Exhibit 4.7
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "Agreement") is made as of May 24, 2004, by
and between BAM! Entertainment, Inc., a Delaware corporation with an address at
▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ (the
"Company"), and Laurus Master Fund, Ltd., a Cayman Islands corporation with an
address at ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇ (the "Purchaser").
Capitalized terms used but not defined herein shall have the meanings set forth
in the Securities Purchase Agreement referred to in the first recital.
W I T N E S S E T H:
WHEREAS, the Company and each Purchaser has entered into the Securities
Purchase Agreement of even date herewith (the "Purchase Agreement"), pursuant to
which the Purchaser is purchasing the Company's 2% Secured Convertible Debenture
due 30 months after its date of issuance (the "Debenture") and Warrants; and
WHEREAS, in order to induce the Purchasers to enter into the Purchase
Agreement and to purchase the Debenture, and as a condition precedent thereto,
the Company has agreed to secure the payment and performance of its obligations
under the Purchase Agreement, the Debentures, this Agreement and the other
Transaction Documents by granting to the Purchasers a first priority security
interest in the net cash proceeds from the sale of the Debenture; and.
WHEREAS, the Company, North Fork Bank (the "Restricted Account Bank") and
the Purchaser have entered into that certain Restricted Account Agreement, dated
as of the date hereof (the "Restricted Account Agreement") concerning the cash
and other monies (the "Secured Proceeds") deposited and/or accruing in the
Restricted Account referred to in such Restricted Account Agreement (the
"Restricted Account").
NOW, THEREFORE, in consideration of the premises and the mutual covenants
hereinafter contained, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Release of Secured Proceeds upon Conversion of Debentures.
Upon the conversion by the Purchaser of all or part of the principal
amount of the Debenture held by the Purchaser (the "Converted Principal
Amount"), the Purchaser shall direct the Bank, pursuant to a Release
Notice (as defined in the Restricted Account Agreement), to wire an amount
of funds equal to Converted Principal Amount from the Restricted Account
to such bank account as the Company may direct the Purchaser in writing.
2. Release of Secured Proceeds upon Redemption.
(a) At any time after the occurrence of a Holder Redemption Right
(as defined in Section 5(c) of the Debenture), the Purchaser, subject to
the following sentence, may
direct the Restricted Account Bank, to release to the Purchaser an amount
equal to the principal amount of the Debenture being redeemed by the
Purchaser. Notwithstanding the foregoing, in the event that the Company
delivers within 10 days following the occurrence of a Holder Redemption
Right notice to the Purchaser that it disputes the occurrence of the
Holder Redemption Right, then such dispute shall be resolved between the
Company and the Purchaser by arbitration conducted as follows: the
arbitration shall be conducted in New York, New York, before an
arbitration panel of three arbitrators, one of whom shall be selected by
the Purchaser, one of whom shall be selected by the Company, with the
remaining arbitrator to be agreed upon by the first two. The arbitration
shall be conducted in accordance with the commercial arbitration rules of
the American Arbitration Association then in effect. Any arbitration
decision or award shall be final and conclusive as to the parties to this
Agreement and their successors and assigns; judgment upon such decision or
award may be entered in any competent court. In the event that the
arbitration shall be decided in favor of the Purchaser, then the Purchaser
shall direct the Restricted Account Bank to promptly release such Secured
Proceeds to the Purchaser. The prevailing party in such hearing shall be
reimbursed by the other party for its attorneys' fees and other costs and
expenses incurred with the investigation, preparation and prosecution of
such arbitration proceeding but shall not be paid out of the Secured
Proceeds.
(b) At any time after the occurrence of a Required Redemption
Notice Date (as defined in Section 5(a) of the Debenture), the Company
shall deliver a copy of the Required Redemption Notice to the Purchaser.
If, by the Option Redemption Date (as defined in Section 5(a) of the
Debenture), the Purchaser has not informed the Company in writing that it
has disputed such Required Redemption or, pursuant to the Debenture,
elects not to receive said redemption, then the Purchaser shall direct the
Restricted Account Bank to release an amount equal to the principal amount
of Debenture being redeemed by the Company. In the event that the
Purchaser disputes such Option Redemption, then such dispute shall be
resolved between the Company and the Purchaser by arbitration as conducted
as provided in the preceding paragraph. The prevailing party in such
hearing shall be reimbursed by the other party for its attorneys' fees and
other costs and expenses incurred with the investigation, preparation and
prosecution of such arbitration proceeding but shall not be paid out of
the Secured Proceeds.
