AMENDEDAND RESTATED STANDARD LOAN AGREEMENT Byand Between BANKOF AMERICA, N.A. and POINT.360 Datedas of August 25, 2009

(a)

The account has resulted from the sale of goods or the performance of services by the Borrower in the ordinary course of the Borrower’s business and without any further obligation on the part of the Borrower to service, repair, or maintain any such goods sold other than pursuant to any applicable warranty.

(b)

There are no conditions which must be satisfied before the Borrower is entitled to receive payment of the account.  Accounts arising from COD sales, consignments or guaranteed sales are not acceptable.

(c)

The debtor upon the account does not claim any defense to payment of the account, whether well founded or otherwise.

(d)

The account is not the obligation of an account debtor who has asserted or may assert any counterclaims or offsets against the Borrower (including offsets for any “contra accounts” owed by the Borrower to the account debtor for goods purchased by the Borrower or for services performed for the Borrower).

(e)

The account represents a genuine obligation of the debtor for goods sold to and accepted by the debtor, or for services performed for and accepted by the debtor.  To the extent any credit balances exist in favor of the debtor, such credit balances shall be deducted from the account balance.

(f)

The account balance does not include the amount of any finance or service charges payable by the account debtor.  To the extent any finance charges or service charges are included, such amounts shall be deducted from the account balance.

(g)

The Borrower has sent an invoice to the debtor in the amount of the account.

(h)

The Borrower is not prohibited by the laws of the state where the account debtor is located from bringing an action in the courts of that state to enforce the debtor’s obligation to pay the account.  The Borrower has taken all appropriate actions to ensure access to the courts of the state where the account debtor is located, including, where necessary, the filing of a Notice of Business Activities Report or other similar filing with the applicable state agency or the qualification by the Borrower as a foreign corporation authorized to transact business in such state.

(i)

The account is owned by the Borrower free of any title defects or any liens or interests of others except the security interest in favor of the Bank.

(j)

The debtor upon the account is not any of the following:

 

(i)

An employee, affiliate, parent or subsidiary of the Borrower, or an entity which has common officers or directors with the Borrower.

 

(ii)

The U.S. government or any agency of department of the U.S. government unless the Bank agrees in writing to accept the obligation, the Borrower complies with the procedures in the Federal Assignment of Claims Act of 1940 (41 U.S.C. § 15) with respect to the obligation, and the underlying contract expressly provides that neither the U.S. government nor any agency or department thereof shall have the right of set-off against the Borrower.

 

(iii)

Any state, county, city or town or municipality.

 

(iv)

Any person or entity located in a foreign country.

(k)

The account is not in default.  An account will be considered in default if any of the following occur:

(l)

The account is not paid within 90 days from its invoice date or 60 days from its due date, whichever occurs first, provided that, so long as NewsCorp maintains a credit rating of not lower than BBB by Standard & Poors, accounts in an aggregate amount at any time of up to Five Hundred Thousand Dollars ($500,000) owed to the Borrower by 20th Century Fox may be outstanding for up to 120 days from their invoice date or 90 days from their due date, whichever occurs first;

 

(i)

the debtor obligated upon the account suspends business, makes a general assignment for the benefit of creditors, or fails to pay its debts generally as they come due; or

 

(ii)

any petition is filed by or against the debtor obligated upon the account under any bankruptcy law or any other law or laws for the relief of debtors.

 

(iii)

The account is not the obligation of a debtor who is in default (as defined above) on 50% or more of the accounts upon which such debtor is obligated.

(m)

The account does not arise from the sale of goods which remain in the Borrower’s possession or under the Borrower’s control.

(n)

The account is not evidenced by a promissory note or chattel paper, nor is the account debtor obligated to the Borrower under any other obligation which is evidenced by a promissory note.

(o)

The account is otherwise acceptable to the Bank.

(a)

During the availability period described below, the Bank will provide a line of credit (the “Facility”) to the Borrower.  The amount of the Facility (the “Facility Commitment”) is equal to the lesser of (i) the Credit Limit or (ii) the Borrowing Base as determined by the Bank from time to time in accordance with this Agreement.

