LOAN AGREEMENT
EXHIBIT
10.26
THIS LOAN
AGREEMENT ("Agreement") is entered into as of this 7th day of May, 2007
("Effective Date"), by and among PALM FINANCE CORPORATION, a California
corporation and Finance Lender ("Lender"), located at 000 Xxxxxxxx Xxxx, Xxxxx
000, Xxxxx Xxxxxx, Xxxxxxxxxx 00000, and NEW MOON PICTURES, LLC, a Louisiana
limited liability company, POOL BOY THE MOVIE, LLC, a Louisiana limited
liability company and AUTOPSY, LLC, a Louisiana limited liability company,
(hereinafter .jointly
referred to as "Borrowers").
NOW,
THEREFORE, for good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties agree as follows:
LOAN:
a.. Lender
has been induced by Borrowers to make a loan in an aggregate amount not
to exceed
the principal amount of $5,500,000 (the "Loan") to Borrowers exclusively for the
purpose of paying certain production expenses in accordance with the Approved
Cash Flow Schedule, a copy of which is attached hereto as Exhibit A, upon
receipt of a signed, verified "Request for Funding" in the form attached hereto
as Exhibit B and the Approved Budgets for two feature films currently entitled
"American Summer" [formerly known as "Pool Boy"} and "Mercy" [formerly known as
"Autopsy") (the "Pictures") including, without limitation, setting aside (i)
$700,000 as an Interest Reserve, (ii) $440,000 as a Contingency Reserve to pay
any bona fide direct production costs Budget line item overage which cannot be
Raided by a Budget underage, and (iii) a sufficient amount of money to pay
Lender's legal fees and costs as described in Section 9 below, each of which
shall be paid or held in accordance with this Agreement and the Approved Cash
Flow Schedule
b. This (1)
Agreement, (ii) the Secured Promissory Note of even date herewith (the "Note"),
(iii) the Security Agreement of even date herewith (the "Security Agreement"),
(iv) the two Mortgages of Copyrights of even date herewith (the "Mortgages of
Copyrights"), (v) the Assignment of Collateral Agreement (the "Assignment of
Collateral Agreement"), (vi) all other documents and agreements executed by
Borrowers and any entities guarantying the Loan ("Guarantors") in connection
with the Loan, (vii) a Laboratory Pledgeholder Agreement, and (viii)
Subordination Agreements between Lender and Voodoo Production Services, LLC,
LLC, Parallel Media, LLC, and any other person or entity with a pecuniary
interest in the Pictures which impacts Lender's and/or AME's rights, titles
and/or interests in the Pictures all of which may hereinafter be referred to
collectively as the "Loan Documents."
2..CONDITIONS
OF FUNDING: Lender's obligation to make each and every advance of the Loan
shall be subject to the occurrence of each of the following
conditions:
a.Receipt by
Lender of all original Loan Documents properly executed by each of the
parties thereto in a form acceptable to Lender, including, but not limited to
the following: (1) this
Agreement, (2) Security Agreement, (3) Mortgages of Copyrights, (4) a Guaranty
horn Seven
Arts Pictures, Inc , (5) a Guaranty from Seven Arts Pictures, PLC, (6) a
Guaranty from Seven
Arts International (6) Assignment of Collateral Agreement, (7) the Subordination
Agreements described in Section 1. b above, and (8) Laboratory Pledgeholder
Agreement
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b.Lender and Borrowers have agreed upon a Budget and
Cash Flow Schedule for both of
the Pictures which have been vetted and approved by International Film
Guarantors (respectively, the "Approved Budget" and "Approved Cash Flow
Schedule") so the Pictures can be completed and delivered to the licensees set
forth on the Collateral Schedule, attached hereto as Exhibit C, no later than
May 1, 2008 ("Outside Completion Date") and which contained sufficient monies to
pay all the costs of creating, manufacturing and delivering all of the elements
of the Pictures as required by the licensees set forth on the Collateral
Schedule.
