Document:

Loan Agreement dated as of May 22, 2003

 
EXHIBIT 10.1

 
LOAN AGREEMENT 
 
This LOAN AGREEMENT (the “Agreement”) is entered into as of
May 22, 2003 by and between Digital Production Solutions, Inc., a Delaware corporation (“Lender”), and Film Roman, Inc., a Delaware corporation ( “Borrower”). 
 
WHEREAS, Lender or its designee is willing to lend to Borrower up to
$2,059,125.87 under the terms and subject to the conditions contained herein; and 
 
WHEREAS, Borrower is willing to borrow from Lender up to $2,059,125.87 under the terms and subject to the conditions contained herein. 
 
NOW, THEREFORE, in consideration of the covenants, warranties and mutual agreements contained herein and in reliance upon the
representations and warranties contained herein, the parties hereto agree as follows: 
 
SECTION 1    DEFINITIONS 
 
In addition to the other terms defined herein, as used in this Agreement the following terms shall have the following respective meanings: 
 
“Business Day” means any day which is not a Saturday, a Sunday or a day on which banks are
required or permitted to be closed in the State of New York. 
 
“Convertible Note” means the convertible note of Borrower issued to Lender substantially in the form of Exhibit A hereto. 
 
“Event of Default” means any event of default described in Section 6 hereof.

 
“Liabilities” means all debts,
liabilities and obligations of Borrower to Lender hereunder of every kind, nature and description, now existing or hereafter incurred, matured or unmatured, direct or indirect, primary or secondary, joint or several, absolute or contingent, due or
to become due, regardless of how the same may be evidenced, and including any extensions and renewals thereof or a part thereof, together with interest, fees, charges, expenses and costs of collection (including reasonable attorney’s fees).

 
“Loan Documents” means this
Agreement, the Convertible Note, the Security Agreement, the Pledge Agreement and all other agreements and instruments extending, renewing, refinancing or rebinding any Liabilities arising under any of the foregoing, in each case as the same may be
amended, modified or supplemented from time to time hereafter. 
 
“Person” means any individual, partnership, corporation or other legal entity. 
 
“Pledge Agreement” means that certain Pledge Agreement between Lender and Borrower, dated as of the date hereof.

 
“Security Agreement” means that
certain Guarantee and Security agreement among Lender, Borrower and the subsidiaries of Borrower, dated as of the date hereof. 

 
SECTION
2    LOAN TERMS 
 
2.1.    Amounts to be Loaned. Lender or its designee shall, subject to the terms and conditions contained herein, lend hereunder to Borrower, from time to time, and upon request of Borrower, amounts which,
when added to amounts outstanding to Borrower hereunder, shall not exceed, in the aggregate, the principal sum of Two Million Fifty Nine Thousand One Hundred Twenty Five and 87/100 Dollars ($2,059,125.87); provided, however, that until the
Company amends its Certificate of Incorporation to increase the number of its authorized shares of Common Stock, par value $0.01 per share to 60,000,000 and such amendment becomes effective, the amount borrowed by Borrower under this Agreement shall
not exceed One Million Seven Hundred Fifty Five Thousand One Hundred Forty Eight and 77/100 Dollars ($1,755,148.77). Upon execution of this Agreement, Lender shall loan to Borrower under this Agreement the sum of Fifty Nine Thousand One Hundred
Twenty Five and 87/100 Dollars ($59,125.87) in cash by wire transfer of immediately available funds. 
 
The obligation of Lender to make any loan under this Agreement is subject to the fulfillment by Borrower of the conditions set forth in Section 3 hereof and the accuracy of the representations
and warranties contained in Section 4 hereof as of the date of each loan. Each such representation and warranty shall be true on and as of the date of each loan hereunder with the same effect as though such representations and warranties had
been made on and as of such date; and on each such date no uncured Event of Default and no condition, event or act which, with the giving of notice or the lapse of time, or both, would constitute an Event of Default shall have occurred and be
continuing and an authorized officer of Borrower shall provide to Lender a certificate to such effect prior to each loan. 
 
2.2.    Convertible Note. The obligation of Borrower to repay all amounts loaned by Lender pursuant to this
Agreement shall be evidenced by the Convertible Note of Borrower, dated the date of this Agreement. 
 
2.3.    Interest. Any principal amount outstanding at the close of each day shall accrue interest at a
fluctuating interest rate per annum equal at all times to the sum of (a) the prime bank lending rate as published from time to time in the Wall Street Journal (Eastern Edition) plus (b) 2% per annum (calculated on a year of 360 days and payable for
the actual number of days elapsed including any time extended by reason of Saturdays, Sundays and holidays). 
 
2.4.    Notice of Borrowing. Borrower shall give Lender not less than ten (10) days’ prior notice of each
loan. The notice shall specify the date on which the loan is to be obtained (which shall be a Business Day) and the amount of such loan. 
 
2.5.    Loan Records. Lender shall maintain on its books and records accounts in the name of Borrower showing
the date and amount of each loan under this Agreement, as well as the date and amount of each payment of principal by Borrower with respect thereto. 
 
