Document:

Unassociated Document

EXHIBIT 10.26

 

JUNIOR CONVERTIBLE PROMISSORY NOTE AND OPTION AGREEMENT

	  	
New Castle County, Delaware

	
U.S. $4,200,000.00

	
December 30, 2010

FOR VALUE RECEIVED, the undersigned, Digital Domain Holdings Corporation, a Florida corporation (formerly known as Wyndcrest DD Florida, Inc., a Florida corporation) (the “Borrower”), hereby promises to pay to the order of PBC Digital Holdings II, LLC, a Delaware limited liability company (“PBC Digital Lender”), the aggregate principal amount of all Loans advanced by PBC Digital Lender to the Borrower from time to time in an amount of up to, but not exceeding, Four Million Two Hundred Thousand and 00/100 Dollars ($4,200,000.00), together with interest accrued on the unpaid principal amount of this Junior Convertible Promissory Note and Option Agreement (the “Note”) plus all fees, expenses and other costs as provided for herein and in that certain Convertible Note and Warrant Purchase Agreement, of even date herewith, among the Borrower and PBC Digital Lender (as amended, restated, supplemented, or modified from time to time, the “Note Purchase Agreement”). All capitalized terms not otherwise defined herein shall have the meanings and definitions set forth in the Note Purchase Agreement. This Note is the “Junior Convertible Note” referred to in, and is entitled to the benefits and conditions of, the Note Purchase Agreement.

	 	
1.

	
Payment of Principal and Interest.

(a)       The Borrower shall pay interest on the unpaid principal amount of each Loan owing to PBC Digital Lender commencing on January 1, 2011, and on the same day of each month thereafter, at the rate of eight percent (8%) per annum (the “Interest Rate”). Such interest shall be paid by adding the amount of interest due from time to time on the outstanding principal amount of this Note (including, without limitation, the interest due on the aggregate amount of all interest theretofore added to such principal amount) on each interest payment date to such principal amount effective as of such date, whereupon such additional principal amount shall bear interest as specified in the first sentence of this Section l(a).

(b)       Upon the occurrence and during the continuance of an Event of Default, the Borrower shall pay to PBC Digital Lender interest on any overdue payment of principal, interest, charges and premiums at a rate per annum equal at all times to twenty-four percent (24%) per annum if the Event of Default was a Monetary Default or six percent (6%) per annum above the rate per annum required to be paid hereunder if the Event of Default was a Non-Monetary Default (the “Default Rate”), from the date the same shall become due and payable until the date paid.

2.         Prepayment. Subject to Section 4 below, the Borrower may, upon at least seven (7) Business Days' prior written notice to PBC Digital Lender stating the proposed date and aggregate principal amount of the prepayment, prepay to PBC Digital Lender the Loans due and owing in whole or ratably in part, together with accrued interest to the date of such prepayment on the principal amount prepaid; provided, however, that each partial prepayment shall be in an aggregate principal amount of $1 ,000,000 or an integral multiple of $500,000 in excess thereof.

 

  

  

  

 

	 	
3.

	
Conversion Right.

(a)  Optional Conversion. PBC Digital Lender has the right to convert (the “Optional Conversion Right”), at its option, subject to the terms and provisions hereof, all or a portion of the unpaid amount of this Note into shares of common stock (the “Common Stock”) of the Borrower (the “Shares”) as described in this Section 3, at any time prior to the Termination Date. The number of Shares into which this Note is convertible is equal to the product of an amount equal to the number of Shares of the Common Stock Deemed Outstanding (as defined below) on the date of conversion, multiplied by a fraction, the numerator of which is the aggregate unpaid amount of the Note being converted and the denominator of which is the sum of (y) Two Hundred Million (200,000,000) plus (z) the aggregate unpaid amount of the Note being converted. For purposes of this Note, “Common Stock Deemed Outstanding” means, at any given time, the sum of (a) the number of shares of Common Stock actually outstanding as of December 30, 2010, plus (b) the number of shares of Common Stock issuable upon exercise of outstanding options as of December 30, 2010, regardless of whether such options are actually exercisable at such time, plus (c) the number of shares of Common Stock issuable upon exercise of any other options (other than options described in clause (b) above) or warrants actually outstanding as of December 30, 2010, plus (d) the number of shares of Common Stock issuable upon conversion or exchange of convertible securities actually outstanding as of December 30, 2010 (treating as actually outstanding any convertible securities issuable upon exercise of options or warrants actually outstanding at such time), in each case, regardless of whether the options, warrants or convertible securities are actually exercisable at such time, plus (e) a number of shares equal to (i) the number of shares of Common Stock issuable upon exercise of options granted after December 30, 2010, regardless of whether such options are actually exercisable at such time, minus (ii) up to an aggregate of 1,000,000 shares of Common Stock, so long as the exercise price set forth in such options is no less than $3.07 per share (as such number of shares is equitably adjusted for subsequent stock splits, stock combinations, stock dividends and recapitalizations) issued directly or upon the exercise of Options to directors, officers, employees, or consultants of the Company in connection with their service as directors of the Company, their employment by the Company or their retention as consultants by the Company, in each case authorized by the Board and issued pursuant to the Company's stock plan referred to as the “Wyndcrest DD Florida, Inc. - 2010 Stock Plan”.

The Borrower represents that, for the avoidance of doubt, the calculation of Common Stock Deemed Outstanding and the number of Shares into which this Note is convertible shall be determined in accordance with the Capitalization Table attached as Exhibit A, which provides that, as of December 30, 2010, if PBC Digital Lender elected to convert this Note in full into Shares, upon such conversion PBC Digital Lender would be issued 654,050 Shares.

(b)      Mandatory Conversion. All the unpaid amount of this Note shall immediately convert into shares of Common Stock in the manner and amount determined in accordance with Section 3(a) above if the Borrower completes (i) an Initial Public Transaction where the Borrower or the resulting entity is publicly traded with a Market Capitalization of no less than $100,000,000.00 or (ii) a private placement of capital stock of the Borrower where the enterprise value of the Borrower equals no less than $100,000,000.00 and, in each case, the Borrower has received net proceeds of at least $20,000,000.00 from such transaction.

  

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(c)       Method of Conversion. The Optional Conversion Right shall be exercised by written notice from PBC Digital Lender to the Borrower (the “Conversion Notice”) stating PBC Digital Lender's election to convert all or a portion of the amount due under this Note into Shares of the Borrower and the amount so elected to convert. The Borrower, as soon as practicable thereafter, shall amend its stock ledger and other corporate records to reflect the issuance of the Shares to PBC Digital Lender and shall deliver to PBC Digital Lender a certificate or certificates representing the number of Shares PBC Digital Lender is entitled following the conversion (less the Shares represented by the Conversion Certificate), together with a check payable to PBC Digital Lender for any fractional shares as required by Section 5(a) below. The Borrower represents that upon issuance, the converted Shares will be duly and validly issued, fully paid and non-assessable. This Note, or such portion thereof, as applicable, shall be deemed to have been converted as of the close of business on the date the Conversion Notice is sent to the Borrower as provided herein, and PBC Digital Lender shall be treated for all purposes as the holder of record of such converted Shares on the Borrower's books and records as of the close of business on such date (the “Conversion Date”).

(d)               Conversion Certificate. The Borrower acknowledges and agrees that it has delivered to PBC Digital Lender, on the date hereof, a duly authorized and validly executed certificate representing the number of Shares that would be issued to PBC Digital Lender if all of the unpaid amount of this Note was converted on the date hereof (the “Conversion Certificate”) and the Shares represented thereby shall be duly and validly issued, fully paid and non-assessable upon Conversion pursuant to this Section 3. PBC Digital Lender shall hold the Conversion Certificate in escrow and not release same unless pursuant to the terms of this Note and that certain Side Letter Escrow Agreement of even date herewith. Upon Conversion of this Note pursuant to this Section 3, the Optionee shall be authorized to release the Conversion Certificate and, once so released, the Borrower agrees that the shares represented by the Conversion Certificate shall be duly and validly issued, fully paid and nonassessable.

    4.         Purchase Option.

(a)          Option. If all or any portion of the Loans are prepaid (such prepaid amount shall be referred to herein as the “Prepaid Amount”) in accordance with the terms of this Note and PBC Digital Lender has not exercised its Conversion Right as set forth in Section 3 hereof prior to the prepayment, PBC Digital Lender is hereby granted an option to purchase, exercisable on or before the later of June 30, 2011 and thirty (30) days after such prepayment (the “Purchase Option”), such number of Shares equal to a percentage amount of the Common Stock Deemed Outstanding on the date of exercise of the Purchase Option, determined by dividing (i) the aggregate amount of the Prepaid Amount used to exercise the Purchase Option (the “Exercise Price”) by (ii) the sum of (y) Two Hundred Million (200,000,000) plus (z) the aggregate amount of the Prepaid Amount used to exercise the Purchase Option, in consideration for the payment of the Exercise Price. PBC Digital Lender shall have no obligation to exercise the Purchase Option.

(b)               Exercising the Purchase Option. The Purchase Option shall be exercised by written notice from PBC Digital Lender to the Borrower (the “Option Notice”) stating PBC Digital Lender's election to purchase Shares, the Exercise Price and the number of Shares to be purchased.

  

  

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(c)          Closing of the Purchase Option. The closing of the Purchase Option (the “Closing”) shall take place at a time selected by PBC Digital Lender, but no later than thirty (30) Business Days after receipt of the Option Notice by the Borrower. At the Closing, the Borrower and PBC Digital Lender shall execute a purchase agreement that shall contain substantially the same representations, warranties, covenants and indemnities as contained in the Note Purchase Agreement. The Borrower shall amend its stock ledger and other corporate records to reflect the issuance of the Shares that are purchased pursuant to the Purchase Option (the “Purchased Shares”) to PBC Digital Lender and shall deliver to PBC Digital Lender a certificate or certificates representing the number of Purchased Shares PBC Digital Lender is entitled following the exercise of the Purchase Option (less the Shares represented by the Conversion Certificate if such Conversion Certificate is held by PBC Digital Lender and the Shares represented thereby are duly and validly issued, fully paid and non-assessable), together with a check payable to PBC Digital Lender for any fractional shares as required by Section 5(a) below. The Borrower represents that upon issuance, the Purchased Shares will be duly and validly issued, fully paid and non-assessable.

