . . . . . . . . . . . . . . . . . .69 9.15 Treatment of Certain Information; Confidentiality . . . . . . .69 9.16 WAIVER OF JURY TRIAL. . . . . . . . . . . . . . . . . . . . . .70 9.17 Effect of Amendment and Restatement . . . . . . . . . . . . . .70
Exhibits A-1 Form of Revolving Note A-2 Form of Term Note B Form of Assignment and Acceptance C Form of Continuation Notice D Form of Letter of Credit Request E Form of Borrowing Notice Schedules 2.1 Commitments 3.1 Business Qualification Jurisdictions 3.5 Legal and Trade Names 3.6 Capital Structure; Equity Ownership 3.7 Subsidiaries and Affiliates 3.10 Litigation 3.17 Certain Fees 4.1(g) Repayment of Certain Indebtedness -iii- 4.3(c) Landlord Consents 6.2 Indebtedness 6.3 Liens 6.7 Investments -iv- AMENDED AND RESTATED CREDIT AGREEMENT THIS AMENDED AND RESTATED CREDIT AGREEMENT, dated as of November 17, 1998, among (1) VDI MEDIA, a California corporation (the "BORROWER"), (2) the several banks and other financial institutions from time to time parties to this Agreement (the "LENDERS"), and (3) UNION BANK OF CALIFORNIA, N.A., as Agent for the Lenders hereunder (in such capacity, the "AGENT"). RECITALS A. The Borrower and Union Bank of California, N.A. ("UBOC") are parties to that certain Loan Agreement dated as of December 23, 1997, as amended by that certain First Amendment to Loan Agreement dated as of May 29, 1998 and that certain Second Amendment to Loan Agreement dated as of July 31, 1998 (the "EXISTING AGREEMENT"), pursuant to which UBOC has made available to the Borrower a revolving loan facility with a letter of credit subfacility upon the terms and conditions therein set forth. B. The Borrower, as purchaser, and Dubs, Incorporated ("DUBS"), Vincent Lyons and Barbara Lyons, as sellers, have entered into that certain Asset Purchase Agreement dated as of November 9, 1998 (the "ACQUISITION AGREEMENT") pursuant to which the Borrower will purchase certain assets of Dubs (such acquisition, the "DUBS ACQUISITION") for a purchase price of not more than $14,300,000 (as such price may be adjusted pursuant to the Acquisition Agreement). C. The Borrower has requested that UBOC modify various terms and conditions of the Existing Agreement to extend the maturity date of the Existing Revolving Loan (as defined below) to November 17, 1998 and to make available to it a new revolving credit facility with a letter of credit subfacility and a term loan facility, in an aggregate amount not exceeding $35,000,000, for the purposes of (i) repaying all unpaid principal of and interest on the Existing Revolving Loan, (ii) consummating the Dubs Acquisition and additional Permitted Acquisitions (as defined below), (iii) funding working capital and capital expenditures and (iv) funding general corporate purposes, in each case on the terms and conditions set forth below. D. In order to provide for the modification of various terms and conditions of the Existing Agreement, the parties have agreed to amend and restate the representations, warranties, covenants, agreements and obligations of the Borrower in this Agreement, which completely amends, restates and replaces the Existing Agreement, all upon the terms and provisions and subject to the conditions hereinafter set forth. E. The parties to the Existing Agreement desire to further modify the Existing Agreement to create the ability to add additional Lenders as parties to this Agreement from time to time in accordance with the terms hereof, and to add as a party to this Agreement the Agent, as agent for the Lenders hereunder. NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the parties hereto hereby agree as follows: SECTION 1. DEFINITIONS 1.1 DEFINED TERMS. As used in this Agreement, the following terms shall have the following meanings: "ACCOUNTANTS": PricewaterhouseCoopers or such other firm of independent certified public accountants of recognized national standing as shall be selected by the Borrower. "ACQUISITION AGREEMENT": as defined in the Recitals hereto. "ADR AGREEMENT": that certain Alternative Dispute Resolution Agreement dated as of November 17, 1998 among the Borrower, Fast Forward, Multi-Media, the Lenders and the Agent. "AFFILIATE": as to any Person, (a) any other Person which, directly or indirectly, is in control of, is controlled by, or is under common control with, such Person or (b) any Person who is a director, officer or partner (i) of such Person or (ii) of any Subsidiary of such Person. For purposes of this definition, "control" of a Person means the power, directly or indirectly, to direct or cause the direction of the management and policies of such Person whether by contract or otherwise. "AGENT": as defined in the preamble hereto. "AGGREGATE AVAILABLE REVOLVING LOAN COMMITMENT": the sum of the Available Revolving Loan Commitments of each Lender. "AGGREGATE COMMITMENT": the sum of the Aggregate Revolving Loan Commitment and the Aggregate Term Loan Commitment. "AGGREGATE REVOLVING LOAN COMMITMENT": the sum of the Revolving Loan Commitments set forth on the signature pages hereto, as the same may be adjusted from time to time pursuant to the provisions hereof. "AGGREGATE TERM LOAN COMMITMENT": the sum of the Term Loan Commitments set forth on the signature pages hereto. "AGREEMENT": this Amended and Restated Credit Agreement, as amended, waived, supplemented or otherwise modified from time to time. -2- "APPLICABLE LENDING OFFICE": for any Lender, its offices for LIBOR Loans, Reference Rate Loans and participations in Letters of Credit, specified below its signature on the signature pages hereof or in the Assignment and Acceptance pursuant to which it became a party hereto, as the case may be, any of which offices may, upon 10 days' prior written notice to the Agent and the Borrower, be changed by such Lender. "APPLICABLE REVOLVING LOAN MARGIN": with respect to Revolving Loans, for each LIBOR Loan, 1.25%. "APPLICABLE TERM LOAN MARGIN": with respect to Term Loans, for each LIBOR Loan, 1.25%. "APPLICABLE MARGIN": the Applicable Revolving Loan Margin or the Applicable Term Loan Margin, as applicable. "ASSET DISPOSITION": the sale, sale and leaseback, transfer, conveyance, exchange, long-term lease accorded sales treatment under GAAP or similar disposition (including by means of a merger, consolidation, amalgamation, joint venture or other substantive combination) of any of the Properties, business or assets (other than marketable securities, including "margin stock" within the meaning of Regulation U, liquid investments and other financial instruments but, including, without limitation, the assignment of any lease, license or permit relating to the Properties) of the Borrower or any of its Subsidiaries to any Person or Persons other than to the Borrower or any of its Wholly Owned Subsidiaries; PROVIDED THAT Asset Dispositions shall not include the sale or other disposition in the ordinary course of business and on ordinary business terms of assets in an aggregate amount not exceeding $1,000,000. "ASSIGNMENT AND ACCEPTANCE": an Assignment and Acceptance substantially in the form of Exhibit B to this Agreement. "AVAILABLE REVOLVING LOAN COMMITMENT": with respect to each Lender having a Revolving Loan Commitment on the date of determination thereof, the amount by which (a) the Revolving Loan Commitment of such Lender on such date exceeds (b) the principal sum of such Lender's (i) Revolving Loans outstanding, (ii) Revolving Loan Commitment Percentage of the aggregate Letter of Credit Amount of all Letters of Credit outstanding and (iii) Revolving Loan Commitment Percentage of the aggregate amount of unreimbursed drawings under all Letters of Credit on such date. "BORROWER": as defined in the preamble hereto. "BORROWING NOTICE": a notice from the Borrower to the Agent requesting a borrowing of Loans, substantially in the form of Exhibit E hereto. "BUSINESS DAY": a day other than a Saturday, Sunday or other day on which -3- commercial banks in the State of California are authorized or required by law to close and which, in the case of a LIBOR Loan, is a Eurodollar Business Day. "CAPITAL EXPENDITURES": for any period, expenditures (including, without limitation, the aggregate amount of Capitalized Lease Obligations incurred during such period) made by the Borrower or any of its Subsidiaries to acquire or construct fixed assets, plant and equipment (including renewals, improvements and replacements, but excluding repairs and excluding also the Dubs Acquisition or any Permitted Acquisition) during such period computed in accordance with GAAP. "CAPITALIZED LEASE OBLIGATIONS": obligations for the payment of rent for any real or personal property under leases or agreements to lease that, in accordance with GAAP, have been or should be capitalized on the books of the lessee and, for purposes hereof, the amount of any such obligation shall be the capitalized amount thereof determined in accordance with GAAP. "CAPITAL STOCK": any and all shares, interests, participations or other equivalents (however designated) of capital stock of a corporation, any and all equivalent ownership interests in a Person (other than a corporation), any and all warrants, options or rights to purchase any of the foregoing or any other securities convertible into any of the foregoing. "CASH COLLATERAL DEPOSIT": cash deposits made by the Borrower to the Agent, to be held by the Agent as Collateral in the Collateral Account pursuant to the Security Agreement, for the reimbursement of drawings under Letters of Credit. "CASH INCOME TAXES": cash income taxes paid by the Borrower and its Subsidiaries during the fiscal quarter most recently ended and the immediately preceding three fiscal quarters. "CODE": the Internal Revenue Code of 1986, as amended from time to time. "COLLATERAL": all of the property (tangible or intangible) purported to be subject to the lien or security interest purported to be created by any mortgage, deed of trust, security agreement, pledge agreement, assignment or other security document heretofore or hereafter executed by the Borrower as security for all or part of the Obligations. "COLLATERAL ACCOUNT": as defined in Section 4 of the Security Agreement. "COLLATERAL DOCUMENTS": the Security Agreement, all notices of security interests in deposit accounts requested by the Agent pursuant to the Security Agreement, all Form UCC-1 Financing Statements and amendments thereto and any other document encumbering the Collateral or evidencing or perfecting a security interest therein for the benefit of the Lenders executed by the Borrower. -4- "COMMITMENT PERCENTAGE": as to any Lender at any time, the percentage of the Aggregate Commitment then constituted by such Lender's Commitments. "COMMITMENTS": as to any Lender, any Revolving Loan Commitment and any Term Loan Commitment held by it hereunder. "COMMONLY CONTROLLED ENTITY": as to any Person, an entity, whether or not incorporated, which is under common control with such Person within the meaning of Section 4001 of ERISA or is part of a group which includes such Person and which is treated as a single employer under Section 414 of the Code. "CONTINUATION NOTICE": a request for continuation or conversion of a Loan as set forth in Section 2.6, substantially in the form of Exhibit C. "CONTRACTUAL OBLIGATION": as to any Person, any provision of any security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound. "COVENANT COMPLIANCE CERTIFICATE": a certificate of a senior financial officer of the Borrower, in form, substance and detail satisfactory to the Agent, with regard to (and setting forth the calculations for) each of the covenants set forth in Section 6.1. "DEBT SERVICE": for any period, the sum, for the Borrower and its Subsidiaries (determined on a consolidated basis without duplication in accordance with GAAP), of the following: (a) all regularly scheduled payments or regularly scheduled prepayments of principal of Indebtedness (including, without limitation, the principal component of any payments in respect of Capitalized Lease Obligations) made during such period PLUS (b) all Interest Expense for such period. "DEFAULT": any of the events specified in Section 7, whether or not any requirement for the giving of notice, the lapse of time, or both, or any other condition, has been satisfied. "DOLLARS" and "$": dollars in lawful currency of the United States. "DRAWING LENDER": as defined in Section 2.3(c). "DUBS ACQUISITION": as defined in the Recitals hereto. "EARN-OUT PAYMENTS": cash payments required to be made by the Borrower pursuant to earn-out provisions of any acquisition agreement entered into by the Borrower prior to the date hereof for the purpose of acquiring a business. "EBITDA": for any period, for the fiscal quarter most recently ended and the immediately preceding three fiscal quarters, Net Income after eliminating extraordinary gains and losses, PLUS (i) provisions for income taxes, (ii) depreciation and amortization -5- and (iii) Interest Expense. "ENVIRONMENTAL CONTROL STATUTES": as defined in Section 3.15. "EQUITY RIGHTS": with respect to any Person, any subscriptions, options, warrants, commitments, preemptive rights or agreements of any kind (including, without limitation, any stockholders' or voting trust agreements) for the issuance, sale, registration or voting of, or securities convertible into, any additional shares of capital stock of any class, or partnership or other ownership interests of any type in, such Person. "EQUITYHOLDER AGREEMENTS": each shareholder agreement, limited liability company agreement, partnership agreement, voting agreement, buy-sell agreement, option, warrant, put, call, or right of first refusal, and any other agreement or instrument with conversion rights into equity of the Borrower or any Subsidiary either (a) between the Borrower or any Subsidiary and any holder or prospective holder of any equity interest of the Borrower or any Subsidiary (including interests convertible into such equity) or (b) otherwise between any two or more such holders of equity interests. "ERISA": the Employee Retirement Income Security Act of 1974, as amended from time to time. "ERISA AFFILIATE": as to any Person, each trade or business including such Person, whether or not incorporated, which together with such Person would be treated as a single employer under Section 4001(a)(14) of ERISA. "EURODOLLAR BUSINESS DAY": any day on which banks are open for dealings in Dollar deposits in the London Interbank Market. "EVENT OF DEFAULT": any of the events specified in Section 7, PROVIDED THAT any requirement for the giving of notice, the lapse of time, or both, or any other condition, has been satisfied. "EXCLUDED TAXES": all taxes imposed on or by reference to the net income of the Agent or any Lender or its Applicable Lending Office by any Governmental Authority and all franchise taxes, taxes on doing business or taxes measured by capital or net worth imposed on the Agent or on any Lender or its Applicable Lending Office by any Governmental Authority and any taxes imposed by any Governmental Authority arising as a consequence of the failure of any Lender to provide accurate documentation required to be provided by such Lender pursuant to Section 2.14(b). "EXISTING AGREEMENT": as defined in the Recitals hereto. "EXISTING REVOLVING LOAN": the revolving loan in the original principal amount of $20,000,000 made by UBOC to the Borrower pursuant to the Existing Agreement. -6- "FAST FORWARD": Fast Forward, Inc., a Delaware corporation. "FEDERAL FUNDS EFFECTIVE RATE": for any day, the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for the day of such transactions received by the Agent from three federal funds brokers of recognized standing selected by it. "FIXED CHARGE COVERAGE RATIO": as at the last day of any fiscal quarter, the ratio of EBITDA LESS non-financed Capital Expenditures for the four quarter period ending on such day to Fixed Charges for the four quarter period ending on such day. "FIXED CHARGES": for any period, the sum, for the Borrower and its Subsidiaries (determined on a consolidated basis without duplication in accordance with GAAP), of the following: (i) Debt Service for such period, (ii) the aggregate amount of any cash dividends paid during such period in respect of any Capital Stock of the Borrower or any of its Subsidiaries, (iii) Cash Income Taxes for such period and (iv) Earn-out Payments for such period. "FUNDED DEBT": the sum of the outstanding principal balance of all Indebtedness (including, but not limited to, Indebtedness to the Lenders and Capitalized Lease Obligations) of Borrower and its Subsidiaries on a consolidated basis. "GAAP": generally accepted accounting principles in the United States in effect from time to time. "GOVERNMENTAL AUTHORITY": any nation or government, any federal, state or other political subdivision thereof and any federal, state or local entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "GUARANTEE OBLIGATION": as to any Person (the "GUARANTEEING PERSON"), any obligation (without duplication) of (a) the guaranteeing person or (b) another Person (including, without limitation, any bank under any letter of credit) to induce the creation of which the guaranteeing person has issued a reimbursement, counterindemnity or similar obligation, in either case guaranteeing or in effect guaranteeing any Indebtedness, leases, dividends or other obligations (the "PRIMARY OBLIGATIONS") of any other third Person (the "PRIMARY OBLIGOR") in any manner, whether directly or indirectly, including, without limitation, any obligation of the guaranteeing person, whether or not contingent, (i) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (ii) to advance or supply funds for the purchase or payment of any such primary obligation or to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (iii) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to -7- make payment of such primary obligation or (iv) otherwise to assure or hold harmless the owner of any such primary obligation against loss in respect thereof; PROVIDED, HOWEVER, that the term Guarantee Obligation shall not include endorsements of instruments for deposit or collection in the ordinary course of business. The amount of any Guarantee Obligation of any guaranteeing person shall be deemed to be the lesser of (a) an amount equal to the stated or determinable amount of the primary obligation in respect of which such Guarantee Obligation is made and (b) the maximum amount for which such guaranteeing person may be liable pursuant to the terms of the instrument embodying such Guarantee Obligation, unless such primary obligation and the maximum amount for which such guaranteeing person may be liable are not stated or determinable, in which case the amount of such Guarantee Obligation shall be such guaranteeing person's maximum reasonably anticipated liability in respect thereof as determined by the Borrower in good faith. "GUARANTEES": the Amended and Restated Guarantees made by each of Fast Forward and Multi-Media and all other guarantees executed by a Guarantor in favor of the Agent for the benefit of the Lenders, in form and substance reasonably satisfactory to the Agent, as the same may be amended or modified from time to time in accordance with the terms hereof. "GUARANTOR COLLATERAL": all of the property (tangible or intangible) purported to be subject to the lien or security interest purported to be created by any mortgage, deed of trust, security agreement, pledge agreement, assignment or other security document heretofore or hereafter executed by any Guarantor as security for all or part of the Obligations or the Guarantees. "GUARANTOR COLLATERAL DOCUMENTS": the Guarantor Security Agreements, all notices of security interests in deposit accounts requested by the Agent pursuant to the Guarantor Security Agreements, all Form UCC-1 Financing Statements and amendments thereto and any other document encumbering the Guarantor Collateral or evidencing or perfecting a security interest therein for the benefit of the Lenders executed by any Guarantor. "GUARANTOR SECURITY AGREEMENTS": the security agreements, in form and substance reasonably satisfactory to the Agent, made by each Subsidiary in favor of the Agent, for the benefit of the Lenders, as the same may be amended from time to time in accordance with the terms hereof. "GUARANTORS": each Subsidiary. "HAZARDOUS MATERIAL": collectively, (a) any petroleum or petroleum products, flammable materials, explosives, radioactive materials, asbestos, urea formaldehyde foam insulation, and transformers or other equipment that contain polychlorinated biphenyls ("PCB'S"), (b) any chemicals or other materials or substances that are now or hereafter become defined as or included in the definition of "hazardous substances", "hazardous wastes", "hazardous materials", "extremely hazardous wastes", "restricted -8- hazardous wastes", "toxic substances", "toxic pollutants", "contaminants", "pollutants" or words of similar import under any Environmental Control Statute and (c) any other chemical or other material or substance, exposure to which is now or hereafter prohibited, limited or regulated under any Environmental Control Statute. "INDEBTEDNESS": of any Person at any date, without duplication, (a) all indebtedness of such Person for borrowed money or for the deferred purchase price of property or services (other than trade liabilities (other than for borrowed money) incurred in the ordinary course of business so long as such trade liabilities are payable within 90 days of the date the respective goods are delivered or the respective services are rendered) or which is evidenced by a note, bond, debenture or similar instrument, (b) all obligations of such Person under Capitalized Lease Obligations, (c) all obligations of such Person in respect of acceptances issued or created for the account of such Person, (d) all liabilities secured by any Lien on any property owned by such Person even though such Person has not assumed or otherwise become liable for the payment thereof, (e) all obligations of such Person, whether absolute or contingent, in respect of letters of credit opened for the account of such Person (other than any letters of credit opened for the purpose of facilitating the purchase of goods and services in the ordinary course of business and having a term of not more than 360 days), (f) all obligations of such Person under Non-Compete Agreements and (g) all Guarantee Obligations of such Person in respect of any indebtedness, obligations or liabilities of any other Person of the type referred to in clauses (a) through (g) of this definition. "INSOLVENCY": with respect to any Multiemployer Plan, the condition that such Plan is insolvent within the meaning of Section 4245 of ERISA. "INSOLVENT": pertaining to a condition of Insolvency. "INTEREST EXPENSE": for any period, the sum, for the Borrower and its Subsidiaries (determined on a consolidated basis without duplication in accordance with GAAP), of the following: (i) all interest on Funded Debt (including, without limitation, the interest component of any payments in respect of Capitalized Lease Obligations) which was paid, payable and/or accrued for such period and (ii) all commitment, letter of credit or line of credit fees paid, payable and/or accrued for such period (without duplication of previous amounts) to any lender in exchange for such lender's commitment to lend. "INTEREST PAYMENT DATE": (a) as to any Reference Rate Loan, the last day of each month (commencing November 30, 1998) while the Loans are outstanding, (b) as to any LIBOR Loan having an Interest Period of three months or less, the last day of such Interest Period, (c) as to any LIBOR Loan having an Interest Period longer than three months, each day which is at the end of each three month-period within such Interest Period after the first day of such Interest Period and the last day of such Interest Period and (d) for each of (a), (b) and (c) above, on the day on which the Term Loans and the Revolving