2.6.    Payments; No Revolving Facility. All principal and interest shall be due and payable no later than May
22, 2008 (the “Maturity Date”). Except as otherwise provided in this Agreement, all payments by or on behalf of Borrower shall be made at Lender’s offices at 

520 Broad Street, Newark, New Jersey 07102, and shall be credited (on a conditional basis subject to
collection and final payment) on the day of receipt by Lender, and shall be applied to the Convertible Note, first to any interest due thereon to the date of payment, and the balance, if any, to the unpaid principal of the Convertible Note. The
right of Borrower to make such payments in such manner at any time without prepayment premium or penalty is absolute and unconditional; provided, however, that Lender shall not be obligated to relend to Borrower any amounts prepaid by
Borrower. 
 
SECTION 3    CONDITIONS
OF LENDING 
 
3.1.    Conditions. No loan may be requested (and Lender shall not be obligated to make any loan) hereunder at any time unless as of the date of such loan request, Borrower shall be in compliance with all
material terms, conditions and obligations of this Agreement, all of the material representations and warranties contained herein shall be true on and as of such date with the same effect as though the same had been made on and as of such date, no
Event of Default, and no condition, event or act which, with the giving of notice or the lapse of time or both, would constitute an Event of Default, shall exist, and all of the following conditions are fully satisfied: 
 

	 	(a)	 	Convertible Note. Lender shall have received on or before the date hereof the Convertible Note duly executed and delivered by Borrower.

 

	 	(b)	 	Other Indebtedness. Except for amounts owed under the Production Services Agreement, dated February 5, 2003, by and between the Borrower and Twentieth Century
Fox Television (the “Fox Payment Obligations”), Borrower shall not have any other indebtedness for borrowed money to any other Person that, as to right of payment, is senior to, or ranks on a parity with, the loans made hereunder.

 

	 	(c)	 	No Notice of Borrower’s Default. Lender shall not have received notice of any default of Borrower in respect of any order, writ, injunction or decree of
any court or federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign unless such default (or alleged default) shall have been cured on or before the date of such request
for a loan, and Lender shall have received evidence reasonably satisfactory to it of such cure. 

 
SECTION 4    REPRESENTATIONS AND WARRANTIES 
 
Borrower represents and warrants, as of the date hereof and as of the date of each loan hereunder or any renewal thereof, that: 
 
4.1.    Status. Borrower is a
corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, and has the requisite power and lawful authority to own, lease and operate its respective assets and properties and to carry on its respective
business as it is now being conducted. Borrower is duly qualified as a foreign entity to transact business, and is in good standing, in each jurisdiction where the character of its properties, owned or leased, or the nature of its activities, makes
such qualification necessary, 

other than where the failure to be so qualified or licensed would not have a material adverse effect on the business, operations, conditions
(financial or otherwise) or future prospects of the business currently being conducted by the Company and its Subsidiaries taken as a whole, other than any effect relating to or arising out of an event, matter, occurrence or action affecting the
United States or global economy generally (a “Material Adverse Effect”). 
 
4.2.    Authority. Borrower has all necessary legal right and power and all authority and approval required to enter into, execute and deliver this Agreement, the Convertible
Note, and each other Loan Document to which it is a party and to perform fully its respective obligations hereunder and thereunder. The execution and delivery by Borrower of this Agreement, the Convertible Note, and each other Loan Document to which
it is a party and the consummation by Borrower of the transactions consummated hereby and thereby have been duly authorized by the board of directors of Borrower and no other proceedings on the part of Borrower are necessary to authorize the
execution, delivery and performance of this Agreement, the Convertible Note, and each other Loan Document to which it is a party and the consummation of the transactions consummated hereby and thereby. This Agreement, the Convertible Note, and each
other Loan Document have been duly executed and delivered by Borrower and this Agreement, the Convertible Note, and each other Loan Document to which it is a party constitute the valid and binding obligations of Borrower enforceable against Borrower
in accordance with their respective terms. Neither the execution and delivery of this Agreement, the Convertible Note, or any other Loan Document, or the consummation of the transactions contemplated hereby or thereby, nor compliance with the terms
and provisions hereof or thereof, will conflict with or result in a breach of any of the terms, conditions or provisions of Borrower’s Certificate of Incorporation or By-laws, or of any law or any regulation, or any order, writ, injunction or
decree of any court or governmental instrumentality, or of any agreement or instrument to which Borrower is subject, or constitute a default thereunder, or result in the creation or imposition of any lien, charge or encumbrance of any nature
whatsoever upon any of Borrower’s property or assets pursuant to the terms of any such agreement or instrument or otherwise except pursuant to and under this Agreement. 
 
4.3.    Financial Statements. The financial statements to be delivered to Lender
hereunder will fairly present the consolidated financial condition (including contingent liabilities) of Borrower at the dates thereof in accordance with generally accepted accounting principles consistently applied. 
 
4.4.    Seniority. Except for the
Fox Payment Obligations, the loans made hereunder are and shall be senior obligations of Borrower and no other indebtedness of Borrower for borrowed money is senior to, or on a parity with, in right of payment, with the Liabilities or the
liabilities of Borrower to Lender under any other debt instrument. 
 