(b)

The Facility is a revolving line of credit.  During the availability period, the Borrower may repay principal amounts and reborrow them.

(c)

The Borrower agrees not to permit the principal balance outstanding to exceed the Facility Commitment.  If the Borrower exceeds this limit, the Borrower will immediately pay the excess to the Bank upon the Bank’s demand.

(a)

A borrowing certificate, in form and detail satisfactory to the Bank, setting forth the Acceptable Receivables on which the requested extension of credit is to be based.

(b)

Copies of the invoices or the record of invoices from the Borrower’s sales journal for such Acceptable Receivables and a listing of the names and addresses of the debtors obligated thereunder.

(c)

Copies of the delivery receipts, purchase orders, shipping instructions, bills of lading and other documentation pertaining to such Acceptable Receivables.

(d)

Copies of the cash receipts journal pertaining to the borrowing certificate.

(a)

The Borrower will pay interest on September 1, 2009, and then on the first day of each month thereafter until payment in full of any principal outstanding under the Facility.

(b)

The Borrower will repay in full any principal, interest or other charges outstanding under the Facility no later than the Facility Expiration Date.

(c)

Any interest period for an optional interest rate (as described below) shall expire no later than the Facility Expiration Date.

(a)

The interest rate is a rate per year equal to the Bank’s Prime Rate plus the Applicable Margin as defined below.

(b)

The Prime Rate is the rate of interest publicly announced from time to time by the Bank as its Prime Rate.  The Prime Rate is set by the Bank based on various factors, including the Bank’s costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans.  The Bank may price loans to its customers at, above, or below the Prime Rate.  Any change in the Prime Rate shall take effect at the opening of business on the day specified in the public announcement of a change in the Bank’s Prime Rate.

(a)

During the availability period, at the request of the Borrower, the Bank will issue standby letters of credit with a maximum maturity of 365 days but not to extend beyond the Facility Expiration Date.  The standby letters of credit may include a provision providing that the maturity date will be automatically extended each year for an additional year unless the Bank gives written notice to the contrary; provided, however, that each standby letter of credit must include a final maturity date of not later than one hundred eighty (180) days after the Facility Expiration Date and which will not be subject to automatic extension.

(b)

The amount of the standby letters of credit outstanding at any one time (including the drawn and unreimbursed amounts of the standby letters of credit) may not exceed One Million Dollars ($1,000,000).

(c)

In calculating the principal amount outstanding under the Facility Commitment, the calculation shall include the amount of any standby letters of credit outstanding, including amounts drawn on any standby letters of credit and not yet reimbursed.

(d)

The Borrower agrees:

 

(i)

Any sum drawn under a standby letter of credit may, at the option of the Bank, be added to the principal amount outstanding under this Agreement.  The amount will bear interest and be due as described elsewhere in this Agreement.

 

(ii)

If there is a default under this Agreement, to immediately prepay and make the Bank whole for any outstanding standby letters of credit.

 

(iii)

The issuance of any standby letter of credit and any amendment to a standby letter of credit is subject to the Bank’s written approval and must be in form and content satisfactory to the Bank and in favor of a beneficiary acceptable to the Bank.

 

(iv)

To sign the Bank’s form Application and Agreement for Standby Letter of Credit.

 

(v)

To pay any issuance and/or other fees that the Bank notifies the Borrower will be charged for issuing and processing standby letters of credit for the Borrower.

 

(vi)

To allow the Bank to automatically charge its checking account for applicable fees, discounts, and other charges.

 

(vii)

To pay the Bank a non-refundable fee equal to one and one-half percent (1.5%) per annum of the outstanding undrawn amount of each standby letter of credit, payable annually in advance, calculated on the basis of the face amount outstanding on the day the fee is calculated.  If there is a default under this Agreement, at the Bank’s option, the amount of the fee shall be increased to six percent (6%) per annum, effective starting on the day the Bank provides notice of the increase to the Borrower.

(a)

The interest period during which the LIBOR Rate will be in effect will be 30, 60 or 90 days or one year.  The first day of the interest period must be a day other than a Saturday or a Sunday on which banks are open for business in New York and London and dealing in offshore dollars (a “LIBOR Banking Day”).  The last day of the interest period and the actual number of days during the interest period will be determined by the Bank using the practices of the London inter-bank market.

