EXHIBIT 10.1
BAM! ENTERTAINMENT, INC.
SECURITIES PURCHASE AGREEMENT
DECEMBER 3, 2003
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TABLE OF CONTENTS
PAGE
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1. Agreement to Sell and Purchase....................................................................................1
2. Fees and Warrant..................................................................................................1
3. Closing, Delivery and Payment.....................................................................................2
3.1 Closing...............................................................................................2
3.2 Delivery..............................................................................................2
4. Representations and Warranties of the Company.....................................................................2
4.1 Organization, Good Standing and Qualification.........................................................2
4.2 Subsidiaries..........................................................................................3
4.3 Capitalization; Voting Rights.........................................................................3
4.4 Authorization; Binding Obligations....................................................................4
4.5 Liabilities...........................................................................................4
4.6 Agreements; Action....................................................................................4
4.7 Obligations to Related Parties........................................................................5
4.8 Changes...............................................................................................5
4.9 Title to Properties and Assets; Liens, Etc............................................................7
4.10 Intellectual Property.................................................................................7
4.11 Compliance with Other Instruments.....................................................................7
4.12 Litigation............................................................................................8
4.13 Tax Returns and Payments..............................................................................8
4.14 Employees.............................................................................................8
4.15 Registration Rights and Voting Rights.................................................................9
4.16 Compliance with Laws; Permits.........................................................................9
4.17 Environmental and Safety Laws.........................................................................9
4.18 Valid Offering.......................................................................................10
4.19 Full Disclosure......................................................................................10
4.20 Insurance............................................................................................10
4.21 SEC Reports..........................................................................................10
4.22 Listing..............................................................................................11
4.23 No Integrated Offering...............................................................................11
4.24 Stop Transfer........................................................................................11
4.25 Dilution.............................................................................................11
5. Representations and Warranties of the Purchaser..................................................................11
5.1 No Shorting..........................................................................................11
5.2 Requisite Power and Authority........................................................................11
5.3 Investment Representations...........................................................................12
5.4 Purchaser Bears Economic Risk........................................................................12
5.5 Acquisition for Own Account..........................................................................12
5.6 Purchaser Can Protect Its Interest...................................................................12
5.7 Accredited Investor..................................................................................12
5.8 Legends..............................................................................................13
6. Covenants of the Company.........................................................................................14
6.1 Stop-Orders..........................................................................................14
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6.2 Listing..............................................................................................14
6.3 Market Regulations...................................................................................14
6.4 Reporting Requirements...............................................................................14
6.5 Use of Funds.........................................................................................14
6.6 Access to Facilities.................................................................................14
6.7 Taxes................................................................................................15
6.8 Insurance............................................................................................15
6.9 Intellectual Property................................................................................16
6.10 Properties...........................................................................................16
6.11 Confidentiality......................................................................................16
6.12 Required Approvals...................................................................................16
6.13 Reissuance of Securities.............................................................................17
6.14 Opinion..............................................................................................17
7. Covenants of the Purchaser.......................................................................................17
7.1 Confidentiality......................................................................................17
7.2 Non-Public Information...............................................................................18
8. Covenants of the Company and Purchaser Regarding Indemnification.................................................18
8.1 Company Indemnification..............................................................................18
8.2 Purchaser's Indemnification..........................................................................18
8.3 Procedures...........................................................................................18
9. Registration Rights..............................................................................................18
9.1 Registration Rights Granted..........................................................................18
9.2 Offering Restrictions................................................................................18
10. Miscellaneous....................................................................................................19
10.1 Governing Law........................................................................................19
10.2 Survival.............................................................................................19
10.3 Successors...........................................................................................19
10.4 Entire Agreement.....................................................................................19
10.5 Severability.........................................................................................20
10.6 Amendment and Waiver.................................................................................20
10.7 Delays or Omissions..................................................................................20
10.8 Notices..............................................................................................20
10.9 Attorneys' Fees......................................................................................21
10.10 Titles and Subtitles.................................................................................21
10.11 Facsimile Signatures; Counterparts...................................................................21
10.12 Broker's Fees........................................................................................21
10.13 Construction.........................................................................................22
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LIST OF EXHIBITS
Form of Convertible Term Note........................................................................................ Exhibit A
Form of Warrant...................................................................................................... Exhibit B
Form of Opinion...................................................................................................... Exhibit C
Form of Escrow Agreement............................................................................................. Exhibit D
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SECURITIES PURCHASE AGREEMENT
THIS
SECURITIES PURCHASE AGREEMENT (this "Agreement") is made and
entered into as of December 3, 2003, by and between BAM! ENTERTAINMENT, INC., a
Delaware corporation (the "Company"), and Laurus Master Fund, Ltd., a Cayman
Islands company (the "Purchaser").
RECITALS
WHEREAS, the Company has authorized the sale to the Purchaser of a
Convertible Term Note in the aggregate principal amount of One Million Five
Hundred Thousand dollars ($1,500,000.00) (the "Note"), which Note is convertible
into shares of the Company's common stock, $0.01 par value per share (the
"Common Stock") at a fixed conversion price of $1.33 per share of Common Stock
("Fixed Conversion Price");
WHEREAS, the Company wishes to issue a warrant (the "Warrant") to the
Purchaser to purchase shares of the Company's Common Stock in connection with
Purchaser's purchase of the Note;
WHEREAS, Purchaser desires to purchase the Note and Warrant on the
terms and conditions set forth herein; and
WHEREAS, the Company desires to issue and sell the Note and Warrant to
Purchaser on the terms and conditions set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual promises, representations, warranties and covenants hereinafter set forth
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
1. Agreement to Sell and Purchase. Pursuant to the terms and conditions
set forth in this Agreement, on the Closing Date (as defined in Section 3), the
Company agrees to sell to the Purchaser, and the Purchaser hereby agrees to
purchase from the Company a Note in the amount of $1,500,000 convertible in
accordance with the terms thereof into shares of the Company's Common Stock in
accordance with the terms of the Note and this Agreement. The Note purchased on
the Closing Date shall be known as the "Offering." A form of the Note is annexed
hereto as Exhibit A. The Note will have a Maturity Date (as defined in the Note)
twelve (12) months from the date of issuance. Collectively, the Note and Warrant
(as defined in Section 2) and Common Stock issuable in payment of the Note, upon
conversion of the Note and upon exercise of the Warrant are referred to as the
"Securities."
2. Fees and Warrant. On the Closing Date:
(a) The Company will issue and deliver to the Purchaser a
Warrant to purchase up to 166,667 shares of Common Stock, subject to
adjustment up to 500,000 shares of Common Stock as set forth in Section
1.6 of the Warrant, in connection with the
Offering (the "Warrant") pursuant to Section 1 hereof. The Warrant must
be delivered on the Closing Date. A form of Warrant is annexed hereto
as Exhibit B. All the representations, covenants, warranties,
undertakings, and indemnification, and other rights made or granted to
or for the benefit of the Purchaser by the Company are hereby also made
and granted in respect of the Warrant and shares of the Company's
Common Stock issuable upon exercise of the Warrant (the "Warrant
Shares").
(b) Subject to the terms of Section 2(d) below, the Company
shall pay to Laurus Capital Management, LLC, manager of Purchaser a
closing payment in an amount equal to three and one-half percent
(3.50%) of the aggregate principal amount of the Note. The foregoing
fee is referred to herein as the "Closing Payment."
(c) The Company shall reimburse the Purchaser for its
reasonable legal fees for services rendered to the Purchaser in
preparation of this Agreement and the Related Agreements (as
hereinafter defined), and expenses in connection with the Purchaser's
due diligence review of the Company and relevant matters. Amounts
required to be paid hereunder will be paid at the Closing and shall be
$35,000 for legal expenses and for performing due diligence inquiries
on the Company.
(d) The Closing Payment, legal fees and due diligence fees
(net of deposits previously paid by the Company shall be paid at
closing out of funds held pursuant to a Funds Escrow Agreement of even
date herewith among the Company, Purchaser, and an Escrow Agent (the
"Funds Escrow Agreement") and a disbursement letter (the "Disbursement
Letter").
3. Closing, Delivery and Payment. Closing. Subject to the terms and
conditions herein, the closing of the transactions contemplated hereby (the
"Closing"), shall take place on the date hereof, at such time or place as the
Company and Purchaser may mutually agree (such date is hereinafter referred to
as the "Closing Date").
3.2 Delivery. Pursuant to the Funds Escrow Agreement in the
form attached hereto as Exhibit C, at the Closing on the Closing Date, the
Company will deliver to the Purchaser, among other things, a Note in the form
attached as Exhibit A representing the principal amount of $1,500,000 and a
Warrant in the form attached as Exhibit B in the Purchaser's name representing
166,667 Warrant Shares (subject to adjustment as described above) and the
Purchaser will deliver to the Company, among other things, the amounts set forth
in the Disbursement Letter by certified funds or wire transfer.
4. Representations and Warranties of the Company. The Company hereby
represents and warrants to the Purchaser as of the date of this Agreement as set
forth below which disclosures are supplemented by, and subject to the Company's
filings under the Securities Exchange Act of 1934 (collectively, the "Exchange
Act Filings"), copies of which have been provided to the Purchaser.
4.1 Organization, Good Standing and Qualification. The Company
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware . The Company has the corporate power and
authority to own and operate its properties
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and assets, to execute and deliver this Agreement, and the Note and the Warrant
to be issued in connection with this Agreement, the Security Agreement relating
to the Note dated as of December 3, 2003 between the Company and the Purchaser,
the Registration Rights Agreement relating to the Securities dated as of
December 3, 2003 between the Company and the Purchaser and all other agreements
referred to herein (collectively, the "Related Agreements"), to issue and sell
the Note and the shares of Common Stock issuable upon conversion of the Note
(the "Note Shares"), to issue and sell the Warrant and the Warrant Shares, and
to carry out the provisions of this Agreement and the Related Agreements and to
carry on its business as presently conducted. The Company is duly qualified and
is authorized to do business and is in good standing as a foreign corporation in
all jurisdictions in which the nature of its activities and of its properties
(both owned and leased) makes such qualification necessary, except for those
jurisdictions in which failure to do so would not have a material adverse effect
on the Company or its business.
4.2 Subsidiaries. The Company owns all of the issued and
outstanding capital stock of BAM Entertainment Limited and BAM Studios (Europe)
Limited (collectively, the "Subsidiaries"). The Company does not own or control
any equity security or other interest of any other corporation, limited
partnership or other business entity.