SECTION 5    GENERAL COVENANTS OF BORROWER 
 
Borrower covenants and agrees, until the Maturity Date and thereafter until final payment in full of the Liabilities, as follows: 
 
5.1.    Reporting Requirements. Borrower shall furnish to Lender: (a) within
fifteen (15) days after the end of each month, financial statements indicating Borrower’s 

financial condition and the results of its operations for each such month; and (b) within sixty (60) days after the end of each fiscal year
of Borrower, such financial statements at the end of and for the entire fiscal year. Such financial statements shall fairly present, in all material respects, the results of the operations of Borrower for the periods covered and the financial
condition of Borrower as at the end of such periods in accordance with generally accepted accounting principles in the United States consistently applied (subject, in the case of interim financial statements, to good faith year-end adjustments), and
each such statement will be certified as such by the president or chief financial officer of Borrower to his or her best knowledge. The financial statements shall be accompanied by a certificate of Borrower’s chief executive officer to the
effect that to his or her best knowledge no Event of Default has occurred or, if the same has occurred, the nature thereof. In addition, as soon as possible, and in any event within three Business Days after becoming aware of the occurrence of any
Default or Event of Default or any other event or occurrence which has or would reasonably be expected to have a materially adverse effect upon the business, property or financial condition of Borrower, Borrower shall provide to Lender a written
statement setting forth details of such Default, Event of Default or other event or occurrence and the action which Borrower has taken or has caused to be taken or proposes to take or cause to be taken with respect thereto. 
 
5.2.    Affirmative Covenants.
Borrower will: 
 

	 	(a)	 	pay all its other debts and discharge all other obligations when due, including all taxes, unless and to the extent that such payment is being contested in good
faith by appropriate proceedings; 

 

	 	(b)	 	maintain its financial records in accordance with generally accepted accounting principles in the United States; 

 

	 	(c)	 	maintain its existence in its state of organization; 

 

	 	(d)	 	comply in all material respects with any applicable law, rule or regulation, or any order, writ, injunction or decree of any court or governmental instrumentality,
in effect from time to time; and 

 

	 	(e)	 	maintain insurance coverage on its physical assets and against other business risks in such amounts and of such types as are customarily covered by companies similar
in size and nature to Borrower. 

 
5.3.    Negative Covenants. Without the prior written consent of Lender, Borrower will not: 
 

	 	(a)	 	declare or pay any cash dividends, retire or otherwise acquire for value any or all of its capital stock, or return any capital or make any distribution of its
assets to its stockholders, except as reasonable salaries or bonuses for labor actually performed or services actually rendered or except as provided under the Borrower’s employee, director or consultant benefit plans.

 

	 	(b)	 	create, incur, assume or suffer to exist any liability for borrowed money; 

	 	(c)	 	other than in the ordinary course of Borrower’s business and other than payment of the Fox Payment Obligations, make any payment of principal on any
indebtedness for borrowed money (other than on the loans made hereunder); 

 

	 	(d)	 	mortgage, pledge, or subject to any lien or otherwise encumber any assets of Borrower; 

 

	 	(e)	 	form any new subsidiaries; 

 

	 	(f)	 	make any capital purchases or acquisitions, which in the aggregate exceed $150,000; or 

 

	 	(g)	 	dissolve, liquidate or wind up its affairs. 

 
5.4.    Lender’s Costs and Expenses. Borrower hereby expressly agrees to remit to Lender forthwith all
costs and expenses reasonably incurred by Lender in connection with the collection of the Convertible Note (including reasonable attorney’s fees and court costs); together with interest on any of the above from the date of such expenditure to
the date of repayment in full to Lender at the rate of interest payable on the Convertible Note. At its option, Lender may charge such costs, expenses and amounts as a loan pursuant to this Agreement. 
 
SECTION 6    DEFAULT 
 
6.1.    Events of Default. Without
limitation of any of Lender’s rights as provided elsewhere in this Agreement, upon the occurrence of any of the following, an Event of Default shall have occurred, Lender’s obligation to lend hereunder shall terminate and, at Lender’s
option, after the expiration of thirty (30) days from the delivery in accordance with Section 8.6 hereof of written notice to Borrower of the occurrence thereof (during which thirty (30) day period Borrower shall have the opportunity to cure
such Event of Default), all Liabilities shall become immediately due and payable without notice, presentation or demand of any kind, all of which are hereby waived, provided that no acceleration of the Liabilities shall occur if such Event of
Default shall be cured to Lender’s reasonable satisfaction prior to the expiration of such thirty (30) day period: 
 

	 	(a)	 	Borrower fails to pay when due any principal or any interest (in accordance with Section 2.3 hereof) on the Convertible Note; 

 

	 	(b)	 	Borrower fails or neglects to perform, keep or observe (i) any of the provisions of Section 5.2 hereof, (ii) any of the provisions of Section 5.3
hereof, or (iii) any material term, covenant or agreement on its part to be performed or observed in any Loan Document; 

 

	 	(c)	 	 (i) Borrower defaults in any payment of the principal of or interest on any obligation(s) for borrowed money or evidences of indebtedness for borrowed money
(other than hereunder), whether owing to Lender or any other Person, or in the performance of any other term or condition contained in any agreement under which any such obligation(s) for 

	 	 
borrowed money or evidences of indebtedness for borrowed money is created, and such default(s) shall continue beyond the period of grace, if
any, specified therein, and (ii) such obligation or indebtedness is accelerated; or 

 

	 	(d)	 	Final judgment(s) singly or in the aggregate amount of twenty-five thousand dollars ($25,000.00) or more at any one time outstanding are rendered against Borrower,
and remain unsatisfied for a period of thirty (30) days thereafter. 