Loans become due and payable in full and are paid or prepaid in full. -9- "INTEREST PERIOD": with respect to any LIBOR Loan: (a) initially, the period commencing on the borrowing or conversion date, as the case may be, with respect to such LIBOR Loan and ending one, two, three, six or twelve months thereafter, as selected by the Borrower in its notice of borrowing or Continuation Notice, as the case may be, given with respect thereto; and (b) thereafter, each period commencing on the last day of the next preceding Interest Period applicable to such LIBOR Loan and ending one, two, three, six or twelve months thereafter, as selected by the Borrower by irrevocable notice to the Agent not less than three Eurodollar Business Days prior to the last day of the then current Interest Period with respect thereto; PROVIDED THAT, all of the foregoing provisions relating to Interest Periods are subject to the following: (i) if any Interest Period pertaining to a LIBOR Loan would otherwise end on a day that is not a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless the result of such extension would be to carry such Interest Period into another calendar month in which event such Interest Period shall end on the immediately preceding Business Day; (ii) any Interest Period that would otherwise extend beyond the date final payment is due on the Term Loans or the Revolving Loans, as applicable, shall end on the date of such final payment; and (iii) any Interest Period pertaining to a LIBOR Loan that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of a calendar month. "LANDLORD CONSENT": a waiver and consent, in form and substance reasonably satisfactory to the Agent, of each Person who is the owner of real property leased to the Borrower, any Guarantor or Dubs. "LENDERS": as defined in the preamble hereto and Section 8.8 hereof. "LETTER OF CREDIT": as defined in Section 2.1(a). "LETTER OF CREDIT AMOUNT": the stated maximum amount available to be drawn under a particular Letter of Credit, as such amount may be reduced or reinstated from time to time in accordance with the terms of such Letter of Credit. "LETTER OF CREDIT REQUEST": a request by the Borrower for the issuance of a Letter of Credit, on the Agent's standard form of Application for Irrevocable Standby Letter of Credit, the current form of which is attached hereto as Exhibit D, and containing terms -10- and conditions satisfactory to the Agent in its sole discretion. "LIBOR": with respect to each day during each Interest Period pertaining to a LIBOR Loan, the rate of interest determined by the Agent to be the rate per annum at which deposits in dollars would be offered to the Agent by leading banks in the London Interbank Market at or about 9:00 a.m., Los Angeles time, two Eurodollar Business Days prior to the beginning of such Interest Period, for delivery on the first day of such Interest Period for the number of days comprised therein and in an amount comparable to the amount of its LIBOR Loan to be outstanding during such Interest Period. "LIBOR ADJUSTED RATE": with respect to each day during each Interest Period pertaining to a LIBOR Loan, a rate per annum determined for such day in accordance with the following formula (rounded upward to the nearest 1/100th of 1%): LIBOR ------------------------------- 1.00 - LIBOR Reserve Requirements "LIBOR LOANS": Loans the rate of interest applicable to which is based upon LIBOR. "LIBOR RESERVE REQUIREMENTS": for any day as applied to a LIBOR Loan, the aggregate (without duplication) of the maximum rates (expressed as a decimal fraction) of reserve requirements in effect on such day (including, without limitation, basic, supplemental, marginal and emergency reserves under any regulations of the Board of Governors of the Federal Reserve System or other Governmental Authority having jurisdiction with respect thereto) dealing with reserve requirements prescribed for eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of such Board) maintained by a member bank of such Federal Reserve System. "LIEN": any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, any conditional sale or other title retention agreement, any Capitalized Lease Obligation having substantially the same economic effect as any of the foregoing, and the filing of any financing statement under the Uniform Commercial Code or comparable law of any jurisdiction in respect of any of the foregoing). "LOAN": a Revolving Loan or a Term Loan. "LOAN DOCUMENTS": this Agreement, the Notes, any Letter of Credit Requests that are executed by the Borrower, the Collateral Documents, the ADR Agreement, the Landlord Consents, the Guarantor Collateral Documents and the Guarantees and any other agreement executed by an Obligor in connection therewith and herewith including, but not limited to, UCC-1 Financing Statements and amendments thereto, as such agreements and documents may be amended, supplemented and otherwise modified from time to time in accordance with the terms hereof. -11- "MAJORITY LENDERS": Lenders having at least 66-2/3% of the sum of (a) the aggregate outstanding principal amounts of the Term Loans or, if the Term Loans shall not have been made, the aggregate outstanding principal amount of the Term Loan Commitments, PLUS (b) the sum of (i) the Aggregate Available Revolving Loan Commitment at such time PLUS (ii) the aggregate outstanding principal amount of the Revolving Loans PLUS (iii) the aggregate amount of all participations purchased by lenders in any outstanding Letters of Credit or unreimbursed drawings under Letters of Credit at such time. "MAJORITY REVOLVING LOAN LENDERS": Revolving Loan Lenders having at least 66-2/3% of the aggregate amount of the Revolving Commitments or, if the Revolving Loan Commitments shall have terminated, Lenders holding at least 66-2/3% of the sum of (a) the aggregate unpaid principal amount of the Revolving Loans PLUS (b) the aggregate amount of all participations purchased by Lenders in any outstanding Letters of Credit or unreimbursed drawings under Letters of Credit at such time. "MARGIN STOCK": as defined in Regulation U. "MATERIAL ADVERSE EFFECT": a material adverse effect on (a) the business, operations, property, financial condition, prospects, liabilities of the Borrower and its Subsidiaries taken as a whole, (b) the ability of any Obligor to perform its respective obligations under the Loan Documents, (c) the validity or enforceability of any of the Loan Documents or the rights or remedies of the Agent and the Lenders hereunder or thereunder or (d) the timely payment of the principal of or interest on the Loans or other amounts payable in connection therewith. "MATERIAL CONTRACTS": each contract and agreement, including, but not limited to, site leases and licenses, material to the financial condition or operation of the Borrower or any Subsidiary. "MAXIMUM FUNDED DEBT RATIO": as at any date, for the Borrower and its Subsidiaries on a consolidated basis, the ratio of Funded Debt on such date to EBITDA as at such date. "MULTI-MEDIA": Multi-Media Services, Inc., a California corporation. "MULTIEMPLOYER PLAN": a plan which is a multiemployer plan as defined in Section 4001(a)(3) of ERISA. "NET INCOME": net income as determined in accordance with GAAP. "NET WORTH": net worth as determined in accordance with GAAP. "NON-COMPETE AGREEMENTS": all agreements pursuant to which the Borrower or any Subsidiary has agreed to make payments (whether in cash or in kind) to another -12- Person for the agreement of such Person not to compete with the Borrower or such Subsidiary in a given area. "NOTE": a Revolving Note or a Term Note, as the case may be, and "NOTES" shall mean the Revolving Notes and/or the Term Notes, as the case may be. "OBLIGATIONS": the unpaid principal of and interest on (including, without limitation, interest accruing after the maturity of the Term Loans and the Revolving Loans and interest accruing on or after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to the Borrower, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding and whether or not at a default rate) the Notes, the obligation to reimburse drawings under Letters of Credit (including the contingent obligation to reimburse any drawings under outstanding Letters of Credit) and all other obligations and liabilities of the Obligors to the Agent and the Lenders, whether direct or indirect, absolute or contingent, due or to become due, or now existing or hereafter incurred, which may arise under, out of, or in connection with, this Agreement, the Notes, the Letters of Credit, any other Loan Document and any other document made, delivered or given in connection herewith or therewith, whether on account of principal, interest, reimbursement obligations, fees, indemnities, costs, expenses (including, without limitation, all reasonable fees and disbursements of counsel (including the allocated reasonable cost of internal counsel) to the Agent or the Lenders that are required to be paid by the Borrower pursuant to the terms of this Agreement) or otherwise. "OBLIGOR": the Borrower, each Guarantor and any other Person (other than a Lender) obligated under any Loan Document. "ORGANIC DOCUMENTS": relative to any entity, its certificate or articles of incorporation or organization, its by-laws or operating agreement, any Equityholder Agreements, its partnership agreement, and any other agreements or documents relating to the control or management of any such entity (whether existing as corporation, a partnership, a limited liability company or otherwise). "PARTICIPANT": as defined in Section 9.6(b). "PBGC": the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA or any successor thereto. "PERMITTED ACQUISITION": the acquisition (whether by way of purchase of assets or stock, by merger or consolidation or otherwise) by the Borrower, or any Wholly Owned Subsidiary of the Borrower, of any video duplication business, post-production business, audio sweetening business or any business engaged in the distribution of national television spot advertising, trailers and electronic press kits for the motion picture and television industries. "PERSON": any individual, firm, partnership, joint venture, corporation, -13- association, limited liability company, business enterprise trust, unincorporated organization, government or department or agency thereof or other entity, whether acting in an individual, fiduciary or other capacity. "PLAN": as to any Person, any plan (other than a Multiemployer Plan) subject to Title IV of ERISA maintained for employees of such Person or any ERISA Affiliate of such Person (and any such plan no longer maintained by such Person or any of such Person's ERISA Affiliates to which such Person or any of such Person's ERISA Affiliates has made or was required to make any contributions within any of the five preceding years). "PROHIBITED TRANSACTION": with respect to any Plan, a prohibited transaction (as defined in Section 406 of ERISA) with respect to such Plan. "PROPERTIES": the collective reference to the real and personal (tangible and intangible) property owned, leased, used, occupied or operated, under license or permit by the Obligors. "PURCHASING LENDERS": as defined in Section 9.6(c). "REFERENCE RATE": the rate of interest per annum publicly announced from time to time by Union Bank of California, N.A. as its "reference rate" in effect at its office in Los Angeles, California. Any change in the Reference Rate shall be effective on the effective date specified in the public announcement of such change. "REFERENCE RATE LOANS": Loans the rate of interest applicable to which is based upon the Reference Rate. "REGISTER": as defined in Section 9.6(d). "REGULATION D": Regulation D of the Board of Governors of the Federal Reserve System, as the same is from time to time in effect, and all official rulings and interpretations thereunder or thereof and any successor regulation thereto. "REGULATION U": Regulation U of the Board of Governors of the Federal Reserve System, as the same is from time to time in effect, and all official rulings and interpretations thereunder or thereof and any successor regulation thereto. "REORGANIZATION": with respect to any Multiemployer Plan, the condition that such plan is in reorganization within the meaning of Section 4241 of ERISA. "REPORTABLE EVENT": any of the events set forth in Section 4043(b) of ERISA, other than those events as to which the thirty day notice period is waived under PBGC regulations. "REQUIREMENT OF LAW": as to any Person, the Organic Documents of such -14- Person, and any law, treaty, rule or regulation, determination or policy statement or interpretation of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject. "RESPONSIBLE OFFICER": with respect to the Borrower or any Subsidiary, the chief executive officer or the president, or, with respect to financial matters, the chief financial officer, treasurer or controller of such entity. "RESTATEMENT DATE": the date on which the conditions precedent set forth in Section 4.1 have been satisfied. "RESTRICTED PAYMENTS": as defined in Section 6.6. "REVOLVING LOAN": as defined in Section 2.1(a). "REVOLVING LOAN COMMITMENT": with respect to each Lender having a Revolving Loan Commitment, its commitment listed as its "Revolving Loan Commitment" in Schedule 2.1 hereto to make Revolving Loans and participate in Letters of Credit hereunder through its Applicable Lending Office, as the same shall be adjusted from time to time pursuant to this Agreement. "REVOLVING LOAN COMMITMENT EXPIRATION DATE": November 1, 1999 or such earlier date as the Aggregate Revolving Loan Commitment shall expire (whether by acceleration, reduction to zero or otherwise). "REVOLVING LOAN COMMITMENT PERCENTAGE": with respect to each Revolving Loan Lender, the percentage equivalent of the ratio which such Revolving Loan Lender's Revolving Loan Commitment bears to the Aggregate Revolving Loan Commitment, as such Revolving Loan Lender's Revolving Loan Commitment and the Aggregate Revolving Loan Commitment may be adjusted from time to time pursuant to the terms hereof. "REVOLVING LOAN LENDER": each Lender having a Revolving Loan Commitment and/or which shall have (i) Revolving Loans outstanding and/or (ii) participations in Letters of Credit which are outstanding. "REVOLVING NOTE" AND "REVOLVING NOTES": as defined in Section 2.1(c). "SECURITY AGREEMENT": the Amended and Restated Security Agreement in form and substance reasonably satisfactory to the Agent made by the Borrower in favor of the Agent, for the benefit of the Lenders, in respect of the tangible and intangible personal property of the Borrower described therein, as the same may be amended from time to time in accordance with the terms hereof. "SINGLE EMPLOYER PLAN": any Plan which is covered by Title IV of ERISA, but -15- which is not a Multiemployer Plan. "SOLVENT": when used with respect to any Person, that: (i) the present fair salable value of such Person's assets is in excess of the total amount of the probable liability on such Person's liabilities; (ii) such Person is able to pay its debts as they become due; and (iii) such Person does not have unreasonably small capital to carry on such Person's business as theretofore operated and all businesses in which such Person is about to engage. "SUBSIDIARY": as to any Person at any time of determination, a corporation, partnership or other entity of which shares of stock or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions of such corporation, partnership or other entity (other than stock or such other ownership interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation, partnership or other entity are at the time owned, or the management of which is otherwise controlled, directly or indirectly through one or more intermediaries or Subsidiaries, or both, by such Person. Unless otherwise qualified, all references to a "Subsidiary" or to "Subsidiaries" in this Agreement shall refer to a Subsidiary or Subsidiaries of the Borrower. "TAXES": as defined in Section 2.14. "TERM LOAN": as defined in Section 2.2(a). "TERM LOAN COMMITMENT": with respect to each Lender having a Term Loan Commitment, the commitment listed as its "Term Loan Commitment" in Schedule 2.1 hereto to make a Term Loan hereunder through its Applicable Lending Office, as the same may be adjusted pursuant to the provisions hereof. "TERM LOAN COMMITMENT PERCENTAGE": with respect to each Term Loan Lender, the percentage equivalent of the ratio which such Term Loan Lender's Term Loan Commitment bears to the Aggregate Term Loan Commitment. "TERM LOAN LENDERS": each Lender having a Term Loan Commitment and/or which shall have Term Loans outstanding. "TERM LOAN MATURITY DATE": October 31, 2003 or such earlier date as the Aggregate Term Loan Commitment shall expire (whether by acceleration, reduction to zero or otherwise). "TERM LOAN REDUCTION DATES": the last day of each month (commencing -16- November 30, 1998) while the Term Loans are outstanding. "TERM NOTE" AND "TERM NOTES": as defined in Section 2.2(c). "TERMINATION EVENT": (i) a Reportable Event, (ii) the institution of proceedings to terminate a Single Employer Plan by the PBGC under Section 4042 of ERISA, (iii) the appointment by the PBGC of a trustee to administer any Single Employer Plan or (iv) the existence of any other event or condition that would reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment by the PBGC of a trustee to administer, any Single Employer Plan. "TRANCHE": the collective reference to LIBOR Loans the Interest Periods with respect to all of which begin on the same date and end on the same later date (whether or not such LIBOR Loans shall originally have been made on the same day). "TRANSFEREE": as defined in Section 9.6(g). "TYPE": as to any Term Loan or any Revolving Loan, its nature as a Reference Rate Loan or a LIBOR Loan. "UBOC": as defined in the Recitals hereto. "WHOLLY OWNED SUBSIDIARY": with respect to any Person, any corporation, partnership or other entity of which all of the equity securities or other ownership interests (other than, in the case of a corporation, directors' qualifying shares) are directly or indirectly owned or controlled by such Person or one or more Wholly Owned Subsidiaries of such Person. 1.2 OTHER DEFINITIONAL PROVISIONS. (a) Unless otherwise specified therein, all terms defined in this Agreement shall have such defined meanings when used in the Notes, any other Loan Document or any certificate or other document made or delivered pursuant hereto or thereto. (b) As used herein, in the Notes, in any other Loan Document, and in any certificate or other document made or delivered pursuant hereto or thereto, accounting terms not defined in Section 1.1 and accounting terms partly defined in Section 1.1, to the extent not defined, shall have the respective meanings given to them under GAAP. (c) 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, and Section, subsection, Schedule and Exhibit references are to this Agreement unless otherwise specified. (d) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. -17- (e) For the purpose of determining financial covenant compliance hereunder for any period (including with respect to Permitted Acquisitions pursuant to Section 6.7(h)(vi)), acquisitions, divestitures, and asset sales occurring during such period (or intended to occur during such period in the case of a potential Permitted Acquisition) will be included in the calculations for such period on a pro forma basis, and will be deemed to have occurred on the first day of such period. SECTION 2. AMOUNT AND TERMS OF LOANS AND LETTERS OF CREDIT; COMMITMENT AMOUNTS 2.1 REVOLVING LOANS AND LETTERS OF CREDIT; REVOLVING LOAN COMMITMENT AMOUNTS. (a) Subject to the terms and conditions hereof, each Lender having a Revolving Loan Commitment severally agrees to (i) make loans on a revolving credit basis through its Applicable Lending Office to the Borrower from time to time from and including the Restatement Date to but excluding the Revolving Loan Commitment Expiration Date (each a "REVOLVING LOAN", and collectively, the "REVOLVING LOANS") in accordance with the provisions of this Agreement and (ii) participate through its Applicable Lending Office in standby letters of credit issued for the account of the Borrower pursuant to Section 2.3 from time to time from and including the Restatement Date to but excluding the Revolving Loan Commitment Expiration Date (each a "LETTER OF CREDIT", and collectively, the "LETTERS OF CREDIT"); PROVIDED, HOWEVER, that the sum of (A) the aggregate principal amount of all Revolving Loans outstanding, (B) the aggregate Letter of Credit Amount of all Letters of Credit outstanding and (C) the aggregate amount of unreimbursed drawings under all Letters of Credit shall not exceed the Aggregate Revolving Loan Commitment at any time; and PROVIDED, FURTHER, that the sum of (x) the aggregate Letter of Credit Amount of all Letters of Credit outstanding and (y) the aggregate amount of unreimbursed drawings under all Letters of Credit shall not exceed $100,000 at any time. Within the limits of each Revolving Loan Lender's Revolving Loan Commitment, the Borrower may borrow, have Letters of Credit issued for the Borrower's account, prepay Revolving Loans, reborrow Revolving Loans, and have additional Letters of Credit issued for the Borrower's account after the expiration of previously issued Letters of Credit. The principal amount of each Revolving Loan Lender's (A) Revolving Loan and (B) participation in a Letter of Credit shall be in an amount equal to the product of (i) such Revolving Loan Lender's Revolving Loan Commitment Percentage and (ii) the total amount of the Revolving Loan or Revolving Loans, or the Letter of Credit or Letters of Credit, requested; PROVIDED THAT in no event shall any Revolving Loan Lender be obligated to make a Revolving Loan or participate in a Letter of Credit if after giving effect to such Revolving Loan or such participation the sum of such Revolving Loan Lender's (x) Revolving Loans outstanding, (y) Revolving Loan Commitment Percentage of the aggregate Letter of Credit Amount of all Letters of Credit outstanding and (z) Revolving Loan Commitment Percentage of the aggregate amount of unreimbursed drawings under all Letters of Credit would exceed its Revolving Loan Commitment or if -18- the amount of such requested Revolving Loan or such Revolving Loan Lender's Revolving Loan Commitment Percentage of such Letter of Credit is in excess of such Revolving Loan Lender's Available Revolving Loan Commitment. (b) Subject to Sections 2.10 and 2.12, the Revolving Loans may from time to time be (i) LIBOR Loans, (ii) Reference Rate Loans or (iii) a combination thereof, as determined by the Borrower and notified to the Agent in accordance with either Section 2.1(d) or 2.6. Each Revolving Loan Lender may make or maintain its Revolving Loans or participate in Letters of Credit to or for the account of the Borrower by or through any Applicable Lending Office. (c) The Revolving Loans made by each Revolving Loan Lender to the Borrower shall be evidenced by a promissory note of the Borrower, substantially in the form of Exhibit A-1 (a "REVOLVING NOTE"), with appropriate insertions therein as to payee, date and principal amount, payable to the order of such Revolving Loan Lender and representing the obligations of the Borrower to pay the aggregate unpaid principal amount of all Revolving Loans made by such Revolving Loan Lender to the Borrower pursuant to Section 2.1(a) or 2.3(c), with interest thereon as prescribed in Sections 2.8 and 2.9. Each Revolving Loan Lender is hereby authorized (but not required) to record the date and amount of each payment or prepayment of principal of its Revolving Loans made to the Borrower, each continuation thereof, each conversion of all or a portion thereof to another Type and, in the case of LIBOR Loans, the length of each Interest Period with respect thereto, in the books and records of such Revolving Loan Lender, and any such