Document:

EXHIBIT 10.11

 

SECURED CONVERTIBLE NOTE

 

THIS INSTRUMENT AND THE RIGHTS AND OBLIGATIONS EVIDENCED HEREBY AND ANY SECURITY INTERESTS OR OTHER LIENS SECURING SUCH OBLIGATIONS ARE SUBORDINATE IN THE MANNER AND TO THE EXTENT SET FORTH IN THAT CERTAIN SUBORDINATION AND INTERCREDITOR AGREEMENT DATED AS OF MAY ___, 2012 (AS AMENDED, RESTATED OR OTHERWISE AMENDED FROM TIME TO TIME, THE “SUBORDINATION AGREEMENT”) AMONG HUDSON BAY MASTER FUND LTD., AS COLLATERAL AGENT (THE “SENIOR AGENT”), COMVEST CAPITAL II, L.P., AND THE COMPANY (AS DEFINED BELOW) TO THE INDEBTEDNESS (INCLUDING INTEREST) OWED BY THE COMPANY, AND THE SECURITY INTERESTS AND LIENS SECURING SUCH INDEBTEDNESS, PURSUANT TO THAT CERTAIN SECURITIES PURCHASE AGREEMENT DATED AS OF MAY __, 2012 AMONG THE COMPANY, SENIOR AGENT AND THE BUYERS FROM TIME TO TIME PARTY THERETO, THAT CERTAIN SECURITY AND PLEDGE AGREEMENT DATED AS OF MAY ___ 2012 BY AND AMONG THE COMPANY, SENIOR AGENT, AND THE GRANTORS PARTY THERETO, AND VARIOUS RELATED DOCUMENTS, AND TO INDEBTEDNESS REFINANCING THE INDEBTEDNESS UNDER SUCH DOCUMENTS AS CONTEMPLATED BY THE SUBORDINATION AGREEMENT.  EACH HOLDER OF THIS INSTRUMENT, BY ITS ACCEPTANCE HEREOF, IRREVOCABLY AGREES TO BE BOUND BY THE PROVISIONS OF THE SUBORDINATION AGREEMENT.

 

NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS NOTE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL TO THE HOLDER (IF REQUESTED BY THE COMPANY), IN A FORM REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD OR ELIGIBLE TO BE SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES. ANY TRANSFEREE OF THIS NOTE SHOULD CAREFULLY REVIEW THE TERMS OF THIS NOTE, INCLUDING SECTIONS 3(c)(iii) AND 20(a) HEREOF.  THE PRINCIPAL AMOUNT REPRESENTED BY THIS NOTE AND, ACCORDINGLY, THE SECURITIES ISSUABLE UPON CONVERSION HEREOF MAY BE LESS THAN THE AMOUNTS SET FORTH ON THE FACE HEREOF PURSUANT TO SECTION 3(c)(iii) OF THIS NOTE.

 

DIGITAL DOMAIN MEDIA GROUP, INC.

 

 

SECURED CONVERTIBLE NOTE

 

	
Issuance   Date:  May        , 2012
    	
Original   Principal Amount:  U.S. $8,000,000      
    

 

FOR VALUE RECEIVED, Digital Domain Media Group, Inc., a Florida corporation (the “Company”), hereby promises to pay to the order of ComVest Capital II, L.P. or its registered assigns (“Holder”) the amount set out above as the Original Principal Amount (as reduced pursuant to the terms hereof pursuant to redemption, conversion or otherwise, and as increased pursuant to the terms hereof by the accrual and payment in kind of Interest, Late Charges and other Non-Principal Amounts, the “Principal”) when due, whether upon the Maturity Date or upon acceleration, redemption or otherwise (in each case in accordance with the terms hereof) and to pay interest (“Interest”) on any outstanding Principal at the applicable Interest Rate (as defined below) from the date set out above as the Issuance Date (the “Issuance  Date”) until the same becomes due and payable, whether upon the Maturity Date or upon acceleration, conversion, redemption or otherwise (in each case in accordance with the terms hereof). This Secured Convertible Note (including any Secured Convertible Notes issued in exchange, transfer or replacement hereof, this “Note”) is issued pursuant to the Debt Exchange Agreement (as defined below) on the Closing Date (as defined below). Certain capitalized terms used herein are defined in Section 32.

 

1.             PAYMENTS OF PRINCIPAL.  On the Maturity Date, the Company shall pay to the Holder an amount in cash representing all outstanding Principal, accrued and unpaid Interest and accrued and unpaid Late Charges (as defined in Section 26) on such Principal and Interest, together with all other Non-Principal Amounts due and owing under this Note.  Other than as specifically permitted by this Note, the Company may not prepay any portion of the outstanding Principal, accrued and unpaid Interest or accrued and unpaid Late Charges on Principal and Interest, if any.

 

2.             INTEREST; INTEREST RATE.

 

(a)           Interest on this Note shall commence accruing on the Issuance Date, shall accrue daily at the Interest Rate on the outstanding Principal amount from time to time, shall be computed on the basis of a 360-day year comprised of twelve (12) thirty (30) day months, shall compound each Fiscal Quarter and shall continue to accrue until the Maturity Date unless converted into Common Stock pursuant to the terms of this Note.  Such Interest that is accrued according to the prior sentence shall either be (i) converted according to the terms of this Note or (ii) paid in cash at the Maturity Date or upon earlier acceleration or redemption of this Note.  For the avoidance of doubt, it is acknowledged that, for purposes of this Section 2(a), the term “Principal” shall mean the Original Principal Amount, together with all accrued and paid-in-kind Interest, Late Charges and other Non-Principal Amounts.

 

(b)           From and after the occurrence and during the continuance of an Event of Default, the Interest Rate shall be increased to either (x) twenty-one percent (21.0%) per annum if such Event of Default relates to a failure of the Company to pay

 

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amounts owed to Holder when due or (y) sixteen percent (16.0%) per annum for any Event of Default other than as described in clause (x).  In the event that such Event of Default is subsequently cured, the adjustment referred to in the preceding sentence shall cease to be effective as of the date of such cure; provided that the Interest as calculated and unpaid at such increased rate during the continuance of such Event of Default shall continue to apply to the extent relating to the days after the occurrence of such Event of Default through and including the date of cure of such Event of Default.

 

3.             CONVERSION OF NOTES.  This Note shall be convertible into validly issued, fully paid and non-assessable shares of Common Stock (as defined below), on the terms and conditions set forth in this Section 3.

 

(a)           Conversion Right.  Subject to the provisions of Section 3(d) and Section 3(e), at any time or times on or after the Issuance Date, the Holder shall be entitled to convert any portion of the outstanding and unpaid Conversion Amount (as defined below) into validly issued, fully paid and non-assessable shares of Common Stock in accordance with Section 3(c), at the Conversion Rate (as defined below).  The Company shall not issue any fraction of a share of Common Stock upon any conversion.  If the issuance would result in the issuance of a fraction of a share of Common Stock, the Company shall round such fraction of a share of Common Stock up to the nearest whole share. The Company shall pay any and all transfer, stamp, issuance and similar taxes that may be payable with respect to the issuance and delivery of Common Stock upon conversion of any Conversion Amount.

 

(b)           Conversion Rate.  The number of shares of Common Stock issuable upon conversion of any Conversion Amount pursuant to Section 3(a) shall be determined by dividing (x) such Conversion Amount by (y) the Conversion Price (the “Conversion Rate”).

 

(i)            “Conversion Amount” means any portion of the outstanding and unpaid Principal elected from time to time by the Holder to be converted pursuant to the terms of this Note, or any other portion of the outstanding and unpaid Principal converted or redeemed pursuant to the terms of this Note, plus all accrued and unpaid Interest with respect to such portion of the Principal, and accrued and unpaid Late Charges and other Non-Principal Amounts with respect to such portion of Principal and such Interest.

 

(ii)           “Conversion Price” means, as of any Conversion Date, (x) with respect to any portion of the applicable Conversion Amount consisting of the Original Principal Amount, Two Dollars and Fifty Cents ($2.50), subject to adjustment as provided herein, and (y) with respect to any other portion of the applicable Conversion Amount, Five Dollars and Fifty Cents ($5.50), subject to adjustment as provided herein.

 

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(c)           Mechanics of Conversion.

 

(i)            Optional Conversion.  To convert any Conversion Amount into shares of Common Stock on any date (a “Conversion Date”), the Holder shall deliver (whether via facsimile or otherwise), for receipt on or prior to 11:59 p.m., New York time, on such date, a copy of an executed notice of conversion in the form attached hereto as Exhibit I (the “Conversion Notice”) to the Company.  If required by Section 3(c)(iii), within three (3) Trading Days following a conversion of this Note as aforesaid, the Holder shall surrender this Note to a nationally recognized overnight delivery service for delivery to the Company (or an indemnification undertaking with respect to this Note in the case of its loss, theft or destruction as contemplated by Section 20(b)). On or before the first (1st) Trading Day following the date of receipt of a Conversion Notice, the Company shall transmit by facsimile an acknowledgment of confirmation, in the form attached hereto as Exhibit II, of receipt of such Conversion Notice to the Holder and the Company’s transfer agent (the “Transfer Agent”). On or before the second (2nd) Trading Day following the date of receipt of a Conversion Notice, the Company shall (1) provided that the Transfer Agent is participating in The Depository Trust Company’s (“DTC”) Fast Automated Securities Transfer Program, credit such aggregate number of shares of Common Stock to which the Holder shall be entitled to the Holder’s or its designee’s balance account with DTC through its Deposit/Withdrawal at Custodian system or (2) if the Transfer Agent is not participating in the DTC Fast Automated Securities Transfer Program, issue and deliver (via reputable overnight courier) to the address as specified in the Conversion Notice, a certificate, registered in the name of the Holder or its designee, for the number of shares of Common Stock to which the Holder shall be entitled. If this Note is physically surrendered for conversion pursuant to Section 3(c)(iii) and the outstanding Principal, together with accrued Interest and other Non-Principal Amounts, of this Note is greater than the Conversion Amount being converted, then the Company shall as soon as practicable and in no event later than three (3) Business Days after receipt of this Note and at its own expense, issue and deliver to the Holder (or its designee) a new Note (in accordance with Section 20(d)) representing the outstanding Principal, together with accrued Interest and other Non-Principal Amounts, not converted. The Person or Persons entitled to receive the shares of Common Stock issuable upon a conversion of this Note shall be treated for all purposes as the record holder or holders of such shares of Common Stock on the Conversion Date.

 

(ii)           Company’s Failure to Timely Convert.  If the Company shall fail, for any reason or for no reason, to issue to the Holder within three (3) Trading Days after the Company’s receipt of a Conversion Notice (that is not dishonored pursuant to the provisions of Section 3(e)) (whether via facsimile or otherwise) (the “Share Delivery Deadline”), a certificate for the number of shares of Common Stock to which the Holder is entitled and register such shares of Common Stock on the Company’s share register or to credit the Holder’s or its designee’s balance account with DTC for such number of shares of Common Stock to which the Holder is entitled upon the Holder’s conversion of any

 

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Conversion Amount (as the case may be) (a “Conversion Failure”), and if on or after such Share Delivery Deadline the Holder purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Holder of shares of Common Stock issuable upon such conversion that the Holder anticipated receiving from the Company, then, in addition to all other remedies available to the Holder, the Company shall, within three (3) Business Days after the Holder’s request and in the Holder’s discretion, either (i) pay cash to the Holder in an amount equal to the Holder’s total purchase price (including brokerage commissions and other out-of-pocket expenses, if any) for the shares of Common Stock so purchased (the “Buy-In Price”), at which point the Company’s obligation to deliver such certificate (and to issue such shares of Common Stock) shall terminate, or (ii) promptly honor its obligation to deliver to the Holder a certificate or certificates representing such shares of Common Stock or credit the Holder’s balance account with DTC for the number of shares of Common Stock to which the Holder is entitled upon the Holder’s conversion hereunder (as the case may be) and pay cash to the Holder in an amount equal to the excess (if any) of the Buy-In Price over the product of (A) such number of shares of Common Stock multiplied by (B) the Closing Sale Price of the Common Stock on the Trading Day immediately preceding the Conversion Date.

 

(iii)          Registration; Book-Entry.  The Company shall maintain a register (the “Register”) for the recordation of the names and addresses of any holders of this Note and the principal amount of this Note held by such holders (the “Registered Note”).  The entries in the Register shall be conclusive and binding for all purposes absent manifest error.  The Company and the holders of this Note shall treat each Person whose name is recorded in the Register as the owner of all or a portion of this Note for all purposes, including, without limitation, the right to receive payments of Principal and Non-Principal Amounts hereunder, notwithstanding notice to the contrary.  A Registered Note may be assigned or sold in whole or in part only by registration of such assignment or sale on the Register.  Upon its receipt of a request to assign or sell all or part of any Registered Note by a Holder, the Company shall record the information contained therein in the Register and issue one or more new Registered Notes in the same aggregate principal amount as the principal amount of the surrendered Registered Note to the designated assignee or transferee pursuant to Section 20.  Notwithstanding anything to the contrary set forth in this Section 3, upon conversion of any portion of this Note in accordance with the terms hereof, the Holder shall not be required to physically surrender this Note to the Company unless (A) the full Conversion Amount represented by this Note is being converted (in which event this Note shall be delivered to the Company as contemplated by Section 3(c)(i)) or (B) the Holder has provided the Company with prior written notice (which notice may be included in a Conversion Notice) requesting reissuance of this Note upon physical surrender of this Note. The Company shall update the Register to reflect the Principal, Interest and Late Charges (and other Non-Principal Amounts) converted and/or paid (as the case

 

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may be) and the dates of such conversions and/or payments (as the case may be) or shall use such other method, reasonably satisfactory to the Holder and the Company, so as not to require physical surrender of this Note upon conversion.

 

(iv)          Disputes. In the event of a dispute as to the number of shares of Common Stock issuable to the Holder in connection with a conversion of this Note, the Company shall issue to the Holder the number of shares of Common Stock not in dispute and resolve such dispute in accordance with Section 25.

 

(d)           Limitations on Conversions.

 

(i)            Beneficial Ownership.  Notwithstanding anything to the contrary contained in this Note, this Note shall not be convertible by the Holder hereof, and the Company shall not effect any conversion of this Note or otherwise issue any shares of Common Stock pursuant hereto, to the extent (but only to the extent) that after giving effect to such conversion or other share issuance hereunder the Holder (together with its affiliates) would beneficially own in excess of 9.99% (the “Maximum Percentage”) of the Common Stock.  To the extent the above limitation applies, the determination of whether this Note shall be convertible (vis-à-vis other convertible, exercisable or exchangeable securities owned by the Holder or any of its affiliates) shall, subject to such Maximum Percentage limitation, be determined on the basis of the first submission to the Company for conversion, exercise or exchange (as the case may be). No prior inability to convert this Note, or to issue shares of Common Stock, pursuant to this paragraph shall have any effect on the applicability of the provisions of this paragraph with respect to any subsequent determination of convertibility. For purposes of this paragraph, beneficial ownership and all determinations and calculations (including, without limitation, with respect to calculations of percentage ownership) shall be determined in accordance with Section 13(d) of the 1934 Act (as defined in the Debt Exchange Agreement) and the rules and regulations promulgated thereunder. The provisions of this paragraph shall be implemented in a manner otherwise than in strict conformity with the terms of this paragraph to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Maximum Percentage beneficial ownership limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such Maximum Percentage limitation. The limitations contained in this paragraph shall apply to a successor Holder of this Note. The holders of Common Stock shall be third party beneficiaries of this paragraph and the Company may not waive this paragraph without the consent of holders of a majority of its Common Stock. For any reason at any time, upon the written request of the Holder, the Company shall within one (1) Business Day confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding, including by virtue of any prior conversion or exercise of convertible or exercisable securities into Common Stock, including,

 

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without limitation, pursuant to this Note or securities issued pursuant to the Debt Exchange Agreement.

 

(ii)           Principal Market Regulation.  The Company shall not issue any shares of Common Stock upon conversion of this Note or otherwise pursuant to the terms of this Note or the Debt Exchange Agreement if the issuance of such shares of Common Stock (taken together with the issuance of all other shares of Common Stock upon conversion of the Senior Notes, or otherwise pursuant to the terms of this Note or the Senior Notes) would exceed the aggregate number of shares of Common Stock which the Company may issue upon exercise or conversion (as the case may be) of this Note or the Senior Notes or otherwise pursuant to the respective terms thereof without breaching the Company’s obligations under the rules or regulations of the Principal Market (the number of shares which may be issued without violating such rules and regulations, the “Exchange Cap”), except that such limitation shall not apply in the event that the Company (A) obtains the approval of its stockholders as required by the applicable rules of the Principal Market for issuances of shares of Common Stock in excess of such amount or (B) obtains a written opinion from outside counsel to the Company that such approval is not required, which opinion shall be reasonably satisfactory to the Holder. Until such approval or such written opinion is obtained, no Holder shall be issued in the aggregate, upon conversion of any portion of this Note or otherwise pursuant to the terms of this Note, shares of Common Stock in an amount greater than the Exchange Cap.  In the event that the Company is prohibited from issuing any shares of Common Stock pursuant to this Section 3(d)(ii) (the “Exchange Cap Shares”), the Company shall pay cash to the Holder in exchange for the redemption of such portion of the Conversion Amount convertible into such Exchange Cap Shares at a price equal to the sum of (i) the product of (x) such number of Exchange Cap Shares and (y) the Closing Sale Price on the Trading Day immediately preceding the date the Holder delivers the applicable Conversion Notice with respect to such Exchange Cap Shares to the Company and (ii) to the extent the Holder purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Holder of Exchange Cap Shares, any brokerage commissions and other out-of-pocket expenses, if any, of the Holder incurred in connection therewith.  As of the date hereof, the Exchange Cap is equal to 8,206,719 shares of Common Stock.

 

(e)           Company Option to Make Cash Payment.  Notwithstanding any other provision of this Section 3, the Company shall have the right to not honor any Conversion Notice, if, and to the extent that, on the first (1st) Trading Day following the day that it receives, or is deemed to have received, a Conversion Notice, the Company notifies the Holder in writing that it will pay the Holder in cash an amount equal to the product of (x) the number of shares of Common Stock that the Holder would be entitled to receive under the Conversion Notice, applying the then-current Conversion Rate, multiplied by (y) the Closing Sale Price as of the day immediately

 

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preceding the date of the Conversion Notice, on or before the third (3rd) Business Day after the applicable Conversion Date, and then timely makes that cash payment to the Holder (and that payment is not prohibited by the Subordination Agreement).

 

4.             RIGHTS UPON EVENT OF DEFAULT.

 

(a)           Event of Default.  Subject (as applicable) to Section 34 of this Note and Section 2.11 of the Subordination Agreement, each of the following events shall constitute an “Event of Default”:

 

(i)            the failure of the applicable Registration Statement (as defined in the Registration Rights Agreement) to be filed with the SEC on or prior to the date that is ten (10) days after the applicable Filing Deadline (as defined in the Registration Rights Agreement) or the failure of the applicable Registration Statement to be declared effective by the SEC on or prior to the date that is forty-five (45) days after the applicable Effectiveness Deadline (as defined in the Registration Rights Agreement);

 

(ii)           while the applicable Registration Statement is required to be maintained effective pursuant to the terms of the Registration Rights Agreement, the effectiveness of the applicable Registration Statement lapses for any reason (including, without limitation, the issuance of a stop order) or such Registration Statement (or the prospectus contained therein) is unavailable to any holder of Registrable Securities (as defined in the Registration Rights Agreement) for sale of all of such holder’s Registrable Securities in accordance with the terms of the Registration Rights Agreement, and such lapse or unavailability continues for a period of five (5) consecutive days or for more than an aggregate of thirty (30) days in any 365-day period (excluding days during an Allowable Grace Period (as defined in the Registration Rights Agreement));

 

(iii)          the suspension from trading or the failure of the Common Stock to be trading or listed (as applicable) on an Eligible Market for a period of five (5) consecutive days or for more than an aggregate of ten (10) days in any 365-day period;

 

(iv)          the Company’s (A) failure to cure a Conversion Failure by delivery of the required number of shares of Common Stock within five (5) Trading Days after the applicable Conversion Date or (B) notice, written or oral, to any holder of this Note, including, without limitation, by way of public announcement or through any of its agents, at any time, of its intention not to comply, as required, with a request for conversion of any portion of this Note into shares of Common Stock that is requested in accordance with the provisions of this Note, other than pursuant to Section 3(d);

 

(v)           at any time following the tenth (10th) consecutive day that the Holder’s Authorized Share Allocation is less than the number of shares of

 

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Common Stock that the Holder would be entitled to receive upon a conversion of the full Conversion Amount of this Note (without regard to any limitations on conversion set forth in Section 3(d) or otherwise);

 

(vi)          the Company’s or any Subsidiary’s (as defined in the Debt Exchange Agreement) failure to pay to the Holder any amount when and as due under this Note (including, without limitation, the Company’s or any Subsidiary’s failure to pay any redemption payments or amounts hereunder)  or any other Transaction Document (as defined in the Debt Exchange Agreement) or any other agreement, document, certificate or other instrument delivered in connection with the transactions contemplated hereby and thereby;

 

(vii)         the Company fails to remove any restrictive legend on any certificate or any shares of Common Stock issued to the Holder as and when required by this Note or the Debt Exchange Agreement, unless otherwise then prohibited by applicable federal securities laws, and any such failure remains uncured for at least five (5) days;

 

(viii)        Intentionally Omitted.

 

(ix)          bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings for the relief of debtors shall be instituted by or against the Company or any Significant Subsidiary and, if instituted against the Company or any Significant Subsidiary by a third party, shall not be dismissed within thirty (30) days of their initiation;

 

(x)           the commencement by the Company or any Significant Subsidiary of a voluntary case or proceeding under any applicable federal, state or foreign bankruptcy, insolvency, reorganization or other similar law or of any other case or proceeding to be adjudicated a bankrupt or insolvent, or the consent by it to the entry of a decree, order, judgment or other similar document in respect of the Company or any Significant Subsidiary in an involuntary case or proceeding under any applicable federal, state or foreign bankruptcy, insolvency, reorganization or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding against it, or the filing by it of a petition or answer or consent seeking reorganization or relief under any applicable federal, state or foreign law, or the consent by it to the filing of such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or any Significant Subsidiary or of any substantial part of its property, or the making by it of an assignment for the benefit of creditors, or the execution of a composition of debts, or the occurrence of any other similar federal, state or foreign proceeding, or the admission by it in writing of its inability to pay its debts generally as they become due, the taking of corporate action by the Company or any Significant Subsidiary in furtherance of any such action or the taking of any action by any Person to

 

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commence a UCC foreclosure sale or any other similar action under federal, state or foreign law;

 

(xi)          the entry by a court of (i) a decree, order, judgment or other similar document in respect of the Company or any Significant Subsidiary of a voluntary or involuntary case or proceeding under any applicable federal, state or foreign bankruptcy, insolvency, reorganization or other similar law or (ii) a decree, order, judgment or other similar document adjudging the Company or any Significant Subsidiary as bankrupt or insolvent, or approving as properly filed a petition seeking liquidation, reorganization, arrangement, adjustment or composition of or in respect of the Company or any Significant Subsidiary under any applicable federal, state or foreign law or (iii) a decree, order, judgment or other similar document appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or any Significant Subsidiary or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and the continuance of any such decree, order, judgment or other similar document or any such other decree, order, judgment or other similar document unstayed and in effect for a period of thirty (30) consecutive days;

 

(xii)         Intentionally Omitted.

 

(xiii)        Intentionally Omitted.

 

(xiv)        Intentionally Omitted.

 

(xv)         Intentionally Omitted.

 

(xvi)        other than as specifically set forth in another clause of this Section 4(a), the Company or any Subsidiary breaches any representation, warranty, covenant or other term or condition of any Transaction Document, except, in the case of a breach of a covenant or other term or condition that is curable, only if such breach remains uncured for a period of three (3) consecutive Trading Days;

 

(xvii)       a false or inaccurate certification (including a false or inaccurate deemed certification) by the Company as to whether any Event of Default has occurred;

 

(xviii)      any breach or failure in any respect by the Company or any Subsidiary to comply with any provision of Section 15 of this Note;

 

(xix)        Intentionally Omitted.

 

(xx)         any provision of any Transaction Document (including, without limitation, the Security Documents (as defined in the Debt Exchange Agreement)

 

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and the Guaranties (as defined in the Debt Exchange Agreement)) shall at any time for any reason (other than pursuant to the express terms thereof) cease to be valid and binding on or enforceable against the parties thereto, or the validity or enforceability thereof shall be contested by any party thereto, or a proceeding shall be commenced by the Company or any Subsidiary or any governmental authority having jurisdiction over any of them, seeking to establish the invalidity or unenforceability thereof, or the Company or any Subsidiary shall deny in writing that it has any liability or obligation purported to be created under any Transaction Document (including, without limitation, the Security Documents and the Guaranties); or

 

(xxi)        the Security Documents shall for any reason fail or cease to create a separate valid and perfected and, except to the extent permitted by the terms hereof or thereof, second priority (junior in priority only to the Senior Debt, to the extent provided by the Subordination Agreement) Lien on the Collateral (as defined in the US Security Agreement (as defined in the Debt Exchange Agreement)) and the Collateral (as defined in the Canada Security Agreement (as defined in the Debt Exchange Agreement)), in each case, in favor of each of the Secured Parties (as defined in the Security Agreement).