(b)

Each LIBOR Rate Portion will be for an amount not less than Five Hundred Thousand Dollars ($500,000).

(c)

The “LIBOR Rate” means the interest rate determined by the following formula.  (All amounts in the calculation will be determined by the Bank as of the first day of the interest period.)

 

(i)

“London Inter-Bank Offered Rate” means, for any applicable interest period, the rate per annum equal to the British Bankers Association LIBOR Rate (“BBA LIBOR”), as published by Reuters (or other commercially available source providing quotations of BBA LIBOR as selected by the Bank from time to time) at approximately 11:00 a.m. London time two (2) London Banking Days before the commencement of the interest period, for U.S. Dollar deposits (for delivery on the first day of such interest period) with a term equivalent to such interest period.  If such rate is not available at such time for any reason, then the rate for that interest period will be determined by such alternate method as reasonably selected by the Bank.  A “London Banking Day” is a day on which banks in London are open for business and dealing in offshore dollars.

 

(ii)

“Reserve Percentage” means the total of the maximum reserve percentages for determining the reserves to be maintained by member banks of the Federal Reserve System for Eurocurrency Liabilities, as defined in Federal Reserve Board Regulation D, rounded upward to the nearest 1/100 of one percent.  The percentage will be expressed as a decimal, and will include, but not be limited to, marginal, emergency, supplemental, special, and other reserve percentages.

(d)

The Borrower shall irrevocably request a LIBOR Rate Portion no later than 12:00 noon Pacific time on the LIBOR Banking Day preceding the day on which the London Inter-Bank Offered Rate will be set, as specified above.  For example, if there are no intervening holidays or weekend days in any of the relevant locations, the request must be made at least three days before the LIBOR Rate takes effect.

(e)

The Bank will have no obligation to accept an election for a LIBOR Rate Portion if any of the following described events has occurred and is continuing:

 

(i)

Dollar deposits in the principal amount, and for periods equal to the interest period, of a LIBOR Rate Portion are not available in the London inter-bank market; or

 

(ii)

the LIBOR Rate does not accurately reflect the cost of a LIBOR Rate Portion.

(f)

Each prepayment of a LIBOR Rate Portion, whether voluntary, by reason of acceleration or otherwise, will be accompanied by the amount of accrued interest on the amount prepaid and a prepayment fee as described below.  A “prepayment” is a payment of an amount on a date earlier than the scheduled payment date for such amount as required by this Agreement.

(g)

The prepayment fee shall be in an amount sufficient to compensate the Bank for any loss, cost or expense incurred by it as a result of the prepayment, including any loss of anticipated profits and any loss or expense arising from the liquidation or reemployment of funds obtained by it to maintain such Portion or from fees payable to terminate the deposits from which such funds were obtained.  The Borrower shall also pay any customary administrative fees charged by the Bank in connection with the foregoing.  For purposes of this paragraph, the Bank shall be deemed to have funded each Portion by a matching deposit or other borrowing in the applicable interbank market, whether or not such Portion was in fact so funded.

(a)

Closing Fee.  The Borrower agrees to pay a one-time loan fee in the amount of Thirty-Seven Thousand Five Hundred Dollars ($37,500).  This fee is due on the date of this Agreement.  The Borrower acknowledges and agrees that the Bank may effect payment of this fee when due by charging the full amount thereof either to the Facility or to the Borrower’s designated deposit account with the Bank.

(b)

Unused Commitment Fee.  The Borrower agrees to pay a fee on any difference between the Facility Commitment and the amount of credit it actually uses, determined by the average of the daily amount of credit outstanding during the specified period.  The fee will be calculated at 0.50% per year.  The calculation of credit outstanding shall include the undrawn amount of letters of credit.  This fee is due in arrears on September 1, 2009, and on the same day of each following quarter in arrears until the expiration of the availability period.