 
6.2.    Further Events of Default. Lender’s obligation to lend hereunder shall terminate and all Liabilities shall become immediately due and payable without notice,
presentation or demand of any kind, all of which are hereby waived upon the occurrence of any of the following events, each of which shall constitute an Event of Default: 
 

	 	(a)	 	Borrower fails to comply with its obligations under Section 5.1 of the Stock Purchase Agreement, dated as of the date hereof, between Borrower and Lender;

 

	 	(b)	 	Borrower becomes insolvent or generally fails to pay, or admits in writing its inability to pay, its debts when due; 

 

	 	(c)	 	Borrower makes an assignment for the benefit of creditors, commences a case in bankruptcy, or commences any proceeding under any other insolvency law;

 

	 	(d)	 	A case in bankruptcy or any proceeding under any other insolvency law is commenced against Borrower and the case or proceeding is not dismissed within sixty (60)
days; or 

 

	 	(e)	 	A trustee, receiver or agent is appointed or authorized to take charge of substantially all of the property of Borrower for the purpose of enforcing a lien against
such property or for the purpose of general administration of such property for the benefit of creditors. 

 
SECTION 7    CONVERSION 
 
Lender may, in its sole discretion, at any time when any principal and/or accrued interest remains outstanding hereunder, convert such
unpaid principal and accrued but unpaid interest, in whole or in part, into fully paid and nonassessable shares of Common Stock, par value $0.01 per share, of Borrower as set forth in Section 3 of the Convertible Note. 
 
SECTION 8    MISCELLANEOUS 
 
8.1.    Security. As an inducement
to Lender to enter into this Agreement (i) Borrower and each of its subsidiaries shall enter into the Security Agreement with Lender and (ii) Borrower shall enter into the Pledge Agreement for the benefit of Lender. 

8.2.    Waivers and Enforcement of Rights. To the extent
permitted by law and except as otherwise provided in this Agreement, Borrower expressly waives all rights to any notice of hearing and to any hearing prior to the taking of any action by Lender under and pursuant to this Agreement. Borrower waives
demand, notice of default, protest, presentment, notice of acceptance of this Agreement, notice of loans made, credit extended, or other action taken in reliance hereon and all other demands and notices of any description except as otherwise
expressly provided herein. Borrower hereby waives promptness by Lender in making any demand upon Borrower, and agrees that no delay or omission by Lender in exercising any of its rights hereunder or under any other agreement or instrument between
Borrower and Lender shall be deemed to constitute a waiver of such Lender’s rights. Failure by Lender to exercise any right, remedy or option under this Agreement or delay by Lender in exercising the same will not operate as a waiver. No waiver
by Lender will be effective unless it is confirmed in writing by Lender and then only to the extent specifically stated therein. All rights and remedies of Lender hereunder shall be cumulative and may be exercised singularly or concurrently.

 
8.3.    Successors and
Assigns. The covenants, representations, warranties and agreements herein set forth shall be binding upon Borrower, its successors and assigns and shall inure to the benefit of Lender, its successors and assigns. Lender may assign this
Agreement, and any or all of its rights and obligations hereunder, to one or more third parties, however, no part of this Agreement may be assigned by Borrower without the prior written consent of the Lender. Any permitted purchaser, assignee,
transferee or pledgee of any of the Liabilities shall forthwith become vested with and entitled to exercise all the powers and rights given by this Agreement to Lender, as if said purchaser, assignee, transferee or pledgee were originally named
herein. 
 
8.4.    Maturity
Date; Duration. This Agreement shall have an initial term from the date hereof through and including the Maturity Date. Unless this Agreement shall be earlier terminated in accordance with the provisions hereof or the Liabilities become due and
payable as provided herein, all Liabilities shall be due and payable on the Maturity Date. Upon the effective date of termination all of the Liabilities shall become immediately due and payable without further notice or demand. Lender’s rights
with respect to obligations owing to it prior to the effective date of termination will not be affected by termination, and all of the provisions of this Agreement shall continue to be operative until all such obligations have been fully satisfied.

 
8.5.    ENTIRE
AGREEMENT; AMENDMENT; SEVERABILITY. THIS AGREEMENT AND THE LOAN DOCUMENTS CONSTITUTE THE ENTIRE AGREEMENT BETWEEN THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF AND SHALL BE GOVERNED BY THE LAWS OF THE STATE OF DELAWARE, WITHOUT GIVING
EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW PROVISIONS. None of the terms or provisions hereof may be waived, altered, modified, or amended in respect of Borrower except by an agreement in writing signed by Lender and Borrower. If at any time
one or more provisions of this Agreement, any amendment or supplement thereto or any related writing is or becomes invalid, illegal or unenforceable in whole or in part, the validity, legality and enforceability of the remaining provisions shall not
in any way be affected or impaired thereby. 

8.6.    Notices. Any notices, request, demand or other
communication required or permitted hereunder shall be in writing and shall be deemed to have been given if delivered or sent by facsimile transmission, upon receipt, if by hand delivery, upon receipt, if sent by nationally recognized overnight
courier service, one day after deposit with such, or if sent by registered or certified mail, upon the sooner of the date on which receipt is acknowledged or the expiration of three days after deposit in United States post officer facilities
properly addressed with postage prepaid. All notices to a party will be sent to the addresses set forth below or to such other address or person as such party may designate by notice to each other party hereunder. 
 