 

(b)           Notice of an Event of Default; Redemption Right.  Upon the occurrence of an Event of Default with respect to this Note, the Company shall within one (1) Business Day deliver written notice thereof via facsimile and overnight courier (with next day delivery specified) (an “Event of Default Notice”) to the Holder. At any time during the period commencing on the earlier of the Holder’s receipt of an Event of Default Notice and the Holder becoming aware of an Event of Default and, solely to the extent the Company has delivered an Event of Default Notice with respect to each such Event of Default then outstanding, ending on the sixtieth (60th) day after the later of (x) the date all such Events of Default have been cured and (y) the date of the last Event of Default Notice delivered to the Holder, the Holder may require the Company to redeem all or any portion of this Note by delivering written notice thereof (the “Event of Default Redemption Notice”) to the Company, which Event of Default Redemption Notice shall indicate the portion of this Note the Holder is electing to redeem (“Event of Default Redemption Amount”).  Each portion of this Note subject to redemption by the Company pursuant to this Section 4(b) shall be redeemed by the Company at a price equal to the Conversion Amount elected to be redeemed; except that, in the case of an Event of Default described in any of paragraphs (i), (ii), (iii), (iv), (v), or (vii) of Section 4(a) hereof or, solely with respect to any breach of any term or condition of the covenants set forth in Section 4 of the Debt Exchange Agreement (other than the covenants set forth in clauses (a), (m), (s), (v) and (y) of such Section 4), the Note or the Registration Rights Agreement, in each case, that is not specifically set forth in, or otherwise covered by, another clause of Section 4(a) hereof, paragraph (xvi) of Section 4(a) hereof, the portion of this Note so subject to redemption shall be redeemed by the Company at a price equal to the greater of (i) the Conversion

 

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Amount elected to be redeemed; and (ii) the product of (X) the number of shares of Common Stock that would be issuable using the Conversion Rate with respect to the Conversion Amount in effect at such time as the Holder delivers an Event of Default Redemption Notice multiplied by (Y) the greatest Closing Sale Price of the Common Stock on any Trading Day during the period commencing on the date immediately preceding such Event of Default and ending on the date the Company makes the entire payment required to be made under this Section 4(b)  (as applicable, the “Event of Default  Redemption Price”). Redemptions required by this Section 4(b) shall be made in accordance with the provisions of Section 13. To the extent redemptions required by this Section 4(b) are deemed or determined by a court of competent jurisdiction to be prepayments of this Note by the Company, such redemptions shall be deemed to be voluntary prepayments. Notwithstanding anything to the contrary in this Section 4, but subject to Section 3(d), until the Event of Default Redemption Price (together with any Late Charges thereon) is paid in full, the Conversion Amount submitted for redemption under this Section 4(b) (together with any Late Charges thereon) may be converted, in whole or in part, by the Holder into Common Stock pursuant to the terms of this Note.  In the event of the Company’s redemption of any portion of this Note under this Section 4(b), the Holder’s damages would be uncertain and difficult to estimate because of the parties’ inability to predict future interest rates and the uncertainty of the availability of a suitable substitute investment opportunity for the Holder. Accordingly, any redemption premium due under this Section 4(b) is intended by the parties to be, and shall be deemed, a reasonable estimate of the Holder’s actual loss of its investment opportunity and not as a penalty.

 

5.             RIGHTS UPON FUNDAMENTAL TRANSACTION;  ASSUMPTION.  The Company shall not enter into or be party to a Fundamental Transaction unless (i) the Successor Entity assumes in writing all of the obligations of the Company under this Note and the other Transaction Documents in accordance with the provisions of this Section 5 pursuant to written agreements in form and substance reasonably satisfactory to the Holder and reasonably approved by the Holder prior to such Fundamental Transaction, including agreements to deliver to each holder of any portion of this Note in exchange for such Note a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Note, including, without limitation, having a principal amount and interest rate equal to the principal amounts then outstanding and the interest rates of this Note held by such holder, having similar conversion rights as this Note and having similar ranking to this Note, and reasonably satisfactory to the Holder and (ii) the Successor Entity (including its Parent Entity) is a publicly traded corporation whose common stock is quoted on or listed for trading on an Eligible Market. Upon the occurrence of any Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Note and the other Transaction Documents referring to the “Company” shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Note and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Company herein. Upon consummation of a Fundamental Transaction, the Successor Entity shall deliver to the

 

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Holder confirmation that there shall be issued upon conversion or redemption of this Note at any time after the consummation of such Fundamental Transaction, in lieu of the shares of the Company’s Common Stock (or other securities, cash, assets or other property (except such items still issuable under Section 17, which shall continue to be receivable thereafter) issuable upon the conversion or redemption of this Note prior to such Fundamental Transaction, such shares of the publicly traded common stock (or their equivalent) of the Successor Entity (including its Parent Entity) which the Holder would have been entitled to receive upon the happening of such Fundamental Transaction had this Note been converted immediately prior to such Fundamental Transaction (without regard to any limitations on the conversion of this Note), as adjusted in accordance with the provisions of this Note. Notwithstanding the foregoing, the Holder may elect, at its sole option, by delivery of written notice to the Company to waive this Section 5 to permit the Fundamental Transaction without the assumption of this Note.  The provisions of this Section 5 shall apply similarly and equally to successive Fundamental Transactions and shall be applied without regard to any limitations on the conversion of this Note.

 

6.             RIGHTS UPON CERTAIN CORPORATE EVENTS.  In addition to and not in substitution for any other rights hereunder, prior to the consummation of any Fundamental Transaction pursuant to which holders of shares of Common Stock are entitled to receive securities or other assets with respect to or in exchange for shares of Common Stock (a “Corporate Event”), the Company shall make appropriate provision to insure that the Holder will thereafter have the right to receive upon a conversion of this Note (i) in addition to the shares of Common Stock receivable upon such conversion, such securities or other assets to which the Holder would have been entitled with respect to such shares of Common Stock had such shares of Common Stock been held by the Holder upon the consummation of such Corporate Event (without taking into account any limitations or restrictions on the convertibility of this Note) or (ii) in lieu of the shares of Common Stock otherwise receivable upon such conversion, such securities or other assets received by the holders of shares of Common Stock in connection with the consummation of such Corporate Event in such amounts as the Holder would have been entitled to receive had this Note initially been issued with conversion rights for the form of such consideration (as opposed to shares of Common Stock) at a conversion rate for such consideration commensurate with the Conversion Rate. Provision made pursuant to the preceding sentence shall be in a form and substance reasonably satisfactory to the Holder. The provisions of this Section 6 shall apply similarly and equally to successive Corporate Events and shall be applied without regard to any limitations on the conversion or redemption of this Note.

 

7.             RIGHTS UPON ISSUANCE OF OTHER SECURITIES.

 

(a)           Adjustment of Conversion Price upon Certain Issuances of Common Stock.  If and whenever on or after the Subscription Date the Company issues or sells, or in accordance with this Section 7(a) is deemed to have issued or sold, any shares of Common Stock (including the issuance or sale of shares of Common Stock owned or held by or for the account of the Company, but excluding any Excluded Securities issued or sold or deemed to have been issued or sold) for a consideration per share (the “New Issuance Price”) less than

 

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a price equal to the Conversion Price applicable to conversion of Principal amounts due under the Note, as in effect immediately prior to such issue or sale or deemed issuance or sale (such Conversion Price then in effect is referred to herein as the “Applicable Price”) (the foregoing a “Dilutive Issuance”), then, immediately after such Dilutive Issuance the Conversion Price then in effect shall be reduced to an amount equal to the lesser of (x) the Conversion Price then in effect and (y) 110% of the New Issuance Price.  For the avoidance of doubt, except as expressly provided to the contrary in Section 7(b), no adjustment provided for in this Section 7 shall apply to the Conversion Price applicable to Non-Principal Amounts.  For all purposes of the foregoing (including, without limitation, determining the adjusted Conversion Price and consideration per share under this Section 7(a)), the following shall be applicable:

 

(i)            Issuance of Options.  If the Company in any manner grants or sells any Options and the lowest price per share for which one share of Common Stock is issuable upon the exercise of any such Option or upon conversion, exercise or exchange of any Convertible Securities issuable upon exercise of any such Option is less than the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the granting or sale of such Option for such price per share. For purposes of this Section 7(a)(i), the “lowest price per share for which one share of Common Stock is issuable upon the exercise of any such Option or upon conversion, exercise or exchange of any Convertible Securities issuable upon exercise of any such Option” shall be equal to (1) the lower of (x) the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to any one share of Common Stock upon the granting or sale of such Option, upon exercise of such Option and upon conversion, exercise or exchange of any Convertible Security issuable upon exercise of such Option and (y) the lowest exercise price set forth in such Option for which one share of Common Stock is issuable upon the exercise of any such Options or upon conversion, exercise or exchange of any Convertible Securities issuable upon exercise of any such Option, minus (2) the sum of all amounts paid or payable to the holder of such Option (or any other Person) upon the granting or sale of such Option, upon exercise of such Option and upon conversion, exercise or exchange of any Convertible Security issuable upon exercise of such Option plus the value of any other consideration received or receivable by, or benefit conferred on, the holder of such Option (or any other Person). Except as contemplated below, no further adjustment of the Conversion Price shall be made upon the actual issuance of such share of Common Stock or of such Convertible Securities upon the exercise of such Options or upon the actual issuance of such share of Common Stock upon conversion, exercise or exchange of such Convertible Securities.

 

(ii)           Issuance of Convertible Securities. If the Company in any manner issues or sells any Convertible Securities and the lowest price per share for which one share of Common Stock is issuable upon the conversion, exercise or exchange thereof is less than the Applicable Price, then such share of Common

 

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Stock shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the issuance or sale of such Convertible Securities for such price per share. For the purposes of this Section 7(a)(ii), the “lowest price per share for which one share of Common Stock is issuable upon the conversion, exercise or exchange thereof” shall be equal to (1) the lower of (x) the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to one share of Common Stock upon the issuance or sale of the Convertible Security and upon conversion, exercise or exchange of such Convertible Security and (y) the lowest conversion price set forth in such Convertible Security for which one share of Common Stock is issuable upon conversion, exercise or exchange thereof minus (2) the sum of all amounts paid or payable to the holder of such Convertible Security (or any other Person) upon the issuance or sale of such Convertible Security plus the value of any other consideration received or receivable by, or benefit conferred on, the holder of such Convertible Security (or any other Person). Except as contemplated below, no further adjustment of the Conversion Price shall be made upon the actual issuance of such share of Common Stock upon conversion, exercise or exchange of such Convertible Securities, and if any such issue or sale of such Convertible Securities is made upon exercise of any Options for which adjustment of the Conversion Price has been or is to be made pursuant to other provisions of this Section 7(a), except as contemplated below, no further adjustment of the Conversion Price shall be made by reason of such issue or sale.

 

(iii)          Change in Option Price or Rate of Conversion. If the purchase or exercise price provided for in any Options, the additional consideration, if any, payable upon the issue, conversion, exercise or exchange of any Convertible Securities, or the rate at which any Convertible Securities are convertible into or exercisable or exchangeable for shares of Common Stock increases or decreases at any time, the Conversion Price in effect at the time of such increase or decrease shall be adjusted to the Conversion Price which would have been in effect at such time had such Options or Convertible Securities provided for such increased or decreased purchase price, additional consideration or increased or decreased conversion rate (as the case may be) at the time initially granted, issued or sold. For purposes of this Section 7(a)(iii), if the terms of any Option or Convertible Security that was outstanding as of the Subscription Date are increased or decreased in the manner described in the immediately preceding sentence, then such Option or Convertible Security and the shares of Common Stock deemed issuable upon exercise, conversion or exchange thereof shall be deemed to have been issued as of the date of such increase or decrease. No adjustment pursuant to this Section 7(a) shall be made if such adjustment would result in an increase of the Conversion Price then in effect.

 

(iv)          Calculation of Consideration Received. If any Option or Convertible Security or Adjustment Right is issued or deemed issued in connection with the issuance or sale or deemed issuance or sale of any other

 

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securities of the Company, together comprising one integrated transaction, (x) such Option or Convertible Security (as applicable) or Adjustment Right (as applicable) will be deemed to have been issued for consideration equal to the Black Scholes Consideration Value thereof and (y) the other securities issued or sold or deemed to have been issued or sold in such integrated transaction shall be deemed to have been issued for consideration equal to the difference of (I) the aggregate consideration received or receivable by the Company minus (II) the Black Scholes Consideration Value of each such Option or Convertible Security (as applicable) or Adjustment Right (as applicable).  If any shares of Common Stock, Options or Convertible Securities are issued or sold or deemed to have been issued or sold for cash, the consideration received therefor will be deemed to be the net amount of consideration received by the Company therefor. If any shares of Common Stock, Options or Convertible Securities are issued or sold for a consideration other than cash, the amount of such consideration received by the Company will be the fair value of such consideration, except where such consideration consists of publicly traded securities, in which case the amount of consideration received by the Company for such securities will be the average VWAP of such security for the five (5) Trading Day period immediately preceding the date of receipt. If any shares of Common Stock, Options or Convertible Securities are issued to the owners of the non-surviving entity in connection with any merger in which the Company is the surviving entity, the amount of consideration therefor will be deemed to be the fair value of such portion of the net assets and business of the non-surviving entity as is attributable to such shares of Common Stock, Options or Convertible Securities (as the case may be). The fair value of any consideration other than cash or publicly traded securities will be determined jointly by the Company and the Holder. If such parties are unable to reach agreement within ten (10) days after the occurrence of an event requiring valuation (the “Valuation Event”), the fair value of such consideration will be determined within five (5) Trading Days after the tenth (10th) day following such Valuation Event by an independent, reputable appraiser jointly selected by the Company and the Holder. The determination of such appraiser shall be final and binding upon all parties absent manifest error and the fees and expenses of such appraiser shall be borne by the Company.

 

(v)           Record Date. If the Company takes a record of the holders of shares of Common Stock for the purpose of entitling them (A) to receive a dividend or other distribution payable in shares of Common Stock, Options or in Convertible Securities or (B) to subscribe for or purchase shares of Common Stock, Options or Convertible Securities, then such record date will be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase (as the case may be).

 

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(b)                                 Equitable Adjustments.  Without limiting any provision of Section 7(a), if the Company at any time on or after the Subscription Date subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its outstanding shares of Common Stock into a greater number of shares, the Conversion Price in effect immediately prior to such subdivision will be proportionately reduced.  Without limiting Section 7(a), if the Company at any time on or after the Subscription Date combines (by combination, reverse stock split or otherwise) one or more classes of its outstanding shares of Common Stock into a smaller number of shares, the Conversion Price in effect immediately prior to such combination will be proportionately increased. Any adjustment pursuant to this Section 7(b) shall become effective immediately after the effective date of such subdivision or combination. If any event requiring an adjustment under this Section 7(b) occurs during the period that a Conversion Price is calculated hereunder, then the calculation of such Conversion Price shall be adjusted appropriately to reflect such event.  For the avoidance of doubt, any adjustment under this Section 7(b) shall be made to the Conversion Price applicable to conversion of Principal as well as to the Conversion Price applicable to Non-Principal Amounts.

 

(c)                                  Holder’s Right of Alternative Conversion Price.  In addition to and not in limitation of the other provisions of this Section 7, if the Company in any manner issues or sells or enters into any agreement to issue or sell, any Common Stock, Options or Convertible Securities (any such securities, “Variable Price Securities”) after the Subscription Date that are issuable pursuant to such agreement or convertible into or exchangeable or exercisable for shares of Common Stock pursuant to such Options or Convertible Securities, as applicable, at a price which varies or may vary with the market price of the shares of Common Stock, including by way of one or more reset(s) to a fixed price, but exclusive of such formulations reflecting customary anti-dilution provisions (such as, without limitation, share splits, share combinations, share dividends and similar transactions) (each of the formulations for such variable price being herein referred to as, the “Variable Price”), the Company shall provide written notice thereof via facsimile and overnight courier to the Holder on the date of such agreement and/or the issuance of such Convertible Securities or Options, as applicable.  From and after the date the Company enters into such agreement or issues any such Variable Price Securities, the Holder shall have the right, but not the obligation, in its sole discretion to substitute the Variable Price for the Conversion Price upon conversion of this Note by designating in the Conversion Notice delivered upon any conversion of this Note that solely for purposes of such conversion the Holder is relying on the Variable Price rather than the Conversion Price then in effect.  The Holder’s election to rely on a Variable Price for a particular conversion of this Note shall not obligate the Holder to rely on a Variable Price for any future conversion of this Note.

 

(d)                                 Stock Combination Event Adjustments.  If at any time and from time to time on or after the Issuance Date there occurs any stock split, stock dividend, stock combination recapitalization or other similar transaction involving the Common Stock (each, a “Stock Combination Event”) and the product of (i) the quotient determined by dividing (x) the Conversion Price in effect immediately prior to the Stock Combination Event by (y) the quotient determined by dividing (A) the sum of the VWAP of the Common Stock on each

 

17

 

day of the fifteen (15) Trading Day period immediately prior to the Stock Combination Event, divided by (B) fifteen (15); and (ii) the quotient determined by dividing (x) the sum of the VWAP of the Common Stock on each day of the fifteen (15) Trading Day period immediately following the date of such Stock Combination Event, divided by (y) fifteen (15) (each, an “Event Market Price”) is less than the Conversion Price then in effect (after giving effect to the adjustment in Section 7 above), then on the sixteenth (16th) Trading Day immediately following such Stock Combination Event, the Conversion Price then in effect on such sixteenth (16th) Trading Day (after giving effect to the adjustment in Section 7 above) shall be reduced (but in no event increased) to the Event Market Price.  For the avoidance of doubt, if the adjustment in the immediately preceding sentence would otherwise result in an increase in the Conversion Price hereunder, no adjustment shall be made.

 

(e)                                  Other Events. In the event that the Company (or any Subsidiary) shall take any action to which the provisions hereof are not strictly applicable, or, if applicable, would not operate to protect the Holder from dilution or if any event occurs of the type contemplated by the provisions of this Section 7 but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features), then the Company’s board of directors shall in good faith determine and implement an appropriate adjustment in the Conversion Price so as to protect the rights of the Holder, provided that no such adjustment pursuant to this Section 7(e) will increase the Conversion Price as otherwise determined pursuant to this Section 7, provided further that if the Holder does not accept such adjustments as appropriately protecting its interests hereunder against such dilution, then the Company’s board of directors and the Holder shall agree, in good faith, upon an independent investment bank of nationally recognized standing to make such appropriate adjustments, whose determination shall be final and binding and whose fees and expenses shall be borne by the Company.

 

(f)                                   Adjustments. If immediately following the close of business on each of (I) the later of (x) the last Trading Day of December 2012 and (y) the four month anniversary of the immediately preceding Adjustment Date and (II) the sixtieth consecutive Trading Day immediately following (i) such date the applicable Registration Statement filed pursuant to the Registration Rights Agreement shall be effective and the prospectus contained therein shall be available for the resale by the Holder of all of the Registrable Securities (as defined in the Registration Rights Agreement) (which, solely for clarification purposes, includes all shares of Common Stock issuable upon conversion of the Note or otherwise pursuant to the terms of the Notes (as well as other Common Stock held by the Holder) (without regard for any limitations on conversion, issuance or exercise set forth therein) in accordance with the terms of the Registration Rights Agreement) or, (ii) if earlier, each of (x) [     ](1) or such later date thereafter when the Company shall have satisfied its current public information requirement under Rule 144(c)(1) and (y) the initial Effective Date (as defined in the Registration Rights Agreement) (each, as applicable, an “Adjustment Date”), the Conversion Price then in effect exceeds the Market Price as of such Adjustment Date (the “Adjusted Conversion Price”), the Conversion Price hereunder shall be reset to the

 

(1)                               Insert six month anniversary of the Issuance Date.

 

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Adjusted Conversion Price as of such Adjustment Date (each, a “Conversion Price Adjustment”).  Notwithstanding the foregoing, to the extent the Holder delivers one or more Conversion Notices to the Company during the sixty Trading Day period ending on and including the Adjustment Date with respect to a Conversion Price Adjustment, in addition to the shares of Common Stock issued or issuable to the Holder with respect to each such Conversion Notice, on the later of (A) the applicable Share Delivery Date with respect to such Conversion Notice and (B) the applicable Adjustment Date, the Holder shall receive an additional number of shares of Common Stock equal to the difference of (x) the quotient of (I) the Conversion Amount with respect to such Conversion Notice, divided by (II) the Adjusted Conversion Price, less (y) the number of shares of Common Stock issued or otherwise issuable to the Holder with respect to such Conversion Notice.  Except as otherwise provided in this Section 1(f), the Adjusted Conversion Price, if any, shall not apply to any Conversion Amount converted into Common Stock prior to such Adjustment Date.

 

8.                                      TRADING RESTRICTIONS.

 

(a)                                 Holder agrees, on behalf of itself and its Affiliates, that, following the Closing Date, it and they shall not make any sale of shares of Common Stock (and treating, for purposes of this Section 8, any shares included in a “short sale” in the same manner as a sale of Common Stock in a long position) that, in any given Trading Day exceeds, in the aggregate:

 

(i)                                     Subject to the provisions of Section 8(b), for any Trading Day that is prior to the initial effective date of the Registration Statement (as defined in the Registration Rights Agreement), a number of shares equal to fifteen percent (15%) of the 3-Day Average Volume; and

 

(ii)                                  Subject to the provisions of Section 8(b), for any Trading Day that is on or after the initial effective date of the Registration Statement (as defined in the Registration Rights Agreement), a number of shares equal to ten percent (10%) of the 3-Day Average Volume.

 

(b)                                 During the period commencing with the Issuance Date and ending on the fifteenth (15th) day after May 17, 2012, Holder agrees, on behalf of itself and its Affiliates, that it and they shall not effect any sale of shares of the Common Stock (including, without limitation, “short sales” thereof), or engage in any hedging transaction or enter into or trade any options contracts or other derivatives contracts with respect to the Common Stock.

 

(c)                                  For purposes of this Section 8, no shares of Common Stock included in a Block Sale shall be deemed to be restricted hereunder or to carry any volume limitations.

 

9.                                      INTENTIONALLY OMITTED.

 

10.                               NONCIRCUMVENTION.  The Company hereby covenants and agrees that

 

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the Company will not, by amendment of its Certificate of Incorporation (as defined in the Debt Exchange Agreement), Bylaws (as defined in the Debt Exchange Agreement) or through any reorganization, transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Note, and will at all times in good faith carry out all of the provisions of this Note and take all action as may be required to protect the rights of the Holder of this Note. Without limiting the generality of the foregoing, the Company (i) shall not increase the par value of any shares of Common Stock receivable upon conversion of this Note above the Conversion Price then in effect, (ii) shall take all such actions as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and non-assessable shares of Common Stock upon the conversion of this Note, and (iii) shall, so long as any portion of this Note is outstanding, take all action necessary to reserve and keep available out of its authorized and unissued shares of Common Stock, solely for the purpose of effecting the conversion of this Note, the maximum number of shares of Common Stock as shall from time to time be necessary to effect the conversion of this Note then outstanding (without regard to any limitations on conversion and, for the avoidance of doubt, including any Principal, Interest, Late Charges or other Non-Principal Amounts owed, unpaid or accrued under this Note).

 

11.                               RESERVATION OF AUTHORIZED SHARES.

 

(a)                                 Reservation.  The Company shall initially reserve out of its authorized and unissued Common Stock a number of shares of Common Stock for this Note equal to 150%  of the entire amount of shares of Common Stock issuable upon conversion at the Conversion Rate with respect to the entire Conversion Amount of this Note as of the Issuance  Date.  So long as any portion of this Note is outstanding, the Company shall take all action necessary to reserve and keep available out of its authorized and unissued Common Stock, solely for the purpose of effecting the conversion of this Note, 150%  of the number of shares of Common Stock as shall from time to time be necessary to effect the full conversion of this Note then outstanding, provided that at no time shall the number of shares of Common Stock so reserved be less than the number of shares required to be reserved by the previous sentence (without regard to any limitations on conversions) (the “Required Reserve Amount”).  The initial number of shares of Common Stock reserved for conversions of this Note and each increase in the number of shares so reserved shall be allocated pro rata among the Holders of this Note based on the Original Principal Amount of this Note held by each Holder at a given date of determination (the “Authorized Share Allocation”). In the event that a Holder shall sell or otherwise transfer any portion of such Holder’s Note, such transferee shall be allocated a pro rata portion of such Holder’s Authorized Share Allocation. Any shares of Common Stock reserved and allocated to any Person which ceases to hold any portion of this Note shall be allocated to the remaining Holder(s) of this Note, pro rata based on the principal amount of the Notes then held by such Holder(s).

 

(b)                                 Insufficient Authorized Shares.  If, notwithstanding Section 11(a), and

 

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not in limitation thereof, at any time while any portion of this Note remains outstanding the Company does not have a sufficient number of authorized and unreserved shares of Common Stock to satisfy its obligation to reserve for issuance upon conversion of this Note at least a number of shares of Common Stock equal to the Required Reserve Amount (an “Authorized Share Failure”), then the Company shall immediately take all action necessary to increase the Company’s authorized shares of Common Stock to an amount sufficient to allow the Company to reserve the Required Reserve Amount for this Note then outstanding. Without limiting the generality of the foregoing sentence, as soon as practicable after the date of the occurrence of an Authorized Share Failure, but in no event later than sixty (60) days after the occurrence of such Authorized Share Failure, the Company shall hold a meeting of its stockholders for the approval of an increase in the number of authorized shares of Common Stock.  In connection with such meeting, the Company shall provide each stockholder with a proxy statement and shall use its best efforts to solicit its stockholders’ approval of such increase in authorized shares of Common Stock and to cause its board of directors to recommend to the stockholders that they approve such proposal.  In the event that the Company is prohibited from issuing shares of Common Stock upon any conversion due to the failure by the Company to have sufficient shares of Common Stock available out of the authorized but unissued shares of Common Stock (such unavailable number of shares of Common Stock, the “Authorization Failure Shares”), in lieu of delivering such Authorization Failure Shares to the Holder, the Company shall pay cash in exchange for the redemption of such portion of the Conversion Amount convertible into such Authorized Failure Shares at a price equal to the sum of (i) the product of (x) such number of Authorization Failure Shares and (y) the Closing Sale Price on the Trading Day immediately preceding the date the Holder delivers the applicable Conversion Notice with respect to such Authorization Failure Shares to the Company and (ii) to the extent the Holder purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Holder of Authorization Failure Shares, any brokerage commissions and other out-of-pocket expenses, if any, of the Holder incurred in connection therewith.