3. Release of Secured Proceeds upon Maturity or Event of Default.
(a) If, on the maturity date of the Debenture, any Debenture shall remain
unpaid, then the Purchaser shall direct the Restricted Account Bank to
release an amount equal to the principal amount of the Debenture then held
by the Purchaser, and such Secured Proceeds shall be applied to reduce
amounts due and owing to the Purchaser with respect to the Debenture and
the Purchase Agreement as follows: first, to the payment of fees and
expenses; second, to interest payable in cash with respect to the
Debenture; and third, to the outstanding principal under the Debenture.
(b) At any time after the occurrence of an Event of Default (as defined in
the Debenture), the Purchaser may, at its option, subject to the following
sentence, direct the Restricted Account Bank to release out of the Secured
Proceeds to the Purchaser an amount equal to
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the principal amount of Debenture then held by the Purchaser. In the event
that the Company does deliver, within ten days after the occurrence of an
Event of Default, a notice to the Custodian and the Purchaser that it
disputes such determination, then such dispute shall be resolved between
the Company and the Purchaser by arbitration conducted as follows: the
arbitration shall be conducted in New York, New York, before an
arbitration panel of three arbitrators, one of whom shall be selected by
the Purchaser, one of whom shall be selected by the Company, with the
remaining arbitrator to be agreed upon by the first two. The arbitration
shall be conducted in accordance with the commercial arbitration rules of
the American Arbitration Association then in effect. Any arbitration
decision or award shall be final and conclusive as to the parties to this
Agreement and their successors and assigns; judgment upon such decision or
award may be entered in any competent court. In the event that the
arbitration shall be decided in favor of the Purchaser, then the Purchaser
shall direct the Restricted Account Bank to release such Secured Proceeds
to the Purchaser. The prevailing party in such hearing shall be reimbursed
by the other party for its attorneys' fees and other costs and expenses
incurred with the investigation, preparation and prosecution of such
arbitration proceeding but shall not be paid out of the Secured Proceeds.
4. Security Agreement.
(a) Grant. The Company hereby unconditionally and irrevocably
grants to the Purchasers, to secure the payment and performance in full
when due of all of the Obligations (as said term is defined below), a
continuing first priority security interest in, and so pledges and assigns
to the Purchasers all of, the Secured Proceeds and any interest that
accrues thereon ("Collateral"). "Obligations" means all present and future
indebtedness, obligations, covenants, duties and liabilities of any kind
or nature of the Company to the Purchaser under this Agreement, the
Debenture and the other Transaction Documents, in each case whether now or
hereafter existing, voluntary or involuntary, direct or indirect, absolute
or contingent, liquidated or unliquidated, whether or not jointly owed
with others. Without limiting the generality of the foregoing, this
Agreement secures the payment of all amounts that constitute part of the
Obligations and would be owed by the Company to the Purchaser under the
Transaction Documents but for the fact that they are unenforceable or not
allowable due to the existence of a bankruptcy, reorganization or similar
proceeding involving the Company or any of the Company's Subsidiaries.
(b) Further Assurances. The Company agrees that at any time and
from time to time, at the expense of the Company, the Company shall
promptly execute and deliver all further instruments, documents and/or
other agreements and take all further action, including any UCC or other
filings, that may be necessary or desirable, or that the Purchaser may
reasonably request, in order to perfect and protect any security interest
granted or purported to be granted hereby or to enable the Purchaser to
exercise and enforce its rights and remedies hereunder with respect to any
of the Collateral.
(c) Rights and Remedies. At any time after the occurrence of an
Event of Default or Holder Redemption Right, and without any other notice
to or demand upon the Company, the Purchasers shall have, in any
jurisdiction in which enforcement hereof is
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sought, in addition to all other rights and remedies, the rights and
remedies of a secured party under the Uniform Commercial Code in effect
from time to time in the State of New York (the "UCC") and any additional
rights and remedies which may be provided to a secured party in any
applicable jurisdiction.