4.3 Capitalization; Voting Rights
(a) The authorized capital stock of the Company, as of the
date hereof consists of 110,000,000 shares, of which 100,000,000 are
shares of Common Stock, par value $0.01 per share, 16,791,688 shares of
which are issued and outstanding, and 10,000,000 are shares of
preferred stock, par value $0.01 per share of which no shares are
issued and outstanding.
(b) Except as disclosed on Schedule 4.3 or in the Exchange Act
Filings, other than: (i) the shares reserved for issuance under the
Company's stock option plans; and (ii) shares which may be granted
pursuant to this Agreement and the Related Agreements, there are no
outstanding options, warrants, rights (including conversion or
preemptive rights and rights of first refusal), proxy or stockholder
agreements, or arrangements or agreements of any kind for the purchase
or acquisition from the Company of any of its securities. Except as
disclosed on Schedule 4.3 or in the Exchange Act Filings, neither the
offer, issuance or sale of any of the Note or Warrant, or the issuance
of any of the Note Shares or Warrant Shares, nor the consummation of
any transaction contemplated hereby will result in a change in the
price or number of any securities of the Company outstanding, under
anti-dilution or other similar provisions contained in or affecting any
such securities.
(c) All issued and outstanding shares of the Company's Common
Stock: (i) have been duly authorized and validly issued and are fully
paid and nonassessable; and (ii) were issued in compliance with all
applicable state and federal laws concerning the issuance of
securities.
(d) The rights, preferences, privileges and restrictions of
the shares of the Common Stock are as stated in the Company's
Certificate of Incorporation (the "Charter"). The Note Shares and
Warrant Shares have been duly and validly reserved for
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issuance. When issued in compliance with the provisions of this
Agreement and the Company's Charter, the Securities will be validly
issued, fully paid and nonassessable, and will be free of any liens or
encumbrances; provided, however, that the Securities may be subject to
restrictions on transfer under state and/or federal securities laws as
set forth herein or as otherwise required by such laws at the time a
transfer is proposed.
4.4 Authorization; Binding Obligations. All corporate action
on the part of the Company, its officers and directors necessary for the
authorization of this Agreement and the Related Agreements, the performance of
all obligations of the Company hereunder at the Closing and, the authorization,
sale, issuance and delivery of the Note and Warrant has been taken or will be
taken prior to the Closing. The Agreement and the Related Agreements, when
executed and delivered and to the extent it is a party thereto, will be valid
and binding obligations of the Company enforceable in accordance with their
terms, except:
(a) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application
affecting enforcement of creditors' rights; and
(b) general principles of equity that restrict the
availability of equitable or legal remedies.
The sale of the Note and the subsequent conversion of the Note into Note Shares
are not and will not be subject to any preemptive rights or rights of first
refusal that have not been properly waived or complied with. The issuance of the
Warrant and the subsequent exercise of the Warrant for Warrant Shares are not
and will not be subject to any preemptive rights or rights of first refusal that
have not been properly waived or complied with.
4.5 Liabilities. The Company, to the best of its knowledge,
has no material contingent liabilities, except current liabilities incurred in
the ordinary course of business and liabilities disclosed in any Exchange Act
Filings.
4.6 Agreements; Action. Except as set forth on Schedule 4.6 or
as disclosed in any Exchange Act Filings:
(a) There are no agreements, understandings, instruments,
contracts, proposed transactions, judgments, orders, writs or decrees
to which the Company is a party or to its knowledge by which it is
bound which may involve: (i) obligations (contingent or otherwise) of,
or payments to, the Company in excess of $50,000 (other than
obligations of, or payments to, the Company arising from purchase or
sale agreements entered into in the ordinary course of business); or
(ii) the transfer or license of any patent, copyright, trade secret or
other proprietary right to or from the Company (other than licenses
arising from the purchase of "off the shelf" or other standard
products); or (iii) provisions restricting the development, manufacture
or distribution of the Company's products or services; or (iv)
indemnification by the Company with respect to infringements of
proprietary rights.
(b) Since September 30, 2003, the Company has not: (i)
declared or paid any dividends, or authorized or made any distribution
upon or with respect to any class or
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series of its capital stock; (ii) incurred any indebtedness for money
borrowed or any other liabilities (other than ordinary course
obligations) individually in excess of $50,000 or, in the case of
indebtedness and/or liabilities individually less than $50,000, in
excess of $100,000 in the aggregate; (iii) made any loans or advances
to any person not in excess, individually or in the aggregate, of
$100,000, other than ordinary advances for travel expenses; or (iv)
sold, exchanged or otherwise disposed of any of its assets or rights,
other than the sale of its inventory in the ordinary course of
business.
(c) For the purposes of subsections (a) and (b) above, all
indebtedness, liabilities, agreements, understandings, instruments,
contracts and proposed transactions involving the same person or entity
(including persons or entities the Company has reason to believe are
affiliated therewith) shall be aggregated for the purpose of meeting
the individual minimum dollar amounts of such subsections.
4.7 Obligations to Related Parties. Except as set forth on
Schedule 4.7, there are no obligations of the Company to officers, directors,
stockholders or employees of the Company other than:
(a) for payment of salary for services rendered and for bonus
payments;
(b) reimbursement for reasonable expenses incurred on behalf
of the Company;
(c) for other standard employee benefits made generally
available to all employees (including stock option agreements
outstanding under any stock option plan approved by the Board of
Directors of the Company); and
(d) obligations listed in the Company's financial statements
or disclosed in any of its Exchange Act Filings.
Except as described above or set forth on Schedule 4.7, none of the officers,
directors or, to the best of the Company's knowledge, key employees or
stockholders of the Company or any members of their immediate families, are
indebted to the Company, individually or in the aggregate, in excess of $50,000
or have any direct or indirect ownership interest in any firm or corporation
with which the Company is affiliated or with which the Company has a business
relationship, or any firm or corporation which competes with the Company, other
than passive investments in publicly traded companies (representing less than
one percent (1%) of such company) which may compete with the Company. Except as
described above, no officer, director or stockholder, or any member of their
immediate families, is, directly or indirectly, interested in any material
contract with the Company and no agreements, understandings or proposed
transactions are contemplated between the Company and any such person. Except as
set forth on Schedule 4.7, the Company is not a guarantor or indemnitor of any
indebtedness of any other person, firm or corporation.
4.8 Changes. Since September 30, 2003, except as disclosed in
any Exchange Act Filing or in any Schedule to this Agreement or to any of the
Related Agreements, there has not been:
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(a) Any change in the assets, liabilities, financial
condition, prospects or operations of the Company, other than changes
in the ordinary course of business, none of which individually or in
the aggregate has had or is reasonably expected to have a material
adverse effect on such assets, liabilities, financial condition,
prospects or operations of the Company;
(b) Any resignation or termination of any officer, key
employee or group of employees of the Company;
(c) Any material change, except in the ordinary course of
business, in the contingent obligations of the Company by way of
guaranty, endorsement, indemnity, warranty or otherwise;
(d) Any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the properties, business
or prospects or financial condition of the Company;
(e) Any waiver by the Company of a valuable right or of a
material debt owed to it;
(f) Any direct or indirect material loans made by the Company
to any stockholder, employee, officer or director of the Company, other
than advances made in the ordinary course of business;
(g) Any material change in any compensation arrangement or
agreement with any employee, officer, director or stockholder;
(h) Any declaration or payment of any dividend or other
distribution of the assets of the Company;
(i) Any labor organization activity related to the Company;
(j) Any debt, obligation or liability incurred, assumed or
guaranteed by the Company, except those for immaterial amounts and for
current liabilities incurred in the ordinary course of business;
(k) Any sale, assignment or transfer of any patents,
trademarks, copyrights, trade secrets or other intangible assets;
(l) Any change in any material agreement to which the Company
is a party or by which it is bound which may materially and adversely
affect the business, assets, liabilities, financial condition,
operations or prospects of the Company;
(m) Any other event or condition of any character that, either
individually or cumulatively, has or may materially and adversely
affect the business, assets, liabilities, financial condition,
prospects or operations of the Company; or
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(n) Any arrangement or commitment by the Company to do any of
the acts described in subsection (a) through (m) above.
4.9 Title to Properties and Assets; Liens, Etc. Except as set
forth on Schedule 4.9, the Company has good and marketable title to its
properties and assets, and good title to its leasehold estates, in each case
subject to no mortgage, pledge, lien, lease, encumbrance or charge, other than:
(a) those resulting from taxes which have not yet become
delinquent;
(b) minor liens and encumbrances which do not materially
detract from the value of the property subject thereto or materially
impair the operations of the Company; and
(c) those that have otherwise arisen in the ordinary course of
business.
All facilities, machinery, equipment, fixtures, vehicles and other properties
owned, leased or used by the Company are in good operating condition and repair
and are reasonably fit and usable for the purposes for which they are being
used. Except as set forth on Schedule 4.9, the Company is in compliance with all
material terms of each lease to which it is a party or is otherwise bound.
4.10 Intellectual Property.
(a) The Company owns or possesses sufficient legal rights to
all patents, trademarks, service marks, trade names, copyrights, trade
secrets, licenses, information and other proprietary rights and
processes necessary for its business as now conducted and to the
Company's knowledge as presently proposed to be conducted (the
"Intellectual Property"), without any known infringement of the rights
of others. There are no outstanding options, licenses or agreements of
any kind relating to the foregoing proprietary rights, nor is the
Company bound by or a party to any options, licenses or agreements of
any kind with respect to the patents, trademarks, service marks, trade
names, copyrights, trade secrets, licenses, information and other
proprietary rights and processes of any other person or entity other
than such licenses or agreements arising from the purchase of "off the
shelf" or standard products.
(b) The Company has not received any communications alleging
that the Company has violated any of the patents, trademarks, service
marks, trade names, copyrights or trade secrets or other proprietary
rights of any other person or entity, nor is the Company aware of any
basis therefor.
(c) The Company does not believe it is or will be necessary to
utilize any inventions, trade secrets or proprietary information of any
of its employees made prior to their employment by the Company, except
for inventions, trade secrets or proprietary information that have been
rightfully assigned to the Company.