recordation shall constitute PRIMA FACIE evidence of the accuracy of the information so recorded. The failure of any Revolving Loan Lender to make any such recordation or notation in the books and records of the Revolving Loan Lender (or any error in such recordation or notation) shall not affect the obligations of the Borrower hereunder or under the Revolving Notes. Each Revolving Note shall (i) be dated the Restatement Date, (ii) provide for the payment of interest in accordance with Sections 2.8 and 2.9 and (iii) be stated to be payable in full on the Revolving Loan Commitment Expiration Date. (d) The Borrower shall give the Agent irrevocable written notice, substantially in the form of a Borrowing Notice (which Borrowing Notice must be received by the Agent prior to 10:00 A.M., Los Angeles time, one Business Day prior to each proposed borrowing date or, if all or any part of the Revolving Loans are requested to be made as LIBOR Loans, three Eurodollar Business Days prior to each proposed borrowing date) requesting that the Revolving Loan Lenders make the Revolving Loans on the proposed borrowing date and specifying (i) the aggregate amount of Revolving Loans requested to be made, (ii) whether the Revolving Loans are to be LIBOR Loans, Reference Rate Loans or a combination thereof and (iii) if the Revolving Loans are to be entirely or partly LIBOR Loans, the respective amounts of each such Type of Revolving Loan and the respective lengths of the initial Interest Periods therefor. On receipt of such Borrowing Notice, the Agent shall promptly notify each Revolving Loan Lender thereof. On the proposed borrowing date, not later than 10:00 A.M., Los Angeles time, each Revolving Loan Lender shall make available to the Agent at its -19- office specified in Section 9.2 the amount of such Revolving Loan Lender's pro rata share of the aggregate borrowing amount (as determined in accordance with the second paragraph of Section 2.1(a)) in immediately available funds. The Agent may, in the absence of notification from any Revolving Loan Lender that such Revolving Loan Lender has not made its pro rata share available to the Agent, on such date, credit the account of the Borrower on the books of such office of the Agent with the aggregate amount of Revolving Loans. (e) Neither the Agent nor any Revolving Loan Lender shall be responsible for the obligation or Available Revolving Loan Commitment of any other Revolving Loan Lender hereunder, nor will the failure of any Revolving Loan Lender to comply with the terms of this Agreement relieve any other Revolving Loan Lender or the Borrower of their obligations under this Agreement and the Revolving Notes. Nothing herein shall be deemed to relieve any Revolving Loan Lender from its obligation to fulfill its Commitments hereunder or to prejudice any rights which the Borrower may have against any Revolving Loan Lender as a result of any default by such Revolving Loan Lender hereunder. (f) The Revolving Loan Commitment of each Revolving Loan Lender and the Aggregate Revolving Loan Commitment shall terminate on the Revolving Loan Commitment Expiration Date. All outstanding Revolving Loans shall be due and payable on the Revolving Loan Commitment Expiration Date. 2.2 TERM LOANS; TERM LOAN COMMITMENT. (a) Subject to the terms and conditions hereof, each Lender having a Term Loan Commitment severally agrees to make a term loan (each, a "TERM LOAN" and, collectively, the "TERM LOANS") to the Borrower on the Restatement Date in a principal amount equal to the amount of the Term Loan Commitment of such Lender. (b) Subject to Sections 2.10 and 2.12, the Term Loans may from time to time be (i) LIBOR Loans, (ii) Reference Rate Loans or (iii) a combination thereof, as determined by the Borrower and notified to the Agent in accordance with either Section 2.2(e) or 2.5. Each Term Loan Lender may make or maintain its Term Loan to the Borrower by or through any Applicable Lending Office. (c) The Term Loan made by each Term Loan Lender to the Borrower shall be evidenced by a promissory note of the Borrower, substantially in the form of Exhibit A-2 (a "TERM NOTE"), with appropriate insertions therein as to payee, date and principal amount, payable to the order of such Term Loan Lender and representing the obligations of the Borrower to pay the aggregate unpaid principal amount of the Term Loan made by such Term Loan Lender to the Borrower pursuant to Section 2.2(a), with interest thereon as prescribed in Sections 2.8 and 2.9. Each Term Loan Lender is hereby authorized (but not required) to record the date and amount of each payment or prepayment of principal of its Term Loan made to the Borrower, each continuation thereof, each conversion of all or a portion thereof to another Type and, in the case of LIBOR Loans, the length of each Interest Period with respect thereto, in the books and -20- records of such Term Loan Lender, and any such recordation shall constitute PRIMA FACIE evidence of the accuracy of the information so recorded. The failure of any Term Loan Lender to make any such recordation or notation in the books and records of the Term Loan Lender (or any error in such recordation or notation) shall not affect the obligations of the Borrower hereunder or under the Term Notes. Each Term Note shall (i) be dated the Restatement Date, (ii) provide for the payment of interest in accordance with Sections 2.8 and 2.9 and (iii) be stated to be payable in installments of principal in accordance with, and subject to the provisions of, Section 2.2(d). (d) On each Term Loan Reduction Date, the Borrower shall repay the principal of the Term Notes in an aggregate amount equal to $483,333.33; PROVIDED, that the final installment paid shall be in an amount equal to all amounts owed by the Borrower on the Term Notes. All outstanding Term Loans shall be due and payable, to the extent not previously paid in accordance with the terms hereof, on the Term Loan Maturity Date. The aggregate amount payable to any Term Loan Lender on any Term Loan Reduction Date shall be determined in accordance with the provisions of Section 2.11. (e) The Borrower shall give the Agent irrevocable written notice, substantially in the form of a Borrowing Notice (which Borrowing Notice must be received by the Agent prior to 10:00 A.M., Los Angeles time, one Business Day prior to the Restatement Date) requesting that the Term Loan Lenders make the Term Loans on the Restatement Date. Upon receipt of such Borrowing Notice the Agent shall promptly notify each Term Loan Lender thereof. Not later than 10:00 A.M., Los Angeles time, on the Restatement Date each Term Loan Lender shall make available to the Agent at its office specified in Section 9.2 the amount of such Term Loan Lender's Term Loan Commitment in immediately available funds. The Agent may, in the absence of notification from any Term Loan Lender that such Term Loan Lender has not made its pro rata share available to the Agent, on such date, credit the account of the Borrower on the books of such office of the Agent with the aggregate Term Loans. (f) Neither the Agent nor any Term Loan Lender shall be responsible for the obligations or Term Loan Commitment of any other Term Loan Lender hereunder, nor will the failure of any Term Loan Lender to comply with the terms of this Agreement relieve any other Term Loan Lender or the Borrower of their obligations under this Agreement and the Term Notes. Nothing herein shall be deemed to relieve any Term Loan Lender from its obligation to fulfill its Commitment hereunder or to prejudice any rights which the Borrower may have against any Term Loan Lender as a result of any default by such Term Loan Lender hereunder. 2.3 ISSUANCE OF LETTERS OF CREDIT. (a) The Borrower shall be entitled to request the issuance of Letters of Credit from time to time from and including the Restatement Date to but excluding the date which is two Business Days prior to the Revolving Loan Commitment Expiration Date, by giving the Agent a Letter of Credit Request at least three Business Days before the requested date of issuance of such Letter of Credit -21- (which shall be a Business Day). Any Letter of Credit Request received by the Agent later than 10:00 a.m., Los Angeles time, shall be deemed to have been received on the next Business Day. Each Letter of Credit Request shall be made in writing, shall be signed by a Responsible Officer, shall be irrevocable and shall be effective upon receipt by the Agent. Provided that a valid Letter of Credit Request has been received by the Agent and upon fulfillment of the other applicable conditions set forth in Section 4.2, the Agent will issue the requested Letter of Credit from its office specified in Section 9.2. No Letter of Credit shall have an expiration date later than two Business Days prior to the Revolving Loan Commitment Expiration Date. (b) Immediately upon the issuance of each Letter of Credit, the Agent shall be deemed to have sold and transferred to each Revolving Loan Lender, and each Revolving Loan Lender shall be deemed to have purchased and received from the Agent, in each case irrevocably and without any further action by any party, an undivided interest and participation in such Letter of Credit, each drawing thereunder and the obligations of the Borrower under this Agreement in respect thereof in an amount equal to the product of (i) such Revolving Loan Lender's Revolving Loan Commitment Percentage and (ii) the maximum amount available to be drawn under such Letter of Credit (assuming compliance with all conditions to drawing). The Agent shall promptly advise each Revolving Loan Lender of the issuance of each Letter of Credit, the Letter of Credit Amount of such Letter of Credit, any change in the face amount or expiration date of such Letter of Credit, the cancellation or other termination of such Letter of Credit and any drawing under such Letter of Credit. (c) The payment by the Agent of a draft drawn under any Letter of Credit shall first be made from any Cash Collateral Deposit held by the Agent with respect to such Letter of Credit. After any such Cash Collateral Deposit has been applied, the payment by the Agent of a draft drawn under any Letter of Credit shall constitute for all purposes of this Agreement the making by the Agent in its individual capacity as a Lender hereunder (in such capacity, the "DRAWING LENDER") of a Reference Rate Loan in the amount of such payment (but without any requirement of compliance with the conditions set forth in Section 4.2). In the event that any such Loan by the Drawing Lender resulting from a drawing under any Letter of Credit is not repaid by the Borrower by 12:00 noon, Los Angeles time, on the day of payment of such drawing, the Agent shall promptly notify each other Revolving Loan Lender. Each Revolving Loan Lender shall, on the day of such notification (or if such notification is not given by 3:00 p.m., Los Angeles time, on such day, then on the next succeeding Business Day), make a Reference Rate Loan, which shall be used to repay the applicable portion of the Reference Rate Loan of the Drawing Lender with respect to such Letter of Credit drawing, in an amount equal to the amount of such Revolving Loan Lender's participation in such drawing for application to repay the Drawing Lender (but without any requirement of compliance with the applicable conditions set forth in Section 4.2) and shall deliver to the Agent for the account of the Drawing Lender, on the day of such notification (or if such notification is not given by 3:00 p.m., Los Angeles time, on such day, then on the next succeeding Business Day) and in immediately available funds, the amount of such Reference Rate Loan. In the event that any Revolving Loan Lender -22- fails to make available to the Agent for the account of the Drawing Lender the amount of such Reference Rate Loan, the Drawing Lender shall be entitled to recover such amount on demand from such Revolving Loan Lender together with interest thereon at the Federal Funds Effective Rate for each day such amount remains outstanding. (d) The obligations of the Borrower with respect to any Letter of Credit, any Letter of Credit Request and any other agreement or instrument relating to any Letter of Credit and any Reference Rate Loan made under Section 2.3(c) shall be absolute, unconditional and irrevocable and shall be paid strictly in accordance with the terms of the aforementioned documents under all circumstances, including the following: (i) any lack of validity or enforceability of any Letter of Credit, this Agreement or any other Loan Document; (ii) the existence of any claim, setoff, defense or other right that the Borrower may have at any time against any beneficiary or transferee of any Letter of Credit (or any Person for whom any such beneficiary or transferee may be acting), the Agent, any Lender (other than the defense of payment to a Lender in accordance with the terms of this Agreement) or any other Person, whether in connection with this Agreement, any other Loan Document, the transactions contemplated hereby or thereby or any unrelated transaction; (iii) any statement or other document presented under any Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect, or any statement therein being untrue or inaccurate in any respect whatsoever; PROVIDED THAT payment by the Agent under the applicable Letter of Credit shall not have constituted gross negligence or willful misconduct of the Agent under the circumstances in question, as determined by a final determination of a referee in accordance with the terms of the ADR Agreement; and (iv) any exchange, release or nonperfection of any Collateral or other collateral, or any release, amendment or waiver of or consent to departure from any Guarantee, other Loan Document or other guaranty, for any of the Obligations of the Borrower in respect of the Letters of Credit. (e) The Borrower shall pay to the Agent for the account of the Revolving Loan Lenders with respect to each Letter of Credit issued hereunder, for the period from and including the day such Letter of Credit is issued to but excluding the day such Letter of Credit expires, a letter of credit fee equal to the product of (i) 1.50% PER ANNUM and (ii) the Letter of Credit Amount of such Letter of Credit from time to time, such letter of credit fee to be payable quarterly in arrears on the last day of each March, June, September and December and on the expiration date of such Letter of Credit. (f) The Borrower shall pay to the Agent for its own account, with respect to each Letter of Credit issued hereunder, (i) for the period from and including the day such Letter of Credit is issued to but excluding the day such Letter of Credit expires, a -23- fronting fee in respect of each Letter of Credit in an amount equal to 1/4 of 1% per annum of the Letter of Credit Amount of such Letter of Credit from time to time, such fronting fee to be payable quarterly in arrears on the last day of each March, June, September and December and on the expiration date of such Letter of Credit and (ii) from time to time such additional fees and charges (including cable charges) as are generally associated with letters of credit, in accordance with the Agent's standard internal charge guidelines and the related Letter of Credit Request. (g) The Borrower agrees to the provisions in the Letter of Credit Request form; PROVIDED, HOWEVER, that the terms of the Loan Documents shall take precedence if there is any inconsistency between the terms of the Loan Documents and the terms of said form. (h) The Borrower assumes all risks of the acts or omissions of any beneficiary or transferee of any Letter of Credit with respect to its use of such Letter of Credit. Neither the Agent nor any Lender nor any of their respective officers or directors shall be liable or responsible for (i) the use that may be made of any Letter of Credit or any acts or omissions of any beneficiary or transferee in connection therewith; or (ii) the validity, sufficiency or genuineness of documents, or of any endorsement thereof, even if such documents should prove to be in any or all respects invalid, insufficient, fraudulent or forged; PROVIDED THAT, with respect to clause (ii) of this Section 2.3(h), the Borrower shall retain any and all rights it may have against the Agent for any liability arising out of the gross negligence or willful misconduct of the Agent, as determined by a final determination of a referee in accordance with the terms of the ADR Agreement. In furtherance and not in limitation of the foregoing, the Agent may accept any document that appears on its face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary. (i) The Borrower hereby indemnifies and holds harmless each Revolving Loan Lender and the Agent from and against any and all claims and damages, losses, liabilities, costs or expenses that such Lender or the Agent may incur (or that may be claimed against such Lender or the Agent by any Person whatsoever) by reason of or in connection with the execution and delivery or transfer of or payment or refusal to pay by the Agent, as issuer of any Letter of Credit; PROVIDED THAT the Borrower shall not be required to indemnify any Lender or the Agent for any claims, damages, losses, liabilities, costs or expenses to the extent, but only to the extent, caused by (x) the willful misconduct or gross negligence of the Agent, as issuer of such Letter of Credit, in determining whether a request presented under any Letter of Credit complied with the terms of such Letter of Credit or (y) in the case of the Agent, as issuer of such Letter of Credit, the Agent's failure to pay under any Letter of Credit after the presentation to it of a request strictly complying with the terms and conditions of such Letter of Credit. Nothing in this Section 2.3 is intended to limit the other obligations of the Borrower, any Lender, or the Agent under this Agreement. 2.4 OPTIONAL PREPAYMENTS. The Borrower may at any time and from time to time, prepay the Loans, in whole or in part, without premium or penalty, upon at least -24- three Business Days' irrevocable written notice, in the case of LIBOR Loans, and upon at least one Business Day's irrevocable written notice, in the case of Reference Rate Loans, from the Borrower to the Agent, specifying the date and amount of prepayment and whether the prepayment is of LIBOR Loans, Reference Rate Loans or a combination thereof, and, if of a combination thereof, the amount allocable to each and whether the prepayment is of Term Loans or Revolving Loans, or a combination thereof, and, if a combination thereof, the amount allocable to each. Upon receipt of any such notice from the Borrower, the Agent shall promptly notify each Lender thereof. If any such notice is given, the amount specified in such notice shall be due and payable by the Borrower on the date specified therein, together with accrued interest to such date on the amount prepaid and any amounts payable pursuant to Section 2.15. Partial prepayments of Term Loans shall be applied to the installments of principal thereof in inverse order of maturity. Amounts prepaid on account of the Term Loans may not be reborrowed. Partial prepayments of the Term Loans shall be in an aggregate principal amount of $1,000,000 and integral multiples of $250,000 in excess thereof. Partial prepayments of the Revolving Loans shall be in an aggregate principal amount of $250,000 and integral multiples of $100,000 in excess thereof. 2.5 MANDATORY PREPAYMENTS. If at any time the aggregate principal amount of all Loans outstanding exceeds the Aggregate Commitment, the Borrower shall immediately, without notice or request by the Agent, prepay the Loans (together with accrued interest to the date of prepayment on the principal amount prepaid) in an aggregate amount equal to such excess. 2.6 CONVERSION AND CONTINUATION OPTIONS. (a) The Borrower may elect from time to time to convert LIBOR Loans to Reference Rate Loans, by the Borrower giving the Agent at least two Business Days' prior irrevocable written notice of such election pursuant to a Continuation Notice. The Borrower may elect from time to time to convert Reference Rate Loans to LIBOR Loans by the Borrower giving the Agent at least three Eurodollar Business Days' prior irrevocable written notice of such election pursuant to a Continuation Notice. Any such notice of conversion to LIBOR Loans shall specify the length of the initial Interest Period or Interest Periods therefor. Upon receipt of any such notice the Agent shall promptly notify each Lender thereof. All or any part of outstanding LIBOR Loans and Reference Rate Loans may be converted as provided herein, PROVIDED THAT (i) any such conversion may only be made if, after giving effect thereto, Section 2.7 shall not have been contravened, (ii) no Term Loan may be converted into a LIBOR Loan after the date that is one month prior to the due date of the final installment of principal of the Term Loans, (iii) no Revolving Loan may be converted into a LIBOR Loan after the date that is one month prior to the Revolving Loan Commitment Expiration Date and (iv) the Borrower shall not have the right to elect to continue at the end of the applicable Interest Period, or to convert to, a LIBOR Loan if a Default shall have occurred and be continuing. (b) Any LIBOR Loan may be continued as such upon the expiration of the then current Interest Period with respect thereto by the Borrower giving notice to the Agent, in accordance with the applicable provisions of the term "Interest Period" set -25- forth in Section 1.1, of the length of the next Interest Period to be applicable to such LIBOR Loan, PROVIDED THAT no LIBOR Loan may be continued as such (i) if, after giving effect thereto, Section 2.7 would be contravened, (ii) with respect to the Term Loans, after the date that is one month prior to the due date of the final installment of principal of the Term Loans, (iii) with respect to the Revolving Loans, after the date that is one month prior to the Revolving Loan Commitment Expiration Date or (iv) if a Default shall have occurred and be continuing and PROVIDED, FURTHER, that if the Borrower shall fail to give any required notice as described above in this Section or if such continuation is not permitted pursuant to the preceding proviso, such Loans shall be automatically converted to Reference Rate Loans on the last day of such then-expiring Interest Period. 2.7 MINIMUM AMOUNTS OF TRANCHES. All borrowings, conversions and continuations of Loans hereunder and all selections of Interest Periods hereunder shall be in such amounts and be made pursuant to such elections so that, after giving effect thereto, the aggregate principal amount of the Loans comprising each Tranche (except Loans made pursuant to Section 2.3(c)) shall be equal to $1,000,000 or a whole multiple of $100,000 in excess thereof and, in any case, there shall not be more than 8 Tranches. 2.8 INTEREST RATES AND PAYMENT DATES. (a) Each LIBOR Loan shall bear interest for each day during each Interest Period with respect thereto at a rate per annum equal to the LIBOR Adjusted Rate plus (i) for LIBOR Loans which are Revolving Loans, the Applicable Revolving Loan Margin and (ii) for LIBOR Loans which are Term Loans, the Applicable Term Loan Margin. (b) Each Reference Rate Loan shall bear interest at a rate per annum equal to the Reference Rate. (c) If any Default shall have occurred and be continuing, all amounts outstanding shall bear interest at a rate per annum which is the rate described in paragraph (b) of this Section plus 2% from the date of the occurrence of such Default until such Default is no longer continuing (after as well as before judgment). (d) Interest shall be payable in arrears on each Interest Payment Date, provided that interest accruing pursuant to paragraph (c) of this Section shall be payable on demand. 