(c)

Waiver Fee.  If the Bank, at its discretion, agrees to waive or amend any terms of this Agreement, the Borrower will, at the Bank’s option, pay the Bank a fee for each waiver or amendment in an amount advised by the Bank at the time the Borrower requests the waiver or amendment.  Nothing in this paragraph shall imply that the Bank is obligated to agree to any waiver or amendment requested by the Borrower.  The Bank may impose additional requirements as a condition to any waiver or amendment.

(d)

Late Fee.  To the extent permitted by law, the Borrower agrees to pay a late fee in an amount not to exceed four percent (4%) of any payment that is more than fifteen (15) days late.  The imposition and payment of a late fee shall not constitute a waiver of the Bank’s rights with respect to the default, including Bank’s right to charge interest at the default interest rate provided for in Section 6.6.

(a)

The Borrower agrees to reimburse the Bank for any expenses it incurs in the preparation of this Agreement and any agreement or instrument required by this Agreement.  Expenses include, but are not limited to, reasonable attorneys’ fees, including any allocated costs of the Bank’s in-house counsel to the extent permitted by applicable law.

(b)

The Borrower agrees to reimburse the Bank for the cost of periodic field examinations of the Borrower’s books, records and collateral, and appraisals of the collateral, at such intervals as the Bank may reasonably require.  The actions described in this paragraph may be performed by employees of the Bank or by independent appraisers.

(a)

Each payment by the Borrower will be made in U.S. Dollars and immediately available funds by direct debit to a deposit account as specified below.

(b)

Each disbursement by the Bank and each payment by the Borrower will be evidenced by records kept by the Bank.  In addition, the Bank may, at its discretion, require the Borrower to sign one or more promissory notes.

(a)

The Bank may honor telephone or telefax instructions for advances or repayments or for the designation of optional interest rates and telefax requests for the issuance of letters of credit given, or purported to be given, by any one of the individuals authorized to sign loan agreements on behalf of the Borrower, or any other individual designated by any one of such authorized signers.

(b)

Advances will be deposited in and repayments will be withdrawn from the Borrower’s designated deposit account with the Bank (the “Designated Bank Account”).

(c)

The Borrower will indemnify and hold the Bank harmless from all liability, loss, and costs in connection with any act resulting from telephone or telefax instructions the Bank reasonably believes are made by any individual authorized by the Borrower to give such instructions.  This paragraph will survive this Agreement’s termination, and will benefit the Bank and its officers, employees, and agents.

(a)

The Borrower agrees that interest and principal payments and any fees will be deducted automatically on the due date from the Designated Deposit Account.

(b)

The Borrower will maintain sufficient funds in the account on the dates the Bank enters debits authorized by this Agreement.  If there are insufficient funds in the account on the date the Bank enters any debit authorized by this Agreement, the Bank may reverse the debit.

(a)

The Bank may make advances under this Agreement to prevent or cover an overdraft on any account of the Borrower with the Bank.  Each such advance will accrue interest from the date of the advance or the date on which the account is overdrawn, whichever occurs first, at the interest rate described in this Agreement.  The Bank may make such advances even if the advances may cause any credit limit under this Agreement to be exceeded.

(b)

The Bank may reduce the amount of credit otherwise available under this Agreement by the amount of any overdraft on any account of the Borrower with the Bank.

(a)

Secretary Certificate.  A secretary certificate from the secretary of the Borrower, attaching the authorizations required by Paragraph 7.1, the organizational documents required by Paragraph 7.2, signatures and incumbency information regarding officers and such other information as the Bank may reasonably request.

(b)

Closing Date Borrowing Certificate.  A completed borrowing certificate on the Bank’s standard form, demonstrating the Borrower’s borrowing base as of the month end immediately preceding the date of this Agreement.

(c)

Closing Date Compliance Certificate.  A completed compliance certificate on the Bank’s standard form, demonstrating that as of the date of this Agreement, the Borrower is in compliance with all of the financial covenants required under this Agreement.

(d)

Additional Information.  The Bank shall have received and been satisfied with its review of such additional information relating to litigation, tax, accounting, labor, insurance, material contracts, contingent liabilities and management matters affecting the Borrower and the Guarantor as the Bank may reasonably request.

(a)

Satisfactory Updated Field Examination.  The Bank shall have completed and been satisfied with the results of an updated field examination of the Borrower’s assets and books and records.