c..Borrowers
have provided Lender with current and accurate production cost reports,
cash flow statements, and trial balances indicating that (a) the Pictures can be
completed and delivered by the Outside Completion Date and for the amount of the
Approved Budget and (b) that, at the time of the first drawdown of the Loan,
there is no foreseeable need to use any of the Contingency,
d. Seven
Arts Pictures, Inc and Seven Arts Pictures, PLC have delivered a Collateral
Schedule including copies of fully executed licenses acceptable to Lender
regarding the Pictures which provide for the payment of not less then $3.,477
million dollars upon the delivery of the Pictures to such licensees and Lender
has received an amount equal to all deposits collected from such licensees in
accordance with the Deposit Schedules attached hereto as Exhibit D.
e. Borrowers
and A-Xxxx Entertainment, LLC, ("AME"), a California limited liability company,
have entered into a Participation Agreement regarding the
Pictures.,
f.Lender has
received a Power of Attorney or other form of agreement acceptable to Lender
that would allow Lender to distribute the Pictures through an "output" video
agreement with Genius Products, Inc. and Anchor Bay Entertainment, Inc. and any
other "output" video or other similar agreement that deal with the distribution
of the Pictures.
g.Borrowers'
receipt of a minimum amount of $4,000,000 from. Voodoo Production Services,
LLC, which has been used exclusively to pay direct costs of production of the
Pictures in accordance with the Approved Budget and documentation satisfactory
to Lender evidencing the receipt by Borrowers of those amounts and the
expenditure of same.
h.Borrowers'
receipt of a minimum of $2,500,000 from Parallel Media, LLC which has been used
exclusively to pay the direct costs of production of the Pictures in accordance
with the Approved Budget and documentation satisfactory to Lender evidencing the
receipt by Borrowers of those amounts and the expenditure of same.
i.Receipt of
Approved Budgets signed off by Xxxxxx Xxxx and Xxxxx Hoffinan, copies of
which are attached hereto as Exhibit E.
jThe issuance
of certificates of insurance naming Lender as a "Loss Payee" and"Named
Insured" in a form satisfactory to Lender.
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k.Receipt of
an acknowledgment from Marquette Investments, LLC that it no longer
has any interest in the Pictures
l.Escrow
Agreements and Letters of Direction of Payment directing payments of monies
received from the exploitation of the Pictures in forms acceptable to
Lender,
m.There having been no Event of
Default.
3.
REPAYMENT. All amounts owed by Borrowers pursuant to the Note and this
Agreement
("Obligations") are repayable on or before the Repayment Date, as defined below
in United States Dollars by cashiers check made payable to Lender or as
otherwise reasonably directed by Lender
a. All
monies received by Borrowers and/or Guarantors from the production of the
Pictures and/or the exploitation of any rights, titles and/or interests in and
to the Pictures shall be paid to Lender, excepting only the Louisiana Tax
Credits which have been assigned to Voodoo Production Services, LLC, until the
full amount of' the Obligation has been paid in full..
b. The
Obligation shall be repaid without notice, request, and/or demand
within
eighteen
(18) months from the Effective Date ("Repayment Date")..
c...Without
limiting Lender's right to receive payment any time on the Repayment
Date, any
time prior to the Repayment Date, Lender shall have the unconditional and
irrevocable right to demand full or partial repayment upon the occurrence of any
of the following events ("Events of Default"):
i. Any of
Borrowers' or Guarantors' rights, titles, and interests in the Picture
lapse;
ii.
Borrowers have insufficient monies to complete and deliver the Pictures
by the
Outside Completion Date and/or the cost to complete the Pictures on or before
the Outside Completion Date exceeds the Approved Budget plus Contingency and/or
Borrowers are unable to fund the amounts in excess of the Approved Budget and
Contingency;
iii.
Borrowers or Guarantors sell, assign, convey, encumber, hypothecate, or'
otherwise transfer or alienate any of the collateral described in this
Agreement, the Security Agreement or Mortgages of Copyrights..
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iv.
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Any
Borrower or Guarantor ceases to carry on its business or is wound up or
dissolved for any reason;
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v.
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Any
Borrower or Guarantor is unable to pay its debts within the meaning of the
applicable bankruptcy laws or files (or is subject to an involuntary
filing) any sort of' petition for bankruptcy
relief;
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vi Any
Borrower or Guarantor suspends payments of its debts or commences negotiations
for the readjustment or rescheduling of its debts;
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vii.
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Any
Borrower or Guarantor breaches any agreement, or fails to fUlfill any
obligation, contained in this Agreement, the Note, any other Loan Document
and/or the Participation Agreement;
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viii.
