LOANAGREEMENT

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

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

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

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

 

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

 

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

 

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

 

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

 

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

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

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

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

 

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

 

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

 

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

 

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

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

 

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

 

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

 

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

 

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

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

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

 

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

 

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

 

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

 

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

 

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

 

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

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

 

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

 

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

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

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

 

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

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

 

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

 

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

 

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

 

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

 

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

 

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

 

 

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