4.11 Compliance with Other Instruments. Except as set forth on
Schedule 4.11, the Company is not in violation or default of any term of its
Charter or Bylaws, or of any
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material provision of any mortgage, indenture, contract, agreement, instrument
or contract to which it is party or by which it is bound or of any judgment,
decree, order or writ. The execution, delivery and performance of and compliance
with this Agreement and the Related Agreements to which it is a party, and the
issuance and sale of the Note by the Company and the other Securities by the
Company each pursuant hereto, will not, with or without the passage of time or
giving of notice, result in any such material violation, or be in conflict with
or constitute a default under any such term or provision, or result in the
creation of any mortgage, pledge, lien, encumbrance or charge upon any of the
properties or assets of the Company or the suspension, revocation, impairment,
forfeiture or nonrenewal of any permit, license, authorization or approval
applicable to the Company, its business or operations or any of its assets or
properties, except as may be effected pursuant to this Agreement and/or the
Related Agreements.
4.12 Litigation. Except as set forth on Schedule 4.12 hereto,
there is no action, suit, proceeding or investigation pending or, to the
Company's knowledge, currently threatened against the Company that prevents the
Company to enter into this Agreement or the Related Agreements, or to consummate
the transactions contemplated hereby or thereby, or which might result, either
individually or in the aggregate, in any material adverse change in the assets,
condition, affairs or prospects of the Company, financially or otherwise, or any
change in the current equity ownership of the Company, nor is the Company aware
that there is any basis for any of the foregoing. The Company is not a party or
subject to the provisions of any order, writ, injunction, judgment or decree of
any court or government agency or instrumentality. There is no action, suit,
proceeding or investigation by the Company currently pending or which the
Company intends to initiate.
4.13 Tax Returns and Payments. The Company has timely filed
all tax returns (federal, state and local) required to be filed by it. All taxes
shown to be due and payable on such returns, any assessments imposed, and to the
Company's knowledge all other taxes due and payable by the Company on or before
the Closing, have been paid or will be paid prior to the time they become
delinquent. Except as set forth on Schedule 4.13, the Company has not been
advised:
(a) that any of its returns, federal, state or other, have
been or are being audited as of the date hereof; or
(b) of any deficiency in assessment or proposed judgment to
its federal, state or other taxes.
The Company has no knowledge of any liability of any tax to be imposed upon its
properties or assets as of the date of this Agreement that is not adequately
provided for.
4.14 Employees. Except as set forth on Schedule 4.14, the
Company has no collective bargaining agreements with any of its employees. There
is no labor union organizing activity pending or, to the Company's knowledge,
threatened with respect to the Company. Except as disclosed in the Exchange Act
Filings or on Schedule 4.14, the Company is not a party to or bound by any
currently effective employment contract, deferred compensation arrangement,
bonus plan, incentive plan, profit sharing plan, retirement agreement or other
employee compensation plan or agreement. To the Company's knowledge, no employee
of the
8
Company, nor any consultant with whom the Company has contracted, is in
violation of any term of any employment contract, proprietary information
agreement or any other agreement relating to the right of any such individual to
be employed by, or to contract with, the Company because of the nature of the
business to be conducted by the Company; and to the Company's knowledge the
continued employment by the Company of its present employees, and the
performance of the Company's contracts with its independent contractors, will
not result in any such violation. The Company is not aware that any of its
employees is obligated under any contract (including licenses, covenants or
commitments of any nature) or other agreement, or subject to any judgment,
decree or order of any court or administrative agency, that would interfere with
their duties to the Company. The Company has not received any notice alleging
that any such violation has occurred. Except for employees who have a current
effective employment agreement with the Company, no employee of the Company has
been granted the right to continued employment by the Company or to any material
compensation following termination of employment with the Company. Except as set
forth on Schedule 4.14, the Company is not aware that any officer, key employee
or group of employees intends to terminate his, her or their employment with the
Company, nor does the Company have a present intention to terminate the
employment of any officer, key employee or group of employees.
4.15 Registration Rights and Voting Rights. Except as set
forth on Schedule 4.15 and except as disclosed in Exchange Act Filings, the
Company is presently not under any obligation, and has not granted any rights,
to register any of the Company's presently outstanding securities or any of its
securities that may hereafter be issued. Except as set forth on Schedule 4.15
and except as disclosed in Exchange Act Filings, to the Company's knowledge, no
stockholder of the Company has entered into any agreement with respect to the
voting of equity securities of the Company.
4.16 Compliance with Laws; Permits. Except as set forth on
Schedule 4.16, to its knowledge, the Company is not in violation in any material
respect of any applicable statute, rule, regulation, order or restriction of any
domestic or foreign government or any instrumentality or agency thereof in
respect of the conduct of its business or the ownership of its properties which
violation would materially and adversely affect the business, assets,
liabilities, financial condition, operations or prospects of the Company. No
governmental orders, permissions, consents, approvals or authorizations are
required to be obtained and no registrations or declarations are required to be
filed in connection with the execution and delivery of this Agreement and the
issuance of any of the Securities, except such as has been duly and validly
obtained or filed, or with respect to any filings that must be made after the
Closing, as will be filed in a timely manner. The Company has all material
franchises, permits, licenses and any similar authority necessary for the
conduct of its business as now being conducted by it, the lack of which would
materially and adversely affect the business, properties, prospects or financial
condition of the Company.
4.17 Environmental and Safety Laws. The Company is not in
violation of any applicable statute, law or regulation relating to the
environment or occupational health and safety, the violation of which would have
a material adverse effect on the Company and to its knowledge, no material
expenditures are or will be required in order to comply with any such existing
statute, law or regulation. Except as set forth on Schedule 4.17, no Hazardous
Materials (as defined below) are used or have been used, stored, or disposed of
by the Company or, to the
9
Company's knowledge, by any other person or entity on any property owned, leased
or used by the Company. For the purposes of the preceding sentence, "Hazardous
Materials" shall mean:
(a) materials which are listed or otherwise defined as
"hazardous" or "toxic" under any applicable local, state, federal
and/or foreign laws and regulations that govern the existence and/or
remedy of contamination on property, the protection of the environment
from contamination, the control of hazardous wastes, or other
activities involving hazardous substances, including building
materials; or
(b) any petroleum products or nuclear materials.
4.18 Valid Offering. Assuming the accuracy of the
representations and warranties of the Purchaser contained in this Agreement, the
offer, sale and issuance of the Securities will be exempt from the registration
requirements of the Securities Act of 1933, as amended (the "Securities Act"),
and will have been registered or qualified (or are exempt from registration and
qualification) under the registration, permit or qualification requirements of
all applicable state securities laws.
4.19 Full Disclosure. The Company has provided the Purchaser
with all information requested by the Purchaser in connection with its decision
to purchase the Note and Warrant, including all information the Company believes
is reasonably necessary to make such investment decision. Neither this
Agreement, the exhibits and schedules hereto, the Related Agreements, contain
any untrue statement of a material fact nor omit to state a material fact
necessary in order to make the statements contained herein or therein, in light
of the circumstances in which they are made, not misleading. Any financial
projections provided to the Purchaser by the Company were based on the Company's
experience in the industry and on assumptions of fact and opinion as to future
events which the Company, at the date of the issuance of such projections ,
believed to be reasonable.
4.20 Insurance. The Company has general commercial, product
liability, fire and casualty insurance policies with coverages which the Company
believes are customary for companies similarly situated to the Company in the
same or similar business.
4.21 SEC Reports. Except as set forth on Schedule 4.21, the
Company has filed all proxy statements, reports and other documents required to
be filed by it under the Exchange Act. The Company has furnished the Purchaser
with copies of: (i) its Annual Report on Form 10-KSB for the fiscal year ended
June 30, 2003 ; and (ii) its Quarterly Reports on Form 10-QSB for the fiscal
quarter ended September 30, 2003, and the Form 8-K filings which it has made
during 2003 to date (collectively, the "SEC Reports"). Except as set forth on
Schedule 4.21, each SEC Report was, at the time of its filing, in substantial
compliance with the requirements of its respective form and none of the SEC
Reports, nor the financial statements (and the notes thereto) included in the
SEC Reports, as of their respective filing dates, contained any untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
10
4.22 Listing. Except as set forth on Schedule 4.22 hereof, the
Company's Common Stock is listed for trading on the NASDAQ SmallCap Market
("NASDAQ SC") and satisfies all requirements for the continuation of such
listing. Except as set forth on Schedule 4.21 hereof, the Company has not
received any notice that its Common Stock will be delisted from NASDAQ SC or
that its Common Stock does not meet all requirements for listing. The Company
will use its best efforts to remain listed for trading on the NASDAQ SC.
4.23 No Integrated Offering. Neither the Company, nor any of
its affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would cause the offering of the
Securities pursuant to this Agreement to be integrated with prior offerings by
the Company for purposes of the Securities Act which would prevent the Company
from selling the Securities pursuant to Rule 506 under the Securities Act, or
any applicable exchange-related stockholder approval provisions, nor will the
Company or any of its affiliates or subsidiaries take any action or steps that
would cause the offering of the Securities to be integrated with other
offerings.
4.24 Stop Transfer. The Securities are restricted securities
as of the date of this Agreement. The Company will not issue any stop transfer
order or other order impeding the sale and delivery of any of the Securities at
such time as the Securities are registered for public sale or an exemption from
registration is available, except as required by state and federal securities
laws.
4.25 Dilution. The Company specifically acknowledges that its
obligation to issue the shares of Common Stock upon conversion of the Note and
exercise of the Warrant is binding upon the Company and enforceable regardless
of the dilution such issuance may have on the ownership interests of other
shareholders of the Company.
5. Representations and Warranties of the Purchaser. The Purchaser
hereby represents and warrants to the Company as follows (such representations
and warranties do not lessen or obviate the representations and warranties of
the Company set forth in this Agreement)
5.1 No Shorting. The Purchaser or any of its affiliates and
investment partners has not, will not and will not cause any person or entity,
directly or indirectly, to engage in "short sales" of the Company's Common Stock
or any other hedging strategies as long as the Note shall be outstanding.
5.2 Requisite Power and Authority. Purchaser has all necessary
power and authority under all applicable provisions of law to execute and
deliver this Agreement and the Related Agreements and to carry out their
provisions. All corporate action on Purchaser's part required for the lawful
execution and delivery of this Agreement and the Related Agreements have been or
will be effectively taken prior to the Closing. Upon their execution and
delivery, this Agreement and the Related Agreements will be valid and binding
obligations of Purchaser, enforceable in accordance with their terms, except:
11
(a) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application
affecting enforcement of creditors' rights; and
(b) as limited by general principles of equity that restrict
the availability of equitable and legal remedies.