 

12.                               INTENTIONALLY OMITTED.

 

13.                               REDEMPTIONS.  The Company shall deliver the applicable Event of Default Redemption Price to the Holder in cash within five (5) Business Days after the Company’s receipt of the Holder’s Event of Default Redemption Notice.  In the event of a redemption of less than all of the Conversion Amount of this Note, the Company shall promptly cause to be issued and delivered to the Holder a new Note (in accordance with Section 20(d)) representing the outstanding Principal which has not been redeemed (together with all Non-Principal Amounts that were not included in the “Conversion Amount” used to calculate the applicable redemption price hereunder). In the event that the Company does not pay the applicable Redemption Price to the Holder within the time period required, at any time thereafter and until the Company pays such unpaid Redemption Price in full, the Holder shall have the option, in lieu of redemption, to require the Company to promptly return to the

 

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Holder all or any portion of this Note representing the Conversion Amount that was submitted for redemption and for which the applicable Redemption Price (together with any Late Charges thereon) has not been paid. Upon the Company’s receipt of such notice, (x) the applicable Redemption Notice shall be null and void with respect to such Conversion Amount, (y) the Company shall immediately return this Note, or issue a new Note (in accordance with Section 20(d)), to the Holder, and in each case the principal amount of this Note or such new Note (as the case may be) shall be increased by an amount equal to the difference between (1) the applicable Event of Default Redemption Price, minus (2) the Conversion Amount submitted for redemption and (z) the Conversion Price of this Note or such new Note (as the case may be) shall be automatically adjusted with respect to each conversion effected thereafter by the Holder to the lowest of (A) the Conversion Price as in effect on the date on which the applicable Redemption Notice is voided, (B) 85% of the lowest Closing Bid Price of the Common Stock during the period beginning on and including the date on which the applicable Redemption Notice is delivered to the Company and ending on and including the date on which the applicable Redemption Notice is voided and (C) 85% of the VWAP of the Common Stock for the five (5) Trading Day period immediately preceding the Conversion Date of the applicable conversion. The Holder’s delivery of a notice voiding a Redemption Notice and exercise of its rights following such notice shall not affect the Company’s obligations to make any payments of Late Charges which have accrued prior to the date of such notice with respect to the Conversion Amount subject to such notice.

 

14.                               VOTING RIGHTS.  The Holder shall have no voting rights as the holder of this Note, except as required by law (including, without limitation, Title XXXVI, Chapter 617 of the Florida Statutes) and as expressly provided in this Note.

 

15.                               COVENANTS.  Until the entire Note has been converted, redeemed or otherwise satisfied in accordance with their terms:

 

(a)                                 Rank.  All payments due under this Note shall be senior to all other Indebtedness of the Company and its Subsidiaries, except that payments under this Note shall be subordinated to the Senior Debt to the extent provided in the Subordination Agreement.

 

(b)                                 Intentionally Omitted.

 

(c)                                  Existence of Liens.  The Company shall not, and the Company shall cause each of its Subsidiaries to not, directly or indirectly, allow or suffer to exist any mortgage, lien, pledge, charge, security interest or other encumbrance upon or in any property or assets (including accounts and contract rights) owned by the Company or any of its Subsidiaries (collectively, “Liens”) other than Permitted Liens.

 

(d)                                 Restricted Payments.

 

(i)                                     The Company shall cause each of its Subsidiaries to not, directly or indirectly, redeem, defease, repurchase, repay or make any payments in respect of, by the payment of cash or cash equivalents (in whole

 

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or in part, whether by way of open market purchases, tender offers, private transactions or otherwise), all or any portion of any Indebtedness (other than Permitted Indebtedness), whether by way of payment in respect of principal of (or premium, if any) or interest on, such Indebtedness, except with the net proceeds of any offering of equity securities of the Company occurring after the Issuance Date (“Equity Financing Proceeds”).

 

(ii)                                  The Company shall not, and the Company shall cause each of its Subsidiaries to not, directly or indirectly, redeem, defease, repurchase, repay or make any payments in respect of, by the payment of cash or cash equivalents (in whole or in part, whether by way of open market purchases, tender offers, private transactions or otherwise), all or any portion of any Indebtedness (other than this Note or the Senior Debt as permitted by the Subordination Agreement), whether by way of payment in respect of principal of (or premium, if any) or interest on, such Indebtedness if at the time such payment is due or is otherwise made or, after giving effect to such payment, (i) an event constituting an Event of Default has occurred and is continuing or (ii) an event that with the passage of time and without being cured would constitute an Event of Default has occurred and is continuing.

 

(e)                                  Restriction on Redemption and Cash Dividends.  The Company shall not, and the Company shall cause each of its Subsidiaries to not, directly or indirectly, redeem, repurchase or declare or pay any cash dividend or distribution on any of its capital stock or other equity securities, Convertible Securities or Options (other than (i) dividends or distributions by a wholly-owned Subsidiary to the Company or any other wholly-owned Subsidiary, (ii) in connection with a Fundamental Transaction, the redemption of the warrants issued to the buyers of the Senior Notes (as amended or otherwise modified in accordance with the Subordination Agreement) in accordance therewith, or (iii) the repurchase of securities of the Company from Legend Pictures Funding, LLC (or an affiliate thereof), Falcon Mezzanine Partners II, L.P. (or an affiliate thereof) and/or Beijing Galloping Horse Film Co., Ltd. (or an affiliate thereof) pursuant to put agreements with such Persons, but only to the extent that Equity Financing Proceeds are used by the Company to make any payments in connection with such repurchases).

 

(f)                                   Restriction on Transfer of Assets.  The Company shall not, and the Company shall cause each of its Subsidiaries to not, directly or indirectly, sell, lease, license, assign, transfer, spin-off, split-off, close, convey or otherwise dispose of any assets or rights of the Company or any Subsidiary owned or hereafter acquired whether in a single transaction or a series of related transactions (each, a “Restricted Transfer”), other than (i) Restricted Transfers by the Company or any of its Subsidiaries that, in the aggregate, do not have a fair market value in excess of $500,000 in any twelve (12) month period and (ii) any other Restricted Transfer permitted by the terms of Section 15(f) of the Senior Notes (as such exist on the Issuance Date).  Notwithstanding the foregoing, neither the Company nor any of its

 

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Subsidiaries shall consummate any Restricted Transfer of the assets described on Schedule 15(f) attached hereto unless the Company or such Subsidiary, as applicable, shall have received at least the minimum net proceeds set forth opposite the name of such asset on Schedule 15(f) attached hereto, and otherwise complied with this Section 15(f).

 

(g)                                  Maturity of Indebtedness.  The Company shall not, and the Company shall cause each of its Subsidiaries to not, directly or indirectly, permit any Indebtedness of the Company or any of the Subsidiaries to mature or accelerate prior to the Maturity Date, other than the Senior Debt.

 

(h)                                 Change in Nature of Business.  The Company shall not, and the Company shall cause each of its Significant Subsidiaries to not, directly or indirectly, engage in any material line of business substantially different from those lines of business conducted by the Company and each of its Significant Subsidiaries on the Issuance Date or any business substantially related or incidental thereto.  The Company shall not, and the Company shall cause each of its Significant Subsidiaries to not, directly or indirectly, modify its or their corporate structure or purpose.

 

(i)                                     Preservation of Existence, Etc.  The Company shall maintain and preserve, and cause each of its Significant Subsidiaries to maintain and preserve, its existence, rights and privileges, and become or remain, and cause each of its Significant Subsidiaries to become or remain, duly qualified and in good standing in each jurisdiction in which the character of the properties owned or leased by it or in which the transaction of its business makes such qualification necessary.

 

(j)                                    Maintenance of Properties, Etc.  The Company shall maintain and preserve, and cause each of its Significant Subsidiaries to maintain and preserve, all of its properties which are necessary or useful in the proper conduct of its business in good working order and condition, ordinary wear and tear excepted, and comply, and cause each of its Significant Subsidiaries to comply, at all times with the provisions of all leases to which it is a party as lessee or under which it occupies property, so as to prevent any loss or forfeiture thereof or thereunder.

 

(k)                                 Maintenance of Intellectual Property.  The Company will, and will cause each of its Subsidiaries to, take all action necessary or advisable to maintain all of the Intellectual Property Rights of the Company and/or any of its Subsidiaries that are necessary or material to the conduct of its business in full force and effect.

 

(l)                                     Maintenance of Insurance.  The Company shall maintain, and cause each of its Significant Subsidiaries to maintain, insurance with responsible and reputable insurance companies or associations (including, without limitation, comprehensive general liability, hazard, rent and business interruption insurance) with respect to its properties (including all real properties leased or owned by it) and business, in such amounts and covering such risks as is required by any governmental authority having jurisdiction with respect thereto or as is carried generally in

 

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accordance with sound business practice by companies in similar businesses similarly situated.

 

(m)                             Transactions with Affiliates.  The Company shall not, nor shall it permit any of its Subsidiaries to, enter into, renew, extend or be a party to, any transaction or series of related transactions (including, without limitation, the purchase, sale, lease, transfer or exchange of property or assets of any kind or the rendering of services of any kind) with any Affiliate, except in the ordinary course of business in a manner and to an extent consistent with past practice and necessary or desirable for the prudent operation of its business, for fair consideration and on terms no less favorable to it or its Subsidiaries than would be obtainable in a comparable arm’s length transaction with a Person that is not an Affiliate thereof.

 

(n)                                 Restricted Issuances.  The Company shall not, directly or indirectly, without the prior written consent of the holders of a majority in aggregate principal amount of this Note then outstanding, (i) issue any notes or similar debt instruments (other than as contemplated by the Debt Exchange Agreement and this Note, or other than the Senior Notes (as amended or otherwise modified in accordance with the Subordination Agreement)) or (ii) issue any other securities that would cause a breach or default under this Note.

 

(o)                                 New Subsidiaries.  Simultaneously with the acquisition or formation of each New Subsidiary, the Company shall cause such New Subsidiary to execute, and deliver to each Holder of any portion of this Note, all Security Documents (as  defined in the Debt Exchange Agreement) and Guaranties (as defined in the Debt Exchange Agreement) as requested by the Holder (as defined in the Debt Exchange Agreement).  The Company shall also deliver to the Secured Parties (as defined in the Security Documents) an opinion of counsel to such New Subsidiary that is reasonably satisfactory to the Secured Parties covering such legal matters with respect to such New Subsidiary becoming a guarantor of the Company’s obligations, executing and delivering the Security Documents and the Guaranties and any other matters that the Secured Parties may reasonably request.  The Company shall deliver, or cause the applicable Subsidiary to deliver to the Holder, each of the physical stock certificates of such New Subsidiary, along with undated stock powers for each such certificates, executed in blank (or, if any such shares of capital stock are uncertificated, confirmation and evidence reasonably satisfactory to the Secured Parties that the security interest in such uncertificated securities has been transferred to and perfected by the Secured Parties, in accordance with Sections 8-313, 8-321 and 9-115 of the Uniform Commercial Code or any other similar or local or foreign law that may be applicable) (except to the extent the Company or such Subsidiary is obligated to deliver such certificates to the Senior Agent to hold to secure the Senior Debt permitted by the Subordination Agreement and does so).

 

(p)                                 Change in Collateral; Collateral Records.  The Company shall (i) give the Holder not less than thirty (30) days’ prior written notice of any change in the

 

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location of any Collateral (as defined in the Security Documents), other than to locations set forth in the Perfection Certificate (as defined in the Debt Exchange Agreement) hereto and with respect to which the Holder has filed financing statements and otherwise fully perfected its Liens thereon, (ii) advise the Holder promptly, in sufficient detail, of any material adverse change relating to the type, quantity or quality of the Collateral or the Lien granted thereon and (iii) execute and deliver, and cause each of its Subsidiaries to execute and deliver, to Holder, solely for Holder’s convenience in maintaining a record of Collateral, such written statements and schedules as the Holder may reasonably require, designating, identifying or describing the Collateral.

 

(q)                                 Intentionally Omitted.

 

(r)                                    Intentionally Omitted.

 

(s)                                   Intentionally Omitted.

 

(t)                                    Post-Closing Collateral Matters.  The Company shall (and shall cause its Subsidiaries to) execute and deliver the documents and complete the tasks set forth in Section 4(v) of the Debt Exchange Agreement, in each case within the time limits specified therein.

 

16.                               SECURITY.  This Note is secured to the extent and in the manner set forth in the Transaction Documents (including, without limitation, the Security Agreements, the other Security Documents and the Guaranties).

 

17.                               PARTICIPATION.  In addition to any adjustments pursuant to Section 7, the Holder, as the holder of this Note, shall be entitled to receive such dividends paid and distributions made to the holders of Common Stock to the same extent as if the Holder had converted this Note into Common Stock (without regard to any limitations on conversion herein or elsewhere) and had held such shares of Common Stock on the record date for such dividends and distributions.  Payments under the preceding sentence shall be made concurrently with the dividend or distribution to the holders of Common Stock (provided, however, to the extent that the Holder’s right to participate in any such dividend or distribution would result in the Holder exceeding the Maximum Percentage, then the Holder shall not be entitled to participate in such dividend or distribution to such extent (or the ownership of any such shares of Common Stock as a result of such dividend or distribution to such extent) and such dividend or distribution to such extent shall be held in abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Maximum Percentage).

 

18.                               AMENDING THE TERMS OF THIS NOTE.  The prior written consent of the Holder shall be required for any change or amendment to this Note.

 

19.                               TRANSFER.  This Note (or any portion hereof) and any shares of Common Stock issued upon conversion of this Note may be offered, sold, assigned or transferred by

 

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the Holder without the consent of the Company, subject only to the provisions of Section 2(g) of the Debt Exchange Agreement.  If a portion of this Note is transferred, then (w) all holders of any portion of this Note shall, collectively, be deemed to be the “Holder” hereunder, (x) any obligations of the “Holder” hereunder shall be deemed to be several and not joint, (y) any item hereunder requiring the consent of the “Holder” shall require the consent of the holders of at least a majority of the outstanding amounts under this Note (or such other consent requirement as may be agreed to among the holders of this Note), and (z) the trading limitations described in Section 8(a) shall be allocated pro rata among all holders of the Note, such that each holder is limited to a proportionate percentage of the 3-Day Average Volume equal to that set forth in Section 8(a) multiplied by a fraction, the numerator of which is the Original Principal Amount of this Note represented by such holder’s portion of this Note and the denominator of which is $8,000,000 (for example, if the initial holder transfers a portion of this whole Note representing $4,000,000 in Original Principal Amount, then each of the initial Holder and the transferee shall be limited, prior to the effective date of the Registration Statement (as defined in the Registration Rights Agreement), to selling not more than 7.5% of the 3-Day Average Volume on a given Trading Day).

 

20.          REISSUANCE OF THIS NOTE.

 

(a)           Transfer.  If this Note is to be transferred, the Holder shall surrender this Note to the Company, whereupon the Company will forthwith issue and deliver upon the order of the Holder a new Note (in accordance with Section 20(d)), registered as the Holder may request, representing the outstanding Principal (together with any Interest, Late Charges or other Non-Principal Amounts owed under this Note) being transferred by the Holder and, if less than the entire outstanding Principal is being transferred, a new Note (in accordance with Section 20(d)) to the Holder representing the outstanding Principal not being transferred. The Holder and any assignee, by acceptance of this Note, acknowledge and agree that, by reason of the provisions of Section 3(c)(iii) following conversion or redemption of any portion of this Note, the outstanding Principal represented by this Note may be less than the Principal stated on the face of this Note.

 

(b)           Lost, Stolen or Mutilated Note.  Upon receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Note (as to which a written certification and the indemnification contemplated below shall suffice as such evidence), and, in the case of loss, theft or destruction, of any indemnification undertaking by the Holder to the Company in customary and reasonable form and, in the case of mutilation, upon surrender and cancellation of this Note, the Company shall execute and deliver to the Holder a new Note (in accordance with Section 20(d)) representing the outstanding Principal, together with any Interest, Late Charges or other Non-Principal Amounts owed under this Note.

 

(c)           Note Exchangeable for Different Denominations.  This Note is

 

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exchangeable, upon the surrender hereof by the Holder at the principal office of the Company, for a new Note or Notes (in accordance with Section 20(d) and in principal amounts of at least $1,000) representing in the aggregate the outstanding Principal (together with any Interest, Late Charges or other Non-Principal Amounts owed under this Note) of this Note, and each such new Note will represent such portion of such outstanding Principal (and together with any Interest, Late Charges or other Non-Principal Amounts owed under this Note) as is designated by the Holder at the time of such surrender.

 

(d)           Issuance of New Notes.  Whenever the Company is required to issue a new Note pursuant to the terms of this Note, such new Note (i) shall be of like tenor with this Note, (ii) shall represent, as indicated on the face of such new Note, the Principal remaining outstanding (or in the case of a new Note being issued pursuant to Section 20(a) or Section 20(c), the Principal designated by the Holder which, when added to the principal represented by the other new Notes issued in connection with such issuance, does not exceed the Principal remaining outstanding under this Note immediately prior to such issuance of new Notes), (iii) shall have an issuance date, as indicated on the face of such new Note, which is the same as the Issuance Date of this Note, (iv) shall have the same rights and conditions as this Note, and (v) shall represent accrued and unpaid Interest and Late Charges on the Principal and Interest of this Note, and other Non-Principal Amounts, from the Issuance Date.

 

21.          REMEDIES, CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF.  The remedies provided in this Note shall be cumulative and in addition to all other remedies available under this Note and any of the other Transaction Documents at law or in equity (including a decree of specific performance and/or other injunctive relief), and nothing herein shall limit the Holder’s right to pursue actual damages for any failure by the Company to comply with the terms of this Note.  The Company covenants to the Holder that there shall be no characterization concerning this instrument other than as expressly provided herein. Amounts set forth or provided for herein with respect to payments, conversion and the like (and the computation thereof) shall be the amounts to be received by the Holder and shall not, except as expressly provided herein, be subject to any other obligation of the Company (or the performance thereof). The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder and that the remedy at law for any such breach may be inadequate. The Company therefore agrees that, in the event of any such breach or threatened breach, the Holder shall be entitled, in addition to all other available remedies, to an injunction restraining any such breach or any such threatened breach, without the necessity of showing economic loss and without any bond or other security being required. The Company shall provide all information and documentation to the Holder that is requested by the Holder to enable the Holder to confirm the Company’s compliance with the terms and conditions of this Note (including, without limitation, compliance with Section 7).

 

22.          PAYMENT OF COLLECTION, ENFORCEMENT AND OTHER COSTS.  If (a) this Note is placed in the hands of an attorney for collection or enforcement or is

 

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collected or enforced through any legal proceeding or the Holder otherwise takes action to collect amounts due under this Note or to enforce the provisions of this Note or (b) there occurs any bankruptcy, reorganization, receivership of the Company or other proceedings affecting Company creditors’ rights and involving a claim under this Note, then the Company shall pay the costs incurred by the Holder for such collection, enforcement or action or in connection with such bankruptcy, reorganization, receivership or other proceeding, including, without limitation, attorneys’ fees and disbursements. The Company expressly acknowledges and agrees that no amounts due under this Note shall be affected, or limited, by the fact that the purchase price paid for this Note was less than the amount due hereunder at a given time.

 

23.          CONSTRUCTION; HEADINGS.  This Note shall be deemed to be jointly drafted by the Company and the Holder and shall not be construed against any Person as the drafter hereof. The headings of this Note are for convenience of reference and shall not form part of, or affect the interpretation of, this Note. Terms used in this Note but defined in the other Transaction Documents shall have the meanings ascribed to such terms on the Closing Date in such other Transaction Documents unless otherwise consented to in writing by the Holder.

 

24.          FAILURE OR INDULGENCE NOT WAIVER.  No failure or delay on the part of the Holder in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege. No waiver shall be effective unless it is in writing and signed by an authorized representative of the waiving party.

 

25.          DISPUTE RESOLUTION.  In the case of a dispute as to the determination of the Conversion Price (including, without limitation, any disputed adjustment thereto or any dispute as to whether any issuance or sale or deemed issuance or sale was an issuance or sale or deemed issuance or sale of Excluded Securities), the Closing Bid Price, the Closing Sale Price or fair market value (as the case may be) or the arithmetic calculation of the Conversion Rate or the applicable Redemption Price (as the case may be), the Company or the Holder (as the case may be) shall submit the disputed determinations or arithmetic calculations (as the case may be) via facsimile (i) within two (2) Business Days after receipt of the applicable notice giving rise to such dispute to the Company or the Holder (as the case may be) or (ii) if no notice gave rise to such dispute, at any time after the Holder learned of the circumstances giving rise to such dispute. If the Holder and the Company are unable to agree upon such determination or calculation within two (2) Business Days of such disputed determination or arithmetic calculation (as the case may be) being submitted to the Company or the Holder (as the case may be), then the Company shall, within two (2) Business Days, submit via facsimile (a) the disputed determination of the Conversion Price, the Closing Bid Price, the Closing Sale Price or fair market value (as the case may be) to an independent, reputable investment bank selected by the Company and approved by the Holder or (b) the disputed arithmetic calculation of the Conversion Rate or any Redemption Price (as the case may be) to the Company’s independent, outside accountant. The Company shall cause at its

 

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expense the investment bank or the accountant (as the case may be) to perform the determinations or calculations (as the case may be) and notify the Company and the Holder of the results no later than ten (10) Business Days from the time it receives such disputed determinations or calculations (as the case may be). Such investment bank’s or accountant’s determination or calculation (as the case may be) shall be binding upon all parties absent demonstrable error.

 

26.          NOTICES; CURRENCY; PAYMENTS.

 

(a)           Notices.  Whenever notice is required to be given under this Note, unless otherwise provided herein, such notice shall be given in accordance with Section 9(f) of the Debt Exchange Agreement. The Company shall provide the Holder with prompt written notice of all actions taken pursuant to this Note, including in reasonable detail a description of such action and the reason therefore. Without limiting the generality of the foregoing, the Company will give written notice to the Holder (i) immediately upon any adjustment of the Conversion Price, setting forth in reasonable detail, and certifying, the calculation of such adjustment and (ii) at least fifteen (15) days prior to the date on which the Company closes its books or takes a record (A) with respect to any dividend or distribution upon the Common Stock, (B) with respect to any grant, issuances, or sales of any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property to holders of shares of Common Stock or (C) for determining rights to vote with respect to any Fundamental Transaction, dissolution or liquidation, provided in each case that such information shall be made known to the public prior to or in conjunction with such notice being provided to the Holder.

 

(b)           Currency.  All dollar amounts referred to in this Note are in United States Dollars (“U.S. Dollars”), and all amounts owing under this Note shall be paid in U.S. Dollars. All amounts denominated in other currencies (if any) shall be converted in the U.S. Dollar equivalent amount in accordance with the Exchange Rate on the date of calculation. “Exchange Rate”  means, in relation to any amount of currency to be converted into U.S. Dollars pursuant to this Note, the U.S. Dollar exchange rate as published in the Wall Street Journal on the relevant date of calculation (it being understood and agreed that where an amount is calculated with reference to, or over, a period of time, the date of calculation shall be the final date of such period of time).

 

(c)           Payments.  Whenever any payment of cash is to be made by the Company to any Person pursuant to this Note, unless otherwise expressly set forth herein, such payment shall be made in lawful money of the United States of America by a certified check drawn on the account of the Company and sent via overnight courier service to such Person at such address as previously provided to the Company in writing (which address, in the case of the initial Holder, shall initially be as set forth as the notice address for “Lender” in the Debt Exchange Agreement), provided that the Holder may elect to receive a payment of cash via wire transfer of

 

30

 

immediately available funds by providing the Company with prior written notice setting out such request and the Holder’s wire transfer instructions. Whenever any amount expressed to be due by the terms of this Note is due on any day which is not a Business Day, the same shall instead be due on the next succeeding day which is a Business Day. Any amount of Principal or other Non-Principal Amounts due under the Transaction Documents which is not paid when due shall result in a late charge being incurred and payable by the Company in an amount equal to interest on such amount at the rate of fifteen percent (15%) per annum from the date such amount was due until the same is paid in full (“Late Charge”).

 

27.          CANCELLATION.  After all Principal, accrued Interest, Late Charges and other Non-Principal Amounts at any time owed on this Note have been paid in full, this Note shall automatically be deemed canceled, shall be surrendered to the Company for cancellation and shall not be reissued.

 

28.          WAIVER OF NOTICE.  To the extent permitted by law, the Company hereby irrevocably waives demand, notice, presentment, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note and the Debt Exchange Agreement.

 

29.          GOVERNING LAW.  This Note shall be construed and enforced in accordance with, and all questions concerning the construction, validity, interpretation and performance of this Note shall be governed by, the internal laws of the State of New York, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of New York. The Company hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in The City of New York, Borough of Manhattan, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper.  Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law.  In the event that any provision of this Note is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law.  Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of this Note. Nothing contained herein shall be deemed or operate to preclude the Holder from bringing suit or taking other legal action against the Company in any other jurisdiction to collect on the Company’s obligations to the Holder, to realize on any collateral or any other security for such obligations, or to enforce a judgment or other court ruling in favor of the Holder.  THE COMPANY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE

 

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HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS NOTE OR ANY TRANSACTION CONTEMPLATED HEREBY.