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The
Borrowers or the Guarantors fail to make any payment due to Lender
pursuant to any of the Loan
Documents;
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ix..The
placement of any of the tangible personal property embodying any visual or
audio aspects of the Picture, such as film negatives and soundtracks ("Physical
F ilm Elements") in any laboratory that is not approved by Lender;
x. The
Borrowers fail to produce the Pictures in conformance with the Approved
Budgets;
xi.Production
Company giving Lender false or
misleading information or representations
or not disclosing any material facts that might be relevant to
Lender;
xii..Any of
the licensees on the Collateral Schedule (1) reject their license, (2)
give any
notice or indication of their intent to default or not accept delivery of the
Picture or remit a payment when due, (3) fail to make a payment when
due
under such licensees
agreement regarding the applicable Pictures, (4) make a payment that is not
remitted to the Lender, and/or (5) are in material default of their respective
agreement including, without limitation, failing to except
delivery.
d.Upon
the occurrence of any Event of Default, the following consequences shall
occur:
i..Lender may terminate
making any further advances under this Agreement
ii.Lender
may immediately commence enforcement of the Loan, including by foreclosing on
the Mortgages of Copyright and Security Agreement, and Lender may exercise all
of the rights and remedies of a secured creditor under
applicable
law.
iii
Lender shall have the right, but not the obligation, to "take-over" control
over the
production of the Pictures as the agent of the Production Company.
iv The
Loan shall bear interest at the default rate of 18% per annum in accordance
with Section 4(b) of this Agreement
v..Lender
shall be entitled to the appointment of a receiver to take immediate
possession
of the Collateral,
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vi.
Lender shall have the right to apply any cash or deposits held by Production
Company against the Loan
4.
INTEREST PAYMENTS:
a. As
compensation to Lender for extending the Loan, Lender will be entitled to
interest
on the outstanding principal balance of the Loan at the rate of fifteen percent
(15%) per annum ("Interest Rate").. Interest shall be calculated for the exact
number of days that any principal amount remains unpaid commencing on the date
the amount is advanced directly to or on behalf of the Borrowers. All payments
shall be applied first to interest when due, then to principal.
b. In the
event payment is not received when due and/or all of the interest has not
been paid
on or before the Repayment Date, the Loan shall be in default, and in addition
to Lender's right to receive art amount equal to the outstanding balance of the
Loan, Lender shall be entitled to the following:
i. Compounded
interest on all amounts owed pursuant to the Loan Documents at an annual
interest rate equal to 18% per annum.. Interest shall accrue daily, and shall be
added to all other amounts owed pursuant to the Loan
Documents,
commencing on the Repayment Date and continuing until the date of repayment in
full;
ii.All costs
of collection, including, without limitation, all reasonable legal fees and
expenses; and In
calculating the amounts of interest owed, all payments and amounts received
shall be applied first to legal costs of collection,
including
attorney fees, then to outstanding interest, and then to the remaining
Obligations
5.
INTEREST RESERVE ACCOUNT. At the time of the first advance made pursuant to
this
Agreement, Lender shall establish an interest reserve in the amount of $700,000
of the principal amount of the Loan, which amount shall be allocated and used
exclusively for the payment of interest to Lender ("Interest Reserve"),. On the
first business day of each calendar month until the Interest Reserve is
completely utilized, an amount equal to the accrued interest through that date
shall be paid from the Interest Reserve to Lender, which amounts shall be
treated as advances and added to the outstanding principal balance owed by
Borrowers to Lender.
6.
CONTINGENCY RESERVE. At the time of the first advance made pursuant to
this
Agreement,
Lender shall establish an contingency reserve of $440,000 of the principal
amount of the Loan, which amount may be allocated and used exclusively for the
payment of bona fide direct production costs Budget line overage which cannot be
funded by a Budget underage ("Contingency Reserve").. The payment of any such
costs shall be treated as advances and added to the outstanding principal
balance owed by Borrowers to Lender.