    5.         Certain Provisions Applicable to the Conversion Right and the Purchase Option.

(a)                   No Fractional Shares. No fractional Shares will be issued upon conversion of this Note or the exercise of the Purchase Option. In lieu of any fractional share to which PBC Digital Lender would otherwise be entitled, the Borrower will pay to PBC Digital Lender in cash any amount that would otherwise be converted into such fractional share or purchased by PBC Digital Lender.

(b)                   Reserved Shares. The Borrower shall at all times keep authorized and approved under its organizational documents the number of Shares issuable upon conversion or the exercise of the Purchase Option and shall take all such action as may be required from time to time to validly and legally issue Shares upon such conversion or the exercise of the Purchase Option.

    6.   Late Charge. If any amounts due and owing under the PBC Digital Loans are not paid within five (5) Business Days of the date when due, the Borrower shall pay PBC Digital Lender a “late charge” in the amount of five percent (5%) of the amount of the payment that is past due.

7.         Conditions Precedent to the Loans. The obligation of PBC Digital Lender to make the Loans is subject to the satisfaction of the following conditions precedent:

(a)               PBC Digital Lender shall have received on or before the date hereof, each dated such day (unless otherwise specified), in form and substance satisfactory to PBC Digital Lender:

(i)    This Note signed by the Borrower. 

(ii)   Certified copies of the resolutions of the Board of Directors (or equivalent governing body) of the Borrower approving this Note and the transactions contemplated hereby to which it is or is to be a party, and of all documents evidencing other necessary corporate action and governmental and other third party approvals and consents, if any, with respect to this Note and the transactions contemplated hereby to which it is or is to be a party.

  

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(b)               PBC Digital Lender shall have received a certificate of the Borrower, signed on behalf of the Borrower by an authorized person of the Borrower, dated the date hereof (the statements made in which certificate shall be true on and as of the date hereof), certifying and attaching (A) a certified copy of the Borrower's charter or similar organizational documents, including all amendments thereto, certified by the Secretary of State of the jurisdiction of incorporation of the Borrower, (B) a true and correct copy of the bylaws (or equivalent governing document) of the Borrower as in effect on the date on which the resolutions referred to in Section 7(a)(ii) were adopted and on the date hereof, (C) the due incorporation and good standing or valid existence of the Borrower as a company organized under the laws of the jurisdiction of its incorporation, and the absence of any proceeding for the dissolution or liquidation of the Borrower, (D) the truth of the representations and warranties contained in the Note Purchase Agreement as though made on and as of the date hereof and (E) the absence of any event occurring and continuing, or resulting from the making of the Loans, that constitutes an Event of Default.

(c)               PBC Digital Lender shall have received a certificate of the Secretary or an Assistant Secretary of the Borrower certifying the names and true signatures of the officers of the Borrower authorized to sign Note.

(d)              PBC Digital Lender shall have received a certificate in form and substance satisfactory to PBC Digital Lender attesting to the Solvency of the Borrower before and after giving effect to the transactions contemplated by this Note, from the Chief Financial Officer of the Borrower.

(e)                PBC Digital Lender shall have received such financial, business and other information regarding the Borrower and its Subsidiaries as PBC Digital Lender shall have requested.

(f)                PBC Digital Lender shall have received evidence of insurance naming PBC Digital Lender as additional insured and loss payee with such responsible and reputable insurance companies or associations, and in such amounts and covering such risks, as is satisfactory to PBC Digital Lender.

(g)               PBC Digital Lender shall have received copies of all Material Contracts of the Borrower and its Subsidiaries as PBC Digital Lender shall request.

 

(h)               PBC Digital Lender shall have received a favorable opinion of Eavenson & Kairalla, P.L., counsel for the Borrower, in substantially the form of Exhibit B to the Note Purchase Agreement and as to such other matters as PBC Digital Lender may reasonably request.

(i)                There shall exist no action, suit, investigation, litigation or proceeding affecting the Borrower or any of its Subsidiaries pending or to Borrower's knowledge threatened before any court, governmental agency or arbitrator that could have a Material Adverse Effect on the Borrower or any of its Subsidiaries (except for the litigation disclosed on Schedule 4.9 to the Note Purchase Agreement).

  

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    (j)                PBC Digital Lender shall have independently completed a due diligence investigation of the Borrower and its Subsidiaries in scope, and with results, satisfactory to PBC Digital Lender.

    (k)               The Borrower shall have paid all accrued fees of PBC Digital Lender (including the accrued fees and expenses of counsel and accountants to PBC Digital Lender).

    (1)               The representations and warranties of the Borrower contained in the Note Purchase Agreement and each Other Agreement to which it is a party shall be correct on and as of the date hereof, before and after giving effect to the Loans and to the application of the proceeds therefrom, as though made on and as of such date, other than any such representations or warranties that, by their terms, refer to a specific date other than the date hereof, in which case as of such specific date.

    (m)              No Event of Default has occurred and is continuing, or would result from the Borrower borrowing the Loans or from the application of the proceeds therefrom.

8.        Event of Default. Upon the occurrence and during the continuance of an Event of Default, subject to the Borrower's applicable cure rights and notice periods set forth in the definition of “Event of Default”, then, and in any such event, PBC Digital Lender may, by notice to the Borrower (i) declare the commitments of PBC Digital Lender and the obligation of PBC Digital Lender to make Loans to be terminated, whereupon the same shall forthwith terminate, and (ii) declare the Note, all interest thereon and all other amounts payable under the Note Purchase Agreement and the Other Agreements to be forthwith due and payable, whereupon the Note, all such interest and all such amounts shall become and be forthwith due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Borrower; provided, however, that in the event of an actual or deemed entry of an order for relief with respect to the Borrower under the Federal Bankruptcy Code, (x) the commitments of PBC Digital Lender and the obligation of PBC Digital Lender to make Loans shall automatically be terminated and (y) the Note, all such interest and all such amounts shall automatically become and be due and payable, without presentment, demand, protest or any notice of any kind, all of which are hereby expressly waived by the Borrower.

Nothing herein, in the Note Purchase Agreement or in any Other Agreement shall be construed to prohibit or restrict PBC Digital Lender from asserting a claim or initiating and maintaining an action against the Borrower arising out of any Event of Default.

9.         Unsecured, Subordinated Note. This Note is unsecured and shall rank senior to all existing and future Debt of the Borrower (including trade obligations), except for Debt represented by the Senior Notes.

10.       Maximum Interest Rate. In no event shall the interest rate payable with respect to this Note exceed the maximum rate of interest permitted to be charged under applicable law (the “Maximum Interest Rate”). If the amount of interest payable for the account of PBC Digital Lender exceeds the Maximum Interest Rate, the amount of interest payable for PBC Digital Lender's account on such interest payment date shall automatically be reduced to the Maximum Interest Rate.

  

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11.      Amendments, Etc. No amendment or waiver of any provision of this Note, and no consent to any departure by the Borrower herefrom, shall in any event be effective unless the same shall be in writing and signed by PBC Digital Lender, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.

   12.       Expenses. The Borrower agrees to pay on demand (i) all costs and expenses of PBC Digital Lender in connection with the preparation, execution, delivery, administration, modification and amendment of this Note, the Note Purchase Agreement and each Other Agreement (including, without limitation, (A) all due diligence, transportation, computer, duplication, appraisal, audit, insurance, consultant, search, filing and recording fees and expenses and (B) the reasonable fees and expenses of counsel and accountants for PBC Digital Lender with respect thereto, with respect to advising PBC Digital Lender as to its rights and responsibilities, or the perfection, protection or preservation of rights or interests, under this Note, the Note Purchase Agreement and each Other Agreement, with respect to negotiations with the Borrower or with other creditors of the Borrower or any of its Subsidiaries arising out of any Event of Default or any events or circumstances that may give rise to an Event of Default and with respect to presenting claims in or otherwise participating in or monitoring any bankruptcy, insolvency or other similar proceeding involving creditors' rights generally and any proceeding ancillary thereto) and (ii) all costs and expenses of PBC Digital Lender in connection with the enforcement of this Note, the Note Purchase Agreement and each Other Agreement, whether in any action, suit or litigation, or any bankruptcy, insolvency or other similar proceeding affecting creditors' rights generally (including, without limitation, the reasonable fees and expenses of counsel for PBC Digital Lender with respect thereto).

(c)       The Borrower agrees to indemnify, defend and save and hold harmless PBC Digital Lender and each of its Affiliates and their respective officers, directors, employees, agents and advisors (each, an “Indemnified Party”) from and against, and shall pay on demand, any and all claims, damages, losses, liabilities and expenses (including, without limitation, reasonable fees and expenses of counsel) that may be incurred by or asserted or awarded against any Indemnified Party, in each case arising out of or in connection with or by reason of (including, without limitation, in connection with any investigation, litigation or proceeding or preparation of a defense in connection therewith) (i) the Loans, the actual or proposed use of the proceeds of the Loans, this Note, the Note Purchase Agreement and each Other Agreement or any of the transactions contemplated thereby, (ii) the actual or alleged presence of Hazardous Materials on any property of the Borrower or any of its Subsidiaries or any Environmental Action relating in any way to the Borrower or any of its Subsidiaries, except to the extent such claim, damage, loss, liability or expense is found in a final, non-appealable judgment by a court of competent jurisdiction to have resulted from such Indemnified Party's gross negligence or willful misconduct. In the case of an investigation, litigation or other proceeding to which the indemnity in this Section 12 applies, such indemnity shall be effective whether or not such investigation, litigation or proceeding is brought by the Borrower, its directors, shareholders or creditors or an Indemnified Party, whether or not any Indemnified Party is otherwise a party thereto and whether or not the transactions contemplated hereby are consummated. The Borrower also agrees not to assert any claim against PBC Digital Lender, or any of its Affiliates, officers, directors, employees, agents and advisors, on any theory of liability, for special, indirect, consequential or punitive damages arising out of or otherwise relating to this Note, the Note Purchase Agreement or the actual or proposed use of the proceeds of the Loans.