 

30.          JUDGMENT CURRENCY.

 

(a)           If for the purpose of obtaining or enforcing judgment against the Company in any court in any jurisdiction it becomes necessary to convert into any other currency (such other currency being hereinafter in this Section 30 referred to as the “Judgment Currency”) an amount due in U.S. dollars under this Note, the conversion shall be made at the Exchange Rate prevailing on the Trading Day immediately preceding:

 

(i)            the date actual payment of the amount due, in the case of any proceeding in the courts of New York or in the courts of any other jurisdiction that will give effect to such conversion being made on such date: or

 

(ii)           the date on which the foreign court determines, in the case of any proceeding in the courts of any other jurisdiction (the date as of which such conversion is made pursuant to this Section 30(a)(ii) being hereinafter referred to as the “Judgment Conversion Date”).

 

(b)           If in the case of any proceeding in the court of any jurisdiction referred to in Section 30(a)(ii) above, there is a change in the Exchange Rate prevailing between the Judgment Conversion Date and the date of actual payment of the amount due, the applicable party shall pay such adjusted amount as may be necessary to ensure that the amount paid in the Judgment Currency, when converted at the Exchange Rate prevailing on the date of payment, will produce the amount of US dollars which could have been purchased with the amount of Judgment Currency stipulated in the judgment or judicial order at the Exchange Rate prevailing on the Judgment Conversion Date.

 

(c)           Any amount due from the Company under this provision shall be due as a separate debt and shall not be affected by judgment being obtained for any other amounts due under or in respect of this Note.

 

31.          MAXIMUM PAYMENTS.  Without limiting Section 9(d) of the Debt Exchange Agreement, nothing contained herein shall be deemed to establish or require the payment of a rate of interest or other charges in excess of the maximum permitted by applicable law.  In the event that the rate of interest required to be paid or other charges hereunder exceed the maximum permitted by such law, any payments in excess of such maximum shall be credited against amounts owed by the Company to the Holder and thus refunded to the Company.

 

32.          CERTAIN DEFINITIONS.  For purposes of this Note, the following terms shall have the following meanings:

 

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(a)           “3-Day Average Volume” means the average Daily Volume for each of the three (3) Trading Days immediately preceding the date of determination.

 

(b)           “Adjustment Right” means any right granted with respect to any securities issued in connection with, or with respect to, any issuance or sale (or deemed issuance or sale in accordance with Section 7) of shares of Common Stock that could result in a decrease in the net consideration received by the Company in connection with, or with respect to, such securities (including, without limitation, any cash settlement rights, cash adjustment or other similar rights).

 

(c)           “Affiliate” shall have the meaning ascribed to such term in Rule 405 promulgated under the Securities Act of 1933, as amended.

 

(d)           “Approved Stock Plan” means any employee benefit plan which has been approved by the board of directors of the Company prior to or subsequent to the date hereof pursuant to which shares of Common Stock and standard options to purchase Common Stock may be issued to any employee, officer or director for services provided to the Company in their capacity as such.

 

(e)            “Black Scholes Consideration Value” means the value of the applicable Option, Convertible Security or Adjustment Right (as the case may be) as of the date of issuance thereof calculated using the Black Scholes Option Pricing Model obtained from the “OV” function on Bloomberg utilizing (i) an underlying price per share equal to the Closing Sale Price of the Common Stock on the Trading Day immediately preceding the public announcement of the execution of definitive documents with respect to the issuance of such Option, Convertible Security or Adjustment Right (as the case may be), (ii) a risk-free interest rate corresponding to the U.S. Treasury rate for a period equal to the remaining term of such Option, Convertible Security or Adjustment Right (as the case may be), as of the date of issuance of such Option, Convertible Security or Adjustment Right (as the case may be), (iii) a zero cost of borrow and (iv) an expected volatility equal to the greater of 100% and the 100 day volatility obtained from the HVT function on Bloomberg (determined utilizing a 365 day annualization factor) as of the Trading Day immediately following the date of issuance of such Option, Convertible Security or Adjustment Right (as the case may be).

 

(f)            “Block Sale” means any privately negotiated sale, executed apart and away from the securities exchanges and electronic markets, in which the Holder transfers, in a single transaction or a series of related transactions, at least 10,000 shares of the Common Stock to a party that is not an Affiliate of the initial Holder.

 

(g)           “Bloomberg” means Bloomberg, L.P.

 

(h)           “Business Day” means any day other than Saturday, Sunday or other day on which commercial banks in The City of New York are authorized or required by law to remain closed.

 

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(i)            “Closing Bid Price” and “Closing Sale Price” means, for any security as of any date, the last closing bid price and last closing trade price, respectively, for such security on the Principal Market, as reported by Bloomberg, or, if the Principal Market begins to operate on an extended hours basis and does not designate the closing bid price or the closing trade price (as the case may be) then the last bid price or last trade price, respectively, of such security prior to 4:00:00 p.m., New York time, as reported by Bloomberg, or, if the Principal Market is not the principal securities exchange or trading market for such security, the last closing bid price or last trade price, respectively, of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg, or if the foregoing do not apply, the last closing bid price or last trade price, respectively, of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg, or, if no closing bid price or last trade price, respectively, is reported for such security by Bloomberg, the average of the bid prices, or the ask prices, respectively, of any market makers for such security as reported in the “pink sheets” by OTC Markets Group Inc. (formerly Pink Sheets LLC).  If the Closing Bid Price or the Closing Sale Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Closing Bid Price or the Closing Sale Price (as the case may be) of such security on such date shall be the fair market value as mutually determined by the Company and the Holder. If the Company and the Holder are unable to agree upon the fair market value of such security, then such dispute shall be resolved in accordance with the procedures in Section 25. All such determinations shall be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during such period.

 

(j)            “Closing Date” shall have the meaning set forth in the Debt Exchange Agreement, which date is the date the Company initially issued this Note pursuant to the terms of the Debt Exchange Agreement.

 

(k)           “Common Stock” means (i) the Company’s shares of common stock, $0.01 par value per share, and (ii) any capital stock into which such common stock shall have been changed or any share capital resulting from a reclassification of such common stock.

 

(l)            “Contingent Obligation” means, as to any Person, any direct or indirect liability, contingent or otherwise, of that Person with respect to any indebtedness, lease, dividend or other obligation of another Person if the primary purpose or intent of the Person incurring such liability, or the primary effect thereof, is to provide assurance to the obligee of such liability that such liability will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such liability will be protected (in whole or in part) against loss with respect thereto, including, without limitation, any put or repurchase agreement or obligation with respect to securities of the Company granted by the Company or any of its Subsidiaries to any Person.

 

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(m)          “Convertible Securities” means any stock or other security (other than Options) that is at any time and under any circumstances, directly or indirectly, convertible into, exercisable or exchangeable for, or which otherwise entitles the holder thereof to acquire, any shares of Common Stock.

 

(n)           “Current Subsidiary” means any Person (other than the Inactive Subsidiaries (as defined in the Debt Exchange Agreement) in which the Company on the Subscription Date, directly or indirectly, (i) owns any of the outstanding capital stock or holds any equity or similar interest of such Person or (ii) controls or operates all or any part of the business, operations or administration of such Person, and all of the foregoing, collectively, “Current Subsidiaries”.

 

(o)           “Daily Volume” means, with respect to a particular date of determination, the sum of (x) the daily volume (as reported on Bloomberg) of the Common Stock on the Eligible Market on which the Common Stock is listed or designated for quotation as of such date of determination and (y) the number of shares of Common Stock covered by any options contract or other derivatives contract entered into or traded by the Holder or its Affiliates on such date of determination.

 

(p)           “Debt Exchange Agreement” means that certain Debt Exchange Agreement, dated as of the Subscription Date, by and between the Company and the initial holder of this Note, as may be amended from time to time.

 

(q)           “Default Excess” means (w) in the event of a Conversion Failure, the difference between the Buy-In Price and the amount of Principal which, at its then-current applicable Conversion Price, would be convertible into the number of Conversion Shares upon which the Buy-In Price was calculated; (x) with respect to any Exchange Cap Shares, the difference between the amount otherwise owed in cash under Section 3(d)(ii) for such Exchange Cap Shares and the amount of Principal which, at its then-current applicable Conversion Price, would be convertible into such number of Exchange Cap Shares; (y) with respect to an Event of Default Redemption Price, the difference between the Event of Default Redemption Price and the amount of the then-outstanding Principal; and (z) with respect to any Authorized Failure Shares, the difference between the amount otherwise owed in cash under Section 11(b) for such Authorized Failure Shares and the amount of Principal which, at its then-current applicable Conversion Price, would be convertible into such number of Authorized Failure Shares; with the amount of each such difference constituting a Non-Principal Amount owing under this Note.

 

(r)            “Eligible Market” means the NYSE Amex, the Nasdaq Global Select Market, the Nasdaq Global Market, the Nasdaq Capital Market or the Principal Market.

 

(s)            “Excluded Securities” means any (i) shares of Common Stock or standard options to purchase Common Stock to directors, officers or employees of the Company in their capacity as such pursuant to an Approved Stock Plan (as defined

 

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below), provided that (A) all such issuances (taking into account the shares of Common Stock issuable upon exercise of such options granted after the date of this Note, but not such shares issuable upon exercise of such options granted before the date of this Note) after the date hereof pursuant to this clause (i) do not, in the aggregate, exceed more than 10% of the Common Stock issued and outstanding immediately prior to the date hereof and (B) the exercise price of any such options is not lowered, none of such options are amended to increase the number of shares issuable thereunder and none of the terms or conditions of any such options are otherwise materially changed in any manner that adversely affects any of the Buyers;  and (ii) shares of Common Stock issued upon the conversion or exercise of Convertible Securities (other than standard options to purchase Common Stock issued pursuant to an Approved Stock Plan that are covered by clause (i) above) issued prior to the date hereof, provided that the conversion price of any such Convertible Securities (other than standard options to purchase Common Stock issued pursuant to an Approved Stock Plan that are covered by clause (i) above) is not lowered, none of such Convertible Securities (other than standard options to purchase Common Stock issued pursuant to an Approved Stock Plan that are covered by clause (i) above) are amended to increase the number of shares issuable thereunder or extend the maturity date or expiration date of such Convertible Securities (other than standard options to purchase Common Stock issued pursuant to an Approved Stock Plan that are covered by clause (i) above) and none of the terms or conditions of any such Convertible Securities (other than standard options to purchase Common Stock issued pursuant to an Approved Stock Plan that are covered by clause (i) above) are otherwise materially changed in any manner that adversely affects the Holder.  For purposes of this Note, the Senior Notes (as amended or otherwise modified in accordance with the Subordination Agreement) and the warrants issued to the buyers of the Senior Notes shall be deemed to be Convertible Securities issued prior to the date hereof.

 

(t)            “Fiscal Quarter”  means each of the fiscal quarters adopted by the Company for financial reporting purposes that correspond to the Company’s fiscal year as of the date hereof that ends on December 31.

 

(u)           “Fundamental Transaction” means that the Company or any of its Subsidiaries shall, directly or indirectly, in one or more related transactions, (1) consolidate or merge with or into (whether or not the Company or any of its Subsidiaries is the surviving corporation) any other Person, or (2) sell, lease, license, assign, transfer, convey or otherwise dispose of all or substantially all of its respective properties or assets to any other Person, or (3) allow any other Person to make a purchase, tender or exchange offer that is accepted by the holders of more than 50% of the outstanding shares of Voting Stock of the Company (not including any shares of Voting Stock of the Company held by the Person or Persons making or party to, or associated or affiliated with the Persons making or party to, such purchase, tender or exchange offer), or (4) consummate a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with any other Person whereby

 

36

 

such other Person acquires more than 50% of the outstanding shares of Voting Stock of the Company (not including any shares of Voting Stock of the Company held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination), or (5) (I) reorganize, recapitalize or reclassify the Common Stock, (II) effect or consummate a stock combination, reverse stock split or other similar transaction involving the Common Stock or (III) make any public announcement or disclosure with respect to any stock combination, reverse stock split or other similar transaction involving the Common Stock (including, without limitation, any public announcement or disclosure of (x) any potential, possible or actual stock combination, reverse stock split or other similar transaction involving the Common Stock or (y) board or stockholder approval thereof, or the intention of the Company to seek board or stockholder approval of any stock combination, reverse stock split or other similar transaction involving the Common Stock).

 

(v)           “GAAP” means United States generally accepted accounting principles, consistently applied.

 

(w)          “Indebtedness” of any Person means, without duplication (i) all indebtedness for borrowed money, (ii) all obligations issued, undertaken or assumed as the deferred purchase price of property or services, including (without limitation) “capital leases” in accordance with generally accepted accounting principles (other than trade payables entered into in the ordinary course of business), (iii) all reimbursement or payment obligations with respect to letters of credit, surety bonds and other similar instruments, (iv) all obligations evidenced by notes, bonds, debentures or similar instruments, including obligations so evidenced incurred in connection with the acquisition of property, assets or businesses, (v) all indebtedness created or arising under any conditional sale or other title retention agreement, or incurred as financing, in either case with respect to any property or assets acquired with the proceeds of such indebtedness (even though the rights and remedies of the seller or bank under such agreement in the event of default are limited to repossession or sale of such property), (vi) all monetary obligations under any leasing or similar arrangement which, in connection with generally accepted accounting principles, consistently applied for the periods covered thereby, is classified as a capital lease, (vii) all indebtedness referred to in clauses (i) through (vi) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any mortgage, lien, pledge, charge, security interest or other encumbrance upon or in any property or assets (including accounts and contract rights) owned by any Person, even though the Person which owns such assets or property has not assumed or become liable for the payment of such indebtedness, and (viii) all Contingent Obligations in respect of indebtedness or obligations of others of the kinds referred to in clauses (i) through (vii) above.  For the avoidance of doubt, all obligations owing with respect to leases not classified under GAAP as capital leases are excluded from the definition of “Indebtedness”.

 

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(x)            “Interest  Rate” means ten percent (10%) per annum, as may be adjusted from time to time in accordance with Section 2.

 

(y)           “Market Price” means, for any given date, the lowest of (i) the VWAP of the Common Stock on the Trading Day immediately preceding such given date, (ii) the quotient of (x) the sum of the VWAP of the Common Stock on each of the ten (10) consecutive Trading Days ending and including the Trading Day immediately preceding such given date, divided by (y) ten (10) and (iii) the quotient of (x) the sum of the VWAP of the Common Stock on each of the thirty (30) consecutive Trading Days ending and including the Trading Day immediately preceding such given date, divided by (y) thirty (30).  All such determinations to be appropriately adjusted for any stock dividend, stock split, stock combination, reclassification or similar transaction during such the applicable measurement periods.

 

(z)            “Maturity  Date” shall mean June 30, 2016; provided, however, the Maturity Date may be extended at the option of the Holder (i) in the event that, and for so long as, an Event of Default shall have occurred and be continuing or any event shall have occurred and be continuing that with the passage of time and the failure to cure would result in an Event of Default or (ii) through the date that is twenty (20) Business Days after the consummation of a Fundamental Transaction in the event that a Fundamental Transaction is publicly announced or a Fundamental Transaction; provided further that if a Holder elects to convert some or all of this Note pursuant to Section 3 hereof, and the Conversion Amount would be limited pursuant to Section 3(d) hereunder, the Maturity Date shall automatically be extended until such time as such provision shall not limit the conversion of this Note.

 

(aa)         “New Subsidiary” means, as of any date of determination, any Person (other than a Current Subsidiary) in which the Company after the Subscription Date, directly or indirectly, (i) owns or acquires any of the outstanding capital stock or holds any equity or similar interest of such Person or (ii) controls or operates all or any part of the business, operations or administration of such Person, and all of the foregoing, collectively, “New Subsidiaries”; provided, that any Inactive Subsidiary shall be deemed to be a “New Subsidiary” hereunder at such time after the Subscription Date such Inactive Subsidiary either (x) holds assets in an amount greater than or equal to $100,000, or (y) engages in a business with projected (or actual) net revenue in an amount greater than or equal to $100,000 (as determined in accordance with GAAP.

 

(bb)         “Non-Principal Amounts” means any Interest and Late Charges accrued and unpaid under this Note, together with all other costs, fees, expenses and other amounts that are owing to Holder under this Note or any of the other Transaction Documents (as defined in the Debt Exchange Agreement), in each case other than Principal.  For the avoidance of doubt, the term “Non-Principal Amounts” shall include any amounts that would, but for the restrictions set forth in the Subordination Agreement, be payable in cash under any of the Transaction

 

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Documents, including without limitation cash amounts owed under Section 3(c)(ii), 3(d)(ii), 4 and 11(b) of this Note or any Registration Delay Payments (as such term is defined in the Registration Rights Agreement) otherwise owed under the Registration Rights Agreement, provided that in no event shall any portion of the Original Principal Amount be deemed to be characterized as or otherwise interpreted to then represent “Non-Principal Amounts”, and, without limitation of the foregoing, in the case of a payment that would otherwise be owed under Section 3(c)(ii), 3(d)(ii), 4 or 11(b) of this Note, only the Default Excess shall be considered to be Non-Principal Amounts hereunder.

 

(cc)         “Options” means any rights, warrants or options to subscribe for or purchase shares of Common Stock or Convertible Securities.

 

(dd)         “Original Principal Amount” means Eight Million Dollars ($8,000,000).

 

(ee)         “Parent Entity” of a Person means an entity that, directly or indirectly, controls the applicable Person and whose common stock or equivalent equity security is quoted or listed on an Eligible Market, or, if there is more than one such Person or Parent Entity, the Person or Parent Entity with the largest public market capitalization as of the date of consummation of the Fundamental Transaction.

 

(ff)           “Permitted Indebtedness” means (i) Indebtedness evidenced by this Note, (ii) Indebtedness secured by Permitted Liens described in clauses (iv) and (v) of the definition of Permitted Liens, (iii) the Senior Debt to the extent permitted by the Subordination Agreement, (iv) Indebtedness owed between the Company and any Subsidiary that has executed the Security Agreement (as defined in the Debt Exchange Agreement) and the Guaranty (as defined in the Debt Exchange Agreement) and, to the extent a New Subsidiary, otherwise complied with Section 15(o) hereof in all respects, or between any such Subsidiaries, (v) Indebtedness incurred by the Company that is made expressly subordinate in right of payment to the Indebtedness evidenced by this Note, as reflected in a written agreement reasonably acceptable to the Holder (collectively, the “Permitted Subordinated Indebtedness”), (vi) the Indebtedness described on Schedule 32(ff) and (vii) Indebtedness outstanding on the Issuance Date, as described on Schedule 3(s) to the Debt Exchange Agreement, and all Indebtedness resulting from the extension, renewal or refinancing thereof.

 

(gg)         “Permitted Liens” means (i) any Lien for taxes not yet due or delinquent or being contested in good faith by appropriate proceedings for which adequate reserves have been established in accordance with GAAP, (ii) any statutory Lien arising in the ordinary course of business by operation of law with respect to a liability that is not yet due or delinquent, (iii) any Lien created by operation of law, such as materialmen’s liens, mechanics’ liens and other similar liens, arising in the ordinary course of business with respect to a liability that is not yet due or delinquent

 

39

 

or that are being contested in good faith by appropriate proceedings, (iv) Liens (A) upon or in any equipment or other assets acquired or held by the Company or any of its Subsidiaries to secure the purchase price of such equipment or other asset or indebtedness incurred at the time of acquisition or lease, as applicable, solely for the purpose of financing the acquisition or lease of such equipment or other asset, or (B) existing on such equipment or other asset at the time of its acquisition or lease, provided that the Lien is confined solely to the property so acquired or leased and improvements thereon, and the proceeds of such equipment or other assets (including, without limitation, Liens with respect to the PSL Lease, Liens with respect to debt incurred in connection with state and local government bond and grant monies received in connection with the development and operation of digital animation studios in Port St. Lucie, Florida and West Palm Beach, Florida, Liens with respect to debt incurred in connection with the acquisition and development of real property known as the “Tent Site” on the corner of Dixie Highway and Okeechobee Boulevard in downtown West Palm Beach, Florida, and the construction of infrastructure and buildings thereon), (v) Liens incurred in connection with the extension, renewal or refinancing of the indebtedness secured by Liens of the type described in clause (iv) above, provided that any extension, renewal or replacement Lien shall be limited to the property encumbered by the existing Lien and the principal amount of the Indebtedness being extended, renewed or refinanced does not increase, (vi) Liens in favor of customs and revenue authorities arising as a matter of law to secure payments of custom duties in connection with the importation of goods, (vii) Liens arising from judgments, decrees or attachments in circumstances not constituting an Event of Default under Section 4(a)(xii) of the Senior Notes, (viii) any Lien securing the Senior Debt to the extent the Senior Debt is permitted by the Subordination Agreement, and any Lien securing this Note, and (ix) any Lien securing Permitted Subordinated Indebtedness.

 

(hh)         “Person” means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization, any other entity or a government or any department or agency thereof.

 

(ii)           “Principal Market” means The New York Stock Exchange.

 

(jj)           “Redemption Notices” means, collectively, the Event of Default Redemption Notices, and each of the foregoing, individually, a “Redemption Notice”.

 

(kk)         “Redemption Price” means the applicable Event of Default Redemption Price.

 

(ll)           “Registration Rights Agreement” means that certain registration rights agreement, dated as of the Closing Date, by and among the Company and the initial Holder of this Note relating to, among other things, the registration of the resale of the Common Stock issuable upon conversion of this Note or otherwise pursuant to

 

40

 

the terms of this Note, as may be amended from time to time.

 

(mm)       “SEC” means the United States Securities and Exchange Commission or the successor thereto.

 

(nn)         “Senior Debt” has the meaning set forth in the Subordination Agreement.

 

(oo)         “Senior Notes” shall mean the Senior Secured Convertible Notes issued in connection with the Refinancing Senior Debt Documents (as defined in the Subordination Agreement) entered into by the Company on the Subscription Date.

 

(pp)         “Significant Subsidiaries” means, as of any date of determination, collectively, all Subsidiaries that would constitute a “significant subsidiary” under Rule 1-02 of Regulation S-X promulgated by the SEC, and each of the foregoing, individually, a “Significant Subsidiary”.

 

(qq)         “Subordination Agreement” is defined in the legend on the face page of this Note.

 

(rr)           “Subscription Date” means May [      ], 2012.

 

(ss)         “Subsidiaries” means, as of any date of determination, collectively, all Current Subsidiaries and all New Subsidiaries, and each of the foregoing, individually, a “Subsidiary”.

 

(tt)           “Successor Entity” means the Person (or, if so elected by the Holder, the Parent Entity) formed by, resulting from or surviving any Fundamental Transaction or the Person (or, if so elected by the Holder, the Parent Entity) with which such Fundamental Transaction shall have been entered into.

 

(uu)         “Trading Day” means any day on which the Common Stock is traded on the Principal Market, or, if the Principal Market is not the principal trading market for the Common Stock, then on the principal securities exchange or securities market on which the Common Stock is then traded, provided that “Trading Day” shall not include any day on which the Common Stock is scheduled to trade on such exchange or market for less than 4.5 hours or any day that the Common Stock is suspended from trading during the final hour of trading on such exchange or market (or if such exchange or market does not designate in advance the closing time of trading on such exchange or market, then during the hour ending at 4:00:00 p.m., New York time) unless such day is otherwise designated as a Trading Day in writing by the Holder.

 

(vv)         “Transaction Documents” has the meaning ascribed to such term in the Debt Exchange Agreement.

 

(ww)       “Voting Stock” of a Person means capital stock of such Person of the

 

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class or classes pursuant to which the holders thereof have the general voting power to elect, or the general power to appoint, at least a majority of the board of directors, managers, trustees or other similar governing body of such Person (irrespective of whether or not at the time capital stock of any other class or classes shall have or might have voting power by reason of the happening of any contingency).

 

(xx)          “VWAP” means, for any security as of any date, the dollar volume-weighted average price for such security on the Principal Market (or, if the Principal Market is not the principal trading market for such security, then on the principal securities exchange or securities market on which such security is then traded) during the period beginning at 9:30:01 a.m., New York time, and ending at 4:00:00 p.m., New York time, as reported by Bloomberg through its “Volume at Price” function or, if the foregoing does not apply, the dollar volume-weighted average price of such security in the over-the-counter market on the electronic bulletin board for such security during the period beginning at 9:30:01 a.m., New York time, and ending at 4:00:00 p.m., New York time, as reported by Bloomberg, or, if no dollar volume-weighted average price is reported for such security by Bloomberg for such hours, the average of the highest closing bid price and the lowest closing ask price of any of the market makers for such security as reported in the “pink sheets” by OTC Markets Group Inc. (formerly Pink Sheets LLC).  If the VWAP cannot be calculated for such security on such date on any of the foregoing bases, the VWAP of such security on such date shall be the fair market value as mutually determined by the Company and the Holder. If the Company and the Holder are unable to agree upon the fair market value of such security, then such dispute shall be resolved in accordance with the procedures in Section 25. All such determinations shall be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during such period.

 

33.           DISCLOSURE.  Upon receipt or delivery by the Company of any notice in accordance with the terms of this Note, unless the Company has in good faith determined that the matters relating to such notice do not constitute material, non-public information relating to the Company or any of its Subsidiaries, the Company shall within one (1) Business Day after any such receipt or delivery publicly disclose such material, non-public information on a Current Report on Form 8-K or otherwise. In the event that the Company believes that a notice contains material, non-public information relating to the Company or any of its Subsidiaries, the Company so shall indicate to such Holder contemporaneously with delivery of such notice, and in the absence of any such indication, the Holder shall be allowed to presume that all matters relating to such notice do not constitute material, non-public information relating to the Company or its Subsidiaries.  Nothing contained in this Section 33 shall limit any obligations of the Company, or any rights of the Holder, under Section 4(i) of the Debt Exchange Agreement.