(b)

Satisfactory Due Diligence Review.  The Bank shall have completed and been satisfied with the results of its due diligence review, including a satisfactory review of the terms and conditions of all of the Borrower’s related party debt, the Borrower’s sources of funds.

(c)

No Material Adverse Change.  There shall not have occurred a material adverse change in the business, assets, liabilities (actual or contingent), operations, condition (financial or otherwise) or prospects of the Borrower and its subsidiaries taken as a whole or in the facts and information regarding such entities as indicated on the audited financial statements for the Borrower’s fiscal year ended June 30, 2008 other than as described to the Bank (goodwill impairment and non-recurring cash and non-cash charges).

(d)

No Material Adverse Litigation.  There shall not be as of the date of this Agreement any action, suit, investigation or proceeding pending or threatened in any court or before any arbitrator or governmental authority that purports (i) to materially and adversely affect the Borrower or its subsidiaries, or (ii) to affect any transaction contemplated hereby or the ability of the Borrower or its subsidiaries or any other guarantor to perform their respective obligations under this Agreement or any of the other loan documents entered into in connection with this Agreement.

(a)

To use the proceeds of the Facility only for working capital and general corporate purposes and for the issuance of standby letters of credit.

(b)

The proceeds of the credit extended under this Loan Agreement may not be used directly or indirectly to purchase or carry any “margin stock” as that term is defined in Regulation U of the Board of Governors of the Federal Reserve System, or extend credit to or invest in other parties for the purpose of purchasing or carrying any such “margin stock,” or to reduce or retire any indebtedness incurred for such purpose.

(a)

A Borrowing Certificate as of the last day of each month within twenty (20) days after month end and, upon the Bank’s request, copies of the invoices or the record of invoices from the Borrower’s sales journal for the Borrower’s Acceptable Receivables and a listing of the names and addresses of the debtors obligated thereunder, copies of the delivery receipts, purchase orders, shipping instructions, bills of lading and other documentation pertaining to such Acceptable Receivables, and copies of the cash receipts journal pertaining to the Borrowing Certificate.

(b)

Upon the Bank's request, a detailed aging of the Borrower’s receivables by invoice or a summary aging by account debtor, as specified by the Bank.

(c)

Upon the Bank's request, a summary aging by vendor of accounts payable.

(d)

If the Bank requires the Borrower to deliver the proceeds of accounts receivable to the Bank upon collection by the Borrower, a schedule of the amounts so collected and delivered to the Bank.

(e)

Upon the Bank’s request, a listing of the names and addresses of all debtors obligated upon the Borrower’s accounts receivable.

(f)

Copies of all letters of credit issued in support of the Borrower’s accounts receivable.

(g)

Promptly upon the Bank’s request, such other books, records, statements, lists of property and accounts, budgets, forecasts or reports as to the Borrower and the Guarantor as the Bank may request.

(h)

Within 90 days after the Borrower’s fiscal year end, the annual financial statements of the Borrower.  These financial statements must be audited (with an opinion satisfactory to the Bank) by a Certified Public Accountant acceptable to the Bank.  The statements shall be prepared on a consolidated basis.

(i)

Within 45 days after the period’s end in the case of the first three fiscal quarters of each fiscal year of the Borrower and within 60 days after the end of the fourth fiscal quarter of each such fiscal year, quarterly financial statements of the Borrower, certified and dated by an authorized financial officer.  These financial statements may be company-prepared.  The statements shall be prepared on a consolidated basis.

(j)

Promptly, upon sending or receipt, copies of any management letters and correspondence relating to management letters, sent or received by the Borrower to or from the Borrower’s auditor.  If no management letter is prepared, the Bank may, in its discretion, request a letter from such auditor stating that no deficiencies were noted that would otherwise be addressed in a management letter.

(k)

Copies of the Form 10-K Annual Report, Form 10-Q Quarterly Report and Form 8-K Current Report for the Borrower concurrent with the date of filing with the Securities and Exchange Commission.

(l)

Financial projections covering a time period acceptable to the Bank and specifying the assumptions used in creating the projections.  The projections shall be provided to the Bank no less often than 45 days after the end of each fiscal year.