	 If to Lender, to:
	 	 Digital Production Solutions, Inc.
 c/o IDT Corporation
 520 Broad Street
 Newark, NJ 07102
 Attention: Morris Berger
 Facsimile: 973-438-1741

	
	 With a copy to:
	 	 McDermott, Will & Emery
 50 Rockefeller Plaza
 New York, NY 10020
 Attention: Mark Selinger, Esq.
 Facsimile: 212-547-5444

	
	 If to Borrower, to:
	 	 Film Roman, Inc.
 12020 Chandler Boulevard, Suite 200
 North Hollywood, CA 91607
 Attn: Chief Executive Officer
 Facsimile: 818-985-2973

	
	 With a copy to:
	 	 Dixon Q. Dern, Esq.
 1901 Avenue of the Stars, Suite 400
 Los Angeles, CA 90067
 Facsimile: 310-557-2224

	
	 With a copy to:
	 	 Shaw Pittman LLP
 2029 Century Park East, Suite 2550
 Los Angeles, CA 90067
 Attn: John J. Molloy, III, Esq.
 Facsimile: 310-551-4501

 
8.7.    Consent to Jurisdiction. Each of the parties hereby agrees that any dispute among them or any claim, suit or proceeding arising under this Agreement shall be brought before the federal or state
courts sitting in Delaware, and hereby consents to personal jurisdiction, service of process and venue in the federal or state courts of Delaware for such claim, suit or proceeding. 

8.8.    Counterparts. This Agreement may be executed in
several counterparts each of which shall be an original and all of which shall constitute but one and the same instrument. 
 
8.9.    Headings. The headings to Sections appearing in this Agreement have been inserted for the purpose of
convenience and ready reference. They do not purport to, and shall not be deemed to, define, limit or extend the scope or intent of the Sections to which they appertain. 
 
IN WITNESS WHEREOF, the parties have caused this Loan Agreement to be executed by their duly elected officers duly authorized
as of the date first above written. 
 

	 DIGITAL PRODUCTION SOLUTIONS, INC.

	
	 By:
	 	 /s/    Morris Berger        

	 Name: Morris Berger
 Title: President

 
 

	 FILM ROMAN, INC.

	
	 By:
	 	 /s/    John W. Hyde        

	 Name: John W. Hyde
 Title: Chief Executive OfficerConvertible Note dated as of May 22, 2003

EXHIBIT 10.2 
 
CONVERTIBLE NOTE 
 
$2,059,125.87                                   
                                        
                                        
                                        
              May 22, 2003 
 
FILM ROMAN, INC., a Delaware corporation (“Borrower”), for value received, hereby promises to pay to DIGITAL PRODUCTION SOLUTIONS, INC., or to its order (together with any assignee,
jointly or severally, “Holder”), the principal sum of TWO MILLION FIFTY NINE THOUSAND ONE HUNDRED TWENTY FIVE AND 87/100 DOLLARS ($2,059,125.87), or, if different, the aggregate unpaid principal amount of all loans made by Lender to
Borrower pursuant to and under the Loan Agreement (the “Loan Agreement”), dated as of the date hereof between Borrower and Holder, on the date of termination of the Loan Agreement or on the date the amounts hereunder otherwise
become due and payable in accordance with the terms of such Agreement, together with interest upon any net balance outstanding at the close of each day at the rate specified below, which shall, subject to the other terms and conditions hereof, be
due and payable on May 22, 2008 (the “Maturity Date”), unless earlier converted into shares of capital stock of Borrower as set forth herein. Capitalized terms not defined herein shall have the meaning ascribed to such term in the
Loan Agreement. 
 
In furtherance thereof, and in
consideration of the premises, covenants, promises, representations and warranties hereinafter set forth, Borrower hereby agrees as follows: 
 
1.    Interest. Any principal amount outstanding at the close of each day shall accrue interest at a
fluctuating interest rate per annum equal at all times to the sum of (a) the prime bank lending rate as published from time to time in the Wall Street Journal (Eastern Edition) plus (b) 2% per annum (calculated on a year of three hundred sixty (360)
days and payable for the actual number of days elapsed including any time extended by reason of Saturdays, Sundays and holidays). 
 
2.    Payment of Note. All payments of principal and interest in respect of this Note shall be made in lawful
money of the United States of America at the address of Holder set forth herein, or at such other place as may be designated by Holder. If any payment of principal or interest on this Note shall become due on a date that is a Saturday, a Sunday or a
day on which banks are required or permitted to be closed in the State of New York, such payment shall be made on the next succeeding Business Day and such extension of time shall be included in computing interest in connection with such payment. If
not converted pursuant to Section 5 hereof, all then remaining unpaid principal and interest then due hereunder shall be due and payable in full, on the Maturity Date. 
 
3.    Conversion. 
 

	 	(a)	 	Conversion Privilege. Holder of this Note may, in its sole discretion, at any time when any principal and/or accrued interest remains unpaid on this Note,
convert the unpaid principal of and accrued but unpaid interest on this Note, in whole or in part, into fully paid and nonassessable shares of Common Stock, par value $0.01 per share of Borrower (“Common Stock”). The number of
shares of Common Stock into which this Note may be converted shall be 

	 	 
determined by dividing (x) the outstanding principal amount of this Note to be converted plus all accrued but unpaid interest on the Note as
of the Conversion Date (as hereinafter defined), by (y) the “Conversion Price” (as determined from time to time as set forth below). The Conversion Price shall initially be $0.09. 

 

	 	(b)	 	Conversion Procedure. 

 

	 	(i)	 	To convert this Note Holder must (A) complete and sign a conversion notice stating the amount to be converted and (B) surrender this Note and the conversion notice
to Borrower. In the case of the conversion of less than all the unpaid principal amount of and accrued but unpaid interest on this Note, Borrower shall issue and deliver to Holder a new Note of like tenor for the balance of the outstanding principal
amount of this Note not so converted. 