 

34.           SUBORDINATION AGREEMENT CONTROLLING.  Notwithstanding any other term or provision of this Note, in the event (and solely to the extent) that any cash payment by the Company otherwise required under this Note is prohibited by the

 

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Subordination Agreement, the Company’s failure to comply with such term or provision of this Note by making such cash payment shall not constitute a breach by the Company of such term or provision or otherwise give rise to an Event of Default to the extent and for as long as such cash payment is prohibited by the Subordination Agreement and such payment shall instead be made in kind by adding the amount thereof to the Principal balance of this Note.  Without derogating from the generality of the foregoing, and for the avoidance of doubt, no cash payment may be made under this Note, whether by way of redemption, payment on the Maturity Date, or pursuant to Section 3, or otherwise, if and to the extent and for so long as such cash payment is prohibited by the terms of the Subordination Agreement.  Notwithstanding the foregoing, the provisions of this Section 34 shall not apply in the event of any matter or circumstance covered by subsections (ix), (x) or (xi) of Section 4(a).

 

[Signature page follows]

 

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IN WITNESS WHEREOF, the Company has caused this Note to be duly executed as of the Issuance Date set out above.

 

 

	
 
    	
DIGITAL DOMAIN MEDIA GROUP, INC.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
 
    	
Name:
    
	
 
    	
 
    	
Title:
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
Solely   with respect to Section 8:
    
	
 
    	
 
    
	
 
    	
COMVEST CAPITAL II, L.P.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
 
    	
Name:
    
	
 
    	
 
    	
Title:
    

 

(Signature Page of Secured Convertible Note)

 

 

EXHIBIT I

 

DIGITAL DOMAIN MEDIA GROUP, INC.
 CONVERSION NOTICE

 

Reference is made to the Secured Convertible Note (the “Note”) issued to the undersigned by Digital Domain Media Group, Inc. (the “Company”). In accordance with and pursuant to the Note, the undersigned hereby elects to convert the Conversion Amount (as defined in the Note) of the Note indicated below into shares of Common Stock, $0.01 par value per share (the “Common Stock”), of the Company, as of the date specified below.

 

 

	
Date   of Conversion:
    	
 
    	
 
    
	
 
    	
 
    
	
Aggregate   Principal to be converted:
    	
 
    
	
 
    	
 
    
	
Aggregate   accrued and unpaid Interest and accrued and unpaid Late Charges (and, as   applicable, other Non-Principal Amounts) with respect to such portion of the   Aggregate Principal and such Aggregate Interest to be converted:
    	
 
    
	
 
    	
 
    
	
AGGREGATE   CONVERSION AMOUNT TO BE CONVERTED:
    	
 
    
	
 
    	
 
    
	
Please   confirm the following information:
    	
 
    
	
 
    	
 
    
	
Conversion   Price:
    	
 
    
	
 
    	
 
    
	
Number   of shares of Common Stock to be issued:
    	
 
    
	
 
    	
 
    
	
Please issue the Common Stock into which the Note is being converted   in the following name and to the following address:
    
	
 
    	
 
    
	
Issue   to:
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
Facsimile   Number:
    	
 
    
	
 
    	
 
    
	
Holder:
    	
 
    
	
 
    	
 
    
	
By:
    	
 
    	
 
    
				

 

 

	
Title:
    	
 
    	
 
    
	
 
    	
 
    
	
Dated:
    	
 
    	
 
    
	
 
    	
 
    
	
Account   Number:
    	
 
    
	
  (if   electronic book entry transfer)
    	
 
    
	
 
    	
 
    
	
Transaction   Code Number:
    	
 
    
	
  (if   electronic book entry transfer)
    	
 
    
				

 

 

 

ACKNOWLEDGMENT

 

The Company hereby acknowledges this Conversion Notice and hereby directs                       to issue the above indicated number of shares of Common Stock in accordance with the Transfer Agent Instructions dated                     , 20     from the Company and acknowledged and agreed to by                         .

 

 

	
 
    	
DIGITAL DOMAIN MEDIA GROUP, INC.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
 
    	
Name:
    
	
 
    	
 
    	
Title:Exhibit 10.12

 

This instrument and the rights and obligations evidenced hereby and any security interests or other liens securing such obligations are subordinate in the manner and to the extent set forth in that certain Subordination And Intercreditor Agreement dated as of May 7, 2012 (as amended, restated or otherwise modified from time to time, the “Subordination Agreement”) among HUDSON BAY MASTER FUND LTD., as First Lien Collateral Agent (the “First Lien Collateral Agent”), COMVEST CAPITAL II, L.P. (the “Subordinated Creditor”), and DIGITAL DOMAIN MEDIA GROUP, INC. (the “Company”) to the indebtedness (including interest) owed by the Company, and the security interests and liens securing such indebtedness, pursuant to that certain Securities Purchase Agreement dated as of May 6, 2012 among the Company, First Lien Collateral Agent and the buyers from time to time party thereto, that certain Security And Pledge Agreement dated as of May 7, 2012 by and among the Company, First Lien Collateral Agent, and the grantors party thereto, that certain Canadian Security And Pledge Agreement dated as of May 7, 2012 by and among the Company, First Lien Collateral Agent, and the grantors party thereto, and various related documents, and to indebtedness refinancing the indebtedness under such documents as contemplated by the Subordination Agreement.  Each holder of this instrument, by its acceptance hereof, irrevocably agrees to be bound by the provisions of the Subordination Agreement.

 

SECURITY AND PLEDGE AGREEMENT

 

SECURITY AND PLEDGE AGREEMENT, dated as of May 7, 2012 (this “Agreement”), is made by Digital Domain Media Group, Inc., a Florida corporation (the “Company”), and the undersigned subsidiaries of the Company (each a “Grantor” and collectively and together with the Company, the “Grantors”), in favor of Comvest Capital II, L.P., a Delaware limited partnership, as lender under the Debt Exchange Agreement (as defined below) (the “Lender”).

 

W  I  T  N  E  S  S  E  T  H:

 

WHEREAS, Digital Domain Media Group, Inc., a Florida corporation (the “Company”) and the Lender are parties to the Debt Exchange Agreement of even date herewith (as amended, restated, replaced or otherwise modified from time to time, the “Debt Exchange Agreement”), pursuant to which the Company and the Lender have agreed, among other things, that the Remaining Outstanding Principal Balance (as defined in the Debt Exchange Agreement) will be exchanged into a new secured convertible note of the Company  (as amended, restated, replaced or otherwise modified from time to time, the “Note”);

 

WHEREAS, each of the Grantors (other than the Company) (collectively, the “Guarantors”) has executed and delivered a Guaranty dated the date hereof (the “Guaranty”) in favor of the Lender, with respect to the Company’s obligations under the Debt Exchange Agreement, the Note and the Transaction Documents (as defined below);

 

1

 

WHEREAS, the Debt Exchange Agreement requires that the Grantors execute and deliver to the Lender this Agreement providing for the grant to the Lender of a security interest in all personal property of each Grantor to secure all of the Company’s obligations under the Debt Exchange Agreement, the Note, and the “Transaction Documents” (as defined in the Debt Exchange Agreement) and the Guarantors’ obligations under the Guaranty; and

 

WHEREAS, the Grantors have determined that the execution, delivery and performance of this Agreement directly benefits, and is in the best interest of, the Grantors.

 

NOW, THEREFORE, in consideration of the premises and the agreements herein and in order to induce the Lender to perform under the Debt Exchange Agreement, each Grantor agrees with the Lender as follows:

 

SECTION 1.                                      Definitions.

 

(a)                                  Reference is hereby made to the Debt Exchange Agreement and the Note for a statement of the terms thereof.  All terms used in this Agreement and the recitals hereto which are defined in the Debt Exchange Agreement, the Note or in Articles 8 or 9 of the Uniform Commercial Code as in effect from time to time in the State of New York (the “Code”), and which are not otherwise defined herein shall have the same meanings herein as set forth therein; provided that terms used herein which are defined in the Code as in effect in the State of New York on the date hereof shall continue to have the same meaning notwithstanding any replacement or amendment of such statute except as the Lender may otherwise determine; provided, further that, if perfection or the effect of perfection or non-perfection or the priority of any security interest in any Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than the State of New York, “Code” means the Uniform Commercial Code as in effect from time to time in such other jurisdiction for purposes of the provisions hereof relating to such perfection, effect of perfection or non-perfection or priority.

 

(b)                                 The following terms shall have the respective meanings provided for in the Code:  “Accounts”, “Cash Proceeds”, “Certificate of Title”, “Chattel Paper”, “Commercial Tort Claim”, “Commodity Account”, “Commodity Contracts”, “Deposit Account”, “Documents”, “Equipment”, “Fixtures”, “General Intangibles”, “Goods”, “Instruments”, “Inventory”, “Investment Property”, “Letter-of-Credit Rights”, “Noncash Proceeds”, “Payment Intangibles”, “Proceeds”, “Promissory Notes”, “Security”, “Record”, “Security Account”, “Software”, and “Supporting Obligations”.

 

(c)                                  As used in this Agreement, the following terms shall have the respective meanings indicated below, such meanings to be applicable equally to both the singular and plural forms of such terms:

 

“Capital Stock” means (i) with respect to any Person that is a corporation, any and all shares, interests, participations or other equivalents (however designated and whether or not voting) of corporate stock, and (ii) with respect to any Person that is not a corporation, any and all partnership, membership or other equity interests of such Person.

 

“Copyright Licenses” means all licenses, contracts or other agreements, whether written or oral, naming any Grantor as licensee or licensor and providing for the grant of any

 

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right to use or sell any works covered by any copyright (including, without limitation, all Copyright Licenses set forth in Schedule II hereto).

 

“Copyrights” means all domestic and foreign copyrights, whether registered or not, including, without limitation, all copyright rights throughout the universe (whether now or hereafter arising) in any and all media (whether now or hereafter developed), in and to all original works of authorship fixed in any tangible medium of expression, acquired or used by any Grantor (including, without limitation, all copyrights described in Schedule II hereto), all applications, registrations and recordings thereof (including, without limitation, applications, registrations and recordings in the United States Copyright Office or in any similar office or agency of the United States or any other country or any political subdivision thereof), and all reissues, divisions, continuations, continuations in part and extensions or renewals thereof.

 

“Event of  Default” shall have the meaning set forth in the Note.

 

“Governmental Authority” means any nation or government, any Federal, state, city, town, municipality, county, local or other political subdivision thereof or thereto and any department, commission, board, bureau, instrumentality, agency or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government.

 

“Insolvency Proceeding” means any proceeding commenced by or against any Person under any provision of the Bankruptcy Code (Chapter 11 of Title 11 of the United States Code) or under any other bankruptcy or insolvency law, assignments for the benefit of creditors, formal or informal moratoria, compositions, or extensions generally with creditors, or proceedings seeking reorganization, arrangement, or other similar relief.

 

“Intellectual Property” means the Copyrights, Trademarks and Patents.

 

“Licenses” means the Copyright Licenses, the Trademark Licenses and the Patent Licenses.

 

“Lien” means any mortgage, lien, pledge, charge, security interest or other encumbrance upon or in any property or assets (including accounts and contract rights).

 

“Patent Licenses” means all licenses, contracts or other agreements, whether written or oral, naming any Grantor as licensee or licensor and providing for the grant of any right to manufacture, use or sell any invention covered by any Patent (including, without limitation, all Patent Licenses set forth in Schedule II hereto).

 

“Patents” means all domestic and foreign letters patent, design patents, utility patents, industrial designs, inventions, trade secrets, ideas, concepts, methods, techniques, processes, proprietary information, technology, know-how, formulae, rights of publicity and other general intangibles of like nature, now existing or hereafter acquired or used by any Grantor (including, without limitation, all domestic and foreign letters patent, design patents, utility patents, industrial designs, inventions, trade secrets, ideas, concepts, methods, techniques, processes, proprietary information, technology, know-how and formulae described in Schedule II hereto), all applications, registrations and recordings thereof (including, without limitation,

 

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applications, registrations and recordings in the United States Patent and Trademark Office, or in any similar office or agency of the United States or any other country or any political subdivision thereof), and all reissues, divisions, continuations, continuations in part and extensions or renewals thereof.

 

“Person” means an individual, corporation, limited liability company, partnership, association, joint-stock company, trust, unincorporated organization, joint venture or other enterprise or entity or Governmental Authority.

 

“Pledged Entity” means any issuer of Capital Stock.

 

“Trademark Licenses” means all licenses, contracts or other agreements, whether written or oral, naming any Grantor as licensor or licensee and providing for the grant of any right concerning any Trademark, together with any goodwill connected with and symbolized by any such trademark licenses, contracts or agreements and the right to prepare for sale or lease and sell or lease any and all Inventory now or hereafter owned by any Grantor and now or hereafter covered by such licenses (including, without limitation, all Trademark Licenses described in Schedule II hereto).

 

“Trademarks” means all domestic and foreign trademarks, service marks, collective marks, certification marks, trade names, business names, d/b/a’s, Internet domain names, trade styles, designs, logos and other source or business identifiers and all general intangibles of like nature, now or hereafter owned, adopted, acquired or used by any Grantor (including, without limitation, all domestic and foreign trademarks, service marks, collective marks, certification marks, trade names, business names, d/b/a’s, Internet domain names, trade styles, designs, logos and other source or business identifiers described in Schedule II hereto), all applications, registrations and recordings thereof (including, without limitation, applications, registrations and recordings in the United States Patent and Trademark Office or in any similar office or agency of the United States, any state thereof or any other country or any political subdivision thereof), and all reissues, extensions or renewals thereof, together with all goodwill of the business symbolized by such marks and all customer lists, formulae and other Records of any Grantor relating to the distribution of products and services in connection with which any of such marks are used.

 

SECTION 2.                                      Grant of Security Interest.  As collateral security for all of the “Obligations” (as defined in Section 3 hereof), each Grantor hereby pledges and assigns to the Lender, and grants to the Lender, a continuing security interest in all personal property of said Grantor, wherever located and whether now or hereafter existing and whether now owned or hereafter acquired, of every kind and description, tangible or intangible (collectively, the “Collateral”), including, without limitation, the following:

 

(a)                                  all Accounts;

 

(b)                                 all Chattel Paper (whether tangible or electronic);

 

(c)                                  the Commercial Tort Claims specified on Schedule VI hereto;

 

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(d)                                 all Deposit Accounts, all cash and other property from time to time deposited therein and the monies and property in the possession or under the control of the Lender or any affiliate, representative, agent or correspondent of the Lender;

 

(e)                                  all Documents;

 

(f)                                    all Equipment;

 

(g)                                 all Fixtures;

 

(h)                                 all General Intangibles (including, without limitation, all Payment Intangibles);

 

(i)                                     all Goods;

 

(j)                                     all Instruments (including, without limitation, Promissory Notes and each certificated Security);

 

(k)                                  all Inventory;

 

(l)                                     all Investment Property;

 

(m)                               all Copyrights, Patents and Trademarks, and all Licenses;

 

(n)                                 all Letter-of-Credit Rights;

 

(o)                                 all Motor Vehicles;

 

(p)                                 all Supporting Obligations;

 

(q)                                 all other tangible and intangible personal property of each Grantor (whether or not subject to the Code), including, without limitation, all bank and other accounts and all cash and all investments therein, all proceeds, products, offspring, accessions, rents, profits, income, benefits, substitutions and replacements of and to any of the property of any Grantor described in the preceding clauses of this Section 2 (including, without limitation, any proceeds of insurance thereon and all causes of action, claims and warranties now or hereafter held by each Grantor in respect of any of the items listed above), and all books, correspondence, files and other Records, including, without limitation, all tapes, desks, cards, Software, data and computer programs in the possession or under the control of any Grantor or any other Person from time to time acting for any Grantor, in each case, to the extent of such Grantor’s rights therein, that at any time evidence or contain information relating to any of the property described in the preceding clauses of this Section 2 or are otherwise necessary or helpful in the collection or realization thereof; and

 

(r)                                    all Proceeds, including all Cash Proceeds and Noncash Proceeds, and products of any and all of the foregoing Collateral;

 

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in each case howsoever any Grantor’s interest therein may arise or appear (whether by ownership, security interest, claim or otherwise).

 

Each Grantor has agreed not to further encumber any of its Copyrights, Copyright applications, Copyright registrations and like protections in each work of authorship and derivative work, whether published or unpublished, any Licenses, Patents, Patent applications and like protections, including improvements, divisions, continuations, renewals, reissues, extensions, and continuations-in-part of the same, Trademarks, service marks and, to the extent permitted under applicable law, any applications therefor, whether registered or not, and the goodwill of the business of such Grantor connected with and symbolized thereby, know-how, operating manuals, trade secret rights, rights to unpatented inventions, and any claims for damage by way of any past, present, or future infringement of any of the foregoing, without the Lender’s prior written consent, other than liens on such Collateral in favor of the First Lien Collateral Agent securing the Senior Debt (as defined in the Subordination Agreement).

 

In addition, to secure the prompt and complete payment, performance and observance of the Obligations and in order to induce the Lender as aforesaid, each Grantor hereby grants to Lender a right of set-off against the property of such Grantor held by the Lender, consisting of property described above in Section 2 now or hereafter in the possession or custody of or in transit to the Lender, for any purpose, including safekeeping, collection or pledge, for the account of such Grantor, or as to which such Grantor may have any right or power; provided that such right shall only to be exercised after an Event of Default has occurred and is continuing.

 

SECTION 3.                                      Security for Obligations.  The security interest created hereby in the Collateral constitutes continuing collateral security for all of the following obligations, whether direct or indirect, absolute or contingent, and whether now existing or hereafter incurred (collectively, the “Obligations”):

 

(a)                                  for so long as the Note is outstanding, (i) the payment by the Company, as and when due and payable (by scheduled maturity, required prepayment, acceleration, demand or otherwise), of all amounts from time to time owing by it in respect of the Debt Exchange Agreement, the Note and the other Transaction Documents, and (ii) in the case of any Guarantors, the payment by such Guarantors, as and when due and payable of all “Guaranteed Obligations” under (and as defined in) the Guaranty, including, without limitation, in both cases, (A) all principal of and interest on the Note (including, without limitation, all interest that accrues after the commencement of any Insolvency Proceeding of any Grantor, whether or not the payment of such interest is unenforceable or is not allowable due to the existence of such Insolvency Proceeding), and (B) all fees, interests, premiums, penalties, contract causes of action, costs, commissions, expense reimbursements, indemnifications and all other amounts due or to become due under any of the Transaction Documents; and

 

(b)                                 for so long as the Note is outstanding, the due performance and observance by each Grantor of all of its other obligations from time to time existing in respect of any of the Transaction Documents, including without limitation, with respect to any conversion or redemption rights of the Lender under the Note.

 

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SECTION 4.                                Representations and Warranties.  Each Grantor represents and warrants as of the date of this Agreement as follows:

 

(a)                                  Schedule I hereto sets forth (i) the exact legal name of each Grantor, and (ii) the state of incorporation, organization or formation and the organizational identification number of each Grantor in such state.  The information set forth in Schedule I hereto with respect to such Grantor is true and accurate in all respects.  Such Grantor has not previously changed its name, jurisdiction of organization or organizational identification number from those set forth in Schedule I hereto except as disclosed in Schedule I hereto.

 

(b)                                 Except as disclosed on Schedule VI,  there is no pending or, to its knowledge, written notice threatening any action, suit, proceeding or claim affecting any Grantor before any Governmental Authority or any arbitrator, or any order, judgment or award issued by any Governmental Authority or arbitrator, in each case, that may adversely affect the grant by any Grantor, or the perfection, of the security interest purported to be created hereby in the Collateral, or the exercise by the Lender of any of its rights or remedies hereunder.

 

(c)                                  All Federal, state and local tax returns and other reports required by applicable law to be filed by any Grantor have been filed, or extensions have been obtained, and all taxes, assessments and other governmental charges imposed upon any Grantor or any property of any Grantor (including, without limitation, all federal income and social security taxes on employees’ wages) and which have become due and payable on or prior to the date hereof have been paid, except to the extent contested in good faith by proper proceedings which stay the imposition of any penalty, fine or Lien resulting from the non-payment thereof and with respect to which adequate reserves have been set aside for the payment thereof in accordance with generally accepted accounting principles consistently applied (“GAAP”).

 

(d)                                 All Equipment, Fixtures, Goods and Inventory of each Grantor now existing are, and all Equipment, Fixtures, Goods and Inventory of each Grantor hereafter existing will be, located and/or based at the addresses specified therefor in Schedule III hereto, except that each Grantor will give the Lender written notice of any change in the location of any such Collateral within 20 days of such change, other than to locations set forth on Schedule III hereto (or a new Schedule III delivered by Grantors to Lender from time to time), and with respect to which the Lender has filed financing statements and otherwise fully perfected its Liens thereon or will take such actions pursuant to Section 5(m).  Each Grantor’s chief place of business and chief executive office, the place where each Grantor keeps its Records concerning Accounts and all originals of all Chattel Paper are located at the addresses specified therefor in Schedule III hereto.  None of the Accounts is evidenced by Promissory Notes or other Instruments.  Set forth in Schedule IV hereto is a complete and accurate list, as of the date of this Agreement, of (i) each Promissory Note, Security and other Instrument owned by each Grantor and (ii) each Deposit Account, Securities Account and Commodities Account of each Grantor, together with the name and address of each institution at which each such account is maintained, the account number for each such account and a description of the purpose of each such account.  Set forth in Schedule II hereto is a complete and correct list of each trade name used by each Grantor and the name of, and each trade name used by, each person from which each Grantor has acquired any substantial part of the Collateral.

 

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(e)                                  Each Grantor has delivered to the Lender complete and correct copies of each License described in Schedule II hereto, including all schedules and exhibits thereto, which represent all of the Licenses existing on the date of this Agreement.  Each such License sets forth the entire agreement and understanding of the parties thereto relating to the subject matter thereof, and there are no other agreements, arrangements or understandings, written or oral, relating to the matters covered thereby or the rights of such Grantor or any of its affiliates in respect thereof.  Each material License now existing is, and any material License entered into in the future will be, the legal, valid and binding obligation of the parties thereto, enforceable against such parties in accordance with its terms.  No default under any material License by any such party has occurred and is continuing, nor does any defense, offset, deduction or counterclaim exist thereunder in favor of any such party (other than pursuant to contractual terms allocating economic benefits between the parties thereto, which are described on Schedule 4(d).

 

(f)                                    Each Grantor owns and controls, or otherwise possesses adequate rights to use, all Trademarks, Patents and Copyrights, which are the only trademarks, patents, copyrights, inventions, trade secrets, proprietary information and technology, know-how, formulae, and rights of publicity necessary to conduct its business in substantially the same manner as conducted as of the date hereof.  Schedule II hereto sets forth a true and complete list of all registered copyrights, issued Patents, Trademarks, and Licenses owned or used by each Grantor as of the date hereof.  To the best knowledge of each Grantor, all such Intellectual Property of each Grantor is subsisting and in full force and effect, has not been adjudged invalid or unenforceable, is valid and enforceable and has not been abandoned in whole or in part.  Except as set forth in Schedule II, no such Intellectual Property is the subject of any licensing or franchising agreement.  Each Grantor has no knowledge of any conflict with the rights of others to any such Intellectual Property and, to the best knowledge of each Grantor, each Grantor is not now infringing or in conflict with any such rights of others in any material respect, and to the best knowledge of each Grantor, no other Person is now infringing or in conflict in any material respect with any such properties, assets and rights owned or used by each Grantor.  No Grantor has received any notice that it is violating or has violated the trademarks, patents, copyrights, inventions, trade secrets, proprietary information and technology, know-how, formulae, rights of publicity or other intellectual property rights of any third party.

 

(g)                                 Each Grantor is and will be at all times the sole and exclusive owner of, or otherwise has and will have adequate rights in, the Collateral free and clear of any Liens, except for Permitted Liens.  No effective financing statement or other instrument similar in effect covering all or any part of the Collateral is on file in any recording or filing office except such as (i) may have been filed in favor of the Lender relating to this Agreement or the other Security Documents or (ii) are described on Schedule 4(g) hereto.

 

(h)                                 The exercise by the Lender of any of its rights and remedies hereunder will not contravene any law or any contractual restriction binding on or otherwise affecting any Grantor or any of its properties and will not result in or require the creation of any Lien, upon or with respect to any of its properties.