(m)

Within 45 days after the end of each fiscal quarter, a compliance certificate of the Borrower, signed by an authorized financial officer and setting forth (i) the information and computations (in sufficient detail) to establish that the Borrower is in compliance with all financial covenants at the end of the period covered by the financial statements then being furnished and (ii) whether there existed as of the date of such financial statements and whether there exists as of the date of the certificate, any default under this Agreement and, if any such default exists, specifying the nature thereof and the action the Borrower is taking and proposes to take with respect thereto.

(a)

Acquiring goods, supplies, or merchandise on normal trade credit.

(b)

Endorsing negotiable instruments received in the usual course of business.

(c)

The Borrower’s term loan indebtedness to GECC, the aggregate outstanding principal amount of which on the date of this Agreement is Two Million Eight Hundred Thirty-Eight Thousand Six Hundred Eleven Dollars ($2,838,611).

(d)

Obtaining surety bonds in the usual course of business.

(e)

Liabilities, lines of credit and leases in existence on the date of this Agreement disclosed in writing to the Bank.

(f)

The Borrower’s term loan indebtedness to Lehman Brothers (“Lehman”) in an original principal amount of up to $6,400,000 (the “Lehman Loan”), incurred by the Borrower to finance the purchase of the Borrower’s leased facility located at 1133 Hollywood Way, Burbank, California (the “Burbank Facility”).

(g)

Additional debts and lease obligations for the acquisition of fixed assets, to the extent permitted elsewhere in this Agreement.

(h)

The Borrower’s term loan indebtedness to M.J. Lantry Trust (“Lantry”) in an original principal amount of up to $3,562,500 (the “Lantry Loan”), incurred by the Borrower to finance the purchase of the Borrower’s facility located at 1147 Vine Street, Hollywood, California (the “Vine Facility”).

(a)

Liens and security interests in favor of the Bank.

(b)

Liens for taxes not yet due.

(c)

Liens outstanding on the date of this Agreement disclosed in writing to the Bank, including liens in favor of GECC, which are subject to the terms of the intercreditor agreement required by Paragraph 7.11 hereof.

(d)

Additional purchase money security interests in assets acquired after the date of this Agreement, if the total principal amount of debts secured by such liens does not exceed Five Hundred Thousand Dollars ($500,000) at any one time.

(e)

The lien created by the deed of trust on the Burbank Facility, granted by the Borrower to Lehman as collateral security for the payment and performance of the Borrower’s obligations to Lehman in connection with the Lehman Loan.

(f)

The lien created by the deed of trust on the Vine Facility, granted by the Borrower to Lantry as collateral security for the payment and performance of the Borrower’s obligations to Lantry in connection with the Lantry Loan.

(a)

Not to sell, assign, lease, transfer or otherwise dispose of any part of the Borrower’s business or the Borrower’s assets except in the ordinary course of the Borrower’s business.

(b)

Not to sell, assign, lease, transfer or otherwise dispose of any assets for less than fair market value, or enter into any agreement to do so.

(c)

Not to enter into any sale and leaseback agreement covering any of its fixed assets.

(d)

To maintain and preserve all rights, privileges, and franchises the Borrower now has.

(e)

To make any repairs, renewals, or replacements to keep the Borrower’s properties in good working condition.

(a)

Existing investments disclosed to the Bank in writing.

(b)

Investments in the Borrower’s current subsidiaries.

(c)

Investments in any of the following:

 

(i)

certificates of deposit;

 

(ii)

U.S. treasury bills and other obligations of the federal government;

 

(iii)

readily marketable securities (including commercial paper, but excluding restricted stock and stock subject to the provisions of Rule 144 of the Securities and Exchange Commission).

(a)

Existing extensions of credit disclosed to the Bank in writing.

(b)

Extensions of credit to the Borrower’s current subsidiaries.

(c)

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 to non-affiliated entities.

(a)

Haig S. Bagerdjian to cease to be the chief executive officer of the Borrower unless within sixty (60) days after Mr. Bagerdjian ceases to hold such office the Borrower secures a replacement chief executive officer satisfactory to the Bank.