 

	 	(ii)	 	The date on which Holder satisfies the foregoing requirements is the “Conversion Date.” As soon as practicable after the Conversion Date, Borrower
shall deliver to Holder a certificate for the number of whole shares of Common Stock issuable upon the conversion. The person in whose name the certificate is registered shall become the record holder of such shares of Common Stock on the Conversion
Date, and, as of such date, such person’s rights as Holder of this Note shall cease. 

 

	 	(iii)	 	The number of whole shares issuable upon the conversion shall be based on the total unpaid principal amount of the Note (including accrued and unpaid interest
thereon) or the specified portion thereof to be converted. 

 

	 	(iv)	 	If the last day on which this Note may be converted is on a date that is a Saturday, a Sunday or a day on which banks are required or permitted to be closed in the
State of New York, this Note may be surrendered to Borrower on the next succeeding day that is a Business Day. 

 

	 	(c)	 	Fractional Shares. Borrower shall not be required to issue any fractional shares of Common Stock upon conversion of this Note to the extent that the amount of
the Note to be converted is not convertible into a whole number of shares. In lieu of any fractional share to which Holder would otherwise be entitled, Holder shall be entitled to receive a cash payment equal to the fair market value for such
fractional share (as mutually determined by Holder and Borrower). 

 

	 	(d)	 	Taxes on Conversion. The issuance of certificates for shares of Common Stock upon the conversion of this Note shall be made without charge to the converting
Holder for such certificates for any tax (other than taxes levied on 

	 	 
the income of Holder) in respect of the issuance of such certificates; provided, however, that Borrower shall not be required to pay
any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such certificates in a name other than that of Holder of this Note, and Borrower shall not be required to issue or deliver such certificates unless
or until the person or persons requesting the issuance thereof shall have paid to Borrower the amount of such tax or shall have established to the satisfaction of Borrower that such tax has been paid or is not applicable.

 

	 	(e)	 	Borrower to Provide Common Stock. Borrower shall at all times reserve and keep available, free from preemptive rights, out of its authorized but unissued
Common Stock, solely for the purpose of issuance upon conversion of this Note as herein provided, a number of shares of Common Stock sufficient to permit the conversion of this Note into shares of Common Stock. All shares of Common Stock that may be
issued upon conversion of this Note shall be duly authorized, validly issued, fully paid and non-assessable when so issued. 

 

	 	(f)	 	Adjustments to the Conversion Price. The Conversion Price from time to time in effect shall be subject to adjustment as follows: 

 

	 	(i)	 	Upon Dilutive Issuances of Common Stock or Convertible Securities. If Borrower shall, at any time or from time to time while this Note is outstanding, issue
or sell any of its Common Stock or Common Stock Equivalents (as defined below) without consideration or for consideration per share less than the Conversion Price in effect immediately prior to such issuance or sale, upon each such issuance or sale,
such Conversion Price, except as hereinafter provided, shall be lowered so as to be equal to an amount determined by multiplying such Conversion Price by a fraction: 

 

	 	(A)	 	the numerator of which shall be (1) the number of shares of Common Stock outstanding immediately prior to the issuance of such additional shares of Common Stock or
Common Stock Equivalents (calculated on a fully diluted basis assuming the exercise or conversion of all Common Stock Equivalents), plus (2) the number of shares of Common Stock which the aggregate consideration, if any, received by Borrower for the
total number of such additional shares of Common Stock or Common Stock Equivalents so issued could purchase at the Conversion Price in effect immediately prior to such issuance or sale, and 

 

	 	(B)	 	the denominator of which shall be the number of shares of Common Stock outstanding immediately after the issuance of such additional shares of Common Stock or Common
Stock Equivalents (calculated on a fully diluted basis assuming the exercise or conversion of all Common Stock Equivalents). 

In computing the adjusted Conversion Price, the result shall be rounded to five decimal places, and in the
event the adjustment therefrom results in a change of the Conversion Price of less than $0.01, no adjustment to the then-effective Conversion Price shall be made, but the amount of said adjustment calculated thereby shall be carried forward to
successive occasions until such adjustments in the aggregate equal or exceed $0.01. 
 

	 	(ii)	 	Upon Dilutive Issuances of Warrants, Options and Purchase Rights to Common Stock or Convertible Securities. 

 

	 	(A)	 	Common Stock Equivalents. For the purposes of this Section 3(f), the issuance of any warrants, options, subscription or purchase rights with respect to shares
of Common Stock and the issuance of any securities convertible into or exchangeable for shares of Common Stock, or the issuance of any warrants, options, subscription or purchase rights with respect to such convertible or exchangeable securities
(collectively, “Common Stock Equivalents”), shall be deemed an issuance of Common Stock with respect to adjustments in the Conversion Price if the Net Consideration Per Share which may be received by Borrower for such Common Stock
Equivalents shall be less than the Conversion Price in effect at the time of such issuance. Any obligation, agreement or undertaking to issue Common Stock Equivalents at any time in the future shall be deemed to be an issuance at the time such
obligation, agreement or undertaking is made or arises. No adjustment of the Conversion Price shall be made under this Section 3(f)(ii) upon the issuance of any shares of Common Stock which are issued pursuant to the exercise, conversion or exchange
of any Common Stock Equivalents if any adjustments shall previously have been made upon the original issuance of any such Common Stock Equivalents as above provided. 