2.9 COMPUTATION OF INTEREST AND FEES. (a) Interest on Reference Rate Loans shall be calculated on the basis of a 365- (or 366-, as the case may be), day year for the actual days elapsed and interest on LIBOR Loans and all other Obligations of the Borrower shall be calculated on the basis of a 360-day year for the actual days elapsed. The Agent shall as soon as practicable notify the Borrower and the Lenders of each determination of a LIBOR Adjusted Rate. Any change in the interest rate on a Loan resulting from a change in the Reference Rate or the LIBOR Reserve Requirements shall become effective as of the opening of business on the day on which such change -26- in the Reference Rate is announced or such change in the LIBOR Reserve Requirements becomes effective, as the case may be. The Agent shall as soon as practicable notify the Borrower and the Lenders of the effective date and the amount of each such change in interest rate. (b) Each determination of an interest rate by the Agent pursuant to any provision of this Agreement shall be conclusive and binding on the Borrower and the Lenders in the absence of manifest error. 2.10 INABILITY TO DETERMINE INTEREST RATE. In the event that prior to the first day of any Interest Period: (a) the Agent shall have determined (which determination shall be conclusive and binding upon the Borrower absent manifest error) that, by reason of circumstances affecting the relevant market, adequate and reasonable means do not exist for ascertaining the LIBOR Adjusted Rate for such Interest Period, or (b) the Agent shall have received notice from the Majority Lenders acting in good faith that the LIBOR Adjusted Rate determined or to be determined for such Interest Period will not adequately and fairly reflect the cost to such Lenders (as conclusively certified by such Lenders) of making or maintaining their affected Loans during such Interest Period, the Agent shall give telecopy or telephonic notice thereof to the Borrower and the Lenders as soon as practicable thereafter. If such notice is given (x) any LIBOR Loans requested to be made on the first day of such Interest Period shall accrue interest at the Reference Rate, (y) Loans that were to have been converted on the first day of such Interest Period to LIBOR Loans shall be continued as Reference Rate Loans and (z) any outstanding LIBOR Loans shall be converted, on the first day of such Interest Period, to Reference Rate Loans. Until such notice has been withdrawn by the Agent, no further LIBOR Loans shall be made or continued as such, nor shall the Borrower have the right to convert Reference Rate Loans to LIBOR Loans. 2.11 PRO RATA TREATMENT AND PAYMENTS. Each payment (including each prepayment) by the Borrower on account of principal of and interest on the Loans shall be made pro rata according to the respective outstanding principal and interest amounts of such Loans then held by the Lenders. All payments (including prepayments) to be made by the Borrower hereunder and under the Notes, whether on account of principal, interest, fees or otherwise, shall be made without set off or counterclaim and shall be made prior to 12:00 Noon, Los Angeles time, on the due date thereof to the Agent, for the account of the applicable Lenders, at the Agent's office specified in Section 9.2, in Dollars and in immediately available funds. The Agent shall distribute such payments to the applicable Lenders promptly upon receipt in like funds as received. If any payment hereunder (other than payments on the LIBOR Loans) becomes due and payable on a day other than a Business Day, such payment shall be extended to the next succeeding Business Day, and, with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension. If any payment on a LIBOR Loan becomes due and payable on a day other -27- than a Eurodollar Business Day, the maturity thereof shall be extended to the next succeeding Eurodollar Business Day (and interest shall continue to accrue thereon at the applicable rate) unless the result of such extension would be to extend such payment into another calendar month, in which event such payment shall be made on the immediately preceding Eurodollar Business Day. 2.12 ILLEGALITY. Notwithstanding any other provision herein, if any change after the Restatement Date in any Requirement of Law or in the interpretation or application thereof shall make it unlawful for any Lender or Applicable Lending Office to make or maintain LIBOR Loans as contemplated by this Agreement, (a) the commitment of such Lender hereunder to make LIBOR Loans, continue LIBOR Loans as such and convert Reference Rate Loans to LIBOR Loans shall forthwith be suspended during such period of illegality and (b) the Loans of such Lender or Applicable Lending Office then outstanding as LIBOR Loans, if any, shall be converted automatically to Reference Rate Loans on the respective last days of the then current Interest Periods with respect to such Loans or within such earlier period as required by law. If any such conversion of a LIBOR Loan occurs on a day which is not the last day of the then current Interest Period with respect thereto, the Borrower shall pay to such Lender such amounts, if any, as may be required pursuant to Section 2.15. To the extent that a Lender's LIBOR Loans have been converted to Reference Rate Loans pursuant to this Section 2.12, all payments and prepayments of principal that otherwise would be applied to such Lender's LIBOR Loans shall be applied instead to its Reference Rate Loans. 2.13 INCREASED COSTS. (a) In the event that any change after the Restatement Date in any Requirement of Law or in the interpretation or application thereof or compliance by any Lender with any request or directive (whether or not having the force of law but, if not having the force of law, generally applicable to and complied with by banks and financial institutions of the same general type as such Lender in the relevant jurisdiction) from any central bank or other Governmental Authority made subsequent to the date hereof: (i) shall impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirements against assets held by, letters of credit or guarantees issued by, deposits or other liabilities in or for the account of, advances, loans or other extensions of credit by, or any other acquisition of funds by, any office of such Lender or Applicable Lending Office which is not otherwise included in the determination of the LIBOR Adjusted Rate hereunder; or (ii) shall impose on such Lender or Applicable Lending Office any other condition; and the result of any of the foregoing is to increase the cost to the Agent of issuing or maintaining any Letter of Credit by an amount which the Agent deems to be material, or to such Lender or Applicable Lending Office, by an amount which such Lender deems to be material, of making, converting into, continuing or maintaining LIBOR Loans, or -28- purchasing or maintaining any participation in a Letter of Credit, or to reduce any amount receivable hereunder in respect thereof then, in any such case, the Borrower shall immediately pay to the Agent, for its own account or on behalf of such Lender or Applicable Lending Office, as applicable, upon the demand of the Agent for itself or at the request of such Lender, as applicable, any additional amounts necessary to compensate such Lender or the Agent, as applicable, for such increased cost or reduced amount receivable. If the Agent, any Lender or any Applicable Lending Office becomes entitled to claim any additional amounts pursuant to this Section, it shall promptly notify the Borrower, through the Agent, of the event by reason of which it has become so entitled. A certificate as to any additional amounts payable pursuant to this Section submitted by the Agent or such Lender or Applicable Lending Office, through the Agent, to the Borrower shall be conclusive evidence of the accuracy of the information so recorded, absent manifest error. This covenant shall survive the termination of this Agreement, expiration of the Letters of Credit and the payment of the Notes and all other amounts payable hereunder. (b) If, after the date of this Agreement, the introduction of or any change in any applicable law, rule, regulation or guideline regarding capital adequacy, or any change in the interpretation or administration thereof by any Governmental Authority, central bank or the National Association of Insurance Commissioners or comparable agency charged with the interpretation or administration thereof, affects the amount of capital required or expected to be maintained by any Lender or any corporation controlling any Lender, and such Lender (taking into consideration such Lender's or such corporation's policies with respect to capital adequacy) determines that the amount of capital maintained by such Lender or such corporation which is attributable to or based upon the Loans, the Letters of Credit, the Commitments or this Agreement must be increased as a consequence of such introduction or change by an amount deemed by such Lender to be material, then, upon demand of the Agent at the request of such Lender, the Borrower shall immediately pay to the Agent on behalf of such Lender, additional amounts sufficient to compensate such Lender or such corporation for the increased costs to such Lender or corporation of such increased capital. Any such demand shall be accompanied by a certificate of such Lender setting forth in reasonable detail the computation of any such increased costs, which certificate shall be conclusive, absent manifest error. This covenant shall survive the termination of this Agreement, expiration of the Letters of Credit and the payment of the Notes and all other amounts payable hereunder. 2.14 TAXES. (a) All payments made by the Borrower in respect of the Obligations shall be made free and clear of, and without deduction or withholding for or on account of, any present or future income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now or hereafter imposed, levied, collected, withheld or assessed by any Governmental Authority or any political subdivision or taxing authority thereof or therein, other than Excluded Taxes (all such non-Excluded Taxes being hereinafter called "TAXES"). If any Taxes are required to be withheld from any amounts payable to the Agent or any Lender in respect of the Obligations, the amounts so payable to the Agent or such Lender shall be increased to the extent necessary to -29- yield to the Agent or such Lender (after payment of all Taxes) interest or any such other amounts payable hereunder at the rates or in the amounts specified in this Agreement and the Notes. The Agent or a Lender, as the case may be, shall deliver to the Borrower a certificate in good faith setting forth the amount of such Taxes, the calculation of such Taxes and an explanation of the requirement therefor, all in reasonable detail and such certificate shall be conclusive, absent manifest error. Whenever any Taxes are payable by the Borrower, as promptly as possible thereafter, the Borrower shall send to the Agent, for its own account or for the account of such Lender, as the case may be, a copy of an original official receipt received by the Borrower showing payment thereof or such other evidence of payment reasonably satisfactory to the Agent. If the Borrower fails to pay any Taxes when due to the appropriate taxing authority or fails to remit to the Agent the required receipts or other required documentary evidence, the Borrower shall indemnify the Agent and the Lenders for any incremental taxes, interest or penalties (and related reasonable fees and expenses of counsel) that may become payable by the Agent or any Lender as a result of any such failure. The agreements in this Section shall survive the termination of this Agreement and the payment of the Notes and all other amounts payable hereunder. (b) Each Lender that is not organized under the laws of the United States of America or a state thereof agrees that it will deliver to the Borrower and the Agent (i) two duly completed copies of United States Internal Revenue Service Form 1001 or 4224 or successor applicable form, as the case may be, and (ii) an Internal Revenue Service Form W-8 or W-9 or successor applicable form. Each such Lender also agrees to deliver to the Borrower and the Agent two further copies of the said Form 1001 or 4224 and Form W-8 or W-9, or successor applicable forms or other manner or certification, as the case may be, on or before the date that any such form expires or becomes obsolete or after the occurrence of any event requiring a change in the most recent form previously delivered by it to the Borrower and the Agent, and such extensions or renewals thereof as may reasonably be requested by the Borrower or the Agent, unless in any such case an event beyond the control of such Lender (including, without limitation, any change in treaty, law or regulation) has occurred prior to the date on which any such delivery would otherwise be required which renders all such forms inapplicable or which would prevent such Lender from duly completing and delivering any such form with respect to it and such Lender so advised the Borrower and the Agent. Each such Lender shall certify (i) in the case of a Form 1001 or 4224, that it is entitled to receive payments under this Agreement without deduction or withholding of any United States federal income taxes and (ii) in the case of a Form W-8 or W-9, that it is entitled to an exemption from United States backup withholding tax. 2.15 INDEMNITY. The Borrower agrees to indemnify each Lender and to hold each Lender harmless from and to pay each Lender within 5 Business Days of such Lender's demand the amount of any liability, loss or expense arising from the reemployment of funds obtained by it or from fees payable to terminate the deposits from which such funds were obtained (including reasonable fees and expenses of counsel) which such Lender may sustain or incur as a consequence of (a) default by the Borrower in -30- payment when due of the principal amount of or interest on any LIBOR Loan, (b) default by the Borrower in making a borrowing of, conversion into or continuation of LIBOR Loans after the Borrower has given a notice requesting the same in accordance with the provisions of this Agreement, (c) default by the Borrower in making any prepayment after the Borrower has given a notice thereof in accordance with the provisions of this Agreement or (d) the making by the Borrower of a prepayment or conversion of LIBOR Loans on a day which is not the last day of an Interest Period with respect thereto. A Lender's certificate as to such liability, loss or expense shall be deemed conclusive, absent manifest error. This covenant shall survive the termination of this Agreement, expiration of the Letters of Credit and the payment of the Notes and all other amounts payable hereunder. 2.16 MITIGATION OF COSTS. If any Lender, by changing its Applicable Lending Office or taking any other reasonable action, so long as making such change or taking such other action is not disadvantageous to it in any financial, regulatory or other respect, can mitigate any adverse effect on the Borrower under Section 2.10, 2.12, 2.13, or 2.14, such Lender shall take such action. SECTION 3. REPRESENTATIONS AND WARRANTIES To induce the Lenders to enter into this Agreement and to make the Loans and participate in the Letters of Credit, and to induce the Agent to issue the Letters of Credit, the Borrower hereby represents and warrants to the Agent and each Lender that: 3.1 ORGANIZATION AND GOOD STANDING. The Borrower and each Subsidiary (a) is duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation as indicated on SCHEDULE 3.1, (b) has all requisite corporate power and authority to own its properties and to conduct its business as now conducted and as currently proposed to be conducted and (c) is duly qualified to conduct business as a foreign corporation and is currently in good standing in each state and jurisdiction in which it conducts business except, in each case referred to in clause (c), to the extent that the failure to do so could not reasonably be expected to have a Material Adverse Effect. Each state and jurisdiction in which the Borrower or any Subsidiary is or should be qualified to conduct business is listed on SCHEDULE 3.1 hereto. 3.2 POWER AND AUTHORITY. The Borrower and each Subsidiary has all requisite power and authority under applicable law and under its Organic Documents to (i) in the case of the Borrower, borrow hereunder and consummate the Dubs Acquisition in accordance with the terms of the Acquisition Agreement and (ii) execute, deliver and perform its respective obligations under the Loan Documents to which it is a party. All actions, waivers and consents (corporate, regulatory and otherwise) necessary or appropriate for the Borrower to consummate the Dubs Acquisition in accordance with the terms of the Acquisition Agreement, and for the Borrower and each Subsidiary to execute, deliver and perform the Loan Documents to which it is a party have been -31- taken and/or received. 3.3 VALIDITY AND LEGAL EFFECT. This Agreement constitutes, and the other Loan Documents to which the Borrower or any Subsidiary is a party constitute (or will constitute when executed and delivered), the legal, valid and binding obligations of the Borrower or such Subsidiary, as applicable, enforceable against it in accordance with the terms thereof, except as such enforceability may be limited by (a) bankruptcy, insolvency, reorganization, moratorium or similar laws of general applicability affecting the enforcement of creditors' rights and (b) the application of general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). 3.4 NO VIOLATION OF LAWS OR AGREEMENTS. The execution, delivery and performance of the Loan Documents and the consummation of the Dubs Acquisition in accordance with the terms of the Acquisition Agreement (a) will not violate or contravene any Requirement of Law, (b) will not result in any material breach or violation of, or constitute a material default under, any agreement or instrument by which the Borrower or any Subsidiary, or any of its property, may be bound, and (c) will not result in or require the creation of any Lien (other than those permitted by Section 6.3) upon or with respect to any property of the Borrower or any Subsidiary, whether such property is now owned or hereafter acquired. 3.5 TITLE TO ASSETS; EXISTING ENCUMBRANCES; LEGAL NAMES. The Borrower and each Subsidiary has good and marketable title to all of its real and personal properties and assets, free and clear of any Liens (other than those permitted by Section 6.3). Neither the Borrower nor any Subsidiary has used (or permitted the filing of any financing statement under) any legal or operating name at any time during the twelve consecutive calendar months immediately preceding the execution of this Agreement, except as identified on SCHEDULE 3.5 hereto. 3.6 CAPITAL STRUCTURE; EQUITY OWNERSHIP. The authorized capital stock of the Borrower consists of an aggregate of 50,000,000 shares of common stock, without par value, 9,770,837 shares of which are issued and outstanding, and 5,000,000 shares of preferred stock, without par value, no shares of which are issued and outstanding. All of the issued and outstanding shares of common stock of the Borrower are duly and validly issued and outstanding, and each of such shares is fully paid and nonassessable. Except as set forth on SCHEDULE 3.6 hereto, there are no outstanding Equity Rights with respect to the Borrower or any Subsidiary and there are no outstanding obligations of the Borrower or any of its Subsidiaries to repurchase, redeem, or otherwise acquire any shares of capital stock of the Borrower, nor are there any outstanding obligations of the Borrower or any of its Subsidiaries to make payments to any Person, such as "phantom stock" payments, where the amount thereof is calculated with reference to the fair market value or equity value of Borrower or any of its Subsidiaries. 3.7 SUBSIDIARIES AND AFFILIATES. SCHEDULE 3.7 hereto accurately and -32- completely discloses (i) each Subsidiary and Affiliate of the Borrower (other than its officers and directors), (ii) each Person holding ownership interests in such Subsidiary and (iii) the nature of the ownership interests held by each such Person and the percentage of ownership of such Subsidiary represented by such ownership interests. 3.8 MATERIAL CONTRACTS. Neither the Borrower nor any Subsidiary has committed any unwaived breach or default under any Material Contract, and the Borrower has no knowledge or reason to believe that any other party to any Material Contract has committed any unwaived breach or default thereof. Each of the Material Contracts is a legal, valid and binding obligation of the Borrower or the Subsidiaries party thereto, enforceable in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, or similar laws affecting the enforcement of creditors' rights generally or by equitable principles relating to enforceability. The Borrower has made available to the Lenders and the Agent a complete and correct copy of each Material Contract (including in each case all exhibits, schedules and disclosure letters referred to therein or delivered pursuant thereto, if any) and all amendments thereto and other side letters or agreements affecting the terms thereof. Except for the Acquisition Agreement, neither the Borrower nor any of its Subsidiaries is party to any current agreements or letters of intent providing for the acquisition or disposition of any assets with a fair market value of $1,000,000 or more. 3.9 TAXES AND ASSESSMENTS. The Borrower and each Subsidiary has timely filed all required tax returns and reports (federal, state and local) or has properly filed for extensions of the time for the filing thereof. The Borrower has no knowledge of any deficiency, penalty or additional assessment due or appropriate in connection with any such taxes. All taxes (federal, state and local) imposed upon the Borrower or any Subsidiary or any of its properties, operations or income have been paid and discharged prior to the date when any interest or penalty would accrue for the nonpayment thereof, except for those taxes being contested in good faith by appropriate proceedings diligently prosecuted and with adequate reserves reflected on the financial statements in accordance with GAAP. There are no taxes imposed on the Borrower or its Subsidiaries by any political subdivision or taxing authority due or payable either on or by virtue of the execution and delivery by the Borrower, the Subsidiaries, the Agent, or the Lenders of this Agreement or any other Loan Document to which the Borrower or the Subsidiaries are party, or on any payment to be made by the Borrower pursuant hereto or thereto. 3.10 LITIGATION AND LEGAL PROCEEDINGS. Except as disclosed on SCHEDULE 3.10 hereto, there is no litigation, claim, investigation, administrative proceeding, labor controversy or similar action that is pending or, to the knowledge of the Borrower, threatened (i) with respect to any Loan Document or the transactions contemplated thereby, (ii) with respect to the Dubs Acquisition or the transactions contemplated by the Acquisition Agreement or (iii) against the Borrower, any Subsidiary or any Property which, if determined adversely to the Borrower or any Subsidiary, would reasonably be expected to have a Material Adverse Effect. -33- 3.11 ACCURACY OF FINANCIAL INFORMATION. (a) All information previously furnished to the Agent and the Lenders that was prepared by or on behalf of the Borrower concerning the financial condition and operations of the Borrower or any Subsidiary, including (i) the audited consolidated financial statements of the Borrower and its Subsidiaries for the fiscal year ended December 31, 1997 (including, separately stated, consolidating statements of income, retained earnings and cash flows of the Borrower and its Subsidiaries), (ii) the unaudited consolidated financial statements for the Borrower and its Subsidiaries for the fiscal quarter ended June 30, 1998 and (iii) the unaudited pro forma consolidated balance sheet for the Borrower and its Subsidiaries, as at December 31, 1998 and the unaudited pro forma consolidated opening balance sheet for the Borrower and its Subsidiaries, as at November 1, 1998, in each case prepared under the assumption that the Dubs Acquisition occurred on November 1, 1998, (A) have been prepared in accordance with GAAP consistently applied, (B) are true, accurate and complete in all material respects, (C) fairly present the financial condition of the organizations covered thereby as of the dates and for the periods covered thereby and (D) disclose all material liabilities (contingent and otherwise) of the Borrower and the Subsidiaries. (b) Since December 31, 1997 there has been no event or condition resulting in a Material Adverse Effect. 