(b)

Haig S. Bagerdjian to cease to own directly or indirectly, beneficially or of record, at least fifteen (15%) of all shares of voting securities of the Borrower (provided that such percentage may be less than fifteen percent (15%), but not less than seven and one-half percent (7.5%), if such reduction is due to the issuance of shares of voting securities of the Borrower as consideration for an acquisition permitted under Paragraph 9.14(b) below).

(c)

Individuals who constituted the Borrower’s board of directors as of the date of this Agreement (collectively, the “Existing Directors”) to cease to constitute a majority of the directors then in office (provided that the Existing Directors may constitute less than a majority if such reduction is due to the appointment of additional directors in connection with an acquisition permitted under Paragraph 9.14(b) below).

(a)

Except as permitted under Paragraph 9.14(b) below, enter into any consolidation, merger, or other combination, or become a partner in a partnership, a member of a joint venture, or a member of a limited liability company.

(b)

Acquire or purchase a business or its assets for total purchase consideration of more than Three Million Dollars ($3,000,000) for any single transaction or Four Million Dollars ($4,000,000) in the aggregate in any fiscal year for all such transactions, or acquire or purchase a business or its assets irrespective of the total amount of purchase consideration for such transaction or the total purchase consideration for all such transactions in any year if the Borrower cannot demonstrate to the Bank’s reasonable satisfaction that the Borrower would be in pro forma compliance with the financial and other covenants set forth in this Agreement after giving effect to such acquisition or purchase or if the Bank otherwise does not consent to such acquisition or purchase.

(c)

Engage in any business activities substantially different from the Borrower’s present business.

(d)

Liquidate or dissolve the Borrower’s business.

(e)

Voluntarily suspend its business for more than seven (7) days in any thirty (30) day period.

(a)

Any lawsuit over One Million Dollars ($1,000,000) against the Borrower or the Guarantor.

(b)

Any substantial dispute between any governmental authority and the Borrower or the Guarantor.

(c)

Any event of default under this Agreement, or any event which, with notice or lapse of time or both, would constitute an event of default.

(d)

Any material adverse change in the Borrower’s (or the Guarantor’s) business condition (financial or otherwise), operations, properties or prospects, or ability to repay the credit.

(e)

Any change in the Borrower’s name, legal structure, place of business, or chief executive office if the Borrower has more than one place of business.

(f)

Any actual contingent liabilities of the Borrower (or the Guarantor), and any such contingent liabilities which are reasonably foreseeable, where such liabilities are in excess of One Million Dollars ($1,000,000) in the aggregate.

(a)

General Business Insurance.  To maintain insurance satisfactory to the Bank as to amount, nature and carrier covering property damage (including loss of use and occupancy) to any of the Borrower’s properties, business interruption insurance, public liability insurance including coverage for contractual liability, product liability and workers’ compensation, and any other insurance which is usual for the Borrower’s business.  Each policy shall provide for at least thirty (30) days prior notice to the Bank of any cancellation thereof.

(b)

Insurance Covering Collateral.  If required by the Bank, to maintain all risk property damage insurance policies covering the tangible property comprising the collateral.  Each such insurance policy required by the Bank must be for the full replacement cost of the collateral and include a replacement cost endorsement.  Such insurance (if required by the Bank) must be issued by an insurance company acceptable to the Bank and must include a lender’s loss payable endorsement in favor of the Bank in a form acceptable to the Bank.

(c)

Evidence of Insurance.  Upon the request of the Bank, to deliver to the Bank a copy of each insurance policy, or, if permitted by the Bank, a certificate of insurance listing all insurance in force.

(a)

This paragraph concerns the resolution of any controversies or claims between the parties, whether arising in contract, tort or by statute, including but not limited to controversies or claims that arise out of or relate to:  (i) this agreement (including any renewals, extensions or modifications); or (ii) any document related to this agreement (collectively a “Claim”).  For the purposes of this arbitration provision only, the term “parties” shall include any parent corporation, subsidiary or affiliate of the Bank involved in the servicing, management or administration of any obligation described or evidenced by this agreement.