5.3 Investment Representations. Purchaser understands that the
Securities are being offered and sold pursuant to an exemption from registration
contained in the Securities Act based in part upon Purchaser's representations
contained in the Agreement, including, without limitation, that the Purchaser is
an "accredited investor" within the meaning of Regulation D under the Securities
Act of 1933, as amended (the "Securities Act"). The Purchaser confirms that it
has received or has had full access to all the information it considers
necessary or appropriate to make an informed investment decision with respect to
the Note and the Warrant to be purchased by it under this Agreement and the Note
Shares and the Warrant Shares acquired by it upon the conversion of the Note and
the exercise of the Warrant, respectively. The Purchaser further confirms that
it has had an opportunity to ask questions and receive answers from the Company
regarding the Company's business, management and financial affairs and the terms
and conditions of the Offering, the Note, the Warrant and the Securities and to
obtain additional information (to the extent the Company possessed such
information or could acquire it without unreasonable effort or expense)
necessary to verify any information furnished to the Purchaser or to which the
Purchaser had access.
5.4 Purchaser Bears Economic Risk. Purchaser has substantial
experience in evaluating and investing in private placement transactions of
securities in companies similar to the Company so that it is capable of
evaluating the merits and risks of its investment in the Company and has the
capacity to protect its own interests. Purchaser must bear the economic risk of
this investment until the Securities are sold pursuant to: (i) an effective
registration statement under the Securities Act; or (ii) an exemption from
registration is available with respect to such sale.
5.5 Acquisition for Own Account. Purchaser is acquiring the
Note and Warrant and the Note Shares and the Warrant Shares for Purchaser's own
account for investment only, and not as a nominee or agent and not with a view
towards or for resale in connection with their distribution.
5.6 Purchaser Can Protect Its Interest. Purchaser represents
that by reason of its, or of its management's, business and financial
experience, Purchaser has the capacity to evaluate the merits and risks of its
investment in the Note, the Warrant and the Securities and to protect its own
interests in connection with the transactions contemplated in this Agreement,
and the Related Agreements. Further, Purchaser is aware of no publication of any
advertisement in connection with the transactions contemplated in the Agreement
or the Related Agreements.
5.7 Accredited Investor. Purchaser represents that it is an
accredited investor within the meaning of Regulation D under the Securities Act.
12
5.8 Legends.
(a) The Note shall bear substantially the following legend:
"THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF
THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY APPLICABLE, STATE SECURITIES LAWS.
THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF
THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THIS NOTE OR SUCH SHARES UNDER SAID ACT AND
APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO BAM! ENTERTAINMENT, INC. THAT SUCH
REGISTRATION IS NOT REQUIRED."
(b) The Note Shares and the Warrant Shares, if not issued by
DWAC system (as hereinafter defined), shall bear a legend which shall
be in substantially the following form until such shares are covered by
an effective registration statement filed with the SEC:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY APPLICABLE, STATE SECURITIES LAWS. THESE SHARES MAY NOT BE
SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH SECURITIES
ACT AND APPLICABLE STATE LAWS OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO BAM! ENTERTAINMENT, INC. THAT SUCH
REGISTRATION IS NOT REQUIRED."
(c) The Warrant shall bear substantially the following legend:
"THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS.
THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF
THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THIS WARRANT OR THE UNDERLYING SHARES OF
COMMON STOCK UNDER SAID ACT AND APPLICABLE STATE SECURITIES
LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO BAM!
13
ENTERTAINMENT, INC. THAT SUCH REGISTRATION IS NOT REQUIRED."
6. Covenants of the Company. The Company covenants and agrees with the
Purchaser as follows:
6.1 Stop-Orders. The Company will advise the Purchaser,
promptly after it receives notice of issuance by the Securities and Exchange
Commission (the "SEC"), any state securities commission or any other regulatory
authority of any stop order or of any order preventing or suspending any
offering of any securities of the Company, or of the suspension of the
qualification of the Common Stock of the Company for offering or sale in any
jurisdiction, or the initiation of any proceeding for any such purpose.
6.2 Listing. The Company shall promptly secure the listing of
the shares of Common Stock issuable upon conversion of the Note and upon the
exercise of the Warrant on the NASDAQ SC (the "Principal Market") upon which
shares of Common Stock are listed (subject to official notice of issuance) and
shall maintain such listing so long as any other shares of Common Stock shall be
so listed. The Company will maintain the listing of its Common Stock on the
Principal Market, and will comply in all material respects with the Company's
reporting, filing and other obligations under the bylaws or rules of the
National Association of Securities Dealers ("NASD") and such exchanges, as
applicable.
6.3 Market Regulations. The Company shall notify the SEC, NASD
and applicable state authorities, in accordance with their requirements, of the
transactions contemplated by this Agreement, and shall take all other necessary
action and proceedings as may be required and permitted by applicable law, rule
and regulation, for the legal and valid issuance of the Securities to Purchaser
and promptly provide copies thereof to Purchaser.
6.4 Reporting Requirements. The Company will timely file with
the SEC all reports required to be filed pursuant to the Exchange Act and
refrain from terminating its status as an issuer required by the Exchange Act to
file reports thereunder even if the Exchange Act or the rules or regulations
thereunder would permit such termination.
6.5 Use of Funds. The Company agrees that it will use the
proceeds of the sale of the Note and Warrant for working capital and general
corporate purposes only .
6.6 Access to Facilities. The Company will permit any
representatives designated by the Purchaser (or any successor of the Purchaser),
upon reasonable notice and during normal business hours, at such person's
expense and accompanied by a representative of the Company, to:
(a) visit and inspect any of the properties of the Company;
(b) examine the corporate and financial records of the Company
(unless such examination is not permitted by federal, state or local
law or by contract) and make copies thereof or extracts therefrom; and
14
(c) discuss the affairs, finances and accounts of the Company
with the directors, officers and independent accountants of the
Company.
Notwithstanding the foregoing, the Company will not provide any material,
non-public information to the Purchaser unless the Purchaser signs a
confidentiality agreement and otherwise complies with Regulation FD, under the
federal securities laws.
6.7 Taxes. The Company will promptly pay and discharge, or
cause to be paid and discharged, when due and payable, all lawful taxes,
assessments and governmental charges or levies imposed upon the income, profits,
property or business of the Company; provided, however, that any such tax,
assessment, charge or levy need not be paid if the validity thereof shall
currently be contested in good faith by appropriate proceedings and if the
Company shall have set aside on its books adequate reserves with respect
thereto, and provided, further, that the Company will pay all such taxes,
assessments, charges or levies forthwith upon the commencement of proceedings to
foreclose any lien which may have attached as security therefor.
6.8 Insurance. The Company will keep its assets which are of
an insurable character insured by financially sound and reputable insurers
against loss or damage by fire, explosion and other risks customarily insured
against by companies in similar business similarly situated as the Company; and
the Company will maintain, with financially sound and reputable insurers,
insurance against other hazards and risks and liability to persons and property
to the extent and in the manner which the Company reasonably believes is
customary for companies in similar business similarly situated as the Company
and to the extent available on commercially reasonable terms. The Company and
each of its subsidiaries set forth in Section 4.2 hereof (the "Subsidiaries")
will jointly and severally bear the full risk of loss from any loss of any
nature whatsoever with respect to the assets pledged to the Purchaser as
security for its obligations hereunder and under the Related Agreements. At the
Company's own cost and expense in amounts and with carriers reasonably
acceptable to Purchaser, the Company and each of the Subsidiaries shall (i) keep
all its insurable properties and properties in which it has an interest insured
against the hazards of fire, flood, sprinkler leakage, those hazards covered by
extended coverage insurance and such other hazards, and for such amounts, as is
customary in the case of companies engaged in businesses similar to the
Company's or the respective Subsidiary's including business interruption
insurance; (ii) maintain a bond in such amounts as is customary in the case of
companies engaged in businesses similar to the Company's or the Subsidiary's
insuring against larceny, embezzlement or other criminal misappropriation of
insured's officers and employees who may either singly or jointly with others at
any time have access to the assets or funds of the Company either directly or
through governmental authority to draw upon such funds or to direct generally
the disposition of such assets; (iii) maintain public and product liability
insurance against claims for personal injury, death or property damage suffered
by others; (iv) maintain all such worker's compensation or similar insurance as
may be required under the laws of any state or jurisdiction in which the Company
or the Subsidiary is engaged in business; and (v) furnish Purchaser with (x)
copies of all policies and evidence of the maintenance of such policies at least
thirty (30) days before any expiration date, (y) excepting the Company's
workers' compensation policy, endorsements to such policies naming Purchaser as
"co-insured" or "additional insured" and appropriate loss payable endorsements
in form and substance satisfactory to Purchaser, naming Purchaser as loss payee,
and (z) evidence that as to
15
Purchaser the insurance coverage shall not be impaired or invalidated by any act
or neglect of the Company or any Subsidiary and the insurer will provide
Purchaser with at least thirty (30) days notice prior to cancellation. The
Company and each Subsidiary shall instruct the insurance carriers that in the
event of any loss thereunder, the carriers shall make payment for such loss to
the Company and/or the Subsidiary and Purchaser jointly. In the event that as of
the date of receipt of each loss recovery upon any such insurance, the Purchaser
has not declared an event of default with respect to this Agreement or any of
the Related Agreements, then the Company shall be permitted to direct the
application of such loss recovery proceeds toward investment in property, plant
and equipment that would comprise "Collateral" secured by Purchaser's security
interest pursuant to its security agreement, with any surplus funds to be
applied toward payment of the obligations of the Company to Purchaser. In the
event that Purchaser has properly declared an event of default with respect to
this Agreement or any of the Related Agreements, then all loss recoveries
received by Purchaser upon any such insurance thereafter may be applied to the
obligations of the Company hereunder and under the Related Agreements, in such
order as the Purchaser may determine. Any surplus (following satisfaction of all
Company obligations to Purchaser) shall be paid by Purchaser to the Company or
applied as may be otherwise required by law. Any deficiency thereon shall be
paid by the Company or the Subsidiary, as applicable, to Purchaser, on demand.
6.9 Intellectual Property. The Company shall maintain in full
force and effect its corporate existence, rights and franchises and all licenses
and other rights to use Intellectual Property owned or possessed by it and
reasonably deemed to be necessary to the conduct of its business.
6.10 Properties. The Company will keep its properties in good
repair, working order and condition, reasonable wear and tear excepted, and from
time to time make all needful and proper repairs, renewals, replacements,
additions and improvements thereto; and the Company will at all times comply
with each provision of all leases to which it is a party or under which it
occupies property if the breach of such provision could reasonably be expected
to have a material adverse effect.