  

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(d)       If the Borrower fails to pay when due any costs, expenses or other amounts payable by it under this Note, the Note Purchase Agreement or any Other Agreement to which it is a party, including, without limitation, fees and expenses of counsel and indemnities, such amount may be paid on behalf of the Borrower by PBC Digital Lender, in its sole discretion.

 

(e)       Without prejudice to the survival of any other agreement of the Borrower hereunder or under the Note Purchase Agreement or any Other Agreement to which it is a party, the agreements and obligations of the Borrower contained in this Section 12 shall survive the payment in full of principal, interest and all other amounts payable hereunder.

13.        Waivers; Remedies.

(a)               The Borrower hereby waives all applicable exemption rights, whether under any state constitution, homestead laws or otherwise, as well as any presentment for payment, demand, notice of dishonor and protest of this Note.

(b)              No failure on the part of PBC Digital Lender to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law.

14.    Assignment.

 

 (a)               PBC Digital Lender may assign all or a portion of its rights and obligations under this Note to an Eligible Assignee so long as the aggregate amount of the Loans being assigned to such Eligible Assignee pursuant to such assignment shall in no event be less than $1,000,000; provided, however, that the right to principal of, and stated interest on, this Note is not negotiable by endorsement of PBC Digital Lender or any assignee of PBC Digital Lender unless such endorsement is accompanied by the following actions of the Borrower:

(i)       The Borrower shall maintain a registry of the ownership of this Note (the “Registry”) at its principal office.

(ii)     The Registry shall reflect PBC Digital Holdings II, LLC as the original holder of this Note, and shall reflect such subsequent transferee as the Borrower shall receive notice thereof, by deliver to it of a certified copy of the assignment of the Note duly executed by the then current holder thereof.

(iii)     Notices of the assignment of this Note shall be furnished by PBC Digital Lender (as reflected in the Registry) to the Borrower by certified or registered mail.

 

  

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(iv)    No transfer of this Note shall be valid unless reflected In the Registry in accordance with the provisions of the above paragraph.

(b)               Upon the execution, delivery, acceptance and recording of any such assignment, from and after the effective date of such assignment, (i) the assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it, have the rights and obligations of PBC Digital Lender hereunder and (ii) the assignor thereunder shall, to the extent that rights and obligations hereunder have been assigned by it, relinquish its rights (other than its rights under Section 12 to the extent any claim thereunder relates to an event arising prior to such assignment) and be released from its obligations under this Note (and, in the case of an assignment covering all of the remaining portion of an assigning party's rights and obligations under this Note, such assigning party shall cease to be a party hereto).

(c)                In the case of any assignment by PBC Digital Lender, within five (5) Business Days after its receipt of such notice, the Borrower, at its own expense, shall execute and deliver to the assignee in exchange for the surrendered Note a new Note to the order of such Eligible Assignee in an amount equal to the Loans assumed by it and, if the assigning PBC Digital Lender has retained any Loans hereunder, a new Note to the order of such assigning PBC Digital Lender in an amount equal to the Loans retained by it hereunder. Such new Note or Notes shall be in an aggregate principal amount equal to the aggregate principal amount of such surrendered Note or Notes, shall be dated the effective date of such assignment.

(d)               PBC Digital Lender may sell participations to one or more Persons (other than the Borrower or any of its Affiliates) in or to all or a portion of its rights and obligations under this Note; provided, however, that (i) PBC Digital Lender's obligations under this Note shall remain unchanged, (ii) PBC Digital Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) PBC Digital Lender shall remain the holder of any such Note for all purposes of this Note, (iv) the Borrower shall continue to deal solely and directly with PBC Digital Lender in connection with PBC Digital Lender's rights and obligations under this Note and (v) no participant under any such participation shall have any right to approve any amendment or waiver of any provision of this Note, or any consent to any departure by any party therefrom, except to the extent that such amendment, waiver or consent would reduce the principal of, or interest on, the Notes or any fees or other amounts payable hereunder, in each case to the extent subject to such participation, postpone any date fixed for any payment of principal of, or interest on, the Notes or any fees or other amounts payable hereunder.

(e)          PBC Digital Lender may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section 14, disclose to the assignee or participant or proposed assignee or participant any information relating to the Borrower furnished to PBC Digital Lender or any of its Affiliates by or on behalf of the Borrower; provided, however, that, prior to any such disclosure, the assignee or participant or proposed assignee or participant shall agree to preserve the confidentiality of any Confidential Information received by it from PBC Digital Lender.

  

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15.       Severability. The provisions of this Note shall be severable and the invalidity or unenforceability of any one or more of the provisions of this Note shall not affect the validity and enforceability of the other provisions.

16.      No Setoffs. No indebtedness evidenced by this Note shall be deemed to have been setoff or shall be setoff or compensated by all or part of any claim, cause of action, counterclaim or cross-claim, whether liquidated or unliquidated, which the Borrower may have or claim to have against PBC Digital Lender. Furthermore, in respect to the present indebtedness of, or any future indebtedness incurred by, the Borrower to PBC Digital Lender, the Borrower waives, to the fullest extent permitted by law, the benefits of any applicable law, regulation or procedure that substantially provides that, if (i) cross-demands for money have existed between persons at any point in time and (ii) neither demand was barred by the applicable statute of limitations and (iii) an action is thereafter commenced by one such person, then the other may assert in his answer the defense of payment in that the two demands are compensated so far as they equal each other, notwithstanding that an independent action asserting the claim would at the time of filing the answer be barred by the applicable statute of limitations.

17.      Loss, Theft, Destruction or Mutilation of Note. In the event of the loss, theft or destruction of this Note, upon PBC Digital Lender's written request, accompanied by an indemnification and/or security reasonably satisfactory to the Borrower, or in the event of the mutilation of this Note, upon PBC Digital Lender's surrender to the Borrower of the mutilated Note, the Borrower shall execute and deliver to PBC Digital Lender (or any party that PBC Digital Lender designates), as the case may be, a new promissory note in form and content identical to this Note in lieu of the lost, stolen, destroyed or mutilated Note.

18.      Unconditional Payment. If any payment received by PBC Digital Lender hereunder shall be deemed by a court of competent jurisdiction to have been a voidable preference or fraudulent conveyance under any bankruptcy, insolvency or other debtor relief law, then the obligation to make such payment shall survive any cancellation or satisfaction of this Note or return thereof to the Borrower and shall not be discharged or satisfied with any prior payment thereof or cancellation of this Note, but shall remain a valid and binding obligation enforceable in accordance with the terms and provisions hereof, and such payment shall be immediately due and payable upon demand. No release of any security for this Note or any party liable for payment of this Note shall release or affect the liability of the Borrower or any other party who may become liable for payment of all or any part of the indebtedness evidenced by this Note. PBC Digital Lender may release any guarantor, surety or indemnitor of this Note from liability, in every instance without the consent of the Borrower hereunder and without waiving any rights which PBC Digital Lender may have hereunder or under any of the other Loan Documents or under applicable law or in equity.

19.       Governing Law; Jurisdiction; Waiver of Jury Trial, Etc.

    (a)               This Note shall be governed by, and construed in accordance with, the laws of the State of Delaware without regard to conflict of law principles that may cause the laws of another jurisdiction to apply.

 

  

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(b)         The Borrower hereby irrevocably consents to the exclusive jurisdiction of any state courts located within the State of Delaware or the United States District Court for the District of Delaware, in connection with any action or proceeding arising out of or relating to this Note or any document or instrument delivered pursuant to this Note or otherwise. In any such litigation, the Borrower waives, to the fullest extent it may effectively do so, personal service of any summons, complaint or other process and agrees that the service thereof may be made by certified or registered mail directed to the Borrower, at the Borrower's address set forth on the signature page hereto. The Borrower hereby waives, to the fullest extent it may effectively do so, the defenses of forum non conveniens and improper venue.

(c)               The Borrower irrevocably waives all right to trial by jury in any action, proceeding or counterclaim (whether based on contract, tort or otherwise) arising out of or relating to this Note, or the actions of PBC Digital Lender in the negotiation, administration, performance or enforcement thereof.

    20.       Definitions.

“Capitalized Leases” means all leases that have been or should be, in accordance with GAAP, recorded as capitalized leases.

“Change of Control” means the occurrence of any of the following events: (i) any Person or “group” (as such term is used in Sections 13(d) and 14( d) of the Securities Exchange Act of 1934) becomes the “beneficial owner” (as defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934, except that a Person will be deemed to have “beneficial ownership” of all securities that such Person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of more than fifty percent (50%) of the voting power of all classes of voting stock of Borrower. Notwithstanding the foregoing, there shall be no Change of Control if a change in the “beneficial ownership” results from an Initial Public Transaction or from an Internal Reorganization.

“Contingent Obligation” means, with respect to any Person, any Obligation or arrangement of such Person to guarantee or intended to guarantee any Debt, leases, dividends or other payment Obligations (“primary obligations”) of any other Person (the “primary obligor”) in any manner, whether directly or indirectly, including, without limitation, (a) the direct or indirect guarantee, endorsement (other than for collection or deposit in the ordinary course of business), co-making, discounting with recourse or sale with recourse by such Person of the Obligation of a primary obligor, (b) the Obligation to make take-or-pay or similar payments, if required, regardless of nonperformance by any other party or parties to an agreement or (c) any Obligation of such Person, whether or not contingent, (i) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (ii) to advance or supply funds (A) for the purchase or payment of any such primary obligation or (B) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (iii) to purchase property, assets, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation or (iv) otherwise to assure or hold harmless the holder of such primary obligation against loss in respect thereof. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation in respect of which such Contingent Obligation is made (or, if less, the maximum amount of such primary obligation for which such Person may be liable pursuant to the terms of the instrument evidencing such Contingent Obligation) or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof (assuming such Person is required to perform thereunder), as determined by such Person in good faith.