3.12 ACCURACY OF OTHER INFORMATION. All information contained in any application, schedule, report, certificate, or any other document given to the Agent or any Lender by the Borrower or any agent of the Borrower in connection with the Loan Documents is in all material respects true, accurate and complete, and no such Person has omitted to state therein (or failed to include in any such document) any material fact or any fact necessary to make such information not misleading. All projections given to the Agent, or any Lender by the Borrower or any other Person have been prepared with a reasonable basis and in good faith making use of such information as was available at the date such projection was made. The projections and pro forma financial information contained in such materials are based upon good faith estimates and assumptions believed by the Borrower to be reasonable at the time made and as of the Restatement Date, it being recognized that such projections as to future events are not to be viewed as facts and that actual results during the period or periods covered by any such projections may differ from the projected results. 3.13 COMPLIANCE WITH LAWS GENERALLY. The Borrower and each Subsidiary is in compliance in all material respects with all Requirements of Law applicable to it, its operations and its properties. 3.14 ERISA COMPLIANCE. (a) The Borrower and each Subsidiary is in compliance in all material respects with all applicable provisions of ERISA, and all rules, regulations and orders implementing ERISA. -34- (b) Neither the Borrower nor any Subsidiary, or any ERISA Affiliate thereof, maintains or contributes to (or has maintained or contributed to) any Multiemployer Plan under which the Borrower, any Subsidiary or any ERISA Affiliate thereof could have any withdrawal liability. (c) Neither the Borrower nor any Subsidiary, or any ERISA Affiliate thereof, sponsors or maintains any defined benefit pension plan under which there is an accumulated funding deficiency within the meaning of Section 412 of the Code, whether or not waived. (d) The liability for accrued benefits under each defined benefit pension plan that will be sponsored or maintained by the Borrower, any Subsidiary or any ERISA Affiliate thereof (determined on the basis of the actuarial assumptions utilized by the PBGC) does not exceed the aggregate fair market value of the assets under each such defined benefit pension plan. (e) The aggregate liability of the Borrower, each Subsidiary and each ERISA Affiliate thereof arising out of or relating to a failure of any employee benefit plan within the meaning of Section 3(2) of ERISA to comply with provisions of ERISA or the Code will not have a Material Adverse Effect. (f) There does not exist any unfunded liability (determined on the basis of actuarial assumptions utilized by the actuary for the plan in preparing the most recent annual report) of the Borrower, any Subsidiary or any ERISA Affiliate thereof under any plan, program or arrangement providing post-retirement, life or health benefits. (g) No Reportable Event and no Prohibited Transaction (as defined in ERISA) has occurred or is occurring with respect to any plan with which the Borrower or any Subsidiary is associated. 3.15 ENVIRONMENTAL COMPLIANCE. (a) The Borrower and each Subsidiary has received all permits and filed all notifications necessary under and is otherwise in compliance in all material respects with all federal, state and local laws, rules and regulations governing the control, removal, storage, transportation, spill, release or discharge of Hazardous Materials, including, without limitation, as provided in the provisions of and the regulations under (i) the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended by the Superfund Amendment and Reauthorization Act of 1986, (ii) the Solid Waste Disposal Act, (iii) the Clean Water Act and the Clean Air Act, (iv) the Hazardous Materials Transportation Act, (v) the Resource Conservation and Recovery Act of 1976 and (vi) the Federal Water Pollution Control Act Amendments of 1972 (all of the foregoing enumerated and nonenumerated statutes, including without limitation any applicable state or local statutes, all as amended, collectively, the "ENVIRONMENTAL CONTROL STATUTES"). (b) Neither the Borrower nor any Subsidiary has given any written or -35- oral notice to the Environmental Protection Agency ("EPA") or any state or local agency with regard to any actual or imminently threatened removal, storage, transportation, spill, release or discharge of Hazardous Wastes either (i) on properties owned or leased by the Borrower or such Subsidiary or (ii) otherwise in connection with the conduct of its business and operations. (c) Neither the Borrower nor any Subsidiary has received notice that it is potentially responsible for costs of clean-up of any actual or imminently threatened spill, release or discharge of Hazardous Wastes pursuant to any Environmental Control Statute. (d) No judicial proceedings or governmental or administrative action is pending, or, to the knowledge of the Borrower, threatened, under any Environmental Control Statute to which the Borrower or any of its Subsidiaries is named as a party with respect to the Properties or the business conducted at the Properties, nor are there any consent decrees or other decrees, consent orders, administrative orders or other orders, or other administrative or judicial requirements outstanding under any Environmental Control Statute with respect to the Properties or such business. 3.16 FEDERAL REGULATIONS. No Letter of Credit and no part of the proceeds of any Loans are intended to be or will be used, directly or indirectly for any purpose which violates the provisions of the Regulations of the Board of Governors of the Federal Reserve System. If requested by any Lender or the Agent, and in any event upon consummation of any acquisition involving the purchase of stock by the Borrower or any Subsidiary, the Borrower will furnish to the Agent and each Lender a statement to the foregoing effect in conformity with the requirements of Form U-1 referred to in Regulation U. 3.17 FEES AND COMMISSIONS. Except as disclosed on SCHEDULE 3.17 hereto or the letter referred to in Section 4.1(d), neither the Borrower nor any Subsidiary owes or will owe any fees or commissions of any kind in connection with the Dubs Acquisition, this Agreement or the transactions contemplated hereby or thereby, and the Borrower does not know of any claim (or any basis for any claim) for any fees or commissions in connection with the Dubs Acquisition, the Acquisition Agreement, this Agreement or the transactions contemplated hereby or thereby. 3.18 REPRESENTATIONS AND WARRANTIES IN ACQUISITION AGREEMENT. The Agent has received a complete and correct copy of the Acquisition Agreement (including all exhibits, schedules and disclosure letters referred to therein or delivered or to be delivered pursuant thereto, if any) and all amendments thereto, waivers relating thereto and other side letters or agreements affecting the terms thereof. The Acquisition Agreement has been duly executed and delivered by the parties thereto and is in full force and effect with no default thereunder. Each representation and warranty made by the Borrower in the Acquisition Agreement shall be deemed to be made by the Borrower for the Lenders' benefit as if set forth herein at length. -36- 3.19 SOLVENCY. Immediately prior to and upon the execution of this Agreement, the consummation of the Dubs Acquisition, the funding of the Loans and the issuance of any Letters of Credit to be funded or issued on the Restatement Date, the Borrower and each Guarantor was, is and will be Solvent. 3.20 INVESTMENT COMPANY ACT; PUBLIC UTILITY HOLDING COMPANY ACT. (a) Neither the Borrower nor any Subsidiary is an "investment company", or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. (b) Neither the Borrower nor any Subsidiary is a "holding company," or an "affiliate" of a "holding company" or a "subsidiary company" of a "holding company," within the meaning of the Public Utility Holding Company Act of 1935, as amended. 3.21 NATURE OF BUSINESS. Neither the Borrower nor any of its Subsidiaries is engaged in any material business other than as described in Section 6.11. 3.22 RANKING OF LOANS. This Agreement and the other Loan Documents to which the Borrower is party, when executed, and the Loans, when borrowed, are and will be the direct and general obligations of the Borrower. The Borrower's obligations hereunder and thereunder rank and will rank at least PARI PASSU in priority of payment to all other Indebtedness. SECTION 4. CONDITIONS PRECEDENT 4.1 CONDITIONS TO RESTATEMENT DATE. The agreement of each Lender to make the Loans requested to be made by it on the Restatement Date and participate in any Letters of Credit issued on the Restatement Date and the agreement of the Agent to issue any Letters of Credit requested to be issued on the Restatement Date are subject to the satisfaction, immediately prior to or concurrently with the making of such Loans and/or the issuance of and participation in such Letters of Credit on the Restatement Date, of the following conditions precedent: (a) CREDIT AGREEMENT. The Agent shall have received this Agreement, executed and delivered by an officer of the Borrower as of the Restatement Date. (b) OTHER LOAN DOCUMENTS. The Agent shall have received the Term Notes, the Revolving Notes, the Guarantees, the Guarantor Collateral Documents, the Collateral Documents, the ADR Agreement, all UCC-1 Financing Statements and amendments thereto and all other agreements or instruments required to create or perfect a security interest in the Collateral and the Guarantor Collateral executed in connection herewith, in each case executed and delivered by an officer of the relevant Obligor. (c) CORPORATE DOCUMENTS. Certified copies of the charter and by-laws of each -37- Obligor (other than Fast Forward) and of all corporate authority for each Obligor (including, without limitation, board of director resolutions and evidence of the incumbency, including specimen signatures, of officers) with respect to the execution, delivery and performance of such of the Loan Documents to which such Obligor is intended to be a party and each other document to be delivered by such Obligor from time to time in connection herewith and the extensions of credit hereunder. (d) FEES AND COSTS. The Agent shall have received payment of (i) the fees set forth in the fee side letter executed by the Borrower and the Agent in connection herewith and (ii) such other fees, costs and expenses, including reasonable legal fees, as are requested by the Agent to be paid on the Restatement Date by the Borrower in connection with this Agreement. (e) ACQUISITION AGREEMENT. The Agent shall have received a copy of the Acquisition Agreement, and each agreement and instrument delivered in connection therewith, all of the foregoing in form and substance satisfactory to the Agent and all as certified as true and correct by a Responsible Officer of the Borrower. (f) LIEN SEARCHES. The Agent shall have received such lien searches as it shall request from all relevant jurisdictions, listing all effective financing statements which name the Borrower, any Guarantor or Dubs (or any predecessor thereto), as debtor, none of which, except for Liens permitted by Section 6.3, shall cover any of the Collateral. (g) REPAYMENT OF CERTAIN INDEBTEDNESS; RELEASE OF LIENS. The Agent shall have received evidence satisfactory to it that (i) all Indebtedness listed on SCHEDULE 4.1(g) has been repaid in full and (ii) except as set forth on SCHEDULE 4.1(g), all UCC financing statements which name Dubs as debtor have been terminated and all Liens on the assets of Dubs (except any permitted by Section 6.3), have been released. (h) GOOD STANDING CERTIFICATES. With respect to each Obligor which is a legal entity, the Agent shall have received a certificate, dated a recent date, of the Secretary of State of the state of formation of such Obligor and each other jurisdiction where such Obligor is required to be qualified to do business under such jurisdiction's law (other than the State of Texas with respect to the Borrower and the State of Illinois with respect to Multi-Media), certifying as to the existence and good standing of, and the payment of taxes by, each such Obligor in such state. (i) OFFICER'S CERTIFICATE. A certificate of a senior officer of the Borrower, dated the Restatement Date, to the effect set forth in the first sentence of Section 4.2 hereof. (j) INSURANCE POLICIES. The Agent shall have received evidence in form and substance reasonably satisfactory to the Agent that the insurance required by Section 5.6 is in full force and effect. (k) ACQUISITION. The Acquisition Agreement shall have been executed and -38- delivered by each party thereto, and the Agent shall have received a certificate of a Responsible Officer of the Borrower to the effect that all material transactions contemplated by the Acquisition Agreement to be consummated on or prior to the Restatement Date have been consummated without amendment, waiver or modification of the material terms thereof. (l) ACQUISITION PRICE. The aggregate consideration paid in connection with the Dubs Acquisition shall not exceed $14,300,000, and the Agent shall have received a certificate of a Responsible Officer of the Borrower to such effect. (m) NECESSARY GOVERNMENTAL AUTHORIZATIONS AND CONSENTS; EXPIRATION OF WAITING PERIODS, ETC. The Borrower shall have obtained all governmental authorizations and all consents of other Persons, in each case that are necessary or advisable in connection with the Dubs Acquisition and the other transactions contemplated by the Loan Documents and each of the foregoing shall be in full force and effect, in each case other than those the failure to obtain or maintain which, either individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect. All applicable waiting periods shall have expired without any action being taken or threatened by any competent authority which would restrain, prevent or otherwise impose adverse conditions on the Dubs Acquisition or the financing thereof. No action, request for stay, petition for review or rehearing, reconsideration, or appeal with respect to any of the foregoing shall be pending, and the time for any applicable agency to take action to set aside its consent on its own motion shall have expired. (n) ADDITIONAL PROCEEDINGS. The Agent shall have received such other approvals, opinions and documents as the Agent may reasonably request and all legal matters incident to the making of such Loans and issuance of such Letters of Credit shall be reasonably satisfactory to the Agent. 4.2 CONDITIONS TO EACH LOAN OR LETTER OF CREDIT. The agreement of each Lender to make each Loan and to participate in each Letter of Credit, and the agreement of the Agent to issue each Letter of Credit, requested to be made, issued or participated in by it is subject to the satisfaction, immediately prior to or concurrently with the making of such Loan or the issuance or participation in such Letter of Credit, of the following conditions precedent: (a) REPRESENTATIONS AND WARRANTIES; NO DEFAULT. The following statements shall be true and the Borrower's acceptance of the proceeds of such Loan or its delivery of an executed Letter of Credit Request shall be deemed to be a representation and warranty of the Borrower on the date of such Loan or as of the date of issuance of such Letter of Credit, as applicable, that: (i) The representations and warranties contained in this Agreement and in each other Loan Document and certificate or other writing delivered to the Lenders prior to, on or after the Restatement Date pursuant hereto and on or prior to the date for such Loan or the issuance of such Letter of Credit are -39- correct on and as of such date in all material respects as though made on and as of such date except to the extent that such representations and warranties expressly relate to an earlier date; and (ii) No Default has occurred and is continuing or would result from the making of the Loan to be made on such date or the issuance of such Letter of Credit as of such date. (b) LEGALITY. The making of such Loan or the issuance of such Letter of Credit, as applicable, shall not contravene any law, rule or regulation applicable to any Lender or any Obligor. (c) BORROWING NOTICE/LETTER OF CREDIT REQUEST. The Agent shall have received a borrowing notice or Letter of Credit Request, as applicable, pursuant to the provisions of this Agreement from the Borrower. 4.3 CONDITIONS SUBSEQUENT. Not later than 30 days after the Restatement Date, in the case of the items listed in Section 4.3(a), not later than 60 days after the Restatement Date, in the case of the items listed in Sections 4.3(b) and (c), and not later than 14 days after the Restatement Date, in the case of the items listed in Sections 4.3(d), (e) and (f), the Agent shall have received the following: (a) LEGAL OPINIONS. The Agent shall have received, with a counterpart for each Lender, the following executed legal opinions: (i) the executed legal opinion of Katten Muchin & Zavis, counsel to the Borrower and the Guarantors, in form and substance satisfactory to the Agent; and (ii) such other legal opinions as the Agent may reasonably request. (b) CERTIFIED UCC SEARCHES. The Agent shall have received certified copies of requests for information from all relevant jurisdictions, listing all effective financing statements which name the Borrower or any Guarantor (or any predecessor thereto), as debtor, together with copies of such financing statements, none of which, except for Liens permitted by Section 6.3, shall cover any of the Collateral or the Guarantor Collateral. (c) LANDLORD CONSENTS. The Agent shall have received a Landlord Consent with respect to all real property leased to the Borrower or any Guarantor and listed on SCHEDULE 4.3(c) hereto, including, without limitation, with respect to each real property lease assigned to the Borrower pursuant to the Acquisition Agreement, and all such Landlord Consents shall have been submitted for recording in the relevant recording offices in each relevant jurisdiction. (d) CORPORATE DOCUMENTS. The Agent shall have received certified copies of -40- the charter and by-laws of Fast Forward. (e) GOOD STANDING CERTIFICATES. The Agent shall have received (i) a certificate, dated a recent date, of the Secretary of State of the State of Texas certifying as to the existence and good standing of, and the payment of taxes by, the Borrower in such state, and (ii) a certificate, dated a recent date, of the Secretary of State of the State of Illinois certifying as to the existence and good standing of, and the payment of taxes by, Multi-Media in such state. (f) INSURANCE POLICIES. With respect to the insurance required by Section 5.6, the Agent shall have received appropriate evidence showing the Agent as an additional named insured or loss payee, as appropriate, in form and substance reasonably satisfactory to the Agent. SECTION 5. AFFIRMATIVE COVENANTS The Borrower hereby agrees that from and after the Restatement Date, so long as any Commitment remains in effect, any Note remains outstanding and unpaid or any other amount is owing to any Lender or the Agent hereunder, or any Letter of Credit remains outstanding: 5.1 FINANCIAL STATEMENTS. (a) As soon as available and in any event within 45 days after the end of each quarterly fiscal period of each fiscal year of the Borrower, the Borrower shall deliver to the Agent, with sufficient copies for each Lender, consolidated statements of income, retained earnings and cash flows of the Borrower and its Subsidiaries for such period, and the related consolidated balance sheets of the Borrower and its Subsidiaries as at the end of such period, setting forth in each case in comparative form the corresponding consolidated figures for the corresponding periods in the preceding fiscal year (except that, in the case of the balance sheets, such comparison shall be to the last day of the prior fiscal year), accompanied by a certificate of a senior financial officer of the Borrower, which certificate shall state that said consolidated financial statements fairly present the consolidated financial condition and results of operations of the Borrower, the Borrower and its Subsidiaries, in each case in accordance with GAAP consistently applied, as at the end of, and for, such period (subject to normal year-end audit adjustments); and (b) as soon as available and in any event within 120 days after the end of each fiscal year of the Borrower, the Borrower shall deliver to the Agent, with sufficient copies for each Lender, consolidated statements of income, retained earnings and cash flows of the Borrower and its Subsidiaries for such fiscal year and the related consolidated balance sheet of the Borrower and its Subsidiaries as at the end of such fiscal year, setting forth in comparative form the corresponding consolidated figures for the preceding fiscal year, and accompanied by an opinion thereon of the Accountants, which opinion shall state that said consolidated financial statements fairly present the consolidated financial condition and results of operations of the Borrower and its Subsidiaries as at the end of, and for, such fiscal year in accordance with GAAP, and a -41- statement of the Accountants to the effect that, in making the examination necessary for their opinion, nothing came to their attention that caused them to believe that the Borrower was not in compliance with Section 6.1, insofar as such Section relates to accounting matters. 