 

(i)                                     No authorization or approval or other action by, and no notice to or filing with, any governmental authority or other regulatory body, is required for (i) the grant by each Grantor, or the perfection, of the security interest purported to be created hereby in the

 

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Collateral, or (ii) the exercise by the Lender of any of its rights and remedies hereunder, except (A) for the filing under the Uniform Commercial Code as in effect in the applicable jurisdiction of the financing statements described in Schedule V hereto (or a new Schedule V delivered by Grantors to Lender from time to time), all of which financing statements have been duly filed and are in full force and effect or will be duly filed and in full force and effect, (B) with respect to Deposit Accounts, and all cash and other property from time to time deposited therein, for the execution of a control agreement with the depository institution with which such account is maintained, as provided in Section 5(i), (C) with respect to Commodity Contracts, for the execution of a control agreement with the commodity intermediary with which such commodity contract is carried, as provided in Section 5(i), (D) with respect to the perfection of the security interest created hereby in the United States Intellectual Property and Licenses, for the recording of the appropriate Assignment for Security, substantially in the form of Exhibit A hereto in the United States Patent and Trademark Office or the United States Copyright Office, as applicable, (E) with respect to the perfection of the security interest created hereby in foreign Intellectual Property and Licenses, for registrations and filings in jurisdictions located outside of the United States and covering rights in such jurisdictions relating to such foreign Intellectual Property and Licenses, (F) with respect to the perfection of the security interest created hereby in certificated Collateral, for the submission of an appropriate application requesting that the Lien of the Lender be noted on the Certificate of Title or certificate of ownership, completed and authenticated by the applicable Grantor, together with the Certificate of Title or certificate of ownership, with respect to such Titled Collateral, to the appropriate Governmental Authority, (G) with respect to the perfection of the security interest created hereby in any Letter-of-Credit Rights, for the consent of the issuer of the applicable letter of credit to the assignment of proceeds as provided in the Uniform Commercial Code as in effect in the applicable jurisdiction, (H) with respect to Investment Property constituting certificated securities or instruments, such items shall be delivered to and held by or on behalf of the Lender pursuant hereto and shall be in suitable form for transfer by delivery, or shall be accompanied by duly executed instruments of transfer or assignment in blank, all in form and substance satisfactory to the Lender; (I) with respect to Investment Property constituting uncertificated securities, the applicable Grantor will cause the issuer thereof either (i) to register the Lender as the registered owner of such security or (ii) to agree in an authenticated record with such Grantor and the Lender that such issuer will comply with instructions with respect to such security originated by the Lender without further consent of such Grantor, such authenticated record to be in form and substance satisfactory to the Lender; (J) with respect to any Collateral that constitutes a Commodity Contract, the applicable Grantor shall cause the commodity intermediary with respect to such Commodity Contract to agree in an authenticated record with such Grantor and the Lender that such commodity intermediary will apply any value distributed on account of such Commodity Contract as directed by the Lender without further consent of such Grantor; (K) with respect to Deposit Accounts, all such accounts shall be maintained with a bank (the “Pledged Account Bank”) that has agreed, in a record authenticated by the Grantor, the Lender and the Pledged Account Bank, to (i) comply with instructions originated by the Lender during the pendency of an Event of Default directing the disposition of funds in the Deposit Account without the further consent of the Grantor and (ii) waive or subordinate in favor of the Lender all claims of the Pledged Account Bank to the Collateral in the account; (L) with respect to Electronic Chattel Paper, it shall be maintained so that the Lender has control of (i) the Electronic Chattel Paper in the manner specified in Section 9-105 of the Uniform Commercial Code and (ii) the transferable records in the manner specified

 

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in Section 16 of the Uniform Electronic Transactions Act, as in effect in the jurisdiction governing such transferable record; (M) with respect to Letter-of-Credit-Rights, for each Grantor maintaining all Letter-of-Credit Rights assigned to the Lender, including, without limitation, all letter-of-credit rights associated with the letters of credit, so that the Lender has control of the letter-of-credit rights in the manner specified in Section 9-107 of the Uniform Commercial Code; and (N) for the Lender having possession of all Documents, Chattel Paper, Instruments and cash constituting Collateral (subclauses (A), (B), (C), (D), (E), (F), G), (H) and (I), each a “Perfection Requirement” and collectively, the “Perfection Requirements”).

 

(j)                                     This Agreement creates in favor of the Lender a legal, valid and enforceable security interest in the Collateral, as security for the Obligations.  The performance of the Perfection Requirements results in the perfection of such security interests.  Such security interests are, or in the case of Collateral in which any Grantor obtains rights after the date hereof, will be, perfected, second priority security interests (subject in priority solely to Liens of the First Lien Collateral Agent (as defined in the Subordination Agreement) securing the Senior Debt, as defined in the Subordination Agreement), subject to no other Liens other than Permitted Liens).  Such recordings and filings and all other action necessary to perfect and protect such security interest have been duly taken or will be taken pursuant to Section 5(m), and, in the case of Collateral in which any Grantor obtains rights after the date hereof, will be duly taken, except for the Lender’s having possession of all Documents, Chattel Paper, Instruments and cash constituting Collateral after the date hereof and the other actions, filings and recordations described above, including the Perfection Requirements.

 

(k)                                  As of the date hereof, no Grantor holds any Commercial Tort Claims or has knowledge of any pending Commercial Tort Claims, except for such Commercial Tort Claims described in Schedule VI.

 

(l)                                     All of the pledged Securities and Capital Stock (the “Pledged Equity”) is presently owned by the applicable Grantor as set forth in Schedule IV, and is presently represented by the certificates listed on Schedule IV hereto.  As of the date hereof, there are no existing options, warrants, calls or commitments of any character whatsoever relating to the Pledged Equity other than as contemplated and permitted by the Transaction Documents.  Each Grantor is the sole holder of record and the sole beneficial owner of the Pledged Equity, as applicable.  None of the Pledged Equity has been issued or transferred in violation of the securities registration, securities disclosure or similar laws of any jurisdiction to which such issuance or transfer may be subject.  The Pledged Equity constitutes 100% or such other percentage as set forth of Schedule IV of the issued and outstanding shares of Capital Stock of the applicable Pledged Entity.

 

(m)                               Each Grantor hereby represents and warrants as of the date first written above as follows:

 

(i)                                     Such Grantor (A) is a corporation, limited liability company or limited partnership duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (B) has all requisite corporate, limited liability company or limited partnership power and authority to conduct its business as now conducted and as presently contemplated and to execute and deliver this Agreement and each other Transaction

 

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Document to which such Grantor is a party, and to consummate the transactions contemplated hereby and thereby and (C) is duly qualified to do business and is in good standing in each jurisdiction in which the character of the properties owned or leased by it or in which the transaction of its business makes such qualification necessary except where the failure to be so qualified would not result in a Material Adverse Effect.

 

(ii)                                  The execution, delivery and performance by each Grantor of this Agreement and each other Transaction Document to which such Grantor is a party (A) have been duly authorized by all necessary corporate, limited liability company or limited partnership action, (B) do not and will not contravene its charter or by-laws, its limited liability company or operating agreement or its certificate of partnership or partnership agreement, as applicable, or any applicable law or any contractual restriction binding on such Grantor or its properties do not and will not result in or require the creation of any lien (other than pursuant to any Transaction Document) upon or with respect to any of its properties, and (C) to such Grantor’s knowledge, do not and will not result in any default, noncompliance, suspension, revocation, impairment, forfeiture or nonrenewal of any material permit, license, authorization or approval applicable to it or its operations or any of its properties.

 

(iii)                               Each of this Agreement and the other Transaction Documents to which any Grantor is or will be a party, when delivered, will be, a legal, valid and binding obligation of the Grantor, enforceable against such Grantor in accordance with its terms, except as may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, suretyship or other similar laws and equitable principles (regardless of whether enforcement is sought in equity or at law).

 

(iv)                              There are no conditions precedent to the effectiveness of this Agreement that have not been satisfied or waived.

 

SECTION 5.                                Covenants as to the Collateral.  So long as any of the Obligations shall remain outstanding, unless the Lender shall otherwise consent in writing:

 

(a)                                  Further Assurances.  Each Grantor will at its expense, at any time and from time to time, promptly execute and deliver all further instruments and documents and take all further action that the Lender may reasonably request in order to:  (i) perfect and protect the security interest purported to be created hereby; (ii) enable the Lender to exercise and enforce its rights and remedies hereunder in respect of the Collateral; or (iii) otherwise effect the purposes of this Agreement, including, without limitation:  (A) marking conspicuously all Chattel Paper and each License and, at the request of the Lender, each of its Records pertaining to the Collateral with a legend, in form and substance satisfactory to the Lender, indicating that such Chattel Paper, License or Collateral is subject to the security interest created hereby, (B)  delivering and pledging to the Lender each Promissory Note, Security, Chattel Paper or other Instrument, now or hereafter owned by any Grantor, duly endorsed and accompanied by executed instruments of transfer or assignment, all in form and substance satisfactory to the Lender, (C) executing and filing (to the extent, if any, that any Grantor’s signature is required thereon) or authenticating the filing of, such financing or continuation statements, or amendments thereto, as may be necessary or that the Lender may reasonably request in order to perfect and preserve the security interest purported to be created hereby, (D) furnishing to the

 

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Lender from time to time statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral in each case as the Lender may reasonably request, all in reasonable detail, (E) if any Collateral shall be in the possession of a third party, notifying such Person of the Lender’s security interest created hereby and obtaining a written acknowledgment from such Person that such Person holds possession of the Collateral for the benefit of the Lender, which such written acknowledgement shall be in form and substance reasonably satisfactory to the Lender, (F) if at any time after the date hereof, any Grantor acquires or holds any Commercial Tort Claim, promptly notifying the Lender in a writing signed by such Grantor setting forth a brief description of such Commercial Tort Claim and granting to the Lender a security interest therein and in the proceeds thereof, which writing shall incorporate the provisions hereof and shall be in form and substance satisfactory to the Lender, (G) upon the acquisition after the date hereof by any Grantor of any motor vehicle or other Equipment subject to a certificate of title or ownership (other than a Motor Vehicle or Equipment that is subject to a purchase money security interest), causing the Lender to be listed as the lienholder on such certificate of title or ownership and delivering evidence of the same to the Lender in accordance with Section 5(j) hereof; and (H) taking all actions required by any earlier versions of the Uniform Commercial Code or by other law, as applicable, in any relevant Uniform Commercial Code jurisdiction, or by other law as applicable in any foreign jurisdiction.

 

(b)                                 Location of Equipment and Inventory.  Each Grantor will keep the Equipment and Inventory (i) at the locations specified therefor on Schedule III hereto, or (ii) at such other locations set forth on Schedule III (or a new Schedule III delivered by Grantors to Lender from time to time) and with respect to which the Lender has filed financing statements and otherwise fully perfected its Liens thereon, or (iii) at such other locations in the United States, provided that within 20 days following the relocation of Equipment or Inventory to such other location or the acquisition of Equipment or Inventory, Grantor shall deliver to the Lender a new Schedule III indicating such new locations.

 

(c)                                  Condition of Equipment.  Each Grantor will maintain or cause the Equipment (necessary or useful to its business) to be maintained and preserved in good condition, repair and working order, ordinary wear and tear excepted, and will forthwith, or in the case of any loss or damage to any Equipment of any Grantor within a commercially reasonable time after the occurrence thereof, make or cause to be made all repairs, replacements and other improvements in connection therewith which are necessary or desirable, consistent with past practice, or which the Lender may reasonably request to such end.  Any Grantor will promptly furnish to the Lender a statement describing in reasonable detail any such loss or damage in excess of $250,000  per occurrence to any Equipment.

 

(d)                                 Taxes, Etc.  Each Grantor agrees to pay promptly when due all property and other taxes, assessments and governmental charges or levies imposed upon, and all claims (including claims for labor, materials and supplies) against, the Equipment and Inventory, except to the extent the validity thereof is being contested in good faith by proper proceedings which stay the imposition of any penalty, fine or Lien resulting from the non-payment thereof and with respect to which adequate reserves in accordance with GAAP have been set aside for the payment thereof.

 

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(e)                                  Insurance.

 

(i)                                     Each Grantor will, at its own expense, maintain insurance (including, without limitation, commercial general liability and property insurance) with respect to the Equipment and Inventory in such amounts, against such risks, in such form and with responsible and reputable insurance companies or associations as is required by any Governmental Authority having jurisdiction with respect thereto or as is carried generally in accordance with sound business practice by companies in similar businesses similarly situated and in any event, in amount, adequacy and scope reasonably satisfactory to the Lender.  Subject to the loss payee provisions set forth in the Senior Debt Documents (as defined in the Subordination Agreement), each such policy for liability insurance shall provide for all losses to be paid on behalf of the Lender and any Grantor as their respective interests may appear, and each policy for property damage insurance shall provide for all losses to be adjusted with, and paid directly to, the Lender.  Each such policy shall in addition (A) name the Lender as an additional insured party and loss payee thereunder (without any representation or warranty by or obligation upon the Lender) as its interest may appear, (B) subject to the loss payee provisions set forth in the Senior Debt Documents (as defined in the Subordination Agreement), contain an agreement by the insurer that, following and during the continuance of an Event of Default, any loss thereunder shall be payable to the Lender in its capacity as agent notwithstanding any action, inaction or breach of representation or warranty by any Grantor, (C) provide that there shall be no recourse against the Lender for payment of premiums or other amounts with respect thereto, and (D) provide that at least 30 days’ prior written notice of cancellation, lapse, expiration or other adverse change shall be given to the Lender by the insurer.  Any Grantor will, if so requested by the Lender, deliver to the Lender original or duplicate policies of such insurance and, as often as the Lender may reasonably request, a report of a reputable insurance broker with respect to such insurance.  Any Grantor will also, at the request of the Lender, execute and deliver instruments of assignment of such insurance policies and cause the respective insurers to acknowledge notice of such assignment.

 

(ii)                                  Reimbursement under any liability insurance maintained by any Grantor pursuant to this Section 5(e) may be paid directly to the Person who shall have incurred liability covered by such insurance.  In the case of any loss involving damage to Equipment or Inventory, any Grantor will make or cause to be made the necessary repairs to or replacements of such Equipment or Inventory, and any proceeds of insurance maintained by any Grantor pursuant to this Section 5(e) shall be paid to said Grantor as reimbursement for the costs of such repairs or replacements.

 

(iii)                               Notwithstanding subsection (e)(ii) above, following and during the continuance of an Event of Default, all insurance payments in respect of such Equipment or Inventory shall be paid to the Lender and applied as specified in Section 7(b) hereof.

 

(f)                                    Provisions Concerning the Accounts and the Licenses.

 

(i)                                     Each Grantor will (A) give the Lender at least 30 days’ prior written notice of any change in such Grantor’s name, identity or organizational structure, (B) maintain its jurisdiction of incorporation, organization or formation as set forth in Schedule I hereto, (C) immediately notify the Lender upon obtaining an organizational identification

 

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number, if on the date hereof such Grantor did not have such identification number, and (D) keep adequate Records concerning the Accounts and Chattel Paper and permit representatives of the Lender during normal business hours on reasonable notice to such Grantor, to inspect and make abstracts from such Records and Chattel Paper.

 

(ii)                                  Each Grantor will, except as otherwise provided in this subsection (f), continue to collect, at its own expense, all amounts due or to become due under the Accounts.  In connection with such collections, any Grantor may (and, at the Lender’s direction, will) take such action as any Grantor or the Lender may deem necessary or advisable to enforce collection or performance of the Accounts; provided, however, that the Lender shall have the right at any time, upon the occurrence and during the continuance of an Event of Default, to notify the account debtors or obligors under any Accounts of the assignment of such Accounts to the Lender and to direct such account debtors or obligors to make payment of all amounts due or to become due to any Grantor thereunder directly to the Lender or its designated agent and, upon such notification and at the expense of any Grantor and to the extent permitted by applicable law, to enforce collection of any such Accounts and to adjust, settle or compromise the amount or payment thereof, in the same manner and to the same extent as any Grantor might have done.  After receipt by any Grantor of a notice from the Lender that the Lender has notified, intends to notify, or has enforced or intends to enforce any Grantor’s rights against the account debtors or obligors under any Accounts as referred to in the proviso to the immediately preceding sentence, (A) all amounts and proceeds (including Instruments) received by any Grantor in respect of the Accounts shall be received in trust for the benefit of the Lender hereunder, shall be segregated from other funds of any Grantor and shall be forthwith paid over to the Lender in the same form as so received (with any necessary endorsement) to be applied as specified in Section 7(b) hereof, and (B) no Grantor will adjust, settle or compromise the amount or payment of any Account or release wholly or partly any account debtor or obligor thereof or allow any credit or discount thereon.  In addition, upon the occurrence and during the continuance of an Event of Default, the Lender may (with the consent or at the request of the Requisite Holders) direct any or all of the banks and financial institutions with which any Grantor either maintains a Deposit Account or a lockbox or deposits the proceeds of any Accounts to send immediately to the Lender by wire transfer (to such account as the Lender shall specify, or in such other manner as the Lender shall direct) all or a portion of the securities, cash, investments and other items held by such institution for the benefit of said Grantor.  Any such securities, cash, investments and other items so received by the Lender shall be applied as specified in accordance with Section 7(b) hereof.

 

(iii)                               Upon the occurrence and during the continuance of any breach or default under any material License referred to in Schedule II hereto by any party thereto other than any Grantor, each Grantor party thereto will, promptly after obtaining knowledge thereof, give the Lender written notice of the nature and duration thereof, specifying what action, if any, it has taken and proposes to take with respect thereto and thereafter will take reasonable steps to protect and preserve its rights and remedies in respect of such breach or default, or will obtain or acquire an appropriate substitute License.

 

(iv)                              Each Grantor will, at its expense, promptly deliver to the Lender a copy of each notice or other communication received by it by which any other party to any

 

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material License referred to in Schedule II hereto purports to exercise any of its rights or affect any of its obligations thereunder, together with a copy of any reply by such Grantor thereto.

 

(v)                                 Each Grantor will exercise promptly and diligently each and every right which it may have under each material License (other than any right of termination) and will duly perform and observe in all respects all of its obligations under each material License and will take all action reasonably necessary to maintain such Licenses in full force and effect.  No Grantor will, without the prior written consent of the Lender, cancel, terminate, amend or otherwise modify in any respect, or waive any provision of, any material License referred to in Schedule II hereto.

 

(g)                                 Transfers and Other Liens.

 

(i)                                     No Grantor will sell, assign (by operation of law or otherwise), lease, license, exchange or otherwise transfer or dispose of any of the Collateral, except (A) Inventory in the ordinary course of business, and (B) non-material worn out or obsolete assets, not necessary to the business.

 

(ii)                                  No Grantor will create, suffer to exist or grant any Lien upon or with respect to any Collateral other than a Permitted Lien.

 

(h)                                 Intellectual Property.

 

(i)                                     If applicable, any Grantor shall, upon the Lender’s written request, duly execute and deliver the applicable Intellectual Property Security Agreement in the form attached hereto as Exhibit A.  Each Grantor (either itself or through licensees) will, and will cause each licensee thereof to, take all action necessary to maintain all of the material Intellectual Property in full force and effect, including, without limitation, using the proper statutory notices and markings and using the material Trademarks on each applicable trademark class of goods in order to so maintain such Trademarks in full force and free from any claim of abandonment for non-use, and each Grantor will not (nor permit any licensee thereof to) do any act or knowingly omit to do any act whereby any material Intellectual Property may become invalidated.  Each Grantor will cause to be taken all necessary steps in any proceeding before the United States Patent and Trademark Office and the United States Copyright Office or any similar office or agency in any other country or political subdivision thereof to maintain each registration of the material Intellectual Property (other than the Intellectual Property described in the proviso to the immediately preceding sentence), including, without limitation, filing of renewals, affidavits of use, affidavits of incontestability and opposition, interference and cancellation proceedings and payment of maintenance fees, filing fees, taxes or other governmental fees.  If any material Intellectual Property (other than Intellectual Property described in the proviso to the first sentence of subsection (i) of this clause (h)) is infringed, misappropriated, diluted or otherwise violated in any material respect by a third party, each Grantor shall (x) upon learning of such infringement, misappropriation, dilution or other violation, promptly notify the Lender and (y) to the extent any Grantor shall deem appropriate under the circumstances, promptly sue for infringement, misappropriation, dilution or other violation, seek injunctive relief where appropriate and recover any and all damages for such infringement, misappropriation, dilution or other violation, or take such other actions as such Grantor shall deem appropriate under the circumstances to protect such

 

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Intellectual Property.  Each Grantor shall furnish to the Lender from time to time upon its request statements and schedules further identifying and describing the Intellectual Property and Licenses and such other reports in connection with the Intellectual Property and Licenses as the Lender may reasonably request, all in reasonable detail.  Promptly upon request of the Lender, following receipt by the Lender of any such statements, schedules or reports, each Grantor shall modify this Agreement by amending Schedule II hereto, as the case may be, to include any Intellectual Property and License, as the case may be, which becomes part of the Collateral under this Agreement and shall execute and authenticate such documents and do such acts as shall be necessary or, in the reasonable judgment of the Lender, desirable to subject such Intellectual Property and Licenses to the Lien and security interest created by this Agreement.  Notwithstanding anything herein to the contrary, upon the occurrence and during the continuance of an Event of Default, no Grantor may abandon or otherwise permit any Intellectual Property to become invalid without the prior written consent of the Lender, and if any Intellectual Property is infringed, misappropriated, diluted or otherwise violated in any material respect by a third party, each Grantor will take such action as the Lender shall deem appropriate under the circumstances to protect such Intellectual Property.

 

(ii)                                  In no event shall any Grantor, either itself or through any agent, employee, licensee or designee, file an application for the registration of any Trademark or Copyright or the issuance of any Patent with the United States Patent and Trademark Office or the United States Copyright Office, as applicable, or in any similar office or agency of the United States or any country or any political subdivision thereof unless it gives the Lender prior written notice thereof.  Upon request of the Lender, any Grantor shall execute, authenticate and deliver any and all assignments, agreements, instruments, documents and papers as the Lender may reasonably request to evidence the Lender’s security interest hereunder in such Intellectual Property and the General Intangibles of any Grantor relating thereto or represented thereby, and each Grantor hereby appoints the Lender its attorney-in-fact to execute and/or authenticate and file all such writings for the foregoing purposes, all acts of such attorney being hereby ratified and confirmed, and such power (being coupled with an interest) shall be irrevocable until the indefeasible payment in full in cash of all of the Obligations in full.

 

(i)                                     Deposit, Commodities and Securities Accounts.  To the extent not already delivered to Lender on or prior to the date hereof, within thirty (30) days following the date hereof (or such later date as agreed to by Lender), each Grantor shall cause each bank and other financial institution with an account referred to in Schedule IV hereto to execute and deliver to the Lender a control agreement, in form and substance reasonably satisfactory to the Lender, duly executed by each Grantor and such bank or financial institution, or enter into other arrangements in form and substance satisfactory to the Lender, pursuant to which such institution shall irrevocably agree, inter  alia, that (i) it will comply at any time with the instructions originated by the Lender to such bank or financial institution directing the disposition of cash, Commodity Contracts, securities, Investment Property and other items from time to time credited to such account, without further consent of any Grantor, which instructions the Lender will not give to such bank or other financial institution in the absence of a continuing Event of Default, (ii) all Commodity Contracts, securities, Investment Property and other items of each Grantor deposited with such institution shall be subject to a perfected, second priority security interests (subject in priority solely to Liens of the First Lien Collateral Agent (as defined in the Subordination Agreement) securing the Senior Debt) in favor of the Lender, (iii) any right of set

 

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off (other than recoupment of standard fees), banker’s Lien or other similar Lien, security interest or encumbrance shall be fully waived as against the Lender, and (iv) upon receipt of written notice from the Lender during the continuance of an Event of Default, such bank or financial institution shall immediately send to the Lender by wire transfer (to such account as the Lender shall specify, or in such other manner as the Lender shall direct) all such cash, the value of any Commodity Contracts, securities, Investment Property and other items held by it.  Without the prior written consent of the Lender, each Grantor shall not make or maintain any Deposit Account, Commodity Account or Securities Account except for the accounts set forth in Schedule IV hereto.  The provisions of this paragraph 5(i) shall not apply to Deposit Accounts specially and exclusively used for payroll, payroll taxes and other employee wage and benefit payments to or for the benefit of each Grantor’s salaried or hourly employees.

 

(j)                                     Motor Vehicles.

 

(i)                                     Upon the Lender’s written request, each Grantor shall deliver to the Lender originals of the certificates of title or ownership for all motor vehicles with an individual value in excess of $50,000, owned by it with the Lender listed as lienholder, for the benefit of the Lender.

 

(ii)                                  Each Grantor hereby appoints the Lender as its attorney-in-fact, effective the date hereof and terminating upon the termination of this Agreement, for the purpose of (A) executing on behalf of such Grantor title or ownership applications for filing with appropriate state agencies to enable motor vehicles now owned or hereafter acquired by such Grantor to be retitled and the Lender listed as lienholder thereof, (B) filing such applications with such state agencies, and (C) executing such other documents and instruments on behalf of, and taking such other action in the name of, such Grantor as the Lender may deem necessary or advisable to accomplish the purposes hereof (including, without limitation, for the purpose of creating in favor of the Lender a perfected Lien on the motor vehicles and exercising the rights and remedies of the Lender hereunder).  This appointment as attorney-in-fact is coupled with an interest and is irrevocable until all of the Obligations are indefeasibly paid in full in cash.

 

(iii)                               Any certificates of title or ownership delivered pursuant to the terms hereof shall be accompanied by odometer statements for each motor vehicle covered thereby.

 

(iv)                              So long as no Event of Default shall have occurred and be continuing, upon the request of any Grantor, the Lender shall execute and deliver to said Grantor such instruments as said Grantor shall reasonably request to remove the notation of the Lender as lienholder on any certificate of title for any motor vehicle; provided, however, that any such instruments shall be delivered, and the release effective, only upon receipt by the Lender of a certificate from any Grantor stating that such motor vehicle is to be sold or has suffered a casualty loss (with title thereto in such case passing to the casualty insurance company therefor in settlement of the claim for such loss) and the amount that any Grantor will receive as sale proceeds or insurance proceeds.  Any proceeds of such sale or casualty loss shall be paid to the Lender hereunder immediately upon receipt, to be applied to the Obligations then outstanding.

 

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(k)                                  Control.  Each Grantor hereby agrees to take any or all action that may be necessary or that the Lender may reasonably request in order for the Lender to obtain control in accordance with Sections 9-105 — 9-107 of the Code with respect to the following Collateral:  (i) Electronic Chattel Paper, (ii) Investment Property, and (iii) Letter-of-Credit Rights.