  

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“Debt” of any Person means, (a) all indebtedness of such Person for borrowed money, (b) all Obligations of such Person for the deferred purchase price of property or services (other than trade payables not overdue by more than 60 days incurred in the ordinary course of such Person's business), (c) all Obligations of such Person evidenced by notes, bonds, debentures or other similar instruments, (d) all Obligations of such Person created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (e) all Obligations of such Person as lessee under Capitalized Leases, (f) all Obligations of such Person to purchase, redeem, retire, defease or otherwise make any payment in respect of any Equity Interests in such Person or any other Person or any warrants, rights or options to acquire such capital stock, (g) all Contingent Obligations of such Person and (h) all indebtedness and other payment Obligations referred to in clauses (a) through (g) above of another Person secured by (or for which the holder of such Debt has an existing right, contingent or otherwise, to be secured by) any Lien on property (including, without limitation, accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such indebtedness or other payment Obligations.

“Eligible Assignee” means (i) an Affiliate of PBC Digital Lender; (ii) a commercial bank organized under the laws of the United States, or any State thereof, and having total assets in excess of $10,000,000; (iii) a savings and loan association or savings bank organized under the laws of the United States, or any State thereof, and having total assets in excess of $10,000,000; (iv) a commercial bank organized under the laws of any other country that is a member of the OECD or has concluded special lending arrangements with the International Monetary Fund associated with its General Arrangements to Borrow and having total assets in excess of $10,000,000, so long as such bank is acting through a branch or agency located in the United States; (v) the central bank of any country that is a member of the OECD; (vi) a finance company, insurance company or other financial institution or fund (whether a corporation, partnership, trust or other entity) that is engaged in making, purchasing or otherwise investing in commercial loans in the ordinary course of its business and having total assets in excess of $10,000,000; and (vii) any other Person approved by PBC Digital Lender.

 

“Equity Interests” means, with respect to any Person, shares of capital stock of (or other ownership or profit interests in) such Person, warrants, options or other rights for the purchase or other acquisition from such Person of shares of capital stock of (or other ownership or profit interests in) such Person, securities convertible into or exchangeable for shares of capital stock of (or other ownership or profit interests in) such Person or warrants, rights or options for the purchase or other acquisition from such Person of such shares (or such other interests), and other ownership or profit interests in such Person (including, without limitation, partnership, member or trust interests therein), whether voting or nonvoting, and whether or not such shares, warrants, options, rights or other interests are authorized or otherwise existing on any date of determination.

 

  

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“Events of Default” means any of the following events:

(a)  (i) the Borrower shall fail to pay any principal of the Loan when the same shall become due and payable or (ii) the Borrower shall fail to pay any interest on any Loan when the same becomes due and payable within five (5) Business Days after the same becomes due and payable, provided, however that this grace period shall only be available to the Borrower twice during any twelve (12) consecutive month period; or

(b)       any representation or warranty made by the Borrower (or any of its officers) under or in connection with the Note Purchase Agreement or any Other Agreement shall prove to have been incorrect in any material respect when made if such violation shall remain unremedied for ten (10) days after the earlier of the date on which (i) any officer of the Borrower becomes aware or should become aware of such failure or (ii) written notice thereof shall have been given to the Borrower by PBC Digital Lender; or

(c)       the Borrower shall fail to perform or observe any term, covenant or agreement contained in the Note Purchase Agreement; or

 

(d) (A) (i) the Borrower or any of its Subsidiaries shall fail to pay any principal of, premium or interest on or any other amount payable in respect of any Debt of the Borrower or such Subsidiary (as the case may be) that is outstanding (but excluding Debt outstanding hereunder), when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise), or (ii) any other event shall occur or condition shall exist under any agreement or instrument relating to any such Debt, if the effect of such failure to pay under clause (i) or the effect of such event or condition under clause (ii) is to accelerate, the maturity of such Debt or otherwise to cause the holder thereof to cause, such Debt to mature; or (B) any such Debt shall be declared to be due and payable or required to be prepaid or redeemed (other than by a regularly scheduled required prepayment or redemption), purchased or defeased, or an offer to prepay, redeem, purchase or defease such Debt shall be required to be made, in each case prior to the stated maturity thereof; or

(e)       the Borrower or any of its Subsidiaries shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against the Borrower or any of its Subsidiaries seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee or other similar official for it or for any substantial part of its property and, in the case of any such proceeding instituted against it (but not instituted by it) that is being diligently contested by it in good faith, either such proceeding shall remain undismissed or unstayed for a period of 30 days or any of the actions sought in such proceeding (including, without limitation, the entry of an order for relief against, or the appointment of a receiver, trustee, custodian or other similar official for, it or any substantial part of its property) shall occur; or the Borrower or any of its Subsidiaries shall take any corporate action to authorize any of the actions set forth above in this subsection (e); or

  

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(f)        any judgments or orders, either individually or in the aggregate, for the payment of money in excess of $500,000 shall be rendered against the Borrower or any of its Subsidiaries and either (i) enforcement proceedings shall have been commenced by any creditor upon such judgment or order or (ii) there shall be any period of 10 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or

(g)       any non-monetary judgment or order shall be rendered against the Borrower or any of its Subsidiaries that could have a Material Adverse Effect, and there shall be any period of 10 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or

(h)      any provision of the Note Purchase Agreement or Other Agreements shall for any reason cease to be valid and binding on or enforceable against the Borrower, or the Borrower shall so state in writing if such violation shall remain unremedied for ten (10) days after the earlier of the date on which (i) any officer of the Borrower becomes aware or should become aware of such failure or (ii) written notice thereof shall have been given to the Borrower by PBC Digital Lender; or

(i)        a Change of Control shall occur; or

G)        the Borrower defaults under a Material Contract and fails to cure such default within the time specified in the Material Contract; or any Local Agreements or the State Agreement ceases to be in full force and effect for any reason other than the end of the term of those agreements; or

(k)       the Borrower ceases to own at least fifty one percent (51 %) of the Equity Interests in Digital Domain.

“Grant Agreement” means that certain agreement dated November 25, 2009 between the City of Port St. Lucie, Florida and the Borrower, a true, correct and complete copy of which has been provided to the Borrower.

“Initial Public Transaction” means (x) an initial public offering of the Borrower (y) a merger, consolidation, exchange of stock, or reorganization of the Borrower (or a Subsidiary of the Borrower, whether preexisting or established as part of the transaction) with another Person, or (z) the sale, transfer or conveyance of substantially all of the assets of the Borrower, where, in the case of (y) or (z), prior to the transaction the Borrower was not publicly traded and immediately after the transaction the Borrower or the resulting entity is publicly traded.

 

“Internal Reorganization” means a merger, consolidation, corporate division, stock swap, or any transaction defined as a reorganization under Section 368(a) of the Internal Revenue Code that involves only the Borrower, its Subsidiaries and the owners of their equity; provided that any resulting entity is owned by Persons who owned equity in the Borrower or its Subsidiaries immediately prior to the transaction and that no such Person received money or property (other than equity) as a result of the transaction.

  

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“Lease Agreement” means that certain lease agreement dated April 8, 2010 between the City of Port St. Lucie, Florida and Borrower, a true, correct and complete copy of which has been provided to the Borrower.

“Local Agreements” means those certain agreements by and between the Borrower, the City of Port St. Lucie, Florida and/or St. Lucie County, Florida, now existing or which are hereafter entered into by and between the parties including, without limitation, the Grant Agreement and the Lease Agreement, as such agreements may be modified only with the prior written consent of the Borrower.

“Market Capitalization” means, following an Initial Public Transaction the market price of the Borrower's issued and outstanding Common Stock, calculated by multiplying the number of outstanding shares of Common Stock by the current Market Price of a share of Common Stock.

“Market Price” means, as of any particular date: (a) the volume weighted average of the closing sales prices of the Borrower's Common Stock for such day on all domestic securities exchanges on which the Borrower's Common Stock may at the time be listed; (b) if there have been no sales of the Borrower's Common Stock on any such exchange on any such day, the average of the highest bid and lowest asked prices for the Borrower's Common Stock on all such exchanges at the end of such day; (c) if on any such day the Borrower's Common Stock is not listed on a domestic securities exchange, the closing sales price of the Borrower's Common Stock as quoted on Nasdaq, the OTC Bulletin Board or similar quotation system or association for such day; or (d) if there have been no sales of the Borrower's Common Stock on Nasdaq, the OTC Bulletin Board or similar quotation system or association on such day, the average of the highest bid and lowest asked prices for the Borrower's Common Stock quoted on Nasdaq, the OTC Bulletin Board or similar quotation system or association at the end of such day; in each case of clauses (a) - (d), averaged over twenty (20) consecutive Business Days ending on the Business Day immediately prior to the day as of which “Market Price” is being determined; provided, that if the Borrower's Common Stock is listed on any domestic securities exchange, the term “Business Day” as used in this sentence means Business Days on which such exchange is open for trading.

   “Material Contract” means, with respect to any Person, each contract to which such Person is a party involving aggregate consideration payable to or by such Person of $500,000,000 or more in any year or otherwise material to the business, condition (financial or otherwise), operations, performance, properties or prospects of such Person, including, but not limited to the Local Agreements and the State Agreement (and any amendments, restatements and modifications of such documents).

    “Monetary Default” means an Event of Default described in subsection (a) of the definition of “Event of Default”.

    “Nasdaq” means The Nasdaq Stock Market, Inc.

  

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“Non-Monetary Event of Default” means an Event of Default other than a Monetary Event of Default.