(b)

At the request of any party to this agreement, any Claim shall be resolved by binding arbitration in accordance with the Federal Arbitration Act (Title 9, U.S. Code) (the “Act”).  The Act will apply even though this agreement provides that it is governed by the law of a specified state.  The arbitration will take place on an individual basis without resort to any form of class action.

(c)

Arbitration proceedings will be determined in accordance with the Act, the then-current rules and procedures for the arbitration of financial services disputes of the American Arbitration Association or any successor thereof (“AAA”), and the terms of this paragraph.  In the event of any inconsistency, the terms of this paragraph shall control.  If AAA is unwilling or unable to (i) serve as the provider of arbitration or (ii) enforce any provision of this arbitration clause, the Bank may designate another arbitration organization with similar procedures to serve as the provider of arbitration.

(d)

The arbitration shall be administered by AAA and conducted, unless otherwise required by law, in any U.S. state where real or tangible personal property collateral for this credit is located or if there is no such collateral, in the state specified in the governing law section of this agreement.  All Claims shall be determined by one arbitrator; however, if Claims exceed Five Million Dollars ($5,000,000), upon the request of any party, the Claims shall be decided by three arbitrators.  All arbitration hearings shall commence within ninety (90) days of the demand for arbitration and close within ninety (90) days of commencement and the award of the arbitrator(s) shall be issued within thirty (30) days of the close of the hearing.  However, the arbitrator(s), upon a showing of good cause, may extend the commencement of the hearing for up to an additional sixty (60) days.  The arbitrator(s) shall provide a concise written statement of reasons for the award.  The arbitration award may be submitted to any court having jurisdiction to be confirmed, judgment entered and enforced.

(e)

The arbitrator(s) will give effect to statutes of limitation in determining any Claim and may dismiss the arbitration on the basis that the Claim is barred. For purposes of the application of the statute of limitations, the service on AAA under applicable AAA rules of a notice of Claim is the equivalent of the filing of a lawsuit.  Any dispute concerning this arbitration provision or whether a Claim is arbitrable shall be determined by the arbitrator(s).  The arbitrator(s) shall have the power to award legal fees pursuant to the terms of this agreement.

(f)

This paragraph does not limit the right of any party to:  (i) exercise self-help remedies, such as but not limited to, setoff; (ii) initiate judicial or non-judicial foreclosure against any real or personal property collateral; (iii) exercise any judicial or power of sale rights, or (iv) act in a court of law to obtain an interim remedy, such as but not limited to, injunctive relief, writ of possession or appointment of a receiver, or additional or supplementary remedies.

(g)

The procedure described above will not apply if the Claim, at the time of the proposed submission to arbitration, arises from or relates to an obligation to the Bank secured by real property.  In this case, all of the parties to this agreement must consent to submission of the Claim to arbitration.  If both parties do not consent to arbitration, the Claim will be resolved as follows: The parties will designate a referee (or a panel of referees) selected under the auspices of AAA in the same manner as arbitrators are selected in AAA administered proceedings. The designated referee(s) will be appointed by a court as provided in California Code of Civil Procedure Section 638 and the following related sections.  The referee (or presiding referee of the panel) will be an active attorney or a retired judge.  The award that results from the decision of the referee(s) will be entered as a judgment in the court that appointed the referee, in accordance with the provisions of California Code of Civil Procedure Sections 644 and 645.

(h)

The filing of a court action is not intended to constitute a waiver of the right of any party, including the suing party, thereafter to require submittal of the Claim to arbitration.

(i)

By agreeing to binding arbitration, the parties irrevocably and voluntarily waive any right they may have to a trial by jury in respect of any Claim.  Furthermore, without intending in any way to limit this agreement to arbitrate, to the extent any Claim is not arbitrated, the parties irrevocably and voluntarily waive any right they may have to a trial by jury in respect of such Claim to the maximum extent they may legally do so under applicable California law.  This provision is a material inducement for the parties entering into this agreement.

(a)

represent the sum of the understandings and agreements between the Bank and the Borrower concerning this credit;

(b)

replace any prior oral or written agreements between the Bank and the Borrower concerning this credit; and

(c)

are intended by the Bank and the Borrower as the final, complete and exclusive statement of the terms agreed to by them.