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0.XXXXXXXX
INTEREST
x.Xx secure
the Obligation and all other amounts that may become owed to Lender pursuant
to this Agreement, Lender shall receive the Security Agreement and the Mortgages
of Copyright to secure repayment the Obligation. The property in which the
Lender shall receive a security interest to secure performance of the Borrowers
Obligations shall be collectively referred to herein as the "Collateral." The Collateral
shall be released upon payment in full of all amounts of the
Obligation.
b. The
Mortgages of Copyrights may be filed with the U.S.. Copyright Office and as
charge against collateral recorded in the United Kingdom. Lender shall also be
allowed to immediately file with the Louisiana Secretary of State, Nevada
Secretary of State, California Secretary of State and any other location deemed
appropriate by Lender, a UCC-1 financing statement covering the
Collateral
c. Until the
Obligation is fully and finally repaid, Borrowers shall not sell, assign,
convey, encumber, hypothecate or otherwise transfer or alienate any of the
Collateral, nor suffer, permit or authorize any person to file or record any
Mortgage of Copyright, UCC- I Financing Statement, or other public record
purporting to create, perfect or give notice of any right, title, claim or
interest of any such person in and to any of the Collateral.. This agreement by
Borrower is fundamental to Lender's agreement to extend the Loan..
d. In the
event Borrowers file any copyright applications, are awarded any copyrights, or
otherwise acquire any right, title or interest in or to any copyright covering
or relating to the Collateral or any element thereof, Borrowers shall notify
Lender.
of that fact within ten (10) days thereafter.,
and shall execute and deliver any and all mortgages of copyright requested by
Lender as to perfect and provide public notice to third parties of Lender's
security interest in such copyright(s)
e. Except as
Lender may otherwise agree in writing, Borrowers warrant that Lender shall be in
a first priority position on all Collateral.
8..THIRD
PARTY GUARANTY.. In an Event of a Default, and without waiving any other
rights or
remedies, Lender shall have the right to repayment of the Obligation pursuant to
Guaranties from Seven Arts Pictures, Inc., a Nevada corporation, Seven Arts
Pictures, PLC, a regulated company in the United Kingdom, and Seven Arts
Pictures International ("Guarantors"), which provides
in part for repayment of all amounts owed pursuant to the Loan
Documents..
0.XXXXXXXX
FEES AND ADDITIONAL COSTS.. On the Effective Date, and as a draw against
the Loan, Borrowers agree that Lender will draw against the Loan the actual
amount of Lender's attorney fees for the preparation of all of the Loan
Documents and all costs (including legal costs) relating to the filing of any
UCC-1 financing statements and the recording and registration of the Mortgages
of Copyrights. Borrowers shall pay all reasonable attorney fees and costs
incurred by Lender in connection with any collection efforts by Lender
including, without limitation, legal fees and costs.. Borrowers agree to pay all
wire transfer charges including, without limitation, wire transfer charges
incurred by Lender in making the Loan and wire
transfer charges incurred by Borrowers in repaying the Obligation. Lender shall
have no obligation, liability or responsibility to any broker, finder and/or
person claiming any sort of right or interest in receiving remuneration in
connection with this transaction..
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a..Lender
may assign or transfer all or any part of its rights and benefits under this
Agreement
without the consent of Borrowers
b.Borrowers
may not assign any part of its rights and benefits under this Agreement
without
the prior written consent of Lender, which consent shall be in the sole and
absolute discretion of Lender,
11.
NOTICE: All notices which either party is required or may desire to give the
other under the
Agreement shall be in writing and shall be given either by personal delivery,
telecopy (toll prepaid) or by registered or certified mail (postage prepaid) to
the appropriate party as discussed in this paragraph.. All notices to Production
Company shall be made to New Moon Pictures, LLC, Attn: Xxxxx Xxxxxxx, 0000 Xxx
Xxxxxxx Xxxx , Xxxxx 000, Xxx Xxxxxxx, Xxxxxxxxxx 00000 All notices to Lender
shall be made to: Attn: Xxxxxx X Xxxxxxx, Palm finance Corporation, 000 Xxxxxxxx
Xxxx., Xxxxx 000, Xxxxx Xxxxxx, Xxxxxxxxxx, 00000, with copies to Xxxxxx Xxxxxx,
A-Xxxx Entertainment, LLC, 0000 Xxxxxxxx Xxxx , Penthouse - 1000, Xxxxxxx Xxxxx,
Xxxxxxxxxx 00000, and to Xxxx X Xxxxx, Xx , Xxxxxx Xxxxxxx Xxxxx & Xxxxxx,
000 Xxxx Xxxxxx, Xxxxx 0000, Xxxxx, Xxxxx 00000, Fax No. (000) 000-0000 or such
other addresses as requested by AME in writing.