“Obligation” means, with respect to any Person, any payment, performance or other obligation of such Person of any kind, including, without limitation, any liability of such Person on any claim, whether or not the right of any creditor to payment in respect of such claim is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, disputed, undisputed, legal, equitable, secured or unsecured, and whether or not such claim is discharged, stayed or otherwise affected by any proceeding referred to in subsection (d) of the definition of “Event of Default.” Without limiting the generality of the foregoing, the Obligations of the Borrower include (a) the obligation to pay principal, interest, charges, expenses, fees, attorneys' fees and disbursements, indemnities and other amounts payable by the Borrower under this Note and (b) the obligation of the Borrower to reimburse any amount in respect of any of the foregoing that PBC Digital Lender, in its sole discretion, may elect to pay or advance on behalf of the Borrower.

“OTC Bulletin Board” means the National Association of Securities Dealers, Inc. OTC Bulletin Board.

“Senior Notes” means, collectively, the (i) Amended and Restated Lydian Promissory Note issued by the Company to Lydian Private Bank, dated September 30, 2010, together with all renewals, modifications, extensions, substitutions and replacements thereof, (ii) Amended and Restated Convertible Secured Promissory Note and Option Agreement issued by the Company to PBC Digital Holdings, LLC, dated November 24, 2010, together with all renewals, modifications, extensions, substitutions and replacements thereof and (iii) Convertible Secured Promissory Note and Option Agreement issued by the Company to PBC MGPEF DDH, LLC, dated November 24, 2010, together with all renewals, modifications, extensions, substitutions and replacements thereof.

“Solvent” and “Solvency” mean, with respect to any Person on a particular date, that on such date (a) the fair value of the property of such Person is greater than the total amount of liabilities, including, without limitation, contingent liabilities, of such Person, (b) the present fair market value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (c) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person's ability to pay such debts and liabilities as they mature and (d) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person's property would constitute an unreasonably small capital. The amount of contingent liabilities at any time shall be computed as the amount that, in the light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability.

“State Agreement” means that certain State of Florida Office of the Governor Grant Fund Agreement dated June 30, 2009, by and between the State of Florida, Executive Office of the Governor's Office of Tourism, Trade and Economic Development and the Borrower. The term “State Agreement” shall also refers to any amendments to such Grant Fund Agreement provided any such amendment is approved by the Borrower.

  

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“Termination Date” means the earlier of June 30, 2011 and the date of termination in whole of the Loans pursuant to Section 2 or 8.

[signature page attached]

  

17

  

 

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

 

	  	
BORROWER:

	  	  
	  	
DIGITAL DOMAIN HOLDINGS

	  	
CORPORATION, a Florida corporation

	  	  
	  	
By:

	/s/ John C Textor
	  	
Name:

	John C Textor 
	  	
Title:

	CEO  
	  	
Address: 

	
8881 S Federal Hwy 

	 	 	
Port St Lucie, FL 34952

 

[Signature Page - Junior Convertible Promissory Note and Option Agreement]EXHIBIT 10.27

 

WARRANT

 

THIS WARRANT (AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT) IS SUBJECT TO AN AMENDED AND RESTATED INVESTOR’S RIGHTS AGREEMENT, DATED AS OF NOVEMBER 24, 2010, BY AND AMONG DIGITAL DOMAIN HOLDINGS CORPORATION, A FLORIDA CORPORATION (THE “COMPANY”), CERTAIN STOCKHOLDERS OF THE COMPANY, AND THE ORIGINAL HOLDER HEREOF (AS AMENDED FROM TIME TO TIME, THE “INVESTOR’S RIGHTS AGREEMENT”).  NO TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF THE SECURITIES REPRESENTED BY THIS WARRANT MAY BE MADE EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF SUCH INVESTOR’S RIGHTS AGREEMENT. A COPY OF THE INVESTOR’S RIGHTS AGREEMENT SHALL BE FURNISHED WITHOUT CHARGE BY THE COMPANY TO THE HOLDER HEREOF UPON REQUEST.

 

THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR THE FLORIDA SECURITIES AND INVESTOR PROTECTION ACT AND ARE BEING SOLD IN RELIANCE UPON THE EXEMPTION CONTAINED IN SECTION 517.061 (11) OF SUCH ACT.  THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE RESOLD OR TRANSFERRED FOR VALUE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION UNDER THE ACT OR PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT OR STATE SECURITIES LAWS, OR UNLESS THE TRANSFERRING INVESTOR OBTAINS AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE COMPANY THAT AN EXEMPTION FROM REGISTRATION THEREUNDER IS AVAILABLE.

  

  

  

 

Warrant Certificate No.: W-___

 

Original Issue Date: ____________, 2010

 

FOR VALUE RECEIVED, the Company hereby certifies that _________________________, or its registered assigns (the “Holder”) is entitled to purchase from the Company a number of shares of duly authorized, validly issued, fully paid and nonassessable shares of Series A Preferred Stock equal to ____________________ percent (__%) of the Common Stock Deemed Outstanding on the date of any exercise of this Warrant, taking into account shares of Series A Preferred Stock issuable upon such exercise, subject only to dilution for Permitted Dilution Events and less the aggregate number of shares of Series A Preferred Stock previously issued from time to time as a result of any partial exercise of this Warrant in accordance with Section 3, at a purchase price per share of $0.01 (the “Exercise Price”), all subject to the terms, conditions and adjustments set forth below in this Warrant.  Certain capitalized terms used herein are defined in Section 1 hereof.  The calculation of the number of shares of Series A Preferred Stock issuable upon exercise of this Warrant is determined by subtracting the amount of Common Stock Deemed Outstanding from the result of dividing (i) the amount of Common Stock Deemed Outstanding on the date of exercise by (ii) the sum of one (1) minus ____________________ percent (__%).

 

The Company represents that, for the avoidance of doubt, the calculation of Common Stock Deemed Outstanding and the number of shares of  Stock issuable upon exercise of this Warrant shall be determined in accordance with the Capitalization Table attached as Exhibit A, which provides that, as of _______________, 2010, if the Holder elected to exercise this Warrant in full into shares of Series A Preferred Stock, upon such exercise the Holder would be issued shares of Series A Preferred Stock convertible into __________ shares of Common Stock.

 

This Warrant has been issued pursuant to the terms of the Amended and Restated Convertible Note and Warrant Purchase Agreement, dated as of __________________ (as amended from time to time, the “Purchase Agreement”), between the Company and the Holder.

 

1.           Definitions.  As used in this Warrant, the following terms have the respective meanings set forth below:

 

 ”Aggregate Exercise Price” means an amount equal to the product of (a) the number of Warrant Shares in respect of which this Warrant is then being exercised pursuant to Section 3 hereof, multiplied by (b) the Exercise Price.

 

“Board” means the board of directors of the Company.

 

“Business Day” means each day of the week except Saturdays, Sundays, and days on which banking institutions are authorized by law to close in the State of Delaware.

  

  

  

 

“Common Stock” means the common stock, no par value, of the Company, and any capital stock into which such Common Stock shall have been converted, exchanged or reclassified following the date hereof.

 

“Common Stock Deemed Outstanding” means, at any given time, the sum of (a) the number of shares of Common Stock actually outstanding at such time, plus (b) the number of shares of Common Stock issuable upon exercise of outstanding Options, regardless of whether such Options are actually exercisable at such time, plus (c) the number of shares of Common Stock issuable upon exercise of any other Options (other than Options described in clause (b) above) actually outstanding at such time, plus (d) the number of shares of Common Stock issuable upon conversion or exchange of Convertible Securities actually outstanding at such time (treating as actually outstanding any Convertible Securities issuable upon exercise of Options actually outstanding at such time), in each case, regardless of whether the Options or Convertible Securities are actually exercisable at such time; provided that Common Stock issued or issuable upon conversion of the Series A Preferred Stock issued or issuable upon the exercise of this Warrant shall be excluded from the calculation of “Common Stock Deemed Outstanding.”

 

“Company” has the meaning set forth in the preamble.

 

“Convertible Notes” means the amended and restated senior convertible promissory note issued to PBC Digital Holdings, LLC in the principal amount of $9,715,000 pursuant to the Purchase Agreement and the senior convertible promissory note issued to PBC MGPEF DDH, LLC in the principal amount of $6,000,000 pursuant to the Purchase Agreement.

 

“Convertible Securities” means any securities (directly or indirectly) convertible into or exchangeable for Common Stock, but excluding Options.

 

“Excluded Issuances” means any issuance or sale by the Company after the Original Issue Date of: (a) shares of Common Stock issued upon the exercise of this Warrant or (b) up to an aggregate of 1,000,000 shares of Common Stock (as such number of shares is equitably adjusted for subsequent stock splits, stock combinations, stock dividends and recapitalizations) issued directly or upon the exercise of Options to directors, officers, employees, or consultants of the Company in connection with their service as directors of the Company, their employment by the Company or their retention as consultants by the Company, in each case authorized by the Board and issued pursuant to the Company’s stock plan referred to as the "Wyndcrest DD Florida, Inc. - 2010 Stock Plan"; or (c) shares of Common Stock issued upon the conversion or exercise of Options (other than Options covered by clause (b) above) or Convertible Securities issued prior to the Original Issue Date, provided that such securities are not amended after the date hereof to increase the number of shares of Common Stock issuable thereunder or to lower the exercise or conversion price thereof.

  

  

  

 

“Exercise Date” means, for any given exercise of this Warrant, the date on which the conditions to such exercise as set forth in Section 3 shall have been satisfied at or prior to 5:00 p.m., Wilmington, Delaware time, on a Business Day, including, without limitation, the receipt by the Company of the Exercise Agreement, the Warrant and the Aggregate Exercise Price.

 

“Exercise Agreement” has the meaning set forth in Section 3(a)(i).

 

“Exercise Period” has the meaning set forth in Section 2.

 

“Exercise Price” has the meaning set forth in the preamble.