5.2 CERTIFICATES; OTHER INFORMATION. The Borrower shall deliver to each Lender: (a) within 45 days after the end of each quarterly fiscal period of each fiscal year of the Borrower, a Covenant Compliance Certificate as of the end of such quarter; (b) within five Business Days after the same are filed, copies of all financial statements and reports which the Borrower or any Subsidiary may make to, or file with, the Securities and Exchange Commission or any successor or analogous Governmental Authority; (c) promptly but, in any event, within five Business Days after receipt thereof, copies of all financial reports (including, without limitation, management letters), if any, submitted to the Borrower or any Subsidiary by the Accountants in connection with any annual or interim audit of the books thereof; (d) as soon as available and in any event within 30 days after December 31 of each fiscal year, a budget for the next following fiscal year setting forth anticipated income, expense and capital expenditure items for each quarter during such fiscal year; (e) as soon as possible and in any event within five Business Days after the occurrence of a Default or, in the good faith determination of a Responsible Officer of the Borrower, a Material Adverse Effect, the written statement by a Responsible Officer of the Borrower, setting forth the details of such Default or Material Adverse Effect and the action which the Borrower proposes to take with respect thereto; (f) (A) as soon as possible and in any event within 30 days after the Borrower knows or has reason to know that any Termination Event with respect to any Plan has occurred, a statement of a Responsible Officer of the Borrower describing such Termination Event and the action, if any, which the Borrower proposes to take with respect thereto, (B) promptly and in any event within ten days after receipt thereof by the Borrower or any ERISA Affiliate of the Borrower from the PBGC, copies of each notice received by the Borrower or such ERISA Affiliate of the PBGC's intention to terminate any Plan or to have a trustee appointed to administer any Plan, (C) promptly and in any event within 30 days after the filing thereof with the Internal Revenue Service, copies of each Schedule B (Actuarial Information) to the annual report (Form 5500 Series) with respect to each Single Employer Plan maintained for or covering employees of the Borrower or any Subsidiary if the present value of the accrued benefits under the Plan exceeds its assets by an amount in excess of $500,000 and (D) promptly and in any event within ten days after receipt thereof by the Borrower or any ERISA Affiliate of the Borrower from a sponsor of a Multiemployer Plan or from the PBGC, a copy of each notice received by the Borrower or such ERISA Affiliates -42- concerning the imposition or amount of withdrawal liability under Section 4202 of ERISA or indicating that such Multiemployer Plan may enter reorganization status under Section 4241 of ERISA; (g) promptly after the commencement thereof, but in any event not later than five Business Days after service of process with respect thereto on, or the obtaining of knowledge by, the Borrower or any Subsidiary, notice of each material action, suit or proceeding before any Governmental Authority; (h) within five days following receipt by the Borrower or any Subsidiary, copies of all notices received by the Borrower or such Subsidiary from the Internal Revenue Service or other taxing authority relating to any material dispute regarding deductions, audits or any other material matter; and (i) promptly, such additional financial and other information as any Lender, through the Agent, may from time to time reasonably request. 5.3 PAYMENT OF OBLIGATIONS. The Borrower shall, and shall cause each of its Subsidiaries to, pay, discharge or otherwise satisfy at or before maturity or before they become delinquent, as the case may be, all its obligations of whatever nature, except where the failure to so satisfy such obligations would not have a Material Adverse Effect or except where the amount or validity thereof is currently being contested in good faith by appropriate proceedings and reserves in conformity with GAAP with respect thereto have been provided on the books of the Borrower or its Subsidiaries, as the case may be. 5.4 CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE. The Borrower shall, and shall cause each of its Subsidiaries to, (i) continue to engage in the video duplication business, the post-production business, the audio sweetening business, the business of distributing national television spot advertising, trailers and electronic press kits for the motion picture and television industries, or engage in the business of owning (and renting) limited amounts of niche programming and media buying, (ii) preserve, renew and keep in full force and effect its corporate existence, (iii) take all reasonable action to maintain all rights, registrations, licenses, privileges and franchises necessary or desirable in the normal conduct of its business, and (iv) comply with all Contractual Obligations and Requirements of Law except to the extent, in the case of this clause (iv), that failure to comply therewith would not, in the aggregate, have a Material Adverse Effect. 5.5 MAINTENANCE OF PROPERTY. The Borrower shall, and shall cause each of its Subsidiaries to, keep all property useful or necessary in its business in good working order and condition (ordinary wear and tear excepted). 5.6 INSURANCE. The Borrower will, and will cause each of its Subsidiaries to, maintain insurance with financially sound and reputable insurance companies, and with respect to Property and risks of a character usually maintained by corporations -43- engaged in the same or similar business similarly situated, against loss, damage and liability of the kinds and in the amounts customarily maintained by such corporations. The Borrower shall designate the Agent as loss payee or additional insured, as appropriate with respect to such insurance and cause such insurance to provide for 30 days' prior written notice to Agent of any modification or cancellation of such insurance. 5.7 INSPECTION OF PROPERTY; BOOKS AND RECORDS; DISCUSSIONS. The Borrower shall, and shall cause each of its Subsidiaries to, keep proper books of records and account in which full, true and correct entries in conformity with GAAP and all Requirements of Law shall be made of all material dealings and transactions in relation to its business and activities; and upon reasonable notice and at such reasonable times during usual business hours, permit representatives of any Lender to visit and inspect any of its properties and examine and make abstracts from any of its books and records at any reasonable time and as often as may reasonably be desired and to discuss the business, operations, properties and financial and other condition of the Borrower and its Subsidiaries with officers and employees of the Borrower and its Subsidiaries and with its Accountants. 5.8 ENVIRONMENTAL LAWS. The Borrower shall, and shall cause each of its Subsidiaries to: (a) Comply in all material respects with, and ensure compliance by all tenants and subtenants, if any, with, all applicable Environmental Control Statutes and obtain and comply in all material respects with any and all licenses, approvals, notifications, registrations or permits required by applicable Environmental Control Statutes; (b) Conduct and complete all investigations, studies, sampling and testing, and all remedial, removal and other actions required under Environmental Control Statutes and promptly comply in all material respects with all lawful orders and directives of all Governmental Authorities regarding Environmental Control Statutes except to the extent that the same are being contested in good faith by appropriate proceedings; and (c) Defend, indemnify and hold harmless the Agent and the Lenders, and their respective employees, agents, officers and directors, from and against any and all claims, demands, penalties, fines, liabilities, settlements, damages, costs and expenses of whatever kind or nature known or unknown, contingent or otherwise, arising out of, or in any way relating to the violation of, noncompliance with or liability under any Environmental Control Statutes applicable to the operations of the Borrower or any of its Subsidiaries, or the Borrower's or any of such Subsidiaries' interest in Properties, or any orders, requirements or demands of Governmental Authorities related thereto, including, without limitation, attorneys' and consultants' fees, investigation and laboratory fees, response costs, court costs and litigation expenses, except to the extent that any of the foregoing arise out of the gross negligence or willful misconduct of the party seeking indemnification therefor. This indemnity shall continue in full force and effect regardless of the termination of this Agreement. -44- 5.9 USE OF PROCEEDS. The Borrower will use the proceeds of the Loans, and any Letters of Credit issued hereunder, as follows: (i) the Term Loans shall be used in full on the Restatement Date (A) to repay all unpaid principal of and interest on the Existing Revolving Loan and (B) to pay a portion of the purchase price with regard to the Dubs Acquisition and expenses associated therewith; (ii) the Revolving Loans shall be used (A) for capital expenditures, working capital and general corporate purposes and (B) to fund Permitted Acquisitions; and (iii) any Letters of Credit shall be used for general corporate purposes. Notwithstanding anything herein to the contrary, no Loan or Letter of Credit will be used for the purchasing or carrying of any Margin Stock. 5.10 COMPLIANCE WITH LAWS, ETC. The Borrower shall comply, and shall cause each of its Subsidiaries to comply, in all material respects with all applicable Requirements of Law, such compliance to include, without limitation (i) paying before the same become delinquent all taxes, assessments and governmental charges or levies imposed upon it or upon its income or profits or upon any of its Properties and (ii) paying all lawful claims which if unpaid might become a Lien upon any of its Properties; PROVIDED, HOWEVER, that neither the Borrower nor any of its Subsidiaries shall be required to pay and discharge or to cause to be paid and discharged any such tax, assessment, charge, levy or claim so long as (A) the validity or applicability thereof is being contested in good faith by appropriate proceedings and (B) the Borrower or such Subsidiary shall, to the extent required by GAAP, have set aside on its books adequate reserves with respect thereto. 5.11 CERTAIN OBLIGATIONS RESPECTING SUBSIDIARIES; PROHIBITIONS ON CERTAIN AGREEMENTS. (a) The Borrower will cause each of its Subsidiaries hereafter formed or acquired to execute and deliver to the Agent promptly upon the formation or acquisition thereof (i) a Guarantee in form and substance satisfactory to the Agent, guaranteeing the Obligations,(ii) a Guarantor Security Agreement, in form and substance satisfactory to the Agent, granting to the Agent, for the benefit of the Lenders, a security interest in the tangible and intangible personal property of such Subsidiary, together with appropriate Lien searches requested by the Agent indicating the Lenders' first priority Lien on such personal property and (iii) UCC-1 Financing Statements, duly executed by such Subsidiary, in form and substance satisfactory to the Agent. (b) The Borrower will not, and will not permit any of its Subsidiaries to, without the prior written consent of the Majority Lenders, enter into any indenture, agreement, instrument or other arrangement that, directly or indirectly, prohibits or restrains, or has the effect of prohibiting or restraining, or imposes materially adverse conditions upon, the incurrence or payment of indebtedness, the granting of Liens, the declaration or -45- payment of dividends, the making of loans, advances or investments or the sale, assignment, transfer or other disposition of Property, or which imposes any financial covenants on the Borrower or any of its Subsidiaries. 5.12 YEAR 2000. The Borrower has implemented, and has caused its Subsidiaries to implement, a plan to address Year 2000 problems that might occur in the Borrower's or its Subsidiaries' computer hardware, software, operating systems, telecommunications, building systems and data exchange with their respective critical vendors and customers. The Borrower has allocated, and has caused its Subsidiaries to allocate, adequate staff and financial resources, and the Borrower and its Subsidiaries will be Year 2000 Complaint with all their respective mission-critical systems by the earlier of such date as the Borrower and its Subsidiaries have appointed in their Year 2000 remediation plans, or midnight, Pacific Coast Time, December 31, 1999. "Year 2000 Complaint" means the state and point in time when the Borrower's and its Subsidiaries' information processing, financial and business operations, systems and technologies (collectively, "Technologies") will accurately process date/time data (including without limitation calculating, comparing and sequencing) from, into and between the years 1999 and 2000, for their own accounts and when used in combination with the Technologies of third parties. Upon request, the Borrower will provide to the Agent evidence of the Borrower's and its Subsidiaries' compliance with the terms of this paragraph. SECTION 6. NEGATIVE COVENANTS The Borrower hereby agrees that from and after the Restatement Date, so long as any Commitments remain in effect, any Note remains outstanding and unpaid or any other amount is owing to any Lender or the Agent hereunder, or any Letter of Credit remains outstanding: 6.1 FINANCIAL CONDITION COVENANTS. The Borrower shall not: (a) MAXIMUM FUNDED DEBT TO EBITDA. As of the last day of any fiscal quarter, commencing with the fiscal quarter ending December 31, 1998, permit the ratio of Funded Debt to EBITDA, calculated on a cumulative four quarter rolling basis for such fiscal quarter and the three immediately preceding fiscal quarters, to exceed 2.50:1. (b) FIXED CHARGE COVERAGE RATIO. Permit the Fixed Charge Coverage Ratio as of the last day of any fiscal quarter, commencing with the fiscal quarter ending December 31, 1998, calculated on a cumulative four quarter rolling basis for the present fiscal quarter and the three immediately preceding fiscal quarters, to be less than 1.30:1. (c) MINIMUM NET WORTH. Permit Net Worth at any time to be less than $23,900,000. -46- 6.2 LIMITATION ON INDEBTEDNESS. The Borrower shall not create, incur, assume or suffer to exist any Indebtedness, and shall not permit any of its Subsidiaries to create, incur, assume or suffer to exist any Indebtedness, except for: (a) Indebtedness created hereunder and under the Notes and the other Loan Documents; (b) Indebtedness of the Borrower or any of its Subsidiaries outstanding on the Restatement Date and listed on SCHEDULE 6.2 (and not referred to in any other clause of this Section 6.2); (c) Indebtedness (i) evidenced by performance bonds issued in the ordinary course of business or reimbursement obligations in respect thereof, (ii) evidenced by a letter of credit facility related to insurance associated with claims for work-related injuries or (iii) for bank overdrafts incurred in the ordinary course of business that are promptly repaid, in an aggregate amount (under clauses (i), (ii) and (iii)) not to exceed $100,000 at any one time outstanding; (d) Indebtedness secured by Liens permitted by Section 6.3(g); (e) Indebtedness incurred in connection with Capitalized Lease Obligations permitted pursuant to Section 6.3(g); (f) Indebtedness of Wholly Owned Subsidiaries of the Borrower to the Borrower or to other Wholly Owned Subsidiaries of the Borrower; (g) Guarantee Obligations of the Borrower incurred in the ordinary course of business in respect of obligations of any Subsidiary; and (h) other unsecured Indebtedness incurred in the ordinary course of business in an aggregate amount not to exceed at any time $2,000,000. 6.3 LIMITATION ON LIENS. The Borrower shall not, and shall not permit any of its Subsidiaries to, create, incur, assume or suffer to exist any Lien upon any of its property, assets or revenues, whether now owned or hereafter acquired, except for: (a) Liens created hereunder or under any of the other Loan Documents; (b) Liens for taxes not yet due or which are being contested in good faith by appropriate proceedings, PROVIDED THAT adequate reserves with respect thereto are maintained on the books of the Borrower or its Subsidiaries, as the case may be, in conformity with GAAP; (c) Liens created by operation of law not securing the payment of Indebtedness for money borrowed or guaranteed, including carriers', warehousemen's, -47- mechanics', materialmen's, repairmen's or other like Liens arising in the ordinary course of business which are not overdue for a period of more than 30 days or which are being contested in good faith by appropriate proceedings; (d) pledges or deposits in connection with workers' compensation, unemployment insurance and other social security legislation; (e) deposits to secure the performance of bids, trade contracts (other than for borrowed money), leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business; (f) easements, rights-of-way, restrictions and other similar encumbrances incurred in the ordinary course of business which, in the aggregate, would not cause a Material Adverse Effect; (g) Liens securing Capitalized Lease Obligations and purchase money security interests on any property or equipment acquired or held by the Borrower or its Subsidiaries in the ordinary course of business, securing Indebtedness incurred or assumed for the purpose of financing all or any part of the cost of acquiring such property or equipment; PROVIDED THAT (i) any such Lien attaches to such property or equipment concurrently with or within 20 days after the acquisition thereof, (ii) such Lien attaches solely to the property or equipment so acquired in such transaction, (iii) the principal amount of the Indebtedness secured thereby does not exceed 100% of the cost of such property or equipment including transportation, installation and sales or use taxes; and (h) Liens existing on the date hereof and referred to in SCHEDULE 6.3 (and not referred to in any other clause of this Section 6.3). 6.4 LIMITATION ON FUNDAMENTAL CHANGES. The Borrower shall not, and shall not permit any of its Subsidiaries to, (i) enter into any merger, consolidation or amalgamation, or liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution), or (ii) convey, sell, lease, assign, transfer or otherwise dispose of all or substantially all of its property, business or assets, or (iii) acquire any business or Property from, or capital stock of, or be a party to any acquisition of, any Person EXCEPT THAT, so long as no Default has occurred and is continuing or would result therefrom: (a) The Borrower may consummate the Dubs Acquisition on or after the Restatement Date in accordance with the terms of the Acquisition Agreement; (b) the Borrower may consummate Permitted Acquisitions in accordance with the terms of Section 6.7(h); (c) any Subsidiary of the Borrower may be merged or consolidated with or into: (i) the Borrower, if the Borrower shall be the continuing or surviving corporation or (ii) any other Subsidiary; PROVIDED THAT if any such transaction shall be between a -48- Subsidiary and a Wholly Owned Subsidiary, the Wholly Owned Subsidiary shall be the continuing or surviving corporation; and (d) any Subsidiary may sell, lease, transfer or otherwise dispose of any or all of its Property (upon voluntary liquidation or otherwise) to the Borrower or a Wholly Owned Subsidiary of the Borrower. 6.5 LIMITATION ON SALE OF ASSETS. The Borrower will not, nor will it permit any of its Subsidiaries to, make any Asset Disposition except Asset Dispositions of obsolete or worn-out Property, tools or equipment no longer used or useful in its business so long as the aggregate amount thereof sold in any single fiscal year by the Borrower and its Subsidiaries shall not have a fair market value in excess of $250,000; PROVIDED THAT in each case, no Default has occurred and is continuing or would result from such Asset Disposition. 6.6 LIMITATION ON DIVIDENDS. The Borrower shall not, and shall not permit any of its Subsidiaries to if a corporation, declare or pay any dividend (other than dividends payable solely in common stock of the Borrower or its Subsidiaries) on, or make any payment on account of, or set apart assets for a sinking or other analogous fund for, the purchase, redemption, defeasance, retirement or other acquisition of, any shares of any class of Capital Stock of the Borrower or its Subsidiaries or any warrants or options to purchase any such Capital Stock, whether now or hereafter outstanding, or any other distribution in respect thereof, either directly or indirectly, whether in cash or property or in obligations of the Borrower or any Subsidiary (such declarations, payments, setting apart, purchases, redemptions, defeasance, retirements, acquisitions and distributions being herein called "RESTRICTED PAYMENTS"), EXCEPT THAT any Subsidiary may make Restricted Payments to the Borrower or to any other Wholly Owned Subsidiary of the Borrower; PROVIDED THAT in each case no Default has occurred and is continuing or would result from the making of such Restricted Payment. 6.7 LIMITATION ON INVESTMENTS, LOANS AND ADVANCES. The Borrower will not, and will not permit any of its Subsidiaries to, make any advance, loan, extension of credit or capital contribution to, or purchase any stock, bonds, notes, debentures or other securities of or any assets constituting a business unit of, or make any other investment in (any of the foregoing, an "INVESTMENT"), any Person, except for: (a) investments permitted by Section 6.4(a) and (b); (b) investments in marketable securities, liquid investments and other financial instruments that are acquired for investment purposes and may be readily sold or otherwise liquidated, that have a value which may be readily established and which are investment grade; (c) investments outstanding on the date hereof and identified in SCHEDULE 6.7; -49- (d) operating deposit accounts with banks; (e) investments by the Borrower and its Subsidiaries in the Borrower and its Subsidiaries; (f) extensions of credit in the nature of accounts receivable or notes receivable arising from the sale or lease of goods or services in the ordinary course of business; (g) extensions of credit to employees evidenced by promissory notes in an aggregate amount not to exceed $500,000; and (h) Permitted Acquisitions, so long as: (i) unless the Majority Lenders shall otherwise consent in writing, the aggregate purchase price of all Permitted Acquisitions shall not exceed $4,000,000; (ii) such acquisition (if by purchase of assets, merger or consolidation) shall be effected in such manner so that the acquired entity and the related assets thereof, are owned either by the Borrower or a Wholly Owned Subsidiary of the Borrower, and, if effected by merger or consolidation involving the Borrower, the Borrower shall be the continuing or surviving entity; (iii) such acquisition (if by purchase of stock) shall be effected in such manner so that the acquired entity becomes a Wholly Owned Subsidiary of the Borrower; (iv) the Agent shall have received, at least 10 Business Days prior to such acquisition, each of the following, in each case in form and substance reasonably acceptable to the Agent, (A) all documents as it shall reasonably request evidencing such acquisition (including the acquisition agreement therefor), (B) pro forma financial statements combining the historical results of the Borrower and the business to be acquired, (C) updated projections of the Borrower reflecting such acquisition, (D) such security documents, mortgages, pledge agreements, UCC-1 Financing Statements and related documents as the Agent shall request to create or confirm a first-priority security interest in favor of the Agent in the assets to be acquired, (E) a pro forma Covenant Compliance Certificate and (F) such other documents or evidence as the Agent or any Lender shall reasonably request; (v) concurrently with the consummation of such acquisition, all actions (1) required under Section 5.11 and (2) required by the Agent to perfect a security interest in all personal property assets acquired shall have been taken); and (vi) at the time of such acquisition and after giving effect thereto, no Default -50- shall have occurred and shall be continuing. 6.8 TRANSACTIONS WITH AFFILIATES. The Borrower shall not, and shall not permit any of its Subsidiaries to, enter into any transaction, including, without limitation, any purchase, sale, lease or exchange of property, employee compensation arrangements, or the rendering of any service, with any Affiliate or any Subsidiary not a Wholly Owned Subsidiary UNLESS such transaction is in the ordinary course of the Borrower's or such Subsidiary's business and is upon terms no less favorable to the Borrower or such Subsidiary, as the case may be, than it would obtain in a comparable arm's length transaction with a Person not an Affiliate; PROVIDED THAT, if any such transaction has a value in excess of $500,000 the Majority Lenders shall have consented thereto. 