(d) Power of Attorney. The Company hereby irrevocably constitutes
and appoints the Purchasers, and each of them, and any officer, partner,
member or agent thereof, with full power of substitution, as its true and
lawful attorneys-in-fact with full irrevocable power and authority in the
name, place and stead of the Company or in their own names, for the
purpose of carrying out the terms of this Agreement, to take any and all
appropriate action and to execute any and all documents and instruments
that may be necessary or useful to accomplish the purposes of this
Agreement and, without limiting the generality of the foregoing, hereby
gives said attorneys the power and right, on behalf of the Company,
without notice to or assent by the Company, at any time after the
occurrence of an Event of Default or Holder Redemption Right, to make any
agreement with respect to or otherwise transfer any of the Collateral in
such manner as is consistent with the UCC and as fully and completely as
though the Purchasers were the absolute owners thereof for all purposes,
and to do, at the Company's expense, at any time or from time to time, all
acts and things which the Purchasers deem necessary or useful to protect,
preserve or realize upon the Collateral and the security interest of the
Purchasers therein, in order to effect the intent of this Agreement, all
at least as fully and effectively as the Company might do.
(e) Representations, Warranties and Covenants. The Company hereby
represents and warrants to, and covenants and agrees with, the Purchaser
as of the date hereof as follows: (i) The Company's exact legal name is
that indicated in the Perfection Certificate annexed to this Agreement
(the "Perfection Certificate"); (ii) the Company is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Delaware; (iii) the Perfection Certificate accurately sets forth
the Company's organizational identification number or accurately states
that the Company has none; (iv) the Perfection Certificate accurately sets
forth the Company's place of business or, if more than one, its chief
executive office, as well as the Company's mailing address, if different;
(v) the Collateral is free and clear of any right or claim or any person
or any adverse lien, security interest or other encumbrance, except for
the security interest created by this Agreement; (vi) all other
information set forth on the Perfection Certificate pertaining to the
Company and the Collateral is accurate and complete; (vii) the Company
will not change its name, its place of business or, if more than one,
chief executive office, or its mailing address or organizational
identification number if it has one, without in each case providing at
least 15 days prior written notice to the Purchasers; (viii) the Company
will not change its type of organization, jurisdiction of organization or
other legal structure, without in each case providing at least 15 days
prior written notice to the Purchaser of such change; (ix) the Company
shall take no action to, directly or indirectly, enter into, create,
incur, assume, pledge, mortgage or suffer to exist any Lien, security
interest or other encumbrance on or with respect to any of the Collateral,
and the Company shall defend the same against all claims and demands of
all Persons at any time claiming the same or any interests therein adverse
to the Purchaser.
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(f) Marshalling. All rights and remedies of the Purchaser
hereunder and in respect of the Collateral and other assurances of payment
shall be cumulative and in addition to all other rights and remedies,
however existing or arising. To the extent that it lawfully may, the
Company hereby agrees that it will not invoke any law relating to the
marshalling of assets which might cause a delay in or impede the
enforcement of the rights and remedies of the Purchaser under this
Agreement, the Debenture, the other Transaction Documents or under any
other instrument creating or evidencing any of the Obligations or under
which any of the Obligations is outstanding or by which any of the
Obligations is secured or payment thereof is otherwise assured, and to the
extent that it lawfully may, the Company hereby irrevocably waives the
benefits of all such laws.
(g) No Waiver, etc. The Purchaser shall not be deemed to have
waived any of their rights or remedies in respect of the Obligations or
the Collateral unless such waiver shall be in writing and signed by the
Purchaser. No delay or omission on the part of the Purchaser in exercising
any right or remedy shall operate as a waiver of such right or remedy or
any other right or remedy. A waiver on any one occasion shall not be
construed as a bar to or waiver of any right or remedy on any future
occasion. All rights and remedies of the Purchaser with respect to the
Obligations or the Collateral, whether evidenced hereby or by any other
document or instrument, shall be cumulative and may be exercised
singularly, alternatively, successively or concurrently at such time or at
such times as the Purchaser deem expedient.
(h) Certain Defined Terms. Terms used in this Section 6 but not
otherwise defined in this Agreement that are defined in the UCC shall have
the respective meanings given such terms therein; provided, however, that
if a term is defined in Article 9 of the UCC differently than in another
Article of the UCC, then such term shall have the meaning specified in
Article 9.