 

“Fair Market Value” means, as of any particular date, either (1) (a) the volume weighted average of the closing sales prices of the Common Stock for such day on all domestic securities exchanges on which the Common Stock may at the time be listed; (b) if there have been no sales of the Common Stock on any such exchange on any such day, the average of the highest bid and lowest asked prices for the Common Stock on all such exchanges at the end of such day; (c) if on any such day the Common Stock is not listed on a domestic securities exchange, the closing sales price of the Common Stock as quoted on Nasdaq, the OTC Bulletin Board or similar quotation system or association for such day; or (d) if there have been no sales of the Common Stock on Nasdaq, the OTC Bulletin Board or similar quotation system or association on such day, the average of the highest bid and lowest asked prices for the Common Stock quoted on Nasdaq, the OTC Bulletin Board or similar quotation system or association at the end of such day; in each case of clauses (a) - (d), averaged over twenty (20) consecutive Business Days ending on the Business Day immediately prior to the day as of which “Fair Market Value” is being determined, subject to a maximum discount of twenty percent (20%) or (2) the fair market value of the stock of the Company as determined by a nationally recognized independent valuation firm approved by the Holder, with the prior reasonable consent of the Company; provided, that if the Common Stock is listed on any domestic securities exchange, the term “Business Day” as used in this sentence means Business Days on which such exchange is open for trading.  If at any time the Common Stock is not listed on any domestic securities exchange or quoted on Nasdaq, the OTC Bulletin Board or similar quotation system or association, the “Fair Market Value” of the Common Stock shall be the fair market value of the stock of the Company as determined by a nationally recognized independent valuation firm approved by the Holder, with the prior reasonable consent of the Company.

 

“Holder” has the meaning set forth in the preamble.

 

“Nasdaq” means The Nasdaq Stock Market, Inc.

 

“Options” means any warrants or other rights or options to subscribe for or purchase Common Stock or Convertible Securities.

 

“Original Issue Date” means ____________, 2010.

 

“OTC Bulletin Board” means the National Association of Securities Dealers, Inc. OTC Bulletin Board.

 

  

  

  

 

“Permitted Dilution Events” means (i) a public offering of the stock of the Company; provided that the Holder is treated the same as the shareholders of the Company then existing immediately prior to such offering; provided further that the Holder has the right to participate in such offering on an equal pro-rata basis (the calculation of which shall be made assuming this Warrant had been exercised in full into Warrant Sharess and the coverted shares of Common Stock) to the same extent as the other shareholders of the Company then existing immediately prior to such offering; (ii) a private offering of the stock of the Company; provided that the Holder is treated the same as the shareholders of the Company then existing immediately prior to such offering; provided further that the Holder has the right to participate in such offering on an equal pro-rata basis (the calculation of which shall be made assuming this Warrant had been exercised in full into Warrant Shares and the coverted shares of Common Stock) to the same extent as the shareholders of the Company then existing immediately prior to such offering, (iii) the issuance by the Company of additional shares of stock in connection with an acquisition, a merger, consolidation, share exchange or other business combination involving the Company and approved by the requisite shareholders of the Company and the Holder and (iv) issuances of options under stock option or other equity incentive plans approved by the Board exercisable for up to 1,000,000 shares of Common Stock (including the exercise of such options), so long as the exercise price set forth in such options is no less than $3.07 per share (equitably adjusted for subsequent stock splits, stock combinations, stock dividends and recapitalizations); provided that, notwithstanding the foregoing, any offering or issuance of shares of stock of the Company for less than Fair Market Value or (other than clause (iv) above) for which the Holder was not given the opportunity to participate shall not constitute a Permitted Dilution Event.

 

“Person” means any individual, sole proprietorship, partnership, limited liability company, corporation, joint venture, trust, incorporated organization or government or department or agency thereof.

 

“Purchase Agreement” has the meaning set forth in the preamble.

 

“Series A Preferred Stock” means the Series A Preferred Stock, no par value, of the Company.

 

“Warrant” means this Warrant and all warrants issued upon division or combination of, or in substitution for, this Warrant.

 

“Warrant Shares” means the shares of Series A Preferred Stock or other capital stock of the Company then purchasable upon exercise of this Warrant in accordance with the terms of this Warrant.

 

2.           Term of Warrant.  Subject to the terms and conditions hereof, at any time or from time to time after the date hereof and prior to 5:00 p.m., Wilmington, Delaware time, on the tenth (10th) anniversary of _________________ or, if such day is not a Business Day, on the next preceding Business Day (the “Exercise Period”), the Holder of this Warrant may exercise this Warrant for all or any part of the Warrant Shares purchasable hereunder (subject to adjustment as provided herein).

  

  

  

 

3.           Exercise of Warrant.

 

(a)          Exercise Procedure.  This Warrant may be exercised from time to time on any Business Day during the Exercise Period, for all or any part of the unexercised Warrant Shares, upon:

 

(i)           surrender of this Warrant to the Company at its then principal executive offices (or an indemnification undertaking with respect to this Warrant in the case of its loss, theft or destruction), together with an Exercise Agreement in the form attached hereto as Exhibit A (each, an “Exercise Agreement”), duly completed (including specifying the number of Warrant Shares to be purchased) and executed; and

 

(ii)          payment to the Company of the Aggregate Exercise Price in accordance with Section 3(b).

 

(b)          Payment of the Aggregate Exercise Price.  Payment of the Aggregate Exercise Price shall be made, at the option of the Holder as expressed in the Exercise Agreement, by the following methods:

 

(i)           by delivery to the Company of a certified or official bank check payable to the order of the Company or by wire transfer of immediately available funds to an account designated in writing by the Company, in the amount of such Aggregate Exercise Price;

 

(ii)          by instructing the Company to withhold a number of Warrant Shares then issuable upon exercise of this Warrant with an aggregate Fair Market Value as of the Exercise Date equal to such Aggregate Exercise Price;

 

(iii)         by surrendering to the Company (x) Warrant Shares previously acquired by the Holder with an aggregate Fair Market Value as of the Exercise Date equal to such Aggregate Exercise Price and/or (y) other securities or debt instruments of the Company having a value as of the Exercise Date equal to the Aggregate Exercise Price (which value in the case of debt securities shall be the principal amount thereof plus accrued and unpaid interest, in the case of preferred stock shall be the liquidation value thereof plus accumulated and unpaid dividends and in the case of shares of Common Stock shall be the Fair Market Value thereof); or

 

(iv)        any combination of the foregoing.

 

In the event of any withholding of Warrant Shares or surrender of other equity securities pursuant to clause (ii), (iii) or (iv) above where the number of shares whose value is equal to the Aggregate Exercise Price is not a whole number, the number of shares withheld by or surrendered to the Company shall be rounded up to the nearest whole share and the Company shall make a cash payment to the Holder (by delivery of a certified or official bank check or by wire transfer of immediately available funds) based on the incremental fraction of a share being so withheld by or surrendered to the Company in an amount equal to the product of (x) such incremental fraction of a share being so withheld or surrendered multiplied by (y) in the case of Common Stock, the Fair Market Value per Warrant Share as of the Exercise Date, and, in all other cases, the value thereof as of the Exercise Date determined in accordance with clause (iii)(y) above.

  

  

  

 

(c)          Delivery of Stock Certificates.  Upon receipt by the Company of the Exercise Agreement, surrender of this Warrant and payment of the Warrant Price (in accordance with Section 3(a) hereof), the Company shall, as promptly as practicable, and in any event within three (3) Business Days thereafter, execute (or cause to be executed) and deliver (or cause to be delivered) to the Holder a certificate or certificates representing the Warrant Shares issuable upon such exercise, together with cash in lieu of any fraction of a share, as provided in Section 3(d) hereof. The stock certificate or certificates so delivered shall be, to the extent possible, in such denomination or denominations as the exercising Holder shall reasonably request in the Exercise Agreement and shall be registered in the name of the Holder or, subject to compliance with Section 7 below, such other Person's name as shall be designated in the Exercise Agreement. This Warrant shall be deemed to have been exercised and such certificate or certificates of Warrant Shares shall be deemed to have been issued, and the Holder or any other Person so designated to be named therein shall be deemed to have become a holder of record of such Warrant Shares for all purposes, as of the Exercise Date.

 

(d)          Fractional Shares.  The Company shall not be required to issue a fractional Warrant Share upon exercise of any Warrant. As to any fraction of a Warrant Share that the Holder would otherwise be entitled to purchase upon such exercise, the Company shall pay to such Holder an amount in cash (by delivery of a certified or official bank check or by wire transfer of immediately available funds) equal to the product of (i) such fraction multiplied by (ii) the Fair Market Value of one Warrant Share on the Exercise Date.

 

(e)          Delivery of New Warrant.  Unless the purchase rights represented by this Warrant shall have expired or shall have been fully exercised, the Company shall, at the time of delivery of the certificate or certificates representing the Warrant Shares being issued in accordance with Section 3(c) hereof, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unexpired and unexercised Warrant Shares called for by this Warrant. Such new Warrant shall in all other respects be identical to this Warrant.

 

(f)           Valid Issuance of Warrant and Warrant Shares; Payment of Taxes.  With respect to the exercise of this warrant, the Company hereby represents, covenants and agrees:

 

(i)           This Warrant is, and any Warrant issued in substitution for or replacement of this Warrant shall be, upon issuance, duly authorized and validly issued.

 

(ii)          All Warrant Shares issuable upon the exercise of this Warrant pursuant to the terms hereof shall be, upon issuance, and the Company shall take all such actions as may be necessary or appropriate in order that such Warrant Shares are, validly issued, fully paid and non-assessable, issued without violation of any preemptive or similar rights of any stockholder of the Company and free and clear of all taxes, liens and charges.

  

  

  

 

(iii)         The Company shall take all such actions as may be necessary to ensure that all such Warrant Shares are issued without violation by the Company of any applicable law or governmental regulation or any requirements of any domestic securities exchange upon which shares of Series A Preferred Stock, Common Stock or other securities constituting Warrant Shares may be listed at the time of such exercise (except for official notice of issuance which shall be immediately delivered by the Company upon each such issuance).