 

	 	(B)	 	Decreases in Net Consideration Per Share and Retroactive Adjustment upon Expiration of Common Stock Equivalents. In the event the Net Consideration Per Share
of any Common Stock or Common Stock Equivalents (even if issued or granted and outstanding as of the date of filing of this instrument or hereafter) is decreased, then, upon the effectiveness of each such change, the Conversion Price will be that
which would have been obtained (1) had the adjustments made upon the issuance of such Common Stock or Common Stock Equivalents been made upon the basis of the actual Net Consideration Per Share of such securities, and (2) had the adjustments made to
the Conversion Price since the date of issuance of such Common Stock or Common Stock Equivalents been made to such Conversion Price as adjusted pursuant to clause (1) above. Any adjustment of the 

	 	 
Conversion Price with respect to this Section 3(f) which relates to any Common Stock Equivalent shall be disregarded if, as, and when such
Common Stock Equivalent expires or is cancelled without being exercised, so that the Conversion Price effective immediately upon such cancellation or expiration shall be equal to the Conversion Price that would have been in effect had the expired or
cancelled Common Stock Equivalent not been issued. 

 

	 	(C)	 	Definition of Net Consideration Per Share. For purposes of this Section 3(f), the “Net Consideration Per Share” which may be received by
Borrower shall be determined as follows: 

 

	 	(1)	 	The Net Consideration Per Share shall mean the amount equal to (X) the total amount of consideration, if any, received by Borrower for the issuance of such Common
Stock or Common Stock Equivalents, plus, in the case of Common Stock Equivalents, the minimum amount of consideration, if any, payable to Borrower upon exercise, or conversion or exchange thereof, divided by (Y) the aggregate number of shares of
Common Stock issued or that would be issued if all such Common Stock Equivalents were exercised, exchanged or converted. 

 

	 	(2)	 	The Net Consideration Per Share which may be received by Borrower with respect to Common Stock Equivalents shall be determined in each instance as of the date of
issuance of such Common Stock Equivalents without giving effect to any possible future upward price adjustments or rate adjustments which may be applicable with respect to such Common Stock Equivalents. 

 

	 	(iii)	 	Consideration Other than Cash. For purposes of this Section 3(f), if a part or all of the consideration received by Borrower in connection with the issuance
of shares of the Common Stock or Common Stock Equivalents consists of property other than cash, such consideration shall be deemed to have a fair market value as is reasonably determined by Board of Directors of Borrower. 

 

	 	(iv)	 	Reorganization, Reclassification, Liquidation, Merger, Consolidation or Disposition of Assets. Section 3(f)(i) shall not apply under any of the circumstances
which would constitute a Reorganization (as hereinafter defined). At any time prior to the conversion of this Note into shares of Common Stock, in case Borrower shall reorganize its capital, reclassify its capital stock, 

	 	 
liquidate its assets, dissolve, consolidate or merge with or into another corporation, or sell, transfer or otherwise dispose of all or
substantially all its property, assets or business to another corporation or other entity (a “Reorganization”) and, pursuant to the terms of such Reorganization, shares of common stock of the successor or acquiring corporation or of
Borrower, or any cash, shares of stock or other securities or property of any nature whatsoever (including warrants or other subscription or purchase rights) in addition to or in lieu of common stock of the successor or acquiring corporation
(“Other Property”), are to be received by or distributed to holders of Common Stock of Borrower, then Holder shall have the right following the effectiveness of such Reorganization to receive, upon conversion of this Note, or, in
the case of a liquidation of assets or a dissolution, to receive, without taking any further action, the number of shares of common stock of the successor or acquiring corporation or of Borrower (if it is the surviving corporation) and Other
Property receivable upon or as a result of such Reorganization by a holder of the number of shares of Common Stock into which this Note is convertible immediately prior to such event, subject to the provisions of Borrower’s certificate of
incorporation, as in effect from time to time. In case of any such Reorganization, if this Note shall remain outstanding following the consummation of such Reorganization, the successor or acquiring corporation (if other than Borrower) shall
expressly assume the due and punctual observance and performance of each and every covenant and condition of this Note to be performed and observed by Borrower and all the obligations and liabilities hereunder, subject to such appropriate
modifications as are satisfactory to Holder in order to provide for adjustments of shares of Common Stock into which this Note is convertible which shall be as nearly equivalent as practicable to the adjustments provided for in this Section 3. For
purposes of this Section 3(f)(v) “common stock of the successor or acquiring corporation” shall include stock of such corporation of any class which is not preferred as to dividends or assets over any other class of stock of such
corporation and which is not subject to redemption and shall also include any evidences of indebtedness, shares of stock or other securities which are convertible into or exchangeable for any such stock, either immediately or upon the arrival of a
specified date or the happening of a specified event and any warrants or other rights to subscribe for or purchase any such stock. The foregoing provisions of this Section 3(f) shall similarly apply to successive Reorganizations.

 

	 	(v)	 	 Upon Stock Dividends, Subdivisions or Splits. If, at any time prior to the conversion of the Note into shares of Common Stock, the number of shares of
Common Stock outstanding is increased by a stock dividend payable in shares of Common Stock or by a subdivision or split-up of shares of Common Stock, then, upon the issuance of 

	 	 
such stock dividend, or such subdivision or split-up, the Conversion Price shall be appropriately decreased so that the number of shares of
Common Stock issuable on conversion of the Note and upon exercise of the Warrant shall be increased in proportion to such increase in outstanding shares. 