6.9 FISCAL YEAR. Borrower shall not permit its fiscal year or the fiscal year of any of its Subsidiaries to end on a day other than December 31. 6.10 SALE-LEASEBACK TRANSACTIONS. The Borrower shall not, and shall not permit any of its Subsidiaries to, sell, assign or otherwise transfer any of its Properties, rights or assets (whether now owned or hereafter acquired) to any Person and thereafter directly or indirectly lease back the same or similar property. 6.11 LINES OF BUSINESS. The Borrower will not, nor will it permit any of its Subsidiaries to, engage to any substantial extent in any line or lines of business activity other than the business of video duplication, post-production, audio sweetening, the distribution of national television spot advertising, trailers and electronic press kits for the motion picture and television industries, and the ownership and rental of limited amounts of niche programming and media buying. SECTION 7. EVENTS OF DEFAULT If any of the following events shall occur and be continuing: (a) The Borrower shall default in the payment when due (whether at stated maturity or upon mandatory or optional prepayment) of any principal of or interest on any Loan, any fee or any other amount payable by it hereunder or under any other Loan Document; or (b) Any representation or warranty made or deemed made by any Obligor herein or in any other Loan Document or which is contained in any certificate, document or financial or other statement furnished at any time under or in connection with this Agreement or any other Loan Document shall prove to have been incorrect in any material respect when made or deemed made; or (c) The Borrower shall default in the observance or performance of any agreement contained in Section 4.3(a), 4.3(b), 5.4(ii), 5.9 or 5.11 or any provision of Section 6; or -51- (d) Any Obligor shall default in the observance or performance of any other agreement or obligation contained in this Agreement or the other Loan Documents (other than as provided in paragraphs (a) through (c) of this Section), and such default shall continue unremedied for a period of 30 days after notice thereof from the Agent to the Borrower; or (e) Any Guarantee shall cease, for any reason, to be in full force and effect; or (f) The Borrower or any other Obligor shall default in the payment when due of principal of or interest on any Indebtedness (other than the Notes) issued under the same indenture or other agreement, if the original principal amount of Indebtedness covered by such indenture or agreement is $100,000 or more; or any event specified in any note, agreement, indenture or other document evidencing or relating to any such Indebtedness shall occur if the effect of such event is to cause, or (with the giving of any notice or the lapse of time or both) to permit the holder or holders of such Indebtedness (or a trustee or agent on behalf of such holder or holders) to cause, such Indebtedness to become due, or to be prepaid in full (whether by redemption, purchase, offer to purchase or otherwise), prior to its stated maturity; or (g) (i) The Borrower or any other Obligor shall commence any case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or any substantial part of its assets, or the Borrower or any other Obligor shall make a general assignment for the benefit of its creditors; or (ii) there shall be commenced against the Borrower or any other Obligor any case, proceeding or other action of a nature referred to in clause (i) above which (A) results in the entry of an order for relief or any such adjudication or appointment or (B) remains undismissed, undischarged, unstayed or unbonded for a period of 60 days; or (iii) there shall be commenced against the Borrower or any other Obligor any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets which results in the entry of an order for any such relief which shall not have been vacated, discharged, stayed or bonded pending appeal within 60 days from the entry thereof; or (iv) the Borrower or any other Obligor shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clause (i), (ii), or (iii) above; or (v) the Borrower or any other Obligor shall generally not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they become due or there shall be a general assignment for the benefit of creditors; or (h) (i) The Borrower or any Commonly Controlled Entity shall engage in -52- any non-exempt "prohibited transaction" (as defined in Section 406 of ERISA or Section 4975 of the Code) involving any Plan, (ii) any "accumulated funding deficiency" (as defined in Section 302 of ERISA), whether or not waived, shall exist with respect to any Plan, (iii) a Reportable Event shall occur with respect to, or proceedings shall commence to have a trustee appointed, or a trustee shall be appointed, to administer or to terminate any Single Employer Plan, which Reportable Event or commencement of proceedings or appointment of a trustee would reasonably be expected to result in the termination of such Plan for purposes of Title IV of ERISA, (iv) any Single Employer Plan shall terminate for purposes of Title IV of ERISA (other than a standard termination) or (v) the Borrower or any Commonly Controlled Entity would reasonably be expected to incur any liability in connection with a withdrawal from, or the Insolvency or Reorganization of, a Multiemployer Plan; and in each case regarding clauses (i) through (v) above, such event or condition, together with all other such events or conditions, if any, would reasonably be expected to result in a Material Adverse Effect; or (i) One or more judgments or decrees shall be entered against the Borrower or any Subsidiary involving in the aggregate a liability (not paid or fully covered by insurance where the insurer has admitted liability in respect of such judgment) of $500,000 or more, or involving in the aggregate a liability (regardless of insurance coverage) of $1,000,000 or more, and all such judgments or decrees shall not have been vacated, discharged, stayed or bonded pending appeal within 30 days from the entry thereof or in any event five days before the date of any sale pursuant to such judgment or decree; or (j) The Liens created by the Collateral Documents and/or the Guarantor Collateral Documents shall at any time not constitute valid and perfected Liens on the collateral intended to be covered thereby in favor of the Agent, free and clear of all other Liens (other than Liens permitted under Section 6.3), or, except for expiration in accordance with its terms, any of the Collateral Documents and/or the Guarantor Collateral Documents shall for whatever reason be terminated or cease to be in full force and effect, or the enforceability thereof shall be contested by any Obligor; or (k) (i) R. Luke Stefanko, or another officer of the Borrower as of the Restatement Date, shall cease to be the Chief Executive Officer of the Borrower, (ii) R. Luke Stefanko shall cease to beneficially own Capital Stock representing at least 20% of the votes that may be cast in an election of directors of the Borrower, or (iii) individuals who constituted the Borrower's Board of Directors as of the Restatement Date shall cease for any reason to constitute a majority of the directors then in office; then, and in any such event, (A) if such event is an Event of Default specified in paragraph (g) above, automatically the Commitments to the Borrower and the commitment to issue Letters of Credit shall immediately terminate and the Loans made to the Borrower hereunder (with accrued interest thereon) and all other Obligations shall immediately become due and payable, and (B) if such event is any other Event of Default, with the consent of the Majority Lenders, the Agent may, or upon the request of -53- the Majority Lenders, the Agent shall, take any or all of the following actions: (i) by notice to the Borrower declare the Commitments to the Borrower and the commitment to issue Letters of Credit to be terminated forthwith, whereupon such Commitments and the commitment to issue Letters of Credit shall immediately terminate; and (ii) by notice of default to the Borrower, declare the Loans (with accrued interest thereon) and all other Obligations under this Agreement and the Notes to be due and payable forthwith, whereupon (x) the same shall immediately become due and payable and (y) to the extent any Letters of Credit are then outstanding, the Borrower shall make a Cash Collateral Deposit in an amount equal to the aggregate Letter of Credit Amount. In all cases, with the consent of the Majority Lenders, the Agent may enforce any or all of the Liens and security interests and other rights and remedies created pursuant to any Loan Document or available at law or in equity. Except as expressly provided above in this Section, presentment, demand, protest and all other notices of any kind are hereby expressly waived by the Borrower. SECTION 8. THE AGENT 8.1 APPOINTMENT. Each Lender hereby irrevocably designates and appoints Union Bank of California, N.A., as Agent for such Lender under this Agreement and the other Loan Documents, and each such Lender irrevocably authorizes Union Bank of California, N.A., as the Agent for such Lender, to take such action on its behalf under the provisions of this Agreement and the other Loan Documents and to exercise such powers and perform such duties as are expressly delegated to the Agent by the terms of this Agreement and the other Loan Documents, together with such other powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary elsewhere in this Agreement, the Agent shall have no duties or responsibilities, except those expressly set forth herein, or any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against the Agent. 8.2 DELEGATION OF DUTIES. The Agent may execute any of its duties under this Agreement and the other Loan Documents by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Agent shall not be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care. 8.3 EXCULPATORY PROVISIONS. Neither the Agent, nor any of the Agent's officers, directors, employees, agents, attorneys-in-fact or Affiliates shall be (i) liable for any action lawfully taken or omitted to be taken by it or such Person under or in connection with this Agreement or any other Loan Document (except for its or such Person's own gross negligence or willful misconduct) or (ii) responsible in any manner to any of the Lenders for any recitals, statements, representations or warranties made by the Borrower, any Subsidiary or any other Obligor or any officer thereof contained in this Agreement or any other Loan Document or in any certificate, report, statement or other -54- document referred to or provided for in, or received by the Agent under or in connection with, this Agreement or any other Loan Document or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or the Notes or any other Loan Document or for any failure of the Borrower, any Subsidiary or any other Obligor to perform its obligations hereunder or thereunder. The Agent shall not be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document, or to inspect the properties, books or records of the Borrower, any Subsidiary or any other Obligor. 8.4 RELIANCE BY THE AGENT. The Agent shall be entitled to rely, and shall be fully protected in relying, upon any note, writing, resolution, notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype message, statement, order or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to the Borrower), the Accountants and independent accountants and other experts selected by the Agent. The Agent may deem and treat the payee of any Note as the owner thereof for all purposes unless a written notice of assignment, negotiation or transfer thereof shall have been filed with the Agent. The Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document unless it shall first receive such advice or concurrence of the Majority Lenders, the Majority Revolving Loan Lenders or all Lenders, as it deems appropriate, or it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense (except those incurred solely as a result of the Agent's gross negligence or willful misconduct) which may be incurred by it by reason of taking or continuing to take any such action. The Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement and the Notes and the other Loan Documents in accordance with a request of the Majority Lenders, the Majority Revolving Loan Lenders or all Lenders, as may be required, and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders and all future holders of the Notes. 8.5 NOTICE OF DEFAULT. The Agent shall not be deemed to have knowledge or notice of the occurrence of any Default hereunder unless the Agent has received notice from a Lender or the Borrower referring to this Agreement, describing such Default and stating that such notice is a "notice of default". In the event that the Agent receives such a notice, the Agent shall give notice thereof to the Lenders. The Agent shall take such action with respect to such Default as shall be reasonably directed by the Majority Lenders, the Majority Revolving Loan Lenders, or all Lenders as appropriate; PROVIDED THAT unless and until the Agent shall have received such directions, the Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default as it shall deem advisable in the best interests of the Lenders or as the Agent shall believe necessary to protect the Lenders' interests in the Collateral or the Guarantor Collateral. 8.6 NON-RELIANCE ON THE AGENT AND OTHER LENDERS. Each Lender expressly -55- acknowledges that neither the Agent, nor any of the Agent's officers, directors, partners, employees, agents, attorneys-in-fact or Affiliates has made any representations or warranties to it and that no act by the Agent hereafter taken, including any review of the affairs of the Borrower, any Subsidiary or any other Obligor, shall be deemed to constitute any representation or warranty by the Agent to any Lender. Each Lender represents to the Agent that it has, independently and without reliance upon the Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, financial and other condition and creditworthiness of the Borrower, any Subsidiary and the other Obligors and made its own decision to make its Loans, and participate in Letters of Credit, hereunder and enter into this Agreement. Each Lender also represents that it will, independently and without reliance upon the Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigation as it deems necessary to inform itself as to the business, operations, property, financial and other condition and creditworthiness of the Borrower, its Subsidiaries and the other Obligors. Except for notices, reports and other documents expressly required to be furnished to the Lenders by the Agent hereunder, the Agent shall have no duty or responsibility to provide any Lender with any credit or other information concerning the business, operations, property, condition (financial or otherwise), prospects or creditworthiness of the Borrower, any Subsidiary or any other Obligor which may come into the possession of the Agent or any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates. 8.7 INDEMNIFICATION. The Lenders agree to indemnify the Agent in its capacity as such (to the extent not reimbursed by the Borrower, its Subsidiaries or the other Obligors and without limiting the obligation of such Persons to do so), ratably according to the respective amounts of their Commitments, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs (including, without limitation, the allocated cost of internal counsel), expenses or disbursements of any kind whatsoever which may at any time (including, without limitation, at any time following the payment of the Notes) be imposed on, incurred by or asserted against the Agent, in its capacity as Agent, but not as a Lender hereunder, in any way relating to or arising out of this Agreement, any of the other Loan Documents or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by the Agent under or in connection with any of the foregoing; PROVIDED THAT no Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements to the extent they arise from the gross negligence or willful misconduct of the party to be indemnified. The agreements in this Section shall survive the payment of the Notes and all other amounts payable hereunder and the expiration of the Letters of Credit. 8.8 THE AGENT IN ITS INDIVIDUAL CAPACITY. The Agent and its Affiliates may make loans to, accept deposits from and generally engage in any kind of business with the -56- Borrower, any Subsidiary and the other Obligors as though the Agent were not the Agent hereunder and under the other Loan Documents. The Loans made or renewed and the Letters of Credit issued or participated in by the Agent, and any Note issued to the Agent shall have the same rights and powers under this Agreement and the other Loan Documents as any Lender and the Agent may exercise the same as though it were not the Agent, and the terms "Lender" and "Lenders" shall include the Agent in its individual capacity. 8.9 SUCCESSOR AGENT. The Agent may resign as Agent upon 30 days' notice to the Lenders. If the Agent shall resign as Agent under this Agreement and the other Loan Documents, then the Majority Lenders shall appoint from among the Lenders a successor agent for the Lenders, which successor agent (so long as no Default has occurred and is continuing) shall be approved by the Borrower (which consent shall not be unreasonably withheld), whereupon such successor agent shall succeed to the rights, powers and duties of the Agent and the term "Agent" shall mean such successor agent, effective upon its appointment, and the former Agent's rights, powers and duties as Agent shall be terminated, without any other or further act or deed on the part of such former Agent or any of the parties to this Agreement or any holders of the Notes. After any retiring Agent's resignation as Agent, the provisions of this Section shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement and the other Loan Documents. Further, if the Agent no longer has any Loans, Letter of Credit participations or Commitments hereunder, the Agent shall immediately resign and shall be replaced, and have the benefits, as set forth in this Section 8.9. In addition, after the replacement of an Agent hereunder, the retiring Agent shall remain a party hereto and shall continue to have all the rights and obligations of an Agent under this Agreement with respect to Letters of Credit issued by it prior to such replacement, but shall not be required to issue additional Letters of Credit. 8.10 COLLATERAL DOCUMENTS. Anything contained in any of the Loan Documents to the contrary notwithstanding, the Borrower, the Agent and each Lender hereby agree that (a) no Lender shall have any right individually to realize upon any of the Collateral or Guarantor Collateral under any Loan Document or to enforce any Guarantee, it being understood and agreed that all powers, rights and remedies under the Collateral Documents and Guarantor Collateral Documents and the Guarantees may be exercised solely by the Agent for the benefit of the Lenders in accordance with the terms thereof, and (b) in the event of a foreclosure by the Agent on any of the Collateral or Guarantor Collateral pursuant to a public or private sale, the Agent or any Lender may be the purchaser of any or all of such Collateral or Guarantor Collateral at any such sale and the Agent, as agent for and representative of the Lenders (but not any Lender or Lenders in its or their respective individual capacities unless the Majority Lenders shall otherwise agree in writing) shall be entitled, for the purpose of bidding and making settlement or payment of the purchase price for all or any portion of the Collateral or Guarantor Collateral sold at any such public sale, to use and apply any of the Obligations as a credit on account of the purchase price for any such collateral payable by the Agent at such sale. -57- SECTION 9. MISCELLANEOUS 9.1 AMENDMENTS AND WAIVERS. Except as otherwise expressly provided in this Agreement, any provision of the Loan Documents may be modified or supplemented only by an instrument in writing signed by the Borrower, the Agent and the Majority Lenders, or by the Borrower and the Agent acting with the consent of the Majority Lenders, and any provision of any Loan Document may be waived by the Majority Lenders or by the Agent acting with the consent of the Majority Lenders; PROVIDED, HOWEVER, that no such waiver and no such amendment, supplement or modification shall (i) (a) reduce the amount or extend the maturity of any Note or any installment due thereon, or reduce the rate or extend the time of payment of interest thereon, or reduce the amount or extend the time of payment of any fee, indemnity or reimbursement payable to any Lender hereunder, or change the amount of any Lender's Commitment, or amend, modify or waive any provision of Section 2.4, without the written consent of the Lender affected thereby; or (b) amend, modify or waive any provision of this Section 9.1 or reduce the percentage specified in or otherwise modify the definition of Majority Lenders or Majority Revolving Loan Lenders, or consent to the assignment or transfer by any Obligor of any of its rights and obligations under this Agreement and the other Loan Documents (except as permitted under Section 6.4); or (c) release any Obligor from any liability under its respective Loan Documents; or (d) release any material portion of the Collateral or any material portion of the Guarantor Collateral, except for any Asset Disposition or release of Lien permitted by this Agreement or any other Loan Document; or (e) amend, modify or waive, directly or indirectly, any of the provisions of Section 2.1(e), 2.2(f) or 2.11; or (f) amend, modify or waive any provision of this Agreement requiring the consent or approval of all Lenders; or (g) increase the Aggregate Commitment, in each case set forth in clauses (i)(b) through (i)(g) above without the written consent of all the Lenders; or (ii) amend, modify or waive any provision of Section 4.2 with respect to the making of a Revolving Loan, or reduce the percentage specified in, or otherwise modify the definition of, Majority Revolving Loan Lenders, without the written consent of the Majority Revolving Loan Lenders; or (iii) amend, modify or waive any provision of Section 8 without the written consent of the Agent, or any provision affecting the rights and duties of the Agent as the issuer of Letters of Credit without the consent of the then Agent. Any such waiver and any such amendment, supplement or modification shall apply equally to each of the Lenders and shall be binding upon the Borrower, the other Obligors, the Lenders, the Agent and all future holders of the Notes. In the case of any waiver, the Borrower, the other Obligors, the Lenders, and the Agent shall be restored to their former position and rights hereunder and under the outstanding Notes and any other Loan Documents, and any Default waived shall be deemed to be cured and not continuing; but no such waiver shall extend to any subsequent or other Default, or impair any right consequent thereon. 9.2 NOTICES. All notices, requests and demands or other communications to or upon the respective parties hereto to be effective shall be in writing (including by -58- telecopy), and, unless otherwise expressly provided herein, shall be deemed to have been duly given or made when delivered by hand, or 3 days after being deposited in the United States mail, certified and postage prepaid and return receipt requested, or, in the case of telecopy notice, when received, in each case addressed as follows in the case of the Borrower and the Agent, and as set forth on the signature pages hereto, or in the Assignment and Acceptance pursuant to which a Person becomes a party hereto, in the case of the Lenders, or to such other address as may be hereafter notified by the respective parties hereto and any future holders of the Notes: The Borrower: VDI Media 6920 Sunset Boulevard Hollywood, California 90028 Attention: Donald R. Stine Telecopy: (213) 957-2164 The Agent: Union Bank of California, N.A 445 South Figueroa Street Los Angeles, California 90071-1100 Attention: Jon E. Strayer Telecopy: (213) 236-7635 PROVIDED THAT any notice, request or demand to or upon the Agent or the Lenders pursuant to Section 2.1, 2.2, 2.3, 2.4 or 2.6 shall not be effective until received. 