 

(iv)         The Company shall pay all expenses in connection with, and all taxes and other governmental charges that may be imposed with respect to, the issuance or delivery of Warrant Shares upon exercise of this Warrant; provided, that the Company shall not be required to pay any tax or governmental charge that may be imposed with respect to any applicable withholding or the issuance or delivery of the Warrant Shares to any Person other than the Holder, and no such issuance or delivery shall be made unless and until the Person requesting such issuance has paid to the Company the amount of any such tax, or has established to the satisfaction of the Company that such tax has been paid.

 

(g)          Conditional Exercise.  Notwithstanding any other provision hereof, if an exercise of any portion of this Warrant is to be made in connection with a public offering or a sale of the Company (pursuant to a merger, sale of stock, or otherwise), such exercise may at the election of the Holder be conditioned upon the consummation of such transaction, in which case such exercise shall not be deemed to be effective until immediately prior to the consummation of such transaction.

 

(h)          Reservation of Shares.  During the Exercise Period, the Company shall at all times reserve and keep available out of its authorized but unissued Series A Preferred Stock (and Common Stock that would be issuable upon conversion of such Series A Preferred Stock) or other securities constituting Warrant Shares, solely for the purpose of issuance upon the exercise of this Warrant, the maximum number of Warrant Shares issuable upon the exercise of this Warrant, and the par value per Warrant Share shall at all times be less than or equal to the applicable Exercise Price.  The Company shall not increase the par value of any Warrant Shares receivable upon the exercise of this Warrant above the Exercise Price then in effect, and shall take all such actions as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of this Warrant.

  

  

  

 

4.           Effect of Certain Events on Warrant Shares.

 

(a)           Adjustment to Warrant Shares Upon Reorganization, Reclassification, Consolidation or Merger.  In the event of any (i) capital reorganization of the Company, (ii) reclassification of the stock of the Company (other than a change in par value or from par value to no par value or from no par value to par value or as a result of a stock dividend or subdivision, split-up or combination of shares), (iii) consolidation or merger of the Company with or into another Person, (iv) sale of all or substantially all of the Company's assets to another Person or (v) other similar transaction, in each case which entitles the holders of Common Stock to receive (either directly or upon subsequent liquidation) stock, securities or assets with respect to or in exchange for Common Stock, each Warrant shall, immediately after such reorganization, reclassification, consolidation, merger, sale or similar transaction, remain outstanding and shall thereafter, in lieu of or in addition to (as the case may be) the number of Warrant Shares then exercisable under this Warrant, be exercisable for the kind and number of shares of stock or other securities or assets of the Company or of the successor Person resulting from such transaction to which the Holder would have been entitled upon such reorganization, reclassification, consolidation, merger, sale or similar transaction if the Holder had exercised this Warrant in full immediately prior to the time of such reorganization, reclassification, consolidation, merger, sale or similar transaction, converted such shares into Common Stock and acquired the applicable number of Warrant Shares then issuable hereunder as a result of such exercise (without taking into account any limitations or restrictions on the exercisability of this Warrant); and, in such case, appropriate adjustment (in form and substance reasonably satisfactory to the Holder) shall be made with respect to the Holder's rights under this Warrant to insure that the provisions of this Warrant shall thereafter be applicable, as nearly as possible, to any shares of stock, securities or assets thereafter acquirable upon exercise of this Warrant. The provisions of this Section 4(a) shall similarly apply to successive reorganizations, reclassifications, consolidations, mergers, sales or similar transaction. The Company shall not effect any such reorganization, reclassification, consolidation, merger, sale or similar transaction unless, prior to the consummation thereof, the successor Person (if other than the Company) resulting from such reorganization, reclassification, consolidation, merger, sale or similar transaction, shall assume, by written instrument substantially similar in form and substance to this Warrant and reasonably satisfactory to the Holder, the obligation to deliver to the Holder such shares of stock, securities or assets which, in accordance with the foregoing provisions, such Holder shall be entitled to receive upon exercise of this Warrant.  Notwithstanding anything to the contrary contained herein, with respect to any corporate event or other transaction contemplated by the provisions of this Section 4(a), the Holder shall have the right to elect prior to the consummation of such event or transaction, to give effect to the exercise rights contained in Section 3 instead of giving effect to the provisions contained in this Section 4(a) with respect to this Warrant.

 

(b)           Dividends and Distributions.  Subject to the provisions of Section 4(a), as applicable, if the Company shall, at any time or from time to time after the Original Issue Date, make or declare, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or any other distribution payable in securities of the Company, cash or other property, then, and in each such event, provision shall be made so that the Holder shall receive the kind and amount of securities of the Company, cash or other property which the Holder would have been entitled to receive had the Warrant been exercised in full into Warrant Shares and converted into shares of Common Stock on the date of such event.

  

  

  

 

(c)          Certificate as to Adjustment.

 

(i)           As promptly as reasonably practicable following any adjustment of the kind of Warrant Shares pursuant to the provisions of Section 4(a), but in any event not later than three (3) Business Days thereafter, the Company shall furnish to the Holder a certificate of an executive officer setting forth in reasonable detail such adjustment and the facts upon which it is based and certifying the calculation thereof.

 

(ii)          As promptly as reasonably practicable following the receipt by the Company of a written request by the Holder, but in any event not later than three (3) Business Days thereafter, the Company shall furnish to the Holder a certificate of an executive officer certifying the amount of other shares of stock, securities or assets then issuable upon exercise of the Warrant.

 

(d)          Notices.  In the event:

 

(i)           that the Company shall take a record of the holders of its Common Stock (or other capital stock or securities at the time issuable upon exercise of the Warrant) for the purpose of entitling or enabling them to receive any dividend or other distribution, to vote at a meeting (or by written consent), to receive any right to subscribe for or purchase any shares of capital stock of any class or any other securities, or to receive any other security; or

 

(ii)          of any capital reorganization of the Company, any reclassification of the Common Stock of the Company, any consolidation or merger of the Company with or into another Person, or sale of all or substantially all of the Company's assets to another Person; or

 

(iii)         of the voluntary or involuntary dissolution, liquidation or winding-up of the Company;

 

then, and in each such case, the Company shall send or cause to be sent to the Holder at least ten (10) days prior to the applicable record date or the applicable expected effective date, as the case may be, for the event, a written notice specifying, as the case may be, (A) the record date for such dividend, distribution, meeting or consent or other right or action, and a description of such dividend, distribution or other right or action to be taken at such meeting or by written consent, or (B) the effective date on which such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding-up is proposed to take place, and the date, if any is to be fixed, as of which the books of the Company shall close or a record shall be taken with respect to which the holders of record of Common Stock (or such other capital stock or securities at the time issuable upon exercise of the Warrant) shall be entitled to exchange their shares of Common Stock (or such other capital stock or securities) for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding-up, and the amount per share and character of such exchange applicable to the Warrant and the Warrant Shares.

  

  

  

 

5.           Purchase Rights.  In addition to any adjustments pursuant to Section 4(a) above, if at any time the Company grants, issues or sells any shares of Common Stock, Options, Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata to the record holders of Common Stock (the “Purchase Rights”), then the Holder shall be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder would have acquired if the Holder had held the number of Warrant Shares acquirable upon complete exercise of this Warrant (and conversion into shares of Common Stock) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights.  Anything herein to the contrary notwithstanding, the Holder shall not be entitled to the Purchase Rights granted herein with respect to any Excluded Issuance.

 

6.           Investor’s Rights Agreement.  This Warrant and all Warrant Shares issuable upon exercise of this Warrant are and shall become subject to, and have the benefit of, the Investor’s Rights Agreement.

 

7.           Transfer of Warrant.  Subject to the transfer conditions referred to in the legends endorsed hereon, the terms and conditions of the Investor’s Rights Agreement and Section 9(b) hereof, this Warrant and all rights hereunder are transferable, in whole or in part, by the Holder without charge to the Holder, upon surrender of this Warrant to the Company at its then principal executive offices with a properly completed and duly executed Assignment in the form attached hereto as Exhibit B, together with funds sufficient to pay any transfer taxes described in Section 3(f)(v) in connection with the making of such transfer. Upon such compliance, surrender and delivery and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees and in the denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant, if any, not so assigned and this Warrant shall promptly be cancelled.  The Holder, by acceptance hereof, agrees that this Warrant and the Warrant Shares to be issued upon exercise hereof are being acquired for investment and not with a view towards resale or distribution and that it will not offer, sell or otherwise dispose of this Warrant or any Warrant Shares to be issued upon exercise hereof except under circumstances which will not result in a violation of the Securities Act of 1933.  This Warrant and all Warrant Shares issued upon exercise hereof (unless registered under the Securities Act of 1933) shall be stamped or imprinted with the legend indicated on the first page of this Warrant.

 

8.           Holder Not Deemed a Stockholder; Limitations on Liability.  Except as otherwise specifically provided herein (including Section 4(b)) or in the Investor’s Rights Agreement, prior to the issuance to the Holder of the Warrant Shares to which the Holder is then entitled to receive upon the due exercise of this Warrant, the Holder shall not be entitled to vote or receive dividends or be deemed the holder of shares of capital stock of the Company for any purpose, nor shall anything contained in this Warrant be construed to confer upon the Holder, as such, any of the rights of a stockholder of the Company or any right to vote, give or withhold consent to any corporate action (whether any reorganization, issue of stock, reclassification of stock, consolidation, merger, conveyance or otherwise), receive notice of meetings, receive dividends or subscription rights, or otherwise.  In addition, nothing contained in this Warrant shall be construed as imposing any liabilities on the Holder to purchase any securities (upon exercise of this Warrant or otherwise) or as a stockholder of the Company, whether such liabilities are asserted by the Company or by creditors of the Company.  Notwithstanding this Section 7, the Company shall provide the Holder with copies of the same notices and other information given to the stockholders of the Company generally, contemporaneously with the giving thereof to the stockholders.