 

	 	(vi)	 	Upon Combinations. If, at any time prior to the conversion of the Note into shares of Common Stock, the number of shares of Common Stock outstanding is
decreased by a combination of the outstanding shares of Common Stock into a smaller number of shares of Common Stock, then, upon such combination, the Conversion Price shall be appropriately increased so that the number of shares of Common Stock
issuable on conversion of the Note shall be decreased in proportion to such decrease in outstanding shares. 

 

	 	(g)	 	Other Action Affecting Common Stock. In case at any time or from time to time Borrower shall take any action in respect of any class of its capital stock,
then, the number of shares of Common Stock or other stock or other consideration into which the Notes are convertible and/or the Conversion Price shall be adjusted in such manner as may be equitable in the circumstances. 

 

	 	(h)	 	Certain Limitations. Notwithstanding anything herein to the contrary, 

 

	 	(i)	 	Borrower agrees not to enter into any transaction which, by reason of any adjustment hereunder, would cause the Notes to be convertible into Common Stock at a rate
per share which is less than the par value per share of Common Stock; and 

 

	 	(ii)	 	no adjustment shall be made to the Conversion Price or to the number of shares of Common Stock issuable upon conversion of this Note in connection with (x) a sale of
capital stock by the Company to the Holder in exercising of its participation right set forth in Section 5 of the Stock Purchase Agreement, dated as of the date hereof, between Borrower and Holder; and (y) the granting of Common Stock or Common
Stock Equivalents (or the exercise thereof) under any stock option, bonus or other incentive award plan of Borrower. 

 

	 	(i)	 	Notice of Adjustments. Whenever the Conversion Price is adjusted, Borrower shall promptly deliver to Holder a notice of the adjustment briefly stating the
facts requiring the adjustment and the manner of computing it. 

 

	 	(j)	 	Notice of Certain Transactions. Holder shall be entitled to the same rights to receive notice of corporate action as any holder of the shares of
Borrower’s Common Stock. Without limiting the foregoing, if: 

 

	 	(i)	 	Borrower takes any action that would require an adjustment in the Conversion Price, 

	 	(ii)	 	Borrower pays any portion of the unpaid principal of any Note or interest thereon, or 

 

	 	(iii)	 	Borrower takes an action described in Section 3(f), 

 
then a Holder of the Note may wish to convert such Note into shares of Common Stock prior to the record date for or the effective date of the transaction
so that it may receive the rights, warrants, securities or assets that a holder of shares of Common Stock on that date may receive. Therefore, Borrower shall mail to Holder a notice stating the proposed record or effective date, as the case may be.
Borrower shall mail the notice at least 20 days before such date; provided, however, that failure to mail such notice, or any defect therein, shall not affect the validity of any transaction referred to in clause (i) or (ii) of this Section
3(j). 
 
4.    Assignment. The rights and obligations of Borrower and Holder of this Note shall be binding upon and benefit the successors, assigns, heirs, administrators and transferees of the parties.

 
5.    Waiver and
Amendment. Any provision of this Note may be amended waived or modified upon the written consent of Borrower and Holder. 
 
6.    No Stockholder Rights. Nothing contained in this Note shall be construed as conferring upon Holder or
any other person the right to vote or to consent or to receive notice as a stockholder in respect of meetings of stockholders for the election of directors of Borrower or any other matters or any rights whatsoever as a stockholder of Borrower; and
no dividends or interest shall be payable or accrued in respect of this Note or the interest represented hereby or the Conversion Shares obtainable hereunder until, and only to the extent that, this Note shall have been converted. 
 
7.    Governing Law. IN ALL
RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS NOTE AND THE RIGHTS AND OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE APPLICABLE
TO CONTRACTS MADE AND PERFORMED IN SUCH STATE, WITHOUT REGARD TO PRINCIPLES REGARDING CONFLICTS OF LAWS. 
 
8.    Severability. If any one or more of the provisions contained in this Note shall for any reason be found
by a court of competent jurisdiction to be invalid, illegal or unenforceable in any respect, the parties agree that such court may modify such provision to the extent necessary to make it valid, legal and enforceable. 
 
[signature page follows] 
 

 
IN WITNESS
WHEREOF, the undersigned has caused this Note to be duly executed on the date first above written. 
 

	 FILM ROMAN, INC.

	
	 By:
	 	 /s/ John W. Hyde        

	 	 	 Name: John W. Hyde
 Title: Chief Executive Officer

 

 
NOTICE OF
CONVERSION 
 
(To Be Signed Only Upon Conversion
of Note) 
 
TO FILM ROMAN, INC. 
 
The undersigned, Holder of the foregoing Note, hereby
surrenders such Note for conversion of an amount equal to $             , comprised of $              of
outstanding principal of such Note, plus $              of accrued but unpaid interest thereon, into             
shares of Common Stock of FILM ROMAN, INC., a Delaware corporation (the “Borrower”) and requests that (i) the certificates for such shares be issued in the name of, and delivered
to,            , whose address is and (ii) a new promissory note for the balance of the outstanding principal amount of the Note, if any, not so surrendered for conversion in the
aggregate amount of $                      be issued in the name of, and delivered
to,            , whose address is
                                        
                                       
                   . 
 
Dated:                                    
          
 

	 
	
	 	 	
 (Signature must conform in all respects to name of
holder as specified on the face of the Note)

	
	 	 	
 (Address)

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