9.3 NO WAIVER; CUMULATIVE REMEDIES. No failure to exercise and no delay in exercising, on the part of the Agent or any Lender, any right, remedy, power or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law. 9.4 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and warranties made hereunder and in any document, certificate or statement delivered pursuant hereto or in connection herewith shall survive the execution and delivery of this Agreement and the Notes. 9.5 PAYMENT OF EXPENSES AND TAXES. The Borrower agrees (a) to pay or reimburse the Agent for all its reasonable costs and out-of-pocket expenses (including travel and other expenses incurred by it or its agents in connection with performing due diligence with regard hereto) incurred in connection with the development, preparation and execution of, and any amendment, supplement or modification to, this Agreement and the other Loan Documents and any other documents prepared in connection herewith or therewith, and the consummation and administration of the transactions contemplated hereby and thereby, including, without limitation, syndication efforts (whether completed before or after the Restatement Date) in connection with this -59- Agreement and the reasonable fees and disbursements of counsel to the Agent, (b) after the occurrence and during the continuance of a Default, to pay or reimburse the Agent and each Lender for all its reasonable costs and out-of-pocket expenses incurred in connection with the enforcement or preservation of any rights under this Agreement, the Notes, the other Loan Documents and any such other documents or in connection with any refinancing or restructuring of the credit arrangements provided under this Agreement in the nature of a "work-out" or of any insolvency or bankruptcy proceeding, including, without limitation, reasonable legal fees and disbursements of counsel to the Agent and each Lender (including the allocated costs of internal counsel to the Agent and the Lenders which costs are not in duplication of any costs of outside counsel to the Agent and each Lender), (c) to pay, and indemnify and hold harmless each Lender and the Agent from any and all recording and filing fees and any and all liabilities with respect to, or resulting from any delay in paying, stamp, excise and other taxes, if any, which may be payable or determined to be payable in connection with the execution and delivery of, or consummation or administration of any of the transactions contemplated by, or any amendment, supplement or modification of, or any waiver or consent under or in respect of, this Agreement, the Notes, the other Loan Documents and any such other documents and (d) to pay, and indemnify and hold harmless each Lender and the Agent and the officers, partners, directors, employees, agents and affiliates of the Agent or any Lender (collectively "INDEMNITEES") from and against, any and all Indemnified Liabilities, PROVIDED THAT the Borrower shall have no obligation hereunder to the Agent or any Lender with respect to Indemnified Liabilities arising from the gross negligence or willful misconduct of the Agent or any Lender. As used herein, "Indemnified Liabilities" means, collectively, any and all liabilities, obligations, losses, damages (including natural resource damages), penalties, actions, judgments, suits, claims (including environmental claims), costs (including the costs of any investigation, study, sampling, testing, abatement, cleanup, removal, remediation or other response action necessary to remove, remediate, clean up or abate any activities relating to Hazardous Materials), expenses and disbursements of any kind or nature whatsoever (including the reasonable fees and disbursements of counsel for Indemnitees in connection with any investigative, administrative or judicial proceeding commenced or threatened by any Person, whether or not any such Indemnitee shall be designated as a party or a potential party thereto, and any fees or expenses incurred by Indemnitees in enforcing this indemnity), whether direct, indirect or consequential and whether based on any federal, state or foreign laws, statutes, rules or regulations (including securities and commercial laws, statutes, rules or regulations and environmental laws), on common law or equitable cause or on contract or otherwise, that may be imposed on, incurred by, or asserted against any such Indemnitee, in any manner relating to or arising out of this Agreement or the other Loan Documents or the Acquisition Agreement or the transactions contemplated hereby or thereby (including Lenders' agreement to make the Loans hereunder or the use or intended use of the proceeds thereof or the issuance of Letters of Credit hereunder or the use or intended use of any thereof, or any enforcement of any of the Loan Documents (including any sale of, collection from, or other realization upon any of the Collateral or the Guarantor Collateral or the enforcement of the Guarantees)). (To the extent that the undertakings to defend, indemnify, pay and hold harmless set forth in this Section 9.5 may be unenforceable in whole or in part because they are violative of any law or public policy, the Borrower shall contribute the maximum portion that it is permitted to pay and satisfy under applicable law to the payment and satisfaction of all Indemnified Liabilities incurred by Indemnitees or any of them.) The agreements in this Section shall -60- survive repayment of the Notes and all other amounts payable hereunder. 9.6 SUCCESSORS AND ASSIGNS; PARTICIPATIONS; PURCHASING LENDERS. (a) This Agreement shall be binding upon and inure to the benefit of the Borrower, the Lenders, the Agent, all future holders of the Notes and their respective successors and assigns, except that the Borrower may not assign, transfer or delegate any of its rights or obligations under this Agreement without the prior written consent of each Lender. (b) Any Lender may, in the ordinary course of its commercial banking or finance business and in accordance with applicable law, at any time sell to one or more banks or other entities ("PARTICIPANTS") participating interests in any Loan owing to such Lender, any Letter of Credit participated in by such Lender, any Note held by such Lender, any Commitment of such Lender or any other interest of such Lender hereunder and under the other Loan Documents; PROVIDED THAT the holder of any such participation, other than an Affiliate of such Lender, shall not be entitled to require such Lender to take or omit to take any action hereunder except action directly affecting the extension of the maturity of any portion of the principal amount of a Loan or Commitment, the expiration of a Letter of Credit or any portion of interest or fees related thereto allocated to such participation or a reduction of the principal amount or principal payment amount of or the rate of interest payable on the Loans or any fees related thereto or reduction of the amount to be reimbursed under any Letter of Credit, or a release of any Obligor or any substantial portion of the Collateral or the Guarantor Collateral or any increase in participation amounts. In the event of any such sale by a Lender of participating interests to a Participant, such Lender's obligations under this Agreement to the other parties to this Agreement shall remain unchanged, such Lender shall remain solely responsible for the performance thereof, such Lender shall remain the holder of any such Note and the participant in any such Letter of Credit for all purposes under this Agreement and the other Loan Documents, and the Borrower and the Agent shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement and the other Loan Documents. The Borrower agrees that if amounts outstanding under this Agreement and the Notes are due or unpaid, or shall have been declared or shall have become due and payable upon the occurrence of an Event of Default, each Participant shall be deemed to have the right of setoff in respect of its participating interest in amounts owing under this Agreement and any Note to the same extent as if the amount of its participating interest were owing directly to it as a Lender under this Agreement or any Note, PROVIDED THAT such Participant shall only be entitled to such right of setoff if it shall have agreed in the agreement pursuant to which it shall have acquired its participating interest to share with the Lenders the proceeds thereof as provided in Section 9.7. The Borrower also agrees that each Participant shall be entitled to the benefits of Sections 2.13, 2.14 and 2.15 with respect to its participation in the Commitments and the Loans and the Letters of Credit outstanding from time to time; PROVIDED THAT no Participant shall be entitled to receive any greater amount pursuant to such Sections than the transferor Lender would have been entitled to receive in respect of the amount of the participation transferred by such transferor Lender to such Participant had no such transfer occurred. (c) Any Lender may, in the ordinary course of its commercial banking -61- business and in accordance with applicable law, at any time sell to any of its Affiliates or to any Lender, any Affiliate thereof or to one or more additional lenders or financial institutions, which additional lenders shall be subject to the consent of the Borrower, such consent not to be unreasonably withheld and not to be required if a Default has occurred and is continuing, and the Agent ("PURCHASING LENDERS") all or any part of its rights and obligations under this Agreement, the Notes and the other Loan Documents pursuant to an Assignment and Acceptance executed by such Purchasing Lender and such transferor Lender and delivered to the Agent for its acceptance and recording in the Register (as defined in (d) below), PROVIDED THAT (i) any such sale must result in the Purchasing Lender having at least $5,000,000 in aggregate amount of obligations under this Agreement, the Notes and the other Loan Documents and (ii) each such assignment by a Lender of its Revolving Loans, Revolving Note, Revolving Commitment or its participation in Letters of Credit shall be in such manner so that the same portion of its Revolving Loans, Revolving Note, Revolving Commitment and its participation in Letters of Credit is assigned to the respective assignee. Upon such execution, delivery, acceptance and recording, from and after the transfer effective date determined pursuant to such Assignment and Acceptance, (x) the Purchasing Lender thereunder shall be a party hereto and, to the extent provided in such Assignment and Acceptance, have the rights and obligations of a Lender hereunder with a Commitment as set forth therein, and (y) the transferor Lender thereunder shall, to the extent of such assigned portion and as provided in such Assignment and Acceptance, be released from its obligations under this Agreement and the other Loan Documents (and, in the case of an Assignment and Acceptance covering all or the remaining portion of a transferor Lender's rights and obligations under this Agreement, such transferor Lender shall cease to be a party hereto). Such Assignment and Acceptance shall be deemed to amend this Agreement to the extent, and only to the extent, necessary to reflect the addition of such Purchasing Lender and the resulting adjustment of Commitment Percentages arising from the purchase by such Purchasing Lender of all or a portion of the rights and obligations of such transferor Lender under this Agreement, the Notes and the other Loan Documents. On or prior to the transfer effective date determined pursuant to such Assignment and Acceptance, the Borrower, at its own expense, shall execute and deliver to the Agent in exchange for the surrendered Note or Notes a new Note or Notes to the order of such Purchasing Lender in an amount equal to the Commitments assumed by it pursuant to such Assignment and Acceptance, and if the transferor Lender has retained a Commitment hereunder, new Notes to the order of the transferor Lender in an amount equal to the Commitments retained by it hereunder. Such new Notes shall be dated the Restatement Date and shall otherwise be in the form of the Notes replaced thereby. The Notes surrendered by the transferor Lender shall be returned by the Agent to the Borrower marked "canceled." (d) The Agent shall maintain at its address referred to in Section 9.2 a copy of each Assignment and Acceptance delivered to it and a register (the "REGISTER") for the recordation of the names and addresses of the Lenders and the Commitments of, and principal amount of the Loans owing to, and, if applicable, the Letters of Credit participated in by, each Lender from time to time. The entries in the Register shall be conclusive, in the absence of manifest error, and the Borrower, the Agent and the -62- Lenders may treat each Person whose name is recorded in the Register as the owner of the Loans and the participant in the Letters of Credit, if applicable, recorded therein for all purposes of this Agreement. The Register shall be available for inspection by the Borrower or any Lender at any reasonable time and from time to time upon reasonable prior notice. (e) Upon its receipt of an Assignment and Acceptance executed in accordance with the terms hereof, together with payment to the Agent by the Purchasing Lender of a registration and processing fee of $2,500, the Agent shall (i) promptly accept such Assignment and Acceptance and (ii) on the effective date determined pursuant thereto record the information contained therein in the Register. (f) The Borrower authorizes each Lender to disclose to any Participant or Purchasing Lender (each, a "TRANSFEREE") and any prospective Transferee any and all financial information in such Lender's possession concerning the Borrower, its Subsidiaries, and their Affiliates which has been delivered to such Lender by or on behalf of the Borrower pursuant to this Agreement or any other Loan Document or which has been delivered to such Lender by or on behalf of the Borrower in connection with such Lender's credit evaluation of the Borrower, its Subsidiaries, and their Affiliates prior to becoming a party to this Agreement. (g) Nothing herein shall prohibit any Lender from pledging or assigning any of its rights under its Notes, or, if applicable, its participation in any Letter of Credit, to any Federal Reserve Bank in accordance with applicable law. 9.7 ADJUSTMENTS; SET-OFF. (a) If any Lender (a "BENEFITTED LENDER") shall at any time receive any payment of all or part of its Loans, its participations in Letters of Credit, or interest thereon, or fees, or receive any collateral in respect thereof (whether voluntarily or involuntarily, by set-off, pursuant to events or proceedings of the nature referred to in Section 7(g), or otherwise), in a greater proportion than any such payment to or collateral received by any other Lender, if any, in respect of such other Lender's Loans, its participations in Letters of Credit, or interest thereon, or fees, such benefitted Lender shall purchase for cash from the other Lenders such portion of each such other Lender's Loans, participations in Letters of Credit, or fees, or shall provide such other Lenders with the benefits of any such collateral, or the proceeds thereof, as shall be necessary to cause such benefitted Lender to share the excess payment or benefits of such collateral or proceeds ratably with each of the Lenders; PROVIDED, HOWEVER, that if all or any portion of such excess payment or benefits is thereafter recovered from such benefitted Lender, such purchase shall be rescinded, and the purchase price and benefits returned, to the extent of such recovery, but without interest. The Borrower agrees that each Lender so purchasing a portion of another Lender's Loan or its participations in Letters of Credit may exercise all rights of payment (including, without limitation, rights of set-off) with respect to such portion as fully as if such Lender were the direct holder of such portion. (b) In addition to any rights and remedies of the Lenders provided by law, -63- with the prior consent of the Majority Lenders, each Lender shall have the right, exercisable upon the occurrence and during the continuance of an Event of Default and acceleration of the Obligations pursuant to Section 7, without prior notice to the Borrower, any such notice being expressly waived by the Borrower to the extent permitted by applicable law, to set-off and appropriate and apply against any such Obligations any and all deposits (general or special, time or demand, provisional or final), in any currency, and any other credits, indebtedness or claims in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or owing by such Lender or any branch or agency thereof or bank controlling such Lender to or for the credit or the account of the Borrower. Each Lender agrees promptly to notify the Borrower after any such set-off and application made by such Lender, PROVIDED THAT the failure to give such notice shall not affect the validity of such set-off and application. 9.8 COUNTERPARTS. This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument. Delivery by telecopier of an executed counterpart of a signature page to this Agreement shall be effective as delivery of an originally executed counterpart of this Agreement. 9.9 SEVERABILITY. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 9.10 INTEGRATION. This Agreement represents the entire agreement of the Borrower, the Agent and the Lenders with respect to the subject matter hereof, and there are no promises, undertakings, representations or warranties by the Agent or any Lender relative to the subject matter hereof not expressly set forth or referred to herein or in the other Loan Documents. 9.11 GOVERNING LAW. THIS AGREEMENT AND THE NOTES AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES. 9.12 ACKNOWLEDGEMENTS. The Borrower hereby acknowledges that: (a) it has been advised by counsel in the negotiation, execution and delivery of this Agreement and the Notes and the other Loan Documents;(b) neither the Agent nor any Lender has any fiduciary relationship to the Borrower solely by virtue of any of the Loan Documents, and the relationship pursuant to the Loan Documents between the Agent and the Lenders, on one hand, and the Borrower on the other hand, is solely that of creditor and debtor; and (c) no joint venture exists among the Lenders or among the Borrower, on one hand and the Lenders, on the other hand. -64- 9.13 HEADINGS. Section headings herein are included for convenience of reference only and shall not constitute a part of this Agreement for any other purpose. 9.14 COPIES OF CERTIFICATES, ETC. Whenever the Borrower is required to deliver notices, certificates, opinions, statements or other information hereunder to the Agent for delivery to any Lender, it shall do so in such number of copies as the Agent shall reasonably specify. 9.15 TREATMENT OF CERTAIN INFORMATION; CONFIDENTIALITY. (a) The Borrower acknowledges that from time to time financial advisory, investment banking and other services may be offered or provided to the Borrower or one or more of its Subsidiaries (in connection with this Agreement or otherwise) by any Lender, or by one or more Subsidiaries or affiliates of such Lender and the Borrower hereby authorizes each Lender to share any information delivered to such Lender by the Borrower and its Subsidiaries pursuant to this Agreement, or in connection with the decision of such Lender to enter into this Agreement, to any such Subsidiary or affiliate, it being understood that any such Subsidiary or affiliate receiving such information shall be bound by the provisions of clause (b) below as if it were a Lender hereunder. Such authorization shall survive the repayment of the Loans, the expiration of the Letters of Credit and the termination of the Commitments. (b) Each Lender and the Agent agrees (on behalf of itself and each of its affiliates, directors, officers, employees and representatives) to use reasonable precautions to keep confidential, in accordance with their customary procedures for handling confidential information of the same nature and in accordance with safe and sound banking practices, any non-public information supplied to it by the Borrower pursuant to this Agreement that is identified by the Borrower as being confidential at the time the same is delivered to the Lenders or the Agent, PROVIDED THAT nothing herein shall limit the disclosure of any such information (i) to the extent required by statute, rule, regulation or judicial process, (ii) to counsel for any of the Lenders or the Agent, (iii) to bank examiners or other regulatory authorities, auditors or accountants, (iv) to the Agent or any other Lender, (v) in connection with any litigation to which any one or more of the Lenders or the Agent is a party, (vi) to a subsidiary or affiliate of such Lender as provided in clause (a) above or (vii) to any assignee or participant (or prospective assignee or participant), and PROVIDED FURTHER that in no event shall any Lender or the Agent be obligated or required to return any materials furnished by the Borrower. 9.16 WAIVER OF JURY TRIAL. THE BORROWER, THE AGENT AND THE LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR ANY OTHER DOCUMENT EXECUTED IN CONNECTION HEREWITH AND FOR ANY COUNTERCLAIM THEREIN. -65- 9.17 EFFECT OF AMENDMENT AND RESTATEMENT. This Agreement is intended to completely amend, restate and replace the Existing Agreement, without novation. The Borrower hereby acknowledges, certifies and agrees that if, pursuant to the Existing Agreement the Lender party thereto has made advances on a revolving basis to the Borrower that are outstanding as of the date as of this Agreement, or the Agent has issued letters of credit that are outstanding as of the date of this Agreement, the Borrower's respective obligations to repay those advances to the Lender and to reimburse the Agent in respect of drawings under such letters of credit are not subject to any defense, counterclaim, set-off, right of recoupment, abatement or other claim or determination. -66- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written. BORROWER VDI MEDIA By: /s/ R. Luke Stefanko ----------------------------- Name: R. Luke Stefanko --------------------------- Title: Chief Executive Officer -------------------------- AGENT UNION BANK OF CALIFORNIA, N.A., as Agent By: /s/ John E. Strayer ----------------------------- Name: John E. Strayer --------------------------- Title: -------------------------- LENDERS UNION BANK OF CALIFORNIA, N.A., as a Lender By: /s/ John E. Strayer ----------------------------- Name: John E. Strayer --------------------------- Title: -------------------------- ADDRESS FOR NOTICES Commercial Portfolio Administration 445 South Figueroa Street, 10th Floor Los Angeles, California 90071-1100 Attention: Jon E. Strayer Telephone: (213) 236-7760 Facsimile: (213) 236-7635 APPROVED LENDING OFFICES Applicable Lending Office for Reference Rate Loans: 445 South Figueroa Street Los Angeles, California 90071-1100 Applicable Lending Office for LIBOR Loans: 445 South Figueroa Street Los Angeles, California 90071-1100 Applicable Lending Office for Participations in Letters of Credit: 445 South Figueroa Street Los Angeles, California 90071-1100 SCHEDULE 2.1 COMMITMENTS
Term Loan Revolving Loan Lender Commitment Commitment ------ ---------- ---------- Union Bank of California, N.A. $29,000,000 $6,000,000
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