  

  

  

 

9.           Replacement on Loss; Division and Combination.

 

(a)           Replacement of Warrant on Loss.  Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and upon delivery of an indemnity reasonably satisfactory to it (it being understood that a written indemnification agreement or affidavit of loss of the Holder shall be a sufficient indemnity) and, in case of mutilation, upon surrender of such Warrant for cancellation to the Company, the Company at its own expense shall execute and deliver to the Holder, in lieu hereof, a new Warrant of like tenor and exercisable for an equivalent number of Warrant Shares as the Warrant so lost, stolen, mutilated or destroyed; provided, that, in the case of mutilation, no indemnity shall be required if this Warrant in identifiable form is surrendered to the Company for cancellation.

 

(b)           Division and Combination of Warrant.  Subject to compliance with the applicable provisions of this Warrant and the Investor’s Rights Agreement as to any transfer or other assignment which may be involved in such division or combination, this Warrant may be divided or, following any such division of this Warrant, subsequently combined with other Warrants, upon the surrender of this Warrant or Warrants to the Company at its then principal executive offices, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the respective Holders or their agents or attorneys. Subject to compliance with the applicable provisions of this Warrant and the Investor’s Rights Agreement as to any transfer or assignment which may be involved in such division or combination, the Company shall at its own expense execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants so surrendered in accordance with such notice. Such new Warrant or Warrants shall be of like tenor to the surrendered Warrant or Warrants and shall be exercisable in the aggregate for an equivalent number of Warrant Shares as the Warrant or Warrants so surrendered in accordance with such notice.  Neither this Warrant nor the Warrant Shares issuable upon exercise hereof may be assigned, disposed of, encumbered, or otherwise transferred (any such action, a “Transfer”), except (i) to an Affiliate (as defined in the Investor’s Rights Agreement) of Holder, (ii) in accordance with the Investor’s Rights Agreement, or (iii) to any underwriter in connection with an effective registration statement filed under the Securities Act used in connection with a public offering of the Company's common stock (“Public Offering”), provided as to (iii) that this Warrant is exercised upon such Transfer and the shares of Warrant Shares or Common Stock issued upon such exercise are sold by such underwriter as part of such Public Offering and, in each case, only in accordance with and subject to the provisions of the Securities Act and the rules and regulations promulgated thereunder.  Any Transfer not in compliance with this Section 9(b) shall be null and void ab initio.

  

  

  

 

10.          No Impairment.  The Company shall not, by amendment of its Articles of Incorporation or Bylaws, or through any reorganization, transfer of assets, consolidation, merger, 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 to be observed or performed by it hereunder, but shall at all times in good faith assist in the carrying out of all the provisions of this Warrant and in the taking of all such action as may reasonably be requested by the Holder in order to protect the exercise rights of the Holder against dilution or other impairment, consistent with the tenor and purpose of this Warrant.

 

11.          Compliance with the Securities Act.

 

(a)           Agreement to Comply with the Securities Act; Legend.  The Holder, by acceptance of this Warrant, agrees to comply in all respects with the provisions of this Section 11 and the restrictive legend requirements set forth on the face of this Warrant and further agrees that such Holder shall not offer, sell or otherwise dispose of this Warrant or any Warrant Shares to be issued upon exercise hereof except under circumstances that will not result in a violation of the Securities Act of 1933, as amended (the “Securities Act”). This Warrant and all Warrant Shares issued upon exercise of this Warrant (unless registered under the Securities Act) shall be stamped or imprinted with a legend in substantially the following form:

 

“THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR QUALIFIED UNDER ANY STATE OR FOREIGN SECURITIES LAWS AND MAY NOT BE OFFERED FOR SALE, SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED OR ASSIGNED UNLESS (I) A REGISTRATION STATEMENT COVERING SUCH SHARES IS EFFECTIVE UNDER THE ACT AND IS QUALIFIED UNDER APPLICABLE STATE AND FOREIGN LAW OR (II) THE TRANSACTION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS UNDER THE ACT AND THE QUALIFICATION REQUIREMENTS UNDER APPLICABLE STATE AND FOREIGN LAW AND, IF THE CORPORATION REQUESTS, AN OPINION SATISFACTORY TO THE CORPORATION TO SUCH EFFECT HAS BEEN RENDERED BY COUNSEL.”

 

(b)          Representations of the Holder.  In connection with the issuance of this Warrant, the representations and warranties made by the Holder in Article IV of the Purchase Agreement are hereby incorporated by reference.

 

12.          Warrant Register.  The Company shall keep and properly maintain at its principal executive offices books for the registration of the Warrant and any transfers thereof. The Company may deem and treat the Person in whose name the Warrant is registered on such register as the Holder thereof for all purposes, and the Company shall not be affected by any notice to the contrary, except any assignment, division, combination or other transfer of the Warrant effected in accordance with the provisions of this Warrant.

  

  

  

 

13.           Notices.  All notices, requests, consents, claims, demands, waivers and other communications hereunder shall be in writing and shall be provided in the manner set forth in Section 9.2 of the Purchase Agreement.

 

14.           Cumulative Remedies.  Except to the extent expressly provided in Section 7 to the contrary, the rights and remedies provided in this Warrant are cumulative and are not exclusive of, and are in addition to and not in substitution for, any other rights or remedies available at law, in equity or otherwise.

 

15.           Equitable Relief.  Each of the Company and the Holder acknowledges that a breach or threatened breach by such party of any of its obligations under this Warrant would give rise to irreparable harm to the other party hereto for which monetary damages would not be an adequate remedy and hereby agrees that in the event of a breach or a threatened breach by such party of any such obligations, the other party hereto shall, in addition to any and all other rights and remedies that may be available to it in respect of such breach, be entitled to equitable relief, including a restraining order, an injunction, specific performance and any other relief that may be available from a court of competent jurisdiction, without posting a bond or proving special damages.

 

16.           Entire Agreement.  This Warrant, together with the Investor’s Rights Agreement and the Purchase Agreement (including the other agreements, documents, certificates and instruments referenced therein), constitutes the sole and entire agreement of the parties to this Warrant with respect to the subject matter contained herein, and supersedes all prior and contemporaneous understandings and agreements, both written and oral, with respect to such subject matter. In the event of any inconsistency between the statements in the body of this Warrant, the Investor’s Rights Agreement and the Purchase Agreement, the statements in the body of this Warrant shall control.

 

17.           Successor and Assigns.  This Warrant and the rights evidenced hereby shall be binding upon and shall inure to the benefit of the parties hereto and the successors of the Company and the successors and permitted assigns of the Holder. Such successors and/or permitted assigns of the Holder shall be deemed to be a Holder for all purposes hereunder.

 

18.           No Third-Party Beneficiaries.  This Warrant is for the sole benefit of the Company and the Holder and their respective successors and, in the case of the Holder, permitted assigns and nothing herein, express or implied, is intended to or shall confer upon any other Person any legal or equitable right, benefit or remedy of any nature whatsoever, under or by reason of this Warrant.

 

  

  

  

 

19.           Headings.  The headings in this Warrant are for reference only and shall not affect the interpretation of this Warrant.

 

20.           Amendment and Modification; Waiver.  Except as otherwise provided herein, this Warrant may only be amended, modified or supplemented by an agreement in writing signed by each party hereto. No waiver by the Company or the Holder of any of the provisions hereof shall be effective unless explicitly set forth in writing and signed by the party so waiving. No waiver by any party shall operate or be construed as a waiver in respect of any failure, breach or default not expressly identified by such written waiver, whether of a similar or different character, and whether occurring before or after that waiver. No failure to exercise, or delay in exercising, any rights, remedy, power or privilege arising from this Warrant shall operate or be construed as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.

 

21.           Severability. If any term or provision of this Warrant is invalid, illegal or unenforceable in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other term or provision of this Warrant or invalidate or render unenforceable such term or provision in any other jurisdiction.

 

22.           Governing Law.  This Warrant shall be governed by and construed in accordance with the internal laws of the State of Delaware without giving effect to any choice or conflict of law provision or rule (whether of the State of Delaware or any other jurisdiction) that would cause the application of laws of any jurisdiction other than those of the State of Delaware.

 

23.           Submission to Jurisdiction. Any legal suit, action or proceeding arising out of or based upon this Warrant or the transactions contemplated hereby may be instituted in the federal courts of the United States of America or the courts of the State of Delaware in each case located in the city of Wilmington and County of New Castle, and each party irrevocably submits to the exclusive jurisdiction of such courts in any such suit, action or proceeding. Service of process, summons, notice or other document by certified or registered mail to such party's address set forth herein shall be effective service of process for any suit, action or other proceeding brought in any such court. The parties irrevocably and unconditionally waive any objection to the laying of venue of any suit, action or any proceeding in such courts and irrevocably waive and agree not to plead or claim in any such court that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum.

 

24.           Waiver of Jury Trial.  Each party acknowledges and agrees that any controversy which may arise under this Warrant is likely to involve complicated and difficult issues and, therefore, each such party irrevocably and unconditionally waives any right it may have to a trial by jury in respect of any legal action arising out of or relating to this Warrant or the transactions contemplated hereby.

 

  

  

  

 

25.           Counterparts.  This Warrant may be executed in counterparts, each of which shall be deemed an original, but all of which together shall be deemed to be one and the same agreement. A signed copy of this Warrant delivered by facsimile, e-mail or other means of electronic transmission shall be deemed to have the same legal effect as delivery of an original signed copy of this Warrant.

 

26.           No Strict Construction.  This Warrant shall be construed without regard to any presumption or rule requiring construction or interpretation against the party drafting an instrument or causing any instrument to be drafted.

[SIGNATURE PAGE FOLLOWS]

  

  

  

IN WITNESS WHEREOF, the Company has duly executed this Warrant on_______________, 2010.

 

	  	
DIGITAL DOMAIN HOLDINGS

CORPORATION

	  	  	 
	  	
By:

	  	 
	  	
Name:

	  	 
	  	
Title:

	  	 

	
Accepted and agreed,

	
 

	
[______________________]

	  
	
By: [_____________________]

	  
	
By:

	  
	
Name: [________________]

	
Title: [_______________]

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