12.
APPLICABLE LAW AND SEVERABILITY: This Agreement shall in all respects be
governed by and construed in accordance with the laws of California applicable
to agreements executed and to be wholly performed within California. Nothing
contained herein shall be construed so as to require the commission of any act
contrary to law, and whenever there is any conflict between any provision
contained herein and any present or future statute, law, ordinance or regulation
contrary to which the parties have no legal right to contract, the latter shall
prevail and the provision of this document which is affected shall be curtailed
and limited only to the extent necessary to bring it within the requirements of
law..
13. VENUE
AND JURISDICTION: Borrowers hereby agree (i) that any litigation, action or
proceeding
arising out of or relating to this Agreement may only be instituted in any state
or federal court located in Los Angeles County in the State of California, (ii)
that they waive all objections which it might have now or hereafter have with
regard to the venue of any such tribunal, (iii) that they irrevocably and
unconditionally submit to the jurisdiction and venue of any such court, and (iv)
that it hereby waives any claim or defense of inconvenient forum. THE PARTIES
HEREBY WAIVE THEIR RESPECTIVE RIGHT TO TRIAL BY JURY OF ANY CAUSE OF ACTION
WHATSOEVER ARISING OUT OF OR IN ANY WAY RELATED TO OR CONNECTED WITH THIS OR ANY
OTHER LOAN DOCUMENT NOW OR HEREAFTER ENTERED INTO BETWEEN THE PARTIES UNDER
CONTRACT, TORT OR ANY OTHER LEGAL THEORY.
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15. PROTECTION
OF COLLATERAL. So long as Borrowers owe Lender any amount pursuant to this
Agreement, Borrowers shall not enter into any agreement relating to the
Collateral without first obtaining the permission of Lender.
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16.
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POWER
OF ATTORNEY. Borrowers hereby irrevocably appoint Lender as its true and
lawful attorney-in-fact with full and irrevocable power of attorney on
behalf of Borrowers, to execute any and all documents (including the
endorsement of checks)
or take any actions reasonably necessary in Lenders good-faith sole
discretion to enforce any of the provisions of this Agreement or any of
the other Loan Documents, including its rights to the
Collateral.
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17. RIGHT
TO INSPECT..
Borrowers shall maintain complete and accurate books and records
relating to the Collateral, and Lender shall have the unlimited right to inspect
and copy such books and records, including access to all computer hardware or
software necessary to inspect any books and records kept on computers.. Lender
shall also have the right to inspect any of the Collateral at any time. Upon
request of Lender, Borrowers shall furnish Lender with any information as Lender
may request from time to time.. Borrowers shall supply Lender with copies of all
production reports (e.g.., budget, shooting schedules, and cost to complete) for
the Pictures, Lender shall have the right to visit the set and talk to
production personnel regarding the progress of the Pictures
MISCELLANEOUS:
a. This
Agreement with the documents, instruments and agreements referred to
herein
embodies the entire agreement and understanding between the parties hereto and
supersedes all prior agreements and understandings relating to the subject
matter hereof; and
b. No failure
to exercise, and no delay in exercising any right, power or remedy hereunder or
under any agreement referred to herein shall impair any right, power or remedy
which Lender may have, nor shall any such delay be construed to be a waiver of
any of such tights, powers or remedies or an acquiescence in any breach or
default under this Agreement or• any agreement referred to herein nor shall any
waiver of any breach or default of Borrower hereunder be deeded a
waiver of any default or breach subsequently occurring.. The rights and remedies
herein specified are cumulative and not exclusive of any rights or remedies
which Lender would otherwise have, at law or in equity.
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IN
WITNESS WHEREOF the parties have executed this Agreement as of the date set
foith above.
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"BORROWER"
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NEW
MOON PICTURES, LLC
By:___/s/ Xxxxx Hoffman___
Name:
Title:
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"BORROWER"
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POOL BOY THE MOVIE, LLC
By:__/s/ Xxxxx Hoffman____
Name:
Title:
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"BORROWER"
AUTOPSY,
LLC
By:__/s/ Xxxxx Hoffman_____
Name:
Title:
"LENDER"
PALM FINANCE CORPORATION
By:_____________________
Name:
Title:
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