6.11 Confidentiality. The Company agrees that it will not
disclose, and will not include in any public announcement, the name of the
Purchaser, unless expressly agreed to by the Purchaser or unless and until such
disclosure is required by law or applicable regulation, and then only to the
extent of such requirement. The Company may disclose Purchaser's identity and
the terms of this Agreement to its current and prospective debt and equity
financing sources.
6.12 Required Approvals. For so long as forty percent (40%) of
the principal amount of the Note is outstanding, the Company, without the prior
written consent of the Purchaser, shall not:
(a) directly or indirectly declare or pay any dividends, other
than dividends with respect to its preferred stock;
(b) liquidate, dissolve or effect a material reorganization;
16
(c) become subject to (including, without limitation, by way
of amendment to or modification of) any agreement or instrument which
by its terms would (under any circumstances) restrict the Company's
right to perform the provisions of this Agreement or any of the
agreements contemplated thereby;
(d) materially alter or change the scope of the business of
the Company;
(e) create, incur, assume or suffer to exist any indebtedness
of any Subsidiary (exclusive of trade debt and debt incurred to finance
the purchase of equipment (not in excess of five percent (5%) per annum
of the Company's assets) whether secured or unsecured or any
refinancings or replacements thereof or any debt incurred in connection
with the purchase of assets or in connection with operating lines of
credit as necessary to operate such assets, or any refinancings or
replacements thereof; (ii) cancel any debt owing to the Company from
any Subsidiary or transfer any amount from the Company to the
Subsidiaries in excess of $50,000 in the aggregate during any 12 month
period; (iii) assume, guarantee, endorse or otherwise become directly
or contingently liable in connection with any obligations of any other
Person, including but not limited to any Subsidiary, except the
endorsement of negotiable instruments by a Company for deposit or
collection or similar transactions in the ordinary course of business.
6.13 Reissuance of Securities. The Company agrees to reissue
certificates representing the Securities without the legends set forth in
Section 5.7 above at such time as:
(a) the holder thereof is permitted to dispose of such
Securities pursuant to Rule 144(k) under the Securities Act; or
(b) upon resale subject to an effective registration statement
after such Securities are registered under the Securities Act.
The Company agrees to cooperate with the Purchaser in connection with all
resales pursuant to Rule 144(d) and Rule 144(k) and provide legal opinions
necessary to allow such resales provided the Company and its counsel receive
reasonably requested representations from the selling Purchaser and broker, if
any.
6.14 Opinion. On the Closing Date, the Company will deliver to
the Purchaser an opinion acceptable to the Purchaser from the Company's legal
counsel. The Company will provide, at the Company's expense, such other legal
opinions in the future as are reasonably necessary for the conversion of the
Note and exercise of the Warrant.
7. Covenants of the Purchaser. The Purchaser covenants and agrees with
the Company as follows:
7.1 Confidentiality. The Purchaser agrees that it will not
disclose, and will not include in any public announcement, the name of the
Company, unless expressly agreed to by the Company or unless and until such
disclosure is required by law or applicable regulation, and then only to the
extent of such requirement.
17
7.2 Non-Public Information. The Purchaser agrees not to effect
any sales in the shares of the Company's Common Stock while in possession of
material, non-public information regarding the Company if such sales would
violate applicable securities law.
8. Covenants of the Company and Purchaser Regarding Indemnification.
8.1 Company Indemnification. The Company agrees to indemnify,
hold harmless, reimburse and defend Purchaser, each of Purchaser's officers,
directors, agents, affiliates, control persons, and principal shareholders,
against any claim, cost, expense, liability, obligation, loss or damage
(including reasonable legal fees) of any nature, incurred by or imposed upon the
Purchaser which results, arises out of or is based upon: (i) any
misrepresentation by Company or breach of any warranty by Company in this
Agreement or in any exhibits or schedules attached hereto or any Related
Agreement; or (ii) any breach or default in performance by Company of any
covenant or undertaking to be performed by Company hereunder, or any other
agreement entered into by the Company and Purchaser relating hereto.
8.2 Purchaser's Indemnification. Purchaser agrees to
indemnify, hold harmless, reimburse and defend the Company and each of the
Company's officers, directors, agents, affiliates, control persons and principal
shareholders, at all times against any claim, cost, expense, liability,
obligation, loss or damage (including reasonable legal fees) of any nature,
incurred by or imposed upon the Company which results, arises out of or is based
upon: (i) any misrepresentation by Purchaser or breach of any warranty by
Purchaser in this Agreement or in any exhibits or schedules attached hereto or
any Related Agreement; or (ii) any breach or default in performance by Purchaser
of any covenant or undertaking to be performed by Purchaser hereunder, or any
other agreement entered into by the Company and Purchaser relating hereto.
8.3 Procedures. The procedures and limitations set forth in
Section 10.2(c) and (d) shall apply to the indemnifications set forth in
Sections 8.1 and 8.2 above.
9. Registration Rights
9.1 Registration Rights Granted. The Company hereby grants
registration rights to the Purchaser pursuant to a Registration Rights Agreement
dated as of even date herewith between the Company and the Purchaser.
9.2 Offering Restrictions. Except as previously disclosed in
the SEC Reports or in the Exchange Act Filings, or stock or stock options
granted to employees or directors of the Company; or shares of preferred stock
issued to pay dividends in respect of the Company's preferred stock; or equity
or debt issued in connection with an acquisition of a business or assets by the
Company; or the issuance by the Company of stock in connection with the
establishment of a joint venture partnership or licensing arrangement (these
exceptions hereinafter referred to as the "Excepted Issuances"), the Company
will not issue any securities with a continuously
18
variable/floating conversion feature which are or could be (by conversion or
registration) free-trading securities (i.e. common stock subject to a
registration statement) prior to the full repayment or conversion of the Note
(the "Exclusion Period").
10. Miscellaneous.
10.1 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
NEW YORK, WITHOUT REGARD
TO PRINCIPLES OF CONFLICTS OF LAWS. ANY ACTION BROUGHT BY EITHER PARTY AGAINST
THE OTHER CONCERNING THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT SHALL BE
BROUGHT ONLY IN THE STATE COURTS OF
NEW YORK OR IN THE FEDERAL COURTS LOCATED IN
THE STATE OF
NEW YORK. BOTH PARTIES AND THE INDIVIDUALS EXECUTING THIS AGREEMENT
AND OTHER AGREEMENTS ON BEHALF OF THE COMPANY AGREE TO SUBMIT TO THE
JURISDICTION OF SUCH COURTS AND WAIVE TRIAL BY JURY. IN THE EVENT THAT ANY
PROVISION OF THIS AGREEMENT OR ANY OTHER AGREEMENT DELIVERED IN CONNECTION
HEREWITH IS INVALID OR UNENFORCEABLE UNDER ANY APPLICABLE STATUTE OR RULE OF
LAW, THEN SUCH PROVISION SHALL BE DEEMED INOPERATIVE TO THE EXTENT THAT IT MAY
CONFLICT THEREWITH AND SHALL BE DEEMED MODIFIED TO CONFORM WITH SUCH STATUTE OR
RULE OF LAW. ANY SUCH PROVISION WHICH MAY PROVE INVALID OR UNENFORCEABLE UNDER
ANY LAW SHALL NOT AFFECT THE VALIDITY OR ENFORCEABILITY OF ANY OTHER PROVISION
OF ANY AGREEMENT.
10.2 Survival. The representations, warranties, covenants and
agreements made herein shall survive any investigation made by the Purchaser and
the closing of the transactions contemplated hereby to the extent provided
therein. All statements as to factual matters contained in any certificate or
other instrument delivered by or on behalf of the Company pursuant hereto in
connection with the transactions contemplated hereby shall be deemed to be
representations and warranties by the Company hereunder solely as of the date of
such certificate or instrument.
10.3 Successors. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, heirs, executors and administrators of the parties hereto
and shall inure to the benefit of and be enforceable by each person who shall be
a holder of the Securities from time to time, other than the holders of Common
Stock which has been sold by the Purchaser pursuant to Rule 144 or an effective
registration statement. Purchaser may not assign its rights hereunder to a
competitor of the Company.
10.4 Entire Agreement. This Agreement, the exhibits and
schedules hereto, the Related Agreements and the other documents delivered
pursuant hereto constitute the full and entire understanding and agreement
between the parties with regard to the subjects hereof and no party shall be
liable or bound to any other in any manner by any representations, warranties,
covenants and agreements except as specifically set forth herein and therein.
19
10.5 Severability. In case any provision of the Agreement
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
10.6 Amendment and Waiver.
(a) This Agreement may be amended or modified only upon the
written consent of the Company and the Purchaser.
(b) The obligations of the Company and the rights of the
Purchaser under this Agreement may be waived only with the written
consent of the Purchaser.
(c) The obligations of the Purchaser and the rights of the
Company under this Agreement may be waived only with the written
consent of the Company.
10.7 Delays or Omissions. It is agreed that no delay or
omission to exercise any right, power or remedy accruing to any party, upon any
breach, default or noncompliance by another party under this Agreement or the
Related Agreements, shall impair any such right, power or remedy, nor shall it
be construed to be a waiver of any such breach, default or noncompliance, or any
acquiescence therein, or of or in any similar breach, default or noncompliance
thereafter occurring. All remedies, either under this Agreement, the Note or the
Related Agreements, by law or otherwise afforded to any party, shall be
cumulative and not alternative.
10.8 Notices. All notices required or permitted hereunder
shall be in writing and shall be deemed effectively given:
(a) upon personal delivery to the party to be notified;
(b) when sent by confirmed facsimile if sent during normal
business hours of the recipient, if not, then on the next business day;
(c) three (3) business days after having been sent by
registered or certified mail, return receipt requested, postage
prepaid; or
(d) one (1) day after deposit with a nationally recognized
overnight courier, specifying next day delivery, with written
verification of receipt.
All communications shall be sent as follows:
If to the Purchaser, to: BAM! Entertainment, Inc.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: President
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
20
with a copy to: ▇▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇, LLP
▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Company, to: Laurus Master Fund, Ltd.
c/o Ironshore Corporate Services ltd.
▇.▇. ▇▇▇ ▇▇▇▇ G.T.
Queensgate House, South Church Street
Grand Cayman, Cayman Islands
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇ ▇. ▇▇▇▇▇▇ , Esq.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
or at such other address as the Company or the Purchaser may designate by
written notice to the other parties hereto given in accordance herewith.
10.9 Attorneys' Fees. In the event that any suit or action is
instituted to enforce any provision in this Agreement, the prevailing party in
such dispute shall be entitled to recover from the losing party all fees, costs
and expenses of enforcing any right of such prevailing party under or with
respect to this Agreement, including, without limitation, such reasonable fees
and expenses of attorneys and accountants, which shall include, without
limitation, all fees, costs and expenses of appeals.