 

(l)                                     Inspection and Reporting.  Each Grantor shall permit the Lender, or any agent or representatives thereof or such professionals or other Persons as the Lender may designate, during normal business hours, after reasonable notice in the absence of an Event of Default and not more than once a year in the absence of an Event of Default, (i) to examine and make copies of and abstracts from any Grantor’s records and books of account, (ii) to visit and inspect its properties, (iii) to verify materials, leases, Instruments, Accounts, Inventory and other assets of any Grantor from time to time, and (iv) to conduct audits, physical counts, appraisals and/or valuations, and examinations at the locations of any Grantor.  Each Grantor shall also permit the Lender, or any agent or representatives thereof or such professionals or other Persons as the Lender may designate to discuss such Grantor’s affairs, finances and accounts with any of its directors, officers, managerial employees, independent accountants or any of its other professional representatives.

 

(m)                               Future Subsidiaries.  If (A) any Inactive Subsidiary shall, after the date hereof, acquire any assets, incur any liabilities or engage in any business, simultaneously with the acquisition of such assets, incurrence of such liabilities or undertaking of such business, or (B) any Grantor shall hereafter create or acquire any Subsidiary, simultaneously with the creation or acquisition of such Subsidiary, Grantors (i) shall cause such Inactive Subsidiary or Subsidiary to become a party to this Agreement as an additional “Grantor” hereunder, (ii) shall deliver to the Lender revised Schedules to this Agreement, as appropriate, (iii) shall cause such Inactive Subsidiary or Subsidiary to duly execute and deliver a guaranty of the Obligations in favor of the Lender in form and substance reasonably acceptable to the Lender, and (iv) shall cause such Inactive Subsidiary or Subsidiary to duly execute and/or deliver such opinions of counsel and other documents, in form and substance reasonably acceptable to the Lender, as the Lender shall reasonably request with respect thereto; provided, that no Grantor shall pledge Capital Stock in excess of shares representing 100% of the nonvoting Capital Stock and 65% of the total combined voting power of all classes of Capital Stock entitled to vote of any and all Persons now or hereafter existing who is a Subsidiary organized under the laws of a jurisdiction other than the United States, any states thereof or the District of Columbia (a “Foreign Subsidiary”), if such action would result in material adverse, incremental tax liabilities to such Grantor under Section 956 of the IRC.  Each Grantor hereby authorizes Lender to attach such revised Schedules to this Agreement and agrees that all Pledged Equity listed on any revised Schedule delivered to Lender shall for all purposes hereunder be considered Collateral.  The Grantors agree that the pledge of the shares of Capital Stock acquired by a Grantor of Foreign Subsidiary may be supplemented by one or more separate pledge agreements, deeds of pledge, share charges, or other similar agreements or instruments, executed and delivered by the relevant Grantor in favor of the Lender, which pledge agreements will provide for the pledge of such shares of Capital Stock in accordance with the laws of the applicable foreign jurisdiction.  With respect to such shares of Capital Stock, the Lender may, at any time and from time to time, in its sole discretion, take actions in such foreign jurisdictions that will result in the perfection of the Lien created in such shares of Capital Stock.

 

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SECTION 6.                                Additional Provisions Concerning the Collateral.

 

(a)                                  To the maximum extent permitted by applicable law, and for the purpose of taking any action that the Lender may reasonably deem necessary or advisable to accomplish the purposes of this Agreement, each Grantor hereby (i) authorizes the Lender, in connection with the perfection of the security interests hereunder, to execute any such agreements, instruments or other documents in such Grantor’s name and to file such agreements, instruments or other documents in such Grantor’s name and in any appropriate filing office, (ii) authorizes the Lender at any time and from time to time to file one or more financing or continuation statements, and amendments thereto relating to the Collateral (including, without limitation, any such financing statements that (A) describe the Collateral as “all assets” or “all personal property” (or words of similar effect) or that describe or identify the Collateral by type or in any other manner as the Lender may determine regardless of whether any particular asset of such Grantor falls within the scope of Article 9 of the Code or whether any particular asset of such Grantor constitutes part of the Collateral, and (B) contain any other information required by Part 5 of Article 9 of the Code for the sufficiency or filing office acceptance of any financing statement, continuation statement or amendment, including, without limitation, whether such Grantor is an organization, the type of organization and any organizational identification number issued to such Grantor) and (iii) ratifies such authorization to the extent that the Lender has filed any such financing or continuation statements, or amendments thereto, prior to the date hereof.  A photocopy or other reproduction of this Agreement or any financing statement covering the Collateral or any part thereof shall be sufficient as a financing statement where permitted by law.

 

(b)                                 Each Grantor hereby irrevocably appoints the Lender as its attorney-in-fact and proxy, with full authority in the place and stead of such Grantor and in the name of such Grantor or otherwise, from time to time in the Lender’s discretion, so long as an Event of Default shall have occurred and is continuing, to take any action and to execute any instrument which the Lender may reasonably deem necessary or advisable to accomplish the purposes of this Agreement (subject to the rights of each Grantor under Section 5 hereof), including, without limitation, (i) to obtain and adjust insurance required to be paid to the Lender pursuant to Section 5(e) hereof, (ii) to ask, demand, collect, sue for, recover, compound, receive and give acquittance and receipts for moneys due and to become due under or in respect of any Collateral, (iii) to receive, endorse, and collect any drafts or other instruments, documents and chattel paper in connection with clause (i) or (ii) above, (iv) to file any claims or take any action or institute any proceedings which the Lender may deem necessary or desirable for the collection of any Collateral or otherwise to enforce the rights of the Lender with respect to any Collateral, and (v) to execute assignments, licenses and other documents to enforce the rights of the Lender with respect to any Collateral.  This power is coupled with an interest and is irrevocable until all of the Obligations are indefeasibly paid in full in cash.

 

(c)                                  For the purpose of enabling the Lender to exercise rights and remedies hereunder, at such time as the Lender shall be lawfully entitled to exercise such rights and remedies, and for no other purpose, each Grantor hereby grants to the Lender, to the extent assignable, an irrevocable, non-exclusive license (exercisable without payment of royalty or other compensation to any Grantor) to use, assign, license or sublicense any Intellectual Property now owned or hereafter acquired by such Grantor, wherever the same may be located, including in such license reasonable access to all media in which any of the licensed items may be

 

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recorded or stored and to all computer programs used for the compilation or printout thereof.  Notwithstanding anything contained herein to the contrary, but subject to the provisions of the Debt Exchange Agreement that limit the right of any Grantor to dispose of its property, and Section 5(g) and Section 5(h) hereof, so long as no Event of Default shall have occurred and be continuing, any Grantor may exploit, use, enjoy, protect, license, sublicense, assign, sell, dispose of or take other actions with respect to the Intellectual Property in the ordinary course of its business.  In furtherance of the foregoing, unless an Event of Default shall have occurred and be continuing, the Lender shall from time to time, upon the request of any Grantor, execute and deliver any instruments, certificates or other documents, in the form so requested, which such Grantor shall have certified are appropriate (in such Grantor’s judgment) to allow it to take any action permitted above (including relinquishment of the license provided pursuant to this clause (c) as to any Intellectual Property).  Further, upon the indefeasible payment in full in cash of all of the Obligations, the Lender (subject to Section 10(e) hereof) shall release and reassign to each Grantor all of the Lender’s right, title and interest in and to the Intellectual Property, and the Licenses, all without recourse, representation or warranty whatsoever.  The exercise of rights and remedies hereunder by the Lender shall not terminate the rights of the holders of any licenses or sublicenses theretofore granted by each Grantor in accordance with the second sentence of this clause (c).  Each Grantor hereby releases the Lender from any claims, causes of action and demands at any time arising out of or with respect to any actions taken or omitted to be taken by the Lender under the powers of attorney granted herein other than actions taken or omitted to be taken through the Lender’s gross negligence or willful misconduct, as determined by a final determination of a court of competent jurisdiction.

 

(d)                                 If any Grantor fails to perform any agreement or obligation contained herein, the Lender may itself perform, or cause performance of, such agreement or obligation, in the name of such Grantor or the Lender, and the expenses of the Lender incurred in connection therewith shall be payable by such Grantor pursuant to Section 8 hereof and shall be secured by the Collateral.

 

(e)                                  The powers conferred on the Lender hereunder are solely to protect its interest in the Collateral and shall not impose any duty upon it to exercise any such powers.  Except for the safe custody of any Collateral in its possession and the accounting for moneys actually received by it hereunder, the Lender shall have no duty as to any Collateral or as to the taking of any necessary steps to preserve rights against prior parties or any other rights pertaining to any Collateral.

 

(f)                                    Anything herein to the contrary notwithstanding (i) each Grantor shall remain liable under the Licenses and otherwise with respect to any of the Collateral to the extent set forth therein to perform all of its obligations thereunder to the same extent as if this Agreement had not been executed, (ii) the exercise by the Lender of any of its rights hereunder shall not release any Grantor from any of its obligations under the Licenses or otherwise in respect of the Collateral, and (iii) the Lender shall not have any obligation or liability by reason of this Agreement under the Licenses or with respect to any of the other Collateral, nor shall the Lender be obligated to perform any of the obligations or duties of any Grantor thereunder or to take any action to collect or enforce any claim for payment assigned hereunder.

 

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(g)                                 As long as no Event of Default shall have occurred and be continuing and until written notice shall be given to the applicable Grantor:

 

(i)                                     Each Grantor shall have the right, from time to time, to vote and give consents with respect to the Pledged Equity, or any part thereof for all purposes not inconsistent with the provisions of this Agreement, the Debt Exchange Agreement or any other Transaction Document; provided, however, that no vote shall be cast, and no consent shall be given or action taken, which would have the effect of impairing the position or interest of Lender in respect of the Pledged Equity or which would authorize, effect or consent to (unless and to the extent expressly permitted by the Debt Exchange Agreement):

 

(A)                              the dissolution or liquidation, in whole or in part, of a Pledged Entity;

 

(B)                                the consolidation or merger of a Pledged Entity with any other Person;

 

(C)                                the sale, disposition or encumbrance of all or substantially all of the assets of a Pledged Entity, except for Liens in favor of Lender;

 

(D)                               any change in the authorized number of shares, the stated capital or the authorized share capital of a Pledged Entity or the issuance of any additional shares of its Capital Stock; or

 

(E)                                 the alteration of the voting rights with respect to the Capital Stock of a Pledged Entity.

 

(h)                                 (i)                                     Each Grantor shall be entitled, from time to time, to collect and receive for its own use all cash dividends and interest paid in respect of the Pledged Equity to the extent not in violation of the Debt Exchange Agreement other than any and all: (A) dividends and interest paid or payable other than in cash in respect of any Pledged Equity, and instruments and other property received, receivable or otherwise distributed in respect of, or in exchange for, any Pledged Equity;  (B) dividends and other distributions paid or payable in cash in respect of any Pledged Equity in connection with a partial or total liquidation or dissolution or in connection with a reduction of capital, capital surplus or paid-in capital of a Pledged Entity; and (C) cash paid, payable or otherwise distributed, in respect of principal of, or in redemption of, or in exchange for, any Pledged Equity; provided, however, that until actually paid all rights to such distributions shall remain subject to the Lien created by this Agreement; and

 

(ii)                                  all dividends and interest (other than such cash dividends and interest as are permitted to be paid to any Grantor in accordance with clause  (i) above) and all other distributions in respect of any of the Pledged Equity, whenever paid or made, shall be delivered to Lender to hold as Pledged Equity and shall, if received by any Grantor, be received in trust for the benefit of Lender, be segregated from the other property or funds of such Grantor, and be forthwith delivered to Lender as Pledged Equity in the same form as so received (with any necessary endorsement).

 

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SECTION 7.                                Remedies Upon Event of Default.  If any Event of Default shall have occurred and be continuing:

 

(a)                                  The Lender may (with the consent or at the direction of the Requisite Holders) exercise in respect of the Collateral, in addition to any other rights and remedies provided for herein or otherwise available to it, all of the rights and remedies of a secured party upon default under the Code (whether or not the Code applies to the affected Collateral), and also may (i) take absolute control of the Collateral, including, without limitation, transfer into the Lender’s name or into the name of its nominee or nominees (to the extent the Lender has not theretofore done so) and thereafter receive all payments made thereon, give all consents, waivers and ratifications in respect thereof and otherwise act with respect thereto as though it were the outright owner thereof, (ii) require each Grantor to, and each Grantor hereby agrees that it will at its expense and upon request of the Lender forthwith, assemble all or part of its respective Collateral as directed by the Lender and make it available to the Lender at a place or places to be designated by the Lender that is reasonably convenient to both parties, and the Lender may enter into and occupy any premises owned or leased by any Grantor where the Collateral or any part thereof is located or assembled for a reasonable period in order to effectuate the Lender’s rights and remedies hereunder or under law, without obligation to any Grantor in respect of such occupation, and (iii) without notice except as specified below and without any obligation to prepare or process the Collateral for sale, (A) sell the Collateral or any part thereof in one or more parcels at public or private sale, at any of the Lender’s offices or elsewhere, for cash, on credit or for future delivery, and at such price or prices and upon such other terms as the Lender may deem commercially reasonable and/or (B) lease, license or dispose of the Collateral or any part thereof upon such terms as the Lender may deem commercially reasonable.  Each Grantor agrees that, to the extent notice of sale or any other disposition of its respective Collateral shall be required by law, at least ten (10) days’ notice to any Grantor of the time and place of any public sale or the time after which any private sale or other disposition of its respective Collateral is to be made shall constitute reasonable notification.  The Lender shall not be obligated to make any sale or other disposition of any Collateral regardless of notice of sale having been given.  The Lender may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned.  Each Grantor hereby waives any claims against the Lender arising by reason of the fact that the price at which its respective Collateral may have been sold at a private sale was less than the price which might have been obtained at a public sale or was less than the aggregate amount of the Obligations, even if the Lender accepts the first offer received and does not offer such Collateral to more than one offeree, and waives all rights that any Grantor may have to require that all or any part of such Collateral be marshaled upon any sale (public or private) thereof.  Each Grantor hereby acknowledges that (i) any such sale of its respective Collateral by the Lender shall be made without warranty, (ii) the Lender may specifically disclaim any warranties of title, possession, quiet enjoyment or the like, and (iii) such actions set forth in clauses (i) and (ii) above shall not adversely affect the commercial reasonableness of any such sale of Collateral.  In addition to the foregoing, (1) upon written notice to any Grantor from the Lender after and during the continuance of an Event of Default, such Grantor shall cease any use of the Intellectual Property or any trademark, patent or copyright similar thereto for any purpose described in such notice; (2) the Lender may, at any time and from time to time after and during the continuance of an Event of Default, upon 10 days’ prior notice to such Grantor, license, whether general, special or otherwise, and whether on

 

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an exclusive or non-exclusive basis, any of the Intellectual Property, throughout the universe for such term or terms, on such conditions, and in such manner, as the Lender shall in its sole discretion determine; and (3) the Lender may, at any time, pursuant to the authority granted in Section 6 hereof (such authority being effective upon the occurrence and during the continuance of an Event of Default), execute and deliver on behalf of such Grantor, one or more instruments of assignment of the Intellectual Property (or any application or registration thereof), in form suitable for filing, recording or registration in any country.

 

(b)                                 Any cash held by the Lender as Collateral and all Cash Proceeds received by the Lender in respect of any sale of or collection from, or other realization upon, all or any part of the Collateral shall be applied (after payment of any amounts payable to the Lender pursuant to Section 8 hereof) by the Lender against, all or any part of the Obligations in such order as provided in the Debt Exchange Agreement and the Note.  Any surplus of such cash or Cash Proceeds held by the Lender and remaining after the indefeasible payment in full in cash of all of the Obligations shall be paid over to whomsoever shall be lawfully entitled to receive the same or as a court of competent jurisdiction shall direct.

 

(c)                                  In the event that the proceeds of any such sale, collection or realization are insufficient to pay all amounts to which the Lender is legally entitled, each Grantor shall be liable for the deficiency, together with interest thereon at the highest rate specified in the Note for interest on overdue principal thereof or such other rate as shall be fixed by applicable law, together with the costs of collection and the reasonable fees, costs, expenses and other client charges of any attorneys employed by the Lender to collect such deficiency.

 

(d)                                 To the extent that applicable law imposes duties on the Lender to exercise remedies in a commercially reasonable manner, each Grantor acknowledges and agrees that it is commercially reasonable for the Lender (i) to fail to incur expenses deemed significant by the Lender to prepare Collateral for disposition or otherwise to transform raw material or work in process into finished goods or other finished products for disposition, (ii) to fail to obtain third party consents for access to Collateral to be disposed of, or to obtain or, if not required by other law, to fail to obtain governmental or third party consents for the collection or disposition of Collateral to be collected or disposed of, (iii) to fail to exercise collection remedies against account debtors or other persons obligated on Collateral or to remove Liens on or any adverse claims against Collateral, (iv) to exercise collection remedies against account debtors and other Persons obligated on Collateral directly or through the use of collection agencies and other collection specialists, (v) to advertise dispositions of Collateral through publications or media of general circulation, whether or not the Collateral is of a specialized nature, (vi) to contact other Persons, whether or not in the same business as any Grantor, for expressions of interest in acquiring all or any portion of such Collateral, (vii) to hire one or more professional auctioneers to assist in the disposition of Collateral, whether or not the Collateral is of a specialized nature, (viii) to dispose of Collateral by utilizing internet sites that provide for the auction of assets of the types included in the Collateral or that have the reasonable capacity of doing so, or that match buyers and sellers of assets, (ix) to dispose of assets in wholesale rather than retail markets, (x) to disclaim disposition warranties, such as title, possession or quiet enjoyment, (xi) to purchase insurance or credit enhancements to insure the Lender against risks of loss, collection or disposition of Collateral or to provide to the Lender a guaranteed return from the collection or disposition of Collateral, or (xii) to the extent deemed appropriate by the Lender, to obtain the services of other brokers, investment

 

23

 

bankers, consultants and other professionals to assist the Lender in the collection or disposition of any of the Collateral.  Each Grantor acknowledges that the purpose of this section is to provide non-exhaustive indications of what actions or omissions by the Lender would be commercially reasonable in the Lender’s exercise of remedies against the Collateral and that other actions or omissions by the Lender shall not be deemed commercially unreasonable solely on account of not being indicated in this section.  Without limitation upon the foregoing, nothing contained in this section shall be construed to grant any rights to any Grantor or to impose any duties on the Lender that would not have been granted or imposed by this Agreement or by applicable law in the absence of this section.

 

(e)                                  The Lender shall not be required to marshal any present or future collateral security (including, but not limited to, this Agreement and the Collateral) for, or other assurances of payment of, the Obligations or any of them or to resort to such collateral security or other assurances of payment in any particular order, and all of the Lender’s rights hereunder and in respect of such collateral security and other assurances of payment shall be cumulative and in addition to all other rights, however existing or arising.  To the extent that any Grantor lawfully may, each Grantor hereby agrees that it will not invoke any law relating to the marshaling of collateral which might cause delay in or impede the enforcement of the Lender’s rights under this Agreement or under any other instrument creating or evidencing any of the Obligations or under which any of the Obligations is outstanding or by which any of the Obligations is secured or payment thereof is otherwise assured, and, to the extent that it lawfully may, each Grantor hereby irrevocably waives the benefits of all such laws.

 

SECTION 8.                                Indemnity and Expenses.

 

(a)                                  Each Grantor agrees, jointly and severally, to defend, protect, indemnify and hold the Lender harmless from and against any and all claims, damages, losses, liabilities, obligations, penalties, fees, costs and expenses (including, without limitation, reasonable legal fees, costs, expenses, and disbursements of such Person’s counsel) to the extent that they arise out of or otherwise result from this Agreement (including, without limitation, enforcement of this Agreement), except to the extent resulting from such Person’s gross negligence or willful misconduct, as determined by a final judgment of a court of competent jurisdiction.

 

(b)                                 Each Grantor agrees, jointly and severally, to pay to the Lender upon demand the amount of any and all costs and expenses, including the reasonable fees, costs, expenses and disbursements of counsel for the Lender and of any experts and agents (including, without limitation, any collateral trustee which may act as agent of the Lender), which the Lender may incur in connection with (i) the preparation, negotiation, execution, delivery, recordation, administration, amendment, waiver or other modification or termination of this Agreement, (ii) the custody, preservation, use or operation of, or the sale of, collection from, or other realization upon, any Collateral, (iii) the exercise or enforcement of any of the rights of the Lender hereunder, or (iv) the failure by any Grantor to perform or observe any of the provisions hereof.

 

SECTION 9.                                      Notices, Etc.  All notices and other communications provided for hereunder shall be in writing and shall be mailed (by certified mail, postage prepaid and return receipt requested), telecopied, e-mailed or delivered, if to any Grantor to it at the address of the

 

24

 

Company below, and if to the Lender, to it at its address specified on the signature pages below; or as to any such Person, at such other address as shall be designated by such Person in a written notice to all other parties hereto complying as to delivery with the terms of this Section 9.  All such notices and other communications shall be effective (a) if sent by certified mail, return receipt requested, when received or three days after deposited in the mail, whichever occurs first, (b) if telecopied or e-mailed, when transmitted (during normal business hours) and confirmation is received, and otherwise, the day after the notice or communication was transmitted and confirmation is received, or (c) if delivered in person, upon delivery.  For the avoidance of doubt, each of the Foreign Subsidiaries, as Grantors, hereby appoints the Company as its agent for receipt of service of process and all notices and other communications in the United States at the address of the Company specified below.

 

SECTION 10.                                Miscellaneous.

 

(a)                                  No amendment of any provision of this Agreement shall be effective unless it is in writing and signed by each Grantor and the Lender (with the consent or at the direction of the Requisite Holders), and no waiver of any provision of this Agreement, and no consent to any departure by said Grantor therefrom, shall be effective unless it is in writing and signed by said Grantor and the Lender (with the consent or at the direction of the Requisite Holders), and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.

 

(b)                                 No failure on the part of the Lender to exercise, and no delay in exercising, any right hereunder or under any of the other Transaction Documents shall operate as a waiver thereof; nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right.  The rights and remedies of the Lender provided herein and in the other Transaction Documents are cumulative and are in addition to, and not exclusive of, any rights or remedies provided by law.  The rights of the Lender under any of the other Transaction Documents against any party thereto are not conditional or contingent on any attempt by such Person to exercise any of its rights under any of the other Transaction Documents against such party or against any other Person, including but not limited to, any Grantor.

 

(c)                                  Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining portions hereof or thereof or affecting the validity or enforceability of such provision in any other jurisdiction.

 

(d)                                 This Agreement shall create a continuing security interest in the Collateral and shall (i) remain in full force and effect until the indefeasible payment in full in cash of the Obligations, and (ii) be binding on each Grantor and all other Persons who become bound as debtor to this Agreement in accordance with Section 9-203(d) of the Code and shall inure, together with all rights and remedies of the Lender hereunder, to the benefit of the Lender and its permitted successors, transferees and assigns.  Without limiting the generality of clause (ii) of the immediately preceding sentence, without notice to any Grantor, the Lender may assign or otherwise transfer their rights and obligations under this Agreement and any of the other Transaction Documents, to the extent permitted by the Debt Exchange Agreement, to any other

 

25

 

Person and such other Person shall thereupon become vested with all of the benefits in respect thereof granted to the Lender herein or otherwise.  Upon any such assignment or transfer, all references in this Agreement to the Lender shall mean the assignee of the Lender.  None of the rights or obligations of any Grantor hereunder may be assigned or otherwise transferred without the prior written consent of the Lender, and any such assignment or transfer without the consent of the Lender shall be null and void.

 

(e)                                  Upon the indefeasible payment in full in cash of the Obligations, (i) this Agreement and the security interests created hereby shall terminate and all rights to the Collateral shall revert to the respective Grantor that granted such security interests hereunder, and (ii) the Lender will, upon any Grantor’s request and at such Grantor’s expense, (A) return to such Grantor such of the Collateral as shall not have been sold or otherwise disposed of or applied pursuant to the terms hereof, and (B) execute and deliver to such Grantor such documents as such Grantor shall reasonably request to evidence such termination, all without any representation, warranty or recourse whatsoever.

 

(f)                                    THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED THEREIN WITHOUT REGARD TO CONFLICT OF LAW PRINCIPLES (EXCEPT 5-1401 OF THE NEW YORK GENERAL OBLIGATION LAW).  FURTHER, THE LAW OF THE STATE OF NEW YORK SHALL APPLY TO ALL DISPUTES OR CONTROVERSIES ARISING OUT OF OR CONNECTED TO OR WITH THIS AGREEMENT WITHOUT REGARD TO CONFLICT OF LAW PRINCIPLES (EXCEPT 5-1401 OF THE NEW YORK GENERAL OBLIGATION LAW).

 

(g)                                 ANY LEGAL ACTION, SUIT OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO SHALL BE BROUGHT EXCLUSIVELY IN THE COURTS OF THE STATE OF NEW YORK IN THE COUNTY OF NEW YORK OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH GRANTOR HEREBY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFOREMENTIONED COURTS.  EACH GRANTOR HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM  NON  CONVENIENS, OR BASED ON UPON 28 U.S.C. § 1404, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING AND ADJUDICATION OF ANY SUCH ACTION, SUIT OR PROCEEDING IN ANY OF THE AFOREMENTIONED COURTS AND CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY THE COURT.

 

(h)                                 EACH GRANTOR IRREVOCABLY CONSENTS TO SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS AND IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO ITS ADDRESS FOR NOTICES AS SET FORTH ON THE SIGNATURE PAGE HERETO, SUCH SERVICE TO BECOME EFFECTIVE

 

26

 

TEN (10) DAYS AFTER SUCH MAILING.  NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE LENDER TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.  TO THE EXTENT THAT ANY GRANTOR HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, EACH GRANTOR HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS AGREEMENT AND THE OTHER TRANSACTION DOCUMENTS.