5. Interest on Secured Proceeds. On a quarterly basis, the the Purchaser shall
direct the Restricted Account Bank to release any accrued interest on the
Restricted Account to the Purchaser. Any such payments shall reduce the interest
payments owed to the Purchaser by the Company.
6. Successors and Assigns. The Purchaser may assign its rights hereunder in
connection with the transfer of Debenture. The Company may not assign its rights
under this Agreement. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, administrators,
successors and permitted assigns.
7. Governing Law; Jurisdiction. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK, AND THE
PARTIES AGREE AND CONSENT TO THE EXCLUSIVE JURISDICTION OF THE FEDERAL AND STATE
COURTS LOCATED IN NEW YORK COUNTY, NEW YORK IN ANY ACTION OR PROCEEDING
HEREUNDER, AND TO SERVICE OF PROCESS BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED
(WHICH SHALL CONSTITUTE "PERSONAL SERVICE"). THE PARTIES HERETO HEREBY
IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE
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LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF
OR RELATING TO THIS AGREEMENT.
8. Amendment. No provision of this Agreement may be amended or waived without
the prior written consent of the Company and the Purchaser.
9. Notices. All notices or other communications between the parties contemplated
under, or relating to, this Agreement shall be in writing, shall be signed by
each person giving such notice or communication, and shall be delivered by hand,
reputable overnight courier or by certified mail, return receipt requested, to
the parties at their respective addresses set forth above or to such other
address as to which the sending party has received written notice in accordance
with this Section 9 ***********************
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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and year first above written.
COMPANY:
BAM! ENTERTAINMENT, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇
-------------------------------------
Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇
Title: Chief Executive Officer
PURCHASER:
LAURUS MASTER FUND, LTD.
By: /s/ Illegible
-------------------------------------
Name:
Title:
[PURCHASERS' SIGNATURE PAGES TO FOLLOW]
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PERFECTION CERTIFICATE
[Delivered Pursuant to Section 6 of Custodial and Security Agreement]
The undersigned, the Chief Financial Officer of BAM! ENTERTAINMENT, INC.,
a Delaware corporation ("Debtor"), hereby certifies, with reference to the
Custodial and Security Agreement dated as of May 24, 2004 between Debtor and the
Purchaser (collectively, the "Secured Party"), to the secured Party as follows
(terms defined in such Custodial and Security Agreement having the same meanings
herein as specified therein):
1. NAME. The exact legal name of Debtor as that name appears on its
Certificate of Incorporation is as follows: BAM! ENTERTAINMENT, INC.
2. OTHER IDENTIFYING FACTORS.
(a) The following is a mailing address for Debtor:
(b) If different from its indicated mailing address, Debtor's
place of business or, if more than one, its chief executive office, is located
at the following address:
ADDRESS COUNTY STATE
NONE
(c) The following is the type of organization of Debtor:
CORPORATION
(d) The following is the jurisdiction of Debtor's organization:
(e) The following is Debtor's state-issued organizational
identification number [STATE "NONE" IF THE STATE DOES NOT ISSUE SUCH A NUMBER]:
[BAM! ENTERTAINMENT, INC.: ▇▇-▇▇▇▇▇▇▇]
3. OTHER NAMES, ETC.
(a) The following is a list of all other names (including trade
names or similar appellations) used by Debtor, or any other business or
organization to which Debtor became the successor by merger, consolidation,
acquisition, change in form, nature or jurisdiction of organization or
otherwise, now or at any time during the past five years:
BAM! ENTERTAINMENT, INC. =
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(b) Attached hereto as SCHEDULE 3 is the information required in
Section 2 above for any other business or organization to which Debtor became
the successor by merger, consolidation, acquisition of assets, change in form,
nature or jurisdiction of organization or otherwise, now or at any time during
the past five years.
4. OTHER CURRENT LOCATIONS.
(a) The following are all other locations in the United States of
America in which Debtor maintains any books or records relating to any of the
Collateral consisting of accounts or general intangibles:
ADDRESS COUNTY STATE
NONE
(b) The following are all other places of business of Debtor in
the United States of America:
(c)
ADDRESS COUNTY STATE
NONE
IN WITNESS WHEREOF, this Certificate has been duly executed on May
__, 2004.
BAM! ENTERTAINMENT, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
-------------------------------------
Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Title: CFO/VP Finance
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Accepted and Agreed:
Laurus Master Fund, Ltd.
By: /s/ Illegible
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