10.10 Titles and Subtitles. The titles of the sections and
subsections of the Agreement are for convenience of reference only and are not
to be considered in construing this Agreement.
10.11 Facsimile Signatures; Counterparts. This Agreement may
be executed by facsimile signatures and in any number of counterparts, each of
which shall be an original, but all of which together shall constitute one
instrument.
10.12 Broker's Fees. Except as set forth on Schedule 11.12
hereof, Each party hereto represents and warrants that no agent, broker,
investment banker, person or firm acting on behalf of or under the authority of
such party hereto is or will be entitled to any broker's or finder's fee or any
other commission directly or indirectly in connection with the transactions
contemplated herein. Each party hereto further agrees to indemnify each other
party for any claims, losses or expenses incurred by such other party as a
result of the representation in this Section 11.12 being untrue.
21
10.13 Construction. Each party acknowledges that its legal
counsel participated in the preparation of this Agreement and the Related
Agreements and, therefore, stipulates that the rule of construction that
ambiguities are to be resolved against the drafting party shall not be applied
in the interpretation of this Agreement to favor any party against the other.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
22
IN WITNESS WHEREOF, the parties hereto have executed the
SECURITIES
PURCHASE AGREEMENT as of the date set forth in the first paragraph hereof.
COMPANY: PURCHASER:
BAM! ENTERTAINMENT, INC. LAURUS MASTER FUND, LTD.
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ By: /s/ [Illegible]
------------------------- -----------------------------
Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ Name:
------------------------- -----------------------------
Title: CFO Title:
------------------------- -----------------------------
23
EXHIBIT A
FORM OF CONVERTIBLE NOTE
THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS. THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF
THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE UNDER SAID ACT
AND ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO BAM! ENTERTAINMENT, INC. THAT SUCH REGISTRATION IS NOT REQUIRED.
SECURED CONVERTIBLE TERM NOTE
FOR VALUE RECEIVED, BAM! ENTERTAINMENT, INC., a Delaware corporation
(the "BORROWER"), hereby promises to pay to LAURUS MASTER FUND, LTD., c/o
Ironshore Corporate Services Ltd., ▇.▇. ▇▇▇ ▇▇▇▇ G.T., Queensgate House, South
Church Street, Grand Cayman, Cayman Islands, Fax: ▇▇▇-▇▇▇-▇▇▇▇ (the "HOLDER") or
its registered assigns or successors in interest, on order, the sum of ONE
MILLION FIVE HUNDRED THOUSAND DOLLARS ($1,500,000), together with any accrued
and unpaid interest hereon, on December 3, 2004 (the "MATURITY DATE") if not
sooner paid.
Capitalized terms used herein without definition shall have the
meanings ascribed to such terms in that certain
Securities Purchase Agreement
dated as of the date hereof between the Borrower and the Holder (the "PURCHASE
AGREEMENT").
The following terms shall apply to this Note:
ARTICLE I
INTEREST & AMORTIZATION
1.1 Interest Rate and Payment. Subject to Sections 4.10 and 5.6 hereof,
interest payable on this Note shall accrue at a rate of seven percent (7%) per
annum (the "INTEREST RATE"). Subject to the provisions of Articles II and III
hereof, interest shall be payable in cash, monthly in arrears commencing on
January 2, 2004 ("Monthly Interest Amount"), on the first day of each
consecutive calendar month thereafter and on the Maturity Date, whether by
acceleration or otherwise.
1.2 Monthly Principal Payments.Amortizing payments of the aggregate
principal amount outstanding under this Note at any time (the "PRINCIPAL
AMOUNT") shall begin on February 1, 2004 and shall recur on the first calendar
day of each succeeding month thereafter until the Maturity Date (each, an
"AMORTIZATION DATE"). Subject to Section 3.4 below, beginning on the first
Amortization Date, the Borrower shall make monthly payments to the Holder on
each Repayment Date, each in the amount of $166,666.67, together with any
accrued and unpaid interest to date on such portion of the Principal Amount plus
any and all other
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amounts which are then owing under this Note but have not been paid
(collectively, the "MONTHLY AMOUNT").
ARTICLE II
BORROWER PAYMENT OPTIONS
2.1. Effectiveness. The provisions of this Article II shall be
effective only after the Nasdaq has approved the Borrower's additional listing
application covering the Conversion Shares (as that term is defined herein) and
determined that the Facility should not be integrated with the Borrower's
private placement (the "SEPTEMBER FINANCING") effected pursuant to a
Securities
Purchase Agreement dated as of September 30, 2003 by and among the Borrower and
certain purchasers thereto (the "COMPLIANCE EVENT"). In the event that Nasdaq
determines that this Note would be integrated with the September Financing (the
"NON-COMPLIANCE EVENT"), the provisions of this Article II shall never become
effective.
2.2 (a) Payment of Monthly Amount in Cash or Common Stock. Subject to
the terms hereof, the Borrower shall have the sole option to determine whether
to satisfy payment of the Monthly Amount on each date a payment under the Note
is due and payable (a "REPAYMENT DATE") either in cash or in shares of Common
Stock (as defined in the Purchase Agreement), or a combination of both. Each
month by the tenth (10th) day of such month, the Borrower shall deliver to the
Holder a written irrevocable notice in the form of Exhibit B attached hereto
electing to pay the Monthly Amount payable on the next Repayment Date in either
cash or Common Stock, or a combination of both (each, a "REPAYMENT ELECTION
NOTICE") (the date by which such notice is required to be given being
hereinafter referred to as the "NOTICE DATE"). If a Repayment Election Notice is
not delivered to the Holder by the applicable Notice Date for such Repayment
Date, then the Monthly Amount due on such Repayment Date shall be paid in cash.
Any portion of the Monthly Amount paid in cash on a Repayment Date, shall be
paid to the Holder an amount equal to (x) 103% of the principal portion of the
Monthly Amount plus (y) any accrued and unpaid interest in satisfaction of such
obligation. If the Borrower repays all or a portion of the Monthly Amount in
shares of Common Stock, the number of such shares to be issued for such
Repayment Date shall be the number determined by dividing (x) the portion of the
Monthly Amount to be paid in shares of Common Stock, by (y) the Fixed Conversion
Price. For purposes hereof, the "FIXED CONVERSION PRICE" means $1.33 (which has
been determined on the date of this Note as an amount equal to 103% of the
average closing price for the five (5) trading days immediately prior to the
date of this Note).
(b) Monthly Amount Common Stock Payment Guidelines. Subject to
Sections 2.1(a) and 2.2 hereof, if the Borrower has elected to pay all or a
portion of the Monthly Amount due on such Repayment Date in shares of Common
Stock and the closing price of the Common Stock as reported by Bloomberg, L.P.
on the Principal Market (as defined in Section 4.7 hereof) for any of the ten
(10) trading days preceding a Repayment Date was less than 115% of the Fixed
Conversion Price, then the Borrower shall pay in cash instead. Any part of the
Monthly Amount due on such Repayment Date that the Borrower did not elect to pay
in shares of Common Stock shall be paid by the Borrower in cash on such
Repayment Date. Any part of the Monthly Amount due on such Repayment Date which
the Borrower elected to pay in shares of Common Stock but which must be paid in
cash (as a result of the closing price of the Common Stock on one or more of the
five (5) trading days preceding the applicable Repayment Date was less than 115%
of the
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Fixed Conversion Price) shall be paid within three (3) business days of the
applicable Repayment Date.
2.2 No Effective Registration. Notwithstanding anything to the contrary
herein, the Borrower shall not repay any part of its obligations to the Holder
hereunder in Common Stock if (i) there fails to exist an effective current
Registration Statement (as defined in the Registration Rights Agreement)
covering the shares of Common Stock to be issued in connection with such
payment, or (ii) an Event of Default hereunder exists and is continuing, unless
such Event of Default is cured within any applicable cure period or is otherwise
waived in writing by the Holder .
2.3 Optional Prepayments in Common Stock. Subject to Section 2.2
hereof, if the average closing price of the Common Stock on the Principal Market
is greater than 115% of the Fixed Conversion Price for a period of at least five
(5) consecutive trading days, then the Borrower may, at its sole option, provide
the Holder written notice (a "PREPAYMENT CALL NOTICE") requiring the conversion
at the then applicable Fixed Conversion Price of all or a portion of the
outstanding principal, interest and fees outstanding under this Note (subject to
compliance with Section 2.3 and 3.2), together with accrued interest on the
amount being prepaid, as of the date set forth in such Prepayment Call Notice
(the "PREPAYMENT CALL DATE"). The Prepayment Call Date shall be at least ten
(10) trading days following the date of the Prepayment Call Notice On the
Prepayment Call Date, the Borrower shall deliver to the Holder certificates
evidencing the shares of Common Stock issued in satisfaction of the principal
and interest being prepaid. Notwithstanding the foregoing, the Borrower's right
to issue shares of Common Stock in satisfaction of its obligations under this
Note shall be subject to the limitation that the number of shares of Common
Stock issued in connection with any Prepayment Call Notice shall not exceed 25%
of the aggregate dollar trading volume of the Common Stock for the ten (10)
trading days immediately preceding the Prepayment Call Date (as such volume is
reported by Bloomberg L.P.). If the price of the Common Stock falls below 115%
of the then applicable Fixed Conversion Price during the ten (10) trading day
period immediately preceding the Prepayment Call Date, then the Holder will then
be required to convert only such amount of the Note as shall equal twenty five
percent (25%) of the aggregate dollar trading volume (as such volume is reported
by Bloomberg L.P.) for each day that the Common Stock has exceeded 115% of the
then applicable Fixed Conversion Price. Notwithstanding anything contained
herein, in no event shall the sum of (i) number of shares of Common Stock and
Registered Common Stock issuable further to Articles II and III hereof plus (ii)
the number of shares of Common Stock underlying warrants issued by the Borrower
to the Holder (the "Warrant Shares") exceed 19.99% of the Common Stock of the
Borrower outstanding on the date hereof.
The Borrower shall not be permitted to give the Holder more than one
Prepayment Call Notice under this Note during any 22-day period.
Any principal amount of this Note which is prepaid pursuant to this
Section 2.3 shall be deemed to constitute payments of outstanding principal
applying to Monthly Amounts for the remaining Repayment Dates in chronological
order.