 

(i)                                     EACH GRANTOR HEREBY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM CONCERNING ANY RIGHTS UNDER THIS AGREEMENT OR THE OTHER TRANSACTION DOCUMENTS, OR UNDER ANY AMENDMENT, WAIVER, CONSENT, INSTRUMENT, DOCUMENT OR OTHER AGREEMENT DELIVERED OR WHICH IN THE FUTURE MAY BE DELIVERED IN CONNECTION HEREWITH OR THEREWITH, OR ARISING FROM ANY FINANCING RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT OR THE OTHER TRANSACTION DOCUMENTS, AND AGREES THAT ANY SUCH ACTION, PROCEEDING OR COUNTERCLAIM SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.  EACH GRANTOR CERTIFIES THAT NO OFFICER, REPRESENTATIVE, OR ATTORNEY OF THE LENDER HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT LENDER WOULD NOT, IN THE EVENT OF ANY ACTION, PROCEEDING OR COUNTERCLAIM, SEEK TO ENFORCE THE FOREGOING WAIVERS.  EACH GRANTOR HEREBY ACKNOWLEDGES THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE LENDER ENTERING INTO THIS AGREEMENT.

 

(j)                                     Each Grantor irrevocably consents to the service of process of any of the aforesaid courts in any such action, suit or proceeding by the mailing of copies thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to any Grantor at its address provided herein, such service to become effective 10 days after such mailing.

 

(k)                                  Nothing contained herein shall affect the right of the Lender to serve process in any other manner permitted by law or commence legal proceedings or otherwise proceed against any Grantor or any property of any Grantor in any other jurisdiction.

 

(l)                                     Each Grantor irrevocably and unconditionally waives any right it may have to claim or recover in any legal action, suit or proceeding referred to in this Section any special, exemplary, punitive or consequential damages.

 

(m)                               Section headings herein are included for convenience of reference only and shall not constitute a part of this Agreement for any other purpose.

 

27

 

(n)                                 This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which shall be deemed to be an original, but all of which taken together constitute one and the same Agreement.  Delivery of any executed counterpart of a signature page of this Agreement by pdf, facsimile or other electronic transmission shall be effective as delivery of a manually executed counterpart of this Agreement.

 

(o)                                 This Agreement shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any of the Obligations is rescinded or must otherwise be returned by the Lender or by any other Person upon the insolvency, bankruptcy or reorganization of the Company or any Grantor or otherwise, all as though such payment had not been made.

 

SECTION 11.                                Possessory Collateral/Control.

 

Notwithstanding anything to the contrary set forth herein, to the extent that any Grantor is required to give physical possession of or “control” (as defined in the UCC) over any Collateral to Lender hereunder, until such time as the Senior Debt (as defined in the Subordination Agreement) is Paid in Full (as defined in the Subordination Agreement), such requirement shall be deemed satisfied if the First Lien Collateral Agent has physical possession of or “control” (as defined in the UCC) over such Collateral on behalf of Comvest pursuant to Section 2.10 of the Subordination Agreement.

 

[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

 

28

 

IN WITNESS WHEREOF, each Grantor has caused this Agreement to be executed and delivered by its officer thereunto duly authorized, as of the date first above written.

 

	
 
    	
 
    	
COMPANY:
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
DIGITAL   DOMAIN MEDIA GROUP, INC.
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
By:
    	
/s/  John C. Textor
    
	
 
    	
 
    	
 
    	
Name:  John C. Textor 
    
	
 
    	
 
    	
 
    	
Title:  Chief Executive Officer
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
Address:
    	
10250   SW Village Parkway
    
	
 
    	
 
    	
 
    	
 
    	
Port   St. Lucie, FL 34987
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
Facsimile:
    	
(772)   345-8114
    

 

Security and Pledge Agreement

(Subordinated)

 

 

	
 
    	
 
    	
GRANTORS:
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
DIGITAL   DOMAIN MEDIA GROUP, INC.
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
By:
    	
/s/   John C. Textor
    
	
 
    	
 
    	
 
    	
Name:   John C. Textor
    
	
 
    	
 
    	
 
    	
Title:   Chief Executive Officer
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
Address:
    	
c/o   Digital Domain Media Group, Inc.
    
	
 
    	
 
    	
 
    	
 
    	
10250   SW Village Parkway
    
	
 
    	
 
    	
 
    	
 
    	
Port   St. Lucie, FL 34987
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
Facsimile:   (772) 345-8114
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
D2   SOFTWARE, INC.
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
By:
    	
/s/   John C. Textor
    
	
 
    	
 
    	
 
    	
Name:   John C. Textor
    
	
 
    	
 
    	
 
    	
Title:   Chief Executive Officer
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
Address:
    	
c/o   Digital Domain Media Group, Inc.
    
	
 
    	
 
    	
 
    	
 
    	
10250   SW Village Parkway
    
	
 
    	
 
    	
 
    	
 
    	
Port   St. Lucie, FL 34987
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
Facsimile:   (772) 345-8114
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
DDH   LAND HOLDINGS, LLC
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
By:
    	
/s/   John C . Textor
    
	
 
    	
 
    	
 
    	
Name:   John C. Textor
    
	
 
    	
 
    	
 
    	
Title:   Chief Executive Oficer
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
Address:
    	
c/o   Digital Domain Media Group, Inc.
    
	
 
    	
 
    	
 
    	
 
    	
10250   SW Village Parkway
    
	
 
    	
 
    	
 
    	
 
    	
Port   St. Lucie, FL 34987
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
Facsimile:   (772) 345-8114
    

 

Security and Pledge Agreement

(Subordinated)

 

 

	
 
    	
 
    	
DDH   LAND HOLDINGS II, LLC
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
By:
    	
/s/   John C. Textor
    
	
 
    	
 
    	
 
    	
Name:   John C. Textor
    
	
 
    	
 
    	
 
    	
Title:   Chief Executive Officer
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
Address:
    	
c/o   Digital Domain Media Group, Inc.
    
	
 
    	
 
    	
 
    	
 
    	
10250   SW Village Parkway
    
	
 
    	
 
    	
 
    	
 
    	
Port   St. Lucie, FL 34987
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
Facsimile:   (772) 345-8114
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
DIGITAL   DOMAIN
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
By:
    	
/s/   John C. Textor
    
	
 
    	
 
    	
 
    	
Name:   John C. Textor
    
	
 
    	
 
    	
 
    	
Title:   Chief Executive Officer
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
Address:
    	
c/o   Digital Domain Media Group, Inc.
    
	
 
    	
 
    	
 
    	
 
    	
10250   SW Village Parkway
    
	
 
    	
 
    	
 
    	
 
    	
Port   St. Lucie, FL 34987
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
Facsimile:   (772) 345-8114
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
DIGITAL   DOMAIN INSTITUTE, INC.
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
By:
    	
/s/   John C. Textor
    
	
 
    	
 
    	
 
    	
Name:   John C. Textor
    
	
 
    	
 
    	
 
    	
Title:   Chairman
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
Address:
    	
c/o   Digital Domain Media Group, Inc.
    
	
 
    	
 
    	
 
    	
 
    	
10250   SW Village Parkway
    
	
 
    	
 
    	
 
    	
 
    	
Port   St. Lucie, FL 34987
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
Facsimile:   (772) 345-8114
    

 

Security and Pledge Agreement

(Subordinated)

 

 

	
 
    	
 
    	
DIGITAL   DOMAIN INTERNATIONAL, INC.
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
By:
    	
/s/   John C. Textor
    
	
 
    	
 
    	
 
    	
Name:   John C. Textor
    
	
 
    	
 
    	
 
    	
Title:   Chief Executive Officer
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
Address:
    	
c/o   Digital Domain Media Group, Inc.
    
	
 
    	
 
    	
 
    	
 
    	
10250   SW Village Parkway
    
	
 
    	
 
    	
 
    	
 
    	
Port   St. Lucie, FL 34987
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
Facsimile:   (772) 345-8114
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
DIGITAL   DOMAIN PRODUCTIONS, INC.
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
By:
    	
/s/   John C. Textor
    
	
 
    	
 
    	
 
    	
Name:   John C. Textor
    
	
 
    	
 
    	
 
    	
Title:   Chief Executive Officer
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
Address:
    	
c/o   Digital Domain Media Group, Inc.
    
	
 
    	
 
    	
 
    	
 
    	
10250   SW Village Parkway
    
	
 
    	
 
    	
 
    	
 
    	
Port   St. Lucie, FL 34987
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
Facsimile:   (772) 345-8114
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
DIGITAL   DOMAIN STEREO GROUP, INC.
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
By:
    	
/s/   John C. Textor
    
	
 
    	
 
    	
 
    	
Name:   John C. Textor
    
	
 
    	
 
    	
 
    	
Title:   Chief Executive Officer
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
Address:
    	
c/o   Digital Domain Media Group, Inc.
    
	
 
    	
 
    	
 
    	
 
    	
10250   SW Village Parkway
    
	
 
    	
 
    	
 
    	
 
    	
Port   St. Lucie, FL 34987
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
Facsimile:   (772) 345-8114
    

 

Security and Pledge Agreement

(Subordinated)

 

 

	
 
    	
 
    	
DIGITAL   DOMAIN TACTICAL, INC.
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
By:
    	
/s/   Mark Covey
    
	
 
    	
 
    	
 
    	
Name:   Mark Covey
    
	
 
    	
 
    	
 
    	
Title:   President
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
Address:
    	
c/o   Digital Domain Media Group, Inc.
    
	
 
    	
 
    	
 
    	
 
    	
10250   SW Village Parkway
    
	
 
    	
 
    	
 
    	
 
    	
Port   St. Lucie, FL 34987
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
Facsimile:   (772) 345-8114
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
MOTHERSHIP   MEDIA, INC.
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
By:
    	
/s/   John C. Textor
    
	
 
    	
 
    	
 
    	
Name:   John C. Textor
    
	
 
    	
 
    	
 
    	
Title:   Chief Executive Officer
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
Address:
    	
c/o   Digital Domain Media Group, Inc.
    
	
 
    	
 
    	
 
    	
 
    	
10250   SW Village Parkway
    
	
 
    	
 
    	
 
    	
 
    	
Port   St. Lucie, FL 34987
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
Facsimile:   (772) 345-8114
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
TRADITION   STUDIOS, INC.
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
By:
    	
/s/   John C. Textor
    
	
 
    	
 
    	
 
    	
Name:   John C. Textor
    
	
 
    	
 
    	
 
    	
Title:   Chief Executive Officer
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
Address:
    	
c/o   Digital Domain Media Group, Inc.
    
	
 
    	
 
    	
 
    	
 
    	
10250   SW Village Parkway
    
	
 
    	
 
    	
 
    	
 
    	
Port   St. Lucie, FL 34987
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
Facsimile:   (772) 345-8114
    

 

Security and Pledge Agreement

(Subordinated)

 

 

	
ACCEPTED   BY:
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
COMVEST   CAPITAL II, L.P.,
    	
 
    	
 
    
	
as   Lender
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
By:
    	
Comvest   Capital II Partners, L.P.,
    	
 
    	
 
    
	
 
    	
its   General Partner
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
By:
    	
Comvest   Capital II Partners UGP, LLC,
    	
 
    	
 
    
	
 
    	
its   General Partner
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
By:
    	
/s/   Robert O’Sullivan
    	
 
    	
 
    
	
 
    	
Name:   Robert O’Sullivan
    	
 
    	
 
    
	
 
    	
Title:   Managing Partner
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
Address:
    	
Comvest   Capital II, L.P.
    	
 
    	
 
    
	
 
    	
525   Okeechobee Boulevard, Suite 1050
    	
 
    	
 
    
	
 
    	
West   Palm Beach, Florida 33401
    	
 
    	
 
    
	
 
    	
Attention:  Robert O’Sullivan
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
Facsimile:
    	
(561)   727-1798
    	
 
    	
 
    
					

 

 

EXHIBIT A

 

FORM OF INTELLECTUAL PROPERTY SECURITY AGREEMENT

 

This INTELLECTUAL PROPERTY SECURITY AGREEMENT (as amended, amended and restated, supplemented or otherwise modified from time to time, the “IP Security Agreement”), dated                 ,         , is made by the Persons listed on the signature pages hereof (collectively, the “Grantors”) in favor of Comvest Capital II, L.P., a Delaware limited partnership, as Lender (the “Lender”) (as defined in the Debt Exchange Agreement referred to below).  All capitalized terms not otherwise defined herein shall have the meanings respectively ascribed thereto in the Security Agreement (as defined below).

 

WHEREAS, Digital Domain Media Group, Inc., a Florida corporation (the “Company”) and the Lender are parties to the Debt Exchange Agreement of even date herewith (as amended, restated, replaced or otherwise modified from time to time, the “Debt Exchange Agreement”), pursuant to which the Company and the Lender have agreed, among other things, that the Remaining Outstanding Principal Balance (as defined in the Debt Exchange Agremeent) will be exchanged into a a new secured convertible note of the Company  (as amended, restated, replaced or otherwise modified from time to time, the “Note”);

 

WHEREAS, the Debt Exchange Agreement requires that the Grantors execute and deliver to the Lender that certain Security and Pledge Agreement dated May     , 2012 made by the Grantors to the Lender (as amended, amended and restated, supplemented or otherwise modified from time to time, the “Security Agreement”);

 

WHEREAS, under the terms of the Security Agreement, the Grantors have granted to the Lender a security interest in, among other property, certain intellectual property of the Grantors, and have agreed as a condition thereof to execute this IP Security Agreement for recording with the U.S. Patent and Trademark Office, the United States Copyright Office and other governmental authorities.

 

WHEREAS, the Grantors have determined that the execution, delivery and performance of this IP Security Agreement directly benefits, and is in the best interest of, the Grantors.

 

NOW, THEREFORE, in consideration of the premises and the agreements herein and in order to induce the Lender to perform under the Debt Exchange Agreement, each Grantor agrees with the Lender as follows

 

SECTION 1.  Grant of Security.  Each Grantor hereby grants to the Lender security interest in all of such Grantor’s right, title and interest in and to the following (the “Collateral”):

 

(i)            the Patents and Patent applications set forth in Schedule A hereto;

 

(ii)           the Trademark and service mark registrations and applications set forth in Schedule B hereto (provided that no security interest shall be granted in

 

 

United States intent-to-use trademark applications to the extent that, and solely during the period in which, the grant of a security interest therein would impair the validity or enforceability of such intent-to-use trademark applications under applicable federal law), together with the goodwill symbolized thereby;

 

(iii)          all Copyrights, whether registered or unregistered, now owned or hereafter acquired by such Grantor, including, without limitation, the copyright registrations and applications and exclusive copyright licenses set forth in Schedule C hereto;

 

(iv)          all reissues, divisions, continuations, continuations-in-part, extensions, renewals and reexaminations of and as applicable to any of the foregoing, all rights in the foregoing provided by international treaties or conventions, all rights corresponding thereto throughout the world and all other rights of any kind whatsoever of such Grantor accruing thereunder or pertaining thereto;

 

(v)           any and all claims for damages and injunctive relief for past, present and future infringement, dilution, misappropriation, violation, misuse or breach with respect to any of the foregoing, with the right, but not the obligation, to sue for and collect, or otherwise recover, such damages; and

 

(vi)          any and all proceeds of, collateral for, income, royalties and other payments now or hereafter due and payable with respect to, and supporting obligations relating to, any and all of the Collateral of or arising from any of the foregoing.

 

SECTION 2.  Security for Obligations.  The grant of a security interest in, the Collateral by each Grantor under this IP Security Agreement secures the payment of all Obligations of such Grantor now or hereafter existing under or in respect of the Note and the Transaction Documents, whether direct or indirect, absolute or contingent, and whether for principal, reimbursement obligations, interest, premiums, penalties, fees, indemnifications, contract causes of action, costs, expenses or otherwise.

 

SECTION 3.  Recordation.  Each Grantor authorizes and requests that the Register of Copyrights, the Commissioner for Patents and the Commissioner for Trademarks and any other applicable government officer (and any state, foreign or other authority to which this IP Security Agreement is submitted) record this IP Security Agreement (and any corresponding or separate forms of such jurisdiction) in order to publicly reflect the interests of the Lender in the Collateral.

 

SECTION 4.             Newly Registered Patents, Trademarks and Copyrights.  Each Grantor hereby agrees to provide the Lender every quarter, a schedule of newly registered Patents, Trademarks and Copyrights (if any).

 

SECTION 5.             Power of Attorney.  Each Grantor hereby irrevocably grants to the Lender a power of attorney, to act as such Grantor’s attorney-in-fact, with full authority in the name, place and stead of such Grantor, from time to time in the Lender’s discretion, to take any

 

2

 

action and to execute any instrument that the Lender may reasonably deem necessary or advisable to accomplish the purposes of this IP Security Agreement.  This authority includes, without limitation, the following:

 

(i)            To modify or amend (in the sole discretion of the Lender and without first obtaining such Grantor’s approval thereof or signature thereto) Schedule A, Schedule B and/or Schedule C hereof, as appropriate, to include references to any registered intellectual property (or application or license therefor) acquired by such Grantor after the execution hereof or to delete any reference to any Collateral in which such Grantor no longer has or claims any right, title or interest;

 

(ii)           To execute, file and pursue (in the sole discretion of the Lender and without first obtaining such Grantor’s approval thereof or signature thereto, unless otherwise prohibited by applicable law) any application, form or other document in order to perfect, maintain, continue or otherwise protect the Lender’s interest or such Grantor’s rights in the Collateral, including, without limitation, executing and filing (i) any financing statement, any continuation statement or any amendment thereto, and (ii) any document in any proceeding before the United States Patent and Trademark Office, the United States Copyright Office or the relevant office of any state or foreign jurisdiction (including, without limitation, the filing of applications for renewal, affidavits of use, affidavits of incontestability and opposition, interference and cancellation proceedings) and to pay any fees and taxes in connection therewith or otherwise; and

 

(iii)          To execute any document required to acknowledge, register or perfect the interest of the Lender in any part of the Collateral without the signature of such Grantor unless prohibited by applicable law.

 

SECTION 6.  This IP Security Agreement has been entered into in conjunction with the provisions of and the security interest granted to the Lender under the Security Agreement.  The rights and remedies of the Grantor and the Lender with respect to the security interests granted herein are in addition and without prejudice to those set forth in the Security Agreement, all terms and provisions of which are hereby incorporated herein by reference.  In the event that any provisions of this IP Security Agreement are deemed to conflict with the Security Agreement or the Note or Transaction Documents, the provisions of the Security Agreement or the Note or Transaction Documents shall govern.

 

SECTION 7.  Execution in Counterparts.  This IP Security Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement.

 

SECTION 8.  Grants, Rights and Remedies.  This IP Security Agreement has been entered into in conjunction with the provisions of the Security Agreement.  Each Grantor does hereby acknowledge and confirm that the grant of the security interest hereunder to, and the rights and remedies of, the Lender with respect to the Collateral are more fully set forth in the

 

3

 

Security Agreement, the terms and provisions of which are incorporated herein by reference as if fully set forth herein.

 

SECTION 9.  Governing Law.  This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York.

 

4

 

IN WITNESS WHEREOF, each Grantor has caused this Agreement to be duly executed and delivered by its officer thereunto duly authorized as of the date first above written.

 

	
 
    	
 
    	
GRANTORS:
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
DIGITAL   DOMAIN MEDIA GROUP, INC.
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
By:
    	
 
    
	
 
    	
 
    	
 
    	
Name:
    
	
 
    	
 
    	
 
    	
Title:
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
Address:
    	
c/o   Digital Domain Media Group, Inc.
    
	
 
    	
 
    	
 
    	
 
    	
10250   SW Village Parkway
    
	
 
    	
 
    	
 
    	
 
    	
Port   St. Lucie, FL 34987
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
Facsimile:
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
D2   SOFTWARE, INC.
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
By:
    	
 
    
	
 
    	
 
    	
 
    	
Name:
    
	
 
    	
 
    	
 
    	
Title:
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
Address:
    	
c/o   Digital Domain Media Group, Inc.
    
	
 
    	
 
    	
 
    	
 
    	
10250   SW Village Parkway
    
	
 
    	
 
    	
 
    	
 
    	
Port   St. Lucie, FL 34987
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
Facsimile:
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
DDH   LAND HOLDINGS, LLC
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
By:
    	
 
    
	
 
    	
 
    	
 
    	
Name:
    
	
 
    	
 
    	
 
    	
Title:
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
Address:
    	
c/o   Digital Domain Media Group, Inc.
    
	
 
    	
 
    	
 
    	
 
    	
10250   SW Village Parkway
    
	
 
    	
 
    	
 
    	
 
    	
Port   St. Lucie, FL 34987
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
Facsimile:
    	
 
    

 

 

	
 
    	
 
    	
DDH   LAND HOLDINGS II, LLC
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
By:
    	
 
    
	
 
    	
 
    	
 
    	
Name:
    
	
 
    	
 
    	
 
    	
Title:
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
Address:
    	
c/o   Digital Domain Media Group, Inc.
    
	
 
    	
 
    	
 
    	
 
    	
10250   SW Village Parkway
    
	
 
    	
 
    	
 
    	
 
    	
Port   St. Lucie, FL 34987
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
Facsimile:
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
DIGITAL   DOMAIN
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
By:
    	
 
    
	
 
    	
 
    	
 
    	
Name:
    
	
 
    	
 
    	
 
    	
Title:
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
Address:
    	
c/o   Digital Domain Media Group, Inc.
    
	
 
    	
 
    	
 
    	
 
    	
10250   SW Village Parkway
    
	
 
    	
 
    	
 
    	
 
    	
Port   St. Lucie, FL 34987
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
Facsimile:
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
DIGITAL   DOMAIN INSTITUTE, INC.
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
By:
    	
 
    
	
 
    	
 
    	
 
    	
Name:
    
	
 
    	
 
    	
 
    	
Title:
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
Address:
    	
c/o   Digital Domain Media Group, Inc.
    
	
 
    	
 
    	
 
    	
 
    	
10250   SW Village Parkway
    
	
 
    	
 
    	
 
    	
 
    	
Port   St. Lucie, FL 34987
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
Facsimile:
    	
 
    

 

 

	
 
    	
 
    	
DIGITAL   DOMAIN INTERNATIONAL, INC.
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
By:
    	
 
    
	
 
    	
 
    	
 
    	
Name:
    
	
 
    	
 
    	
 
    	
Title:
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
Address:
    	
c/o   Digital Domain Media Group, Inc.
    
	
 
    	
 
    	
 
    	
 
    	
10250   SW Village Parkway
    
	
 
    	
 
    	
 
    	
 
    	
Port   St. Lucie, FL 34987
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
Facsimile:
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
DIGITAL   DOMAIN PRODUCTIONS, INC.
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
By:
    	
 
    
	
 
    	
 
    	
 
    	
Name:
    
	
 
    	
 
    	
 
    	
Title:
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
Address:
    	
c/o   Digital Domain Media Group, Inc.
    
	
 
    	
 
    	
 
    	
 
    	
10250   SW Village Parkway
    
	
 
    	
 
    	
 
    	
 
    	
Port   St. Lucie, FL 34987
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
Facsimile:
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
DIGITAL   DOMAIN STEREO GROUP, INC.
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
By:
    	
 
    
	
 
    	
 
    	
 
    	
Name:
    
	
 
    	
 
    	
 
    	
Title:
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
Address:
    	
c/o   Digital Domain Media Group, Inc.
    
	
 
    	
 
    	
 
    	
 
    	
10250   SW Village Parkway
    
	
 
    	
 
    	
 
    	
 
    	
Port   St. Lucie, FL 34987
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
Facsimile:
    	
 
    

 

 

	
 
    	
 
    	
DIGITAL   DOMAIN TACTICAL, INC.
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
By:
    	
 
    
	
 
    	
 
    	
 
    	
Name:
    
	
 
    	
 
    	
 
    	
Title:
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
Address:
    	
c/o   Digital Domain Media Group, Inc.
    
	
 
    	
 
    	
 
    	
 
    	
10250   SW Village Parkway
    
	
 
    	
 
    	
 
    	
 
    	
Port   St. Lucie, FL 34987
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
Facsimile:
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
MOTHERSHIP   MEDIA, INC.
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
By:
    	
 
    
	
 
    	
 
    	
 
    	
Name:
    
	
 
    	
 
    	
 
    	
Title:
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
Address:
    	
c/o   Digital Domain Media Group, Inc.
    
	
 
    	
 
    	
 
    	
 
    	
10250   SW Village Parkway
    
	
 
    	
 
    	
 
    	
 
    	
Port   St. Lucie, FL 34987
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
Facsimile:
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
TRADITION   STUDIOS, INC.
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
By:
    	
 
    
	
 
    	
 
    	
 
    	
Name:
    
	
 
    	
 
    	
 
    	
Title:
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
Address:
    	
c/o   Digital Domain Media Group, Inc.
    
	
 
    	
 
    	
 
    	
 
    	
10250   SW Village Parkway
    
	
 
    	
 
    	
 
    	
 
    	
Port   St. Lucie, FL 34987
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
Facsimile:
    	
 
    

 

 

STATE OF                         

ss.:

COUNTY OF

 

On this          day of                               , 20    , before me personally came                                 , to me known to be the person who executed the foregoing instrument, and who, being duly sworn by me, did depose and say that s/he is the                                  of                                                                               , a                                         , and that s/he executed the foregoing instrument in the firm name of                                                                               , and that s/he had authority to sign the same, and s/he acknowledged to me that he executed the same as the act and deed of said firm for the uses and purposes therein mentioned.

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