2.4 Optional Redemption in Cash. The Borrower will have the option of
prepaying this Note in full ("OPTIONAL REDEMPTION") by paying to the Holder a
sum of money equal to one
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hundred fifteen percent (115%) of the principal amount of this Note together
with accrued but unpaid interest thereon and any and all other sums due, accrued
or payable to the Holder arising under this Note or the Purchase Agreement or
any Related Document (as defined in the Purchase Agreement) (the "REDEMPTION
AMOUNT") outstanding on the day written notice of redemption (the "NOTICE OF
REDEMPTION") is given to the Holder, which Notice of Redemption shall specify
the date for such Optional Redemption (the "REDEMPTION PAYMENT DATE"). A Notice
of Redemption shall not be effective with respect to any portion of this Note
for which the Holder has a pending election to convert pursuant to Section 3.1
and the Redemption Amount shall be determined as if such election to convert had
been completed immediately prior to the date of the Notice of Redemption. The
Redemption Payment Date shall not be earlier than the day after the date of the
Notice of Redemption and not later than seven (7) days after the date of the
Notice of Redemption. On the Redemption Payment Date, the Redemption Amount must
be paid in good funds to the Holder. In the event the Borrower fails to pay the
Redemption Amount by the Redemption Payment Date, then such Redemption Notice
will be null and void.
ARTICLE III
CONVERSION RIGHTS
3.1. Effectiveness. The provisions of this Article III shall be
effective only upon the occurrence of a Compliance Event In the event of the
occurrence of a Non-Compliance Event, the provisions of Article II shall have no
force or effect.
3.2. Holder's Conversion Rights. The Holder shall have the right, but
not the obligation, to convert all or any portion of the then aggregate
outstanding principal amount of this Note, together with interest and fees due
hereon, into shares of Common Stock or Registered Common Stock as applicable,
subject to the terms and conditions set forth in this Article III. The Holder
may exercise such right by delivery to the Borrower of a written notice of
conversion not less than one (1) day prior to the date upon which such
conversion shall occur. The date upon which such conversion shall occur is (the
"CONVERSION DATE").
10.14 3.3 Conversion Limitation. Notwithstanding anything contained
herein to the contrary, the Holder shall not be entitled to convert pursuant to
the terms of this Note an amount that would be convertible into that number of
Conversion Shares which would exceed the difference between the number of shares
of Common Stock and Registered Common Stock, if any, beneficially owned by such
Holder or issuable upon exercise of warrants held by such Holder and 4.99% of
the outstanding shares of Common Stock of the Borrower. For the purposes of the
immediately preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the Exchange Act and Regulation 13d-3
thereunder. The Holder may void the Conversion Share limitation described in
subparagraph (a) above of this Section 3.3 upon 10 days prior notice to the
Borrower or without any notice requirement upon an Event of Default but only to
the extent that the 19.99% limitation set forth in Section 2.3 remains an
absolute limitation on the number of Shares of Common Stock and Registered
Common Stock issuable further to the provisions of this Note and the Warrant
Shares.
10.15
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10.16 3.3 Mechanics of Holder's Conversion. (a) In the event that the
Holder elects to convert this Note into Common Stock, the Holder shall give
notice of such election by delivering an executed and completed notice of
conversion ("NOTICE OF CONVERSION") to the Borrower and such Notice of
Conversion shall provide a breakdown in reasonable detail of the Principal
Amount, accrued interest and fees being converted. On each Conversion Date (as
hereinafter defined) and in accordance with its Notice of Conversion, the Holder
shall make the appropriate reduction to the Principal Amount, accrued interest
and fees as entered in its records and shall provide written notice thereof to
the Borrower within two (2) business days after the Conversion Date. Each date
on which a Notice of Conversion is delivered or telecopied to the Borrower in
accordance with the provisions hereof shall be deemed a Conversion Date (the
"CONVERSION DATE"). A form of Notice of Conversion to be employed by the Holder
is annexed hereto as Exhibit A.
10.17 (b) Pursuant to the terms of the Notice of Conversion, the
Borrower will issue instructions to the transfer agent accompanied by an opinion
of counsel within one (1) business day of the date of the delivery to Borrower
of the Notice of Conversion and shall cause the transfer agent to transmit the
certificates representing the Conversion Shares to the Holder by crediting the
account of the Holder's designated broker with the Depository Trust Corporation
("DTC") through its Deposit Withdrawal Agent Commission ("DWAC") system within
three (3) business days after receipt by the Borrower of the Notice of
Conversion (the "DELIVERY DATE"). In the case of the exercise of the conversion
rights set forth herein the conversion privilege shall be deemed to have been
exercised and the Conversion Shares issuable upon such conversion shall be
deemed to have been issued upon the date of receipt by the Borrower of the
Notice of Conversion. The Holder shall be treated for all purposes as the record
holder of such Common Stock, unless the Holder provides the Borrower written
instructions to the contrary.
3.4 Conversion Mechanics.
(a) The number of shares of Common Stock to be issued upon each
conversion of this Note shall be determined by dividing that portion of the
principal and interest and fees to be converted, if any, by the then applicable
Fixed Conversion Price. In the event of any conversions of outstanding principal
amount under this Note in part pursuant to this Article III, such conversions
shall be deemed to constitute conversions of outstanding principal amount
applying to Monthly Amounts for the remaining payment dates in chronological
order.
(b) The Fixed Conversion Price and number and kind of shares or other
securities to be issued upon conversion is subject to adjustment from time to
time upon the occurrence of certain events, as follows:
A. Stock Splits, Combinations and Dividends. If the shares of Common
Stock are subdivided or combined into a greater or smaller number of shares of
Common Stock, or if a dividend is paid on the Common Stock in shares of Common
Stock, the Fixed Conversion Price or the Conversion Price, as the case may be,
shall be proportionately reduced in case of subdivision of shares or stock
dividend or proportionately increased in the case of combination
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of shares, in each such case by the ratio which the total number of shares of
Common Stock outstanding immediately after such event bears to the total number
of shares of Common Stock outstanding immediately prior to such event.
B. During the period the conversion right exists, the Borrower will
reserve from its authorized and unissued Common Stock a sufficient number of
shares to provide for the issuance of Common Stock upon the full conversion of
this Note. The Borrower represents that upon issuance, such shares will be duly
and validly issued, fully paid and non-assessable. The Borrower agrees that its
issuance of this Note shall constitute full authority to its officers, agents,
and transfer agents who are charged with the duty of executing and issuing stock
certificates to execute and issue the necessary certificates for shares of
Common Stock upon the conversion of this Note.
C. Share Issuances. Subject to the provisions of this Section 3.4, if
the Borrower shall at any time prior to the conversion or repayment in full of
the Principal Amount issue any shares of Common Stock to a person other than the
Holder or an affiliate of the Holder except (i) pursuant to Subsections A or B
above; (ii) pursuant to options, warrants, or other obligations to issue shares
outstanding on the date hereof as disclosed to Holder in writing; or (iii)
pursuant to options or stock that may be issued under any employee incentive
stock option and/or stock option or stock purchase plan adopted by the Borrower)
or (iv) in connection with a bona fide joint venture, development agreement,
strategic partnership, equipment lease financing, or real estate leasing
transaction that does not raise equity capital for the Borrower for a
consideration per share (the "Offer Price") less than the Fixed Conversion Price
in effect at the time of such issuance, then the Fixed Conversion Price shall be
immediately reset pursuant to the formula below. For purposes hereof, the
issuance of any security of the Borrower convertible into or exercisable or
exchangeable for Common Stock shall result in an adjustment to the Fixed
Conversion Price at the time of issuance of such securities.
If the Corporation issues any additional shares pursuant to
Section 3.4 above that require a reset of the then applicable Fixed Conversion
Price, then, and thereafter successively upon each such issue, the Fixed
Conversion Price shall be adjusted by multiplying the then applicable Fixed
Conversion Price by the following fraction:
A + B
(A + B) + [((C - D) x B) / C]
A = Actual shares outstanding prior to such offering
B = Actual shares sold in the offering
C = Fixed Conversion Price
D = Offering price
D. Reclassification, etc. If the Borrower at any time shall, by
reclassification or otherwise, change the Common Stock into the same or a
different number of securities of any
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class or classes, this Note, as to the unpaid Principal Amount and accrued
interest thereon, shall thereafter be deemed to evidence the right to purchase
an adjusted number of such securities and kind of securities as would have been
issuable as the result of such change with respect to the Common Stock
immediately prior to such reclassification or other change.
3.5 Issuance of New Note. Upon any partial conversion of this Note, a
new Note containing the same date and provisions of this Note shall, at the
request of the Holder, be issued by the Borrower to the Holder for the principal
balance of this Note and interest which shall not have been converted or paid.
The Borrower will pay no costs, fees or any other consideration to the Holder
for the production and issuance of a new Note.
ARTICLE IV
EVENTS OF DEFAULT
If an Event of Default (as defined below) occurs and is continuing, the
Borrower's rights under Sections 2.2, 2.3 and 2.4 shall immediately cease and be
of no further effect until such time as the Event of Default has been cured, or
has been waived by the Holder. Upon the occurrence and continuance of an Event
of Default beyond any applicable grace period, the Holder may make all sums of
principal, interest and other fees then remaining unpaid hereon and all other
amounts payable hereunder due and payable within five (5) days after written
notice from Holder to Borrower (each occurrence being a "DEFAULT NOTICE
PERIOD"). In the event of such an acceleration, the amount due and owing to the
Holder shall be 125% of the outstanding principal amount of the Note (plus
accrued and unpaid interest and fees, if any). If, with respect to any Event of
Default other than a payment default described in Section 4.1 below, within the
Default Notice Period the Borrower cures the Event of Default, the Event of
Default will be deemed to no longer exist and any rights and remedies of Holder
pertaining to such Event of Default will be of no further force or effect.
The occurrence of any of the following events is an "EVENT OF DEFAULT":
4.1 Failure to Pay Principal, Interest or other Fees. The Borrower
fails to pay when due any installment of principal, interest or other fees
hereon in accordance herewith after the expiration of any grace period referred
to in Section 4.10 hereof, or the Borrower fails to pay when due any amount due
under any other promissory note in excess of $200,000 issued by Borrower.
4.2 Breach of Covenant. The Borrower breaches any material covenant or
other term or condition of this Note or the Purchase Agreement in any material
respect and such breach, if subject to cure, continues for a period of thirty
(30) days after the occurrence thereof.
4.3 Breach of Representations and Warranties. Any material
representation or warranty of the Borrower made herein, in the Purchase
Agreement, or in any Related Document (as defined in the Purchase Agreement)
shall be materially false or misleading and shall not be cured for a period of
thirty (30) days after the occurrence thereof.
4.4 Receiver or Trustee. The Borrower shall make an assignment for the
benefit of creditors, or apply for or consent to the appointment of a receiver
or trustee for it or for a
A-7
substantial part of its property or business; or such a receiver or trustee
shall otherwise be appointed.
4.5 Judgments. Any money judgment, writ or similar final process shall
be entered or filed against the Borrower or any of its property or other assets
for more than $300,000, and shall remain unvacated, unbonded or unstayed for a
period of ninety (90) days.
4.6 Bankruptcy. Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings or relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by or against the Borrower.
4.7 Stop Trade. An SEC stop trade order or Principal Market trading
suspension of the Common Stock shall be in effect for 5 consecutive days or 5
days during a period of 10 consecutive days, excluding in all cases a suspension
of all trading on a Principal Market, provided that the Borrower shall not have
been able to cure such trading suspension within 30 days of the notice thereof
or list the Common Stock on another Principal Market within 60 days of such
notice. The "Principal Market" for the Common Stock shall include the NASD OTC
Bulletin Board, NASDAQ SmallCap Market, NASDAQ National Market System, American
Stock Exchange, or
New York Stock Exchange (whichever of the foregoing is at the
time the principal trading exchange or market for the Common Stock, or any
securities exchange or other securities market on which the Common Stock is then
being listed or traded.
4.8 Failure to Deliver Common Stock or Replacement Note. The Borrower's
failure to timely deliver Common Stock to the Holder pursuant to and in the form
required by this Note, and Section 9 of the
Securities Purchase Agreement, or if
required, a replacement Note if such failure to timely deliver Common Stock
shall not be cured within two (2) Business Days or such failure to deliver a
replacement Note is not cured within seven (7) Business Days.
4.9 Default Under Related Agreements. The occurrence and continuance of
any Event of Default as defined in the Related Agreements.
DEFAULT RELATED PROVISIONS
4.10 Payment Grace Period. The Borrower shall have a three (3) Business
Day grace period to pay any monetary amounts due under this Note or the Purchase
Agreement or any Related Document, after which grace period a default interest
rate of five percent (5%) per annum above the then applicable interest rate
hereunder shall apply to the monetary amounts due.
4.11 Conversion Privileges. The conversion privileges set forth in
Article III shall remain in full force and effect immediately from the date
hereof and until this Note is paid in full.
4.12 Cumulative Remedies. The remedies under this Note shall be
cumulative.
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ARTICLE V
MISCELLANEOUS
5.1 Failure or Indulgence Not Waiver. No failure or delay on the part
of the Holder hereof in the exercise of any power, right or privilege hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such power, right or privilege preclude other or further exercise thereof or
of any other right, power or privilege. All rights and remedies existing
hereunder are cumulative to, and not exclusive of, any rights or remedies
otherwise available.
5.2 Notices. Any notice herein required or permitted to be given shall
be in writing and shall be deemed effectively given: (a) upon personal delivery
to the party notified, (b) when sent by confirmed telex or facsimile if sent
during normal business hours of the recipient, if not, then on the next business
day, (c) five days after having been sent by registered or certified mail,
return receipt requested, postage prepaid, or (d) one day after deposit with a
nationally recognized overnight courier, specifying next day delivery, with
written verification of receipt. All communications shall be sent to the
Borrower at the address provided in the Purchase Agreement executed in
connection herewith, and to the Holder at the address provided in the Purchase
Agreement for such Holder, with a copy to ▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq., ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, facsimile number (▇▇▇) ▇▇▇-▇▇▇▇,
or at such other address as the Borrower or the Holder may designate by ten days
advance written notice to the other parties hereto. A Notice of Conversion shall
be deemed given when made to the Borrower pursuant to the Purchase Agreement.
5.3 Amendment Provision. The term "Note" and all reference thereto, as
used throughout this instrument, shall mean this instrument as originally
executed, or if later amended or supplemented, then as so amended or
supplemented, and any successor instrument issued pursuant to Section 3.5
hereof, as it may be amended or supplemented.
5.4 Assignability. This Note shall be binding upon the Borrower and its
successors and assigns, and shall inure to the benefit of the Holder and its
successors and assigns. All consents , approvals, waivers, amendments and other
determinations to be made by the Holder hereunder shall be made by Holders
holding at least fifty one percent (51%) of the aggregate outstanding principal
of the Note, and may be assigned by the Holder in accordance with the
requirements of the Purchase Agreement.
5.5 Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of
New York, without regard to principles
of conflicts of laws. Any action brought by the Borrower concerning the
transactions contemplated by this Agreement shall be brought only in the state
courts of
New York or in the federal courts located in the State of
New York.
Both parties and the individual signing this Note on behalf of the Borrower
agree to submit to the jurisdiction of such courts. The prevailing party shall
be entitled to recover from the other party its reasonable attorney's fees and
costs. In the event that any provision of this Note is invalid or unenforceable
under any applicable statute or rule of law, then such provision shall be deemed
inoperative to the extent that it may conflict therewith and shall be deemed
modified to conform with such statute or rule of law. Any such provision which
may prove invalid or unenforceable under any law shall not affect the validity
or unenforceability of any other provision of this Note. Nothing contained
herein shall be deemed or operate to preclude the Holder from bringing suit or
taking other legal action against the Borrower in
New York or in the federal
courts in the state of
New York or in any other jurisdiction to collect on the
A-9
Borrower's obligations to Holder, to realize on any collateral or any other
security for such obligations, or to enforce a judgment or other court in favor
of the Holder.
5.6 Maximum Payments. Nothing contained herein shall be deemed to
establish or require the payment of a rate of interest or other charges in
excess of the maximum permitted by applicable law. In the event that the rate of
interest required to be paid or other charges hereunder exceed the maximum
permitted by such law, any payments in excess of such maximum shall be credited
against amounts owed by the Borrower to the Holder and thus refunded to the
Borrower.
5.7 Security Interest. The holder of this Note has been granted a
security interest in certain assets of the Borrower more fully described in a
Security Agreement dated as of December 3, 2003.
5.8 Construction. Each party acknowledges that its legal counsel
participated in the preparation of this Note and, therefore,
stipulates that the rule of construction that ambiguities are
to be resolved against the drafting party shall not be applied
in the interpretation of this Note to favor any party against
the other.
5.9 Cost of Collection. If default is made in the payment of this
Note, the borrower shall pay to Holder reasonable costs of
collection, including reasonable attorney's fees.
[Balance of page intentionally left blank; signature page follows.]
A-10
IN WITNESS WHEREOF, Borrower has caused this Convertible Term Note to
be signed in its name effective as of this 3rd day of December, 2003.
BAM! ENTERTAINMENT, INC.
By:
-------------------------------
Name:
-------------------------------
Title:
------------------------------
WITNESS:
-------------------------------
A-11
EXHIBIT B
FORM OF WARRANT
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR ANY STATE SECURITIES LAWS. THIS WARRANT AND THE COMMON
STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD, OFFERED
FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SAID ACT AND ANY
APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO BAM! ENTERTAINMENT, INC. THAT SUCH REGISTRATION IS NOT
REQUIRED.
Right to Purchase Shares of Common Stock of
BAM! Entertainment, Inc.
COMMON STOCK PURCHASE WARRANT
No. L-1 Issue Date: December 3, 2003
BAM! ENTERTAINMENT, INC. a corporation organized under the laws of the
State of Delaware hereby certifies that, for value received, LAURUS MASTER FUND,
LTD., or assigns (the "Holder"), is entitled, subject to the terms set forth
below, to purchase from the Company (as defined herein) from and after the Issue
Date of this Warrant and at any time or from time to time before 5:00 p.m.,
New
York time, through the close of business December 3, 2010 (the "Expiration
Date"), 166,667 fully paid and nonassessable shares of Common Stock, subject to
adjustment as set forth in Section 1.6 and as otherwise provided herein (as
hereinafter defined), $0.01 par value per share, at the applicable Exercise
Price per share (as defined below). The number and character of such shares of
Common Stock and the applicable Exercise Price per share are subject to
adjustment as provided herein. Capitalized terms used but not defined herein
shall have the meanings given them in that certain Note dated as of the date
hereof by the Company favor of the Holder in the original principal amount of
$1,500,000 (the "Note").
As used herein the following terms, unless the context otherwise
requires, have the following respective meanings:
(a) The term "Company" shall include BAM! Entertainment, Inc.
and any corporation which shall succeed, or assume the obligations of,
BAM! Entertainment, Inc. hereunder.
(b) The term "Common Stock" includes (i) the Company's Common
Stock, par value $0.01 per share; and (ii) any other securities into
which or for which any of the
B-1
securities described in (a) may be converted or exchanged pursuant to a
plan of recapitalization, reorganization, merger, sale of assets or
otherwise.
(c) The term "Other Securities" refers to any stock (other
than Common Stock) and other securities of the Company or any other
person (corporate or otherwise) which the holder of the Warrant at any
time shall be entitled to receive, or shall have received, on the
exercise of the Warrant, in lieu of or in addition to Common Stock, or
which at any time shall be issuable or shall have been issued in
exchange for or in replacement of Common Stock or Other Securities
pursuant to Section 4 or otherwise.
(d) The "Exercise Price" applicable under this Warrant shall
be as follows:
(i) a price of $1.73, which is 130% of the average
closing price of Common Stock for the five (5) trading days
immediately prior to the date hereof. for the first 66,667
shares acquired hereunder;
(ii) a price of $2.00, which is 150% of the average
closing price of Common Stock for the five (5) trading days
immediately prior to the date hereof. for the next 58,333
shares acquired hereunder; and
(iii) a price of $2.33, which is 175% of the average
closing price of Common Stock for the five (5) trading days
immediately prior to the date hereof for the last 42,667
shares acquired further to Section 4 .
11. Exercise of Warrant.
11.1 Number of Shares Issuable upon Exercise. From and after
the date hereof through and including the Expiration Date, the Holder shall be
entitled to receive, upon exercise of this Warrant in whole or in part, by
delivery of an original or fax copy of an exercise notice in the form attached
hereto as Exhibit A (the "Exercise Notice"), shares of Common Stock of the
Company, subject to adjustment pursuant to Section 4.
11.2 Fair Market Value. For purposes hereof, the "Fair Market
Value" of a share of Common Stock as of a particular date (the "Determination
Date") shall mean:
(a) If the Company's Common Stock is traded on the American
Stock Exchange or another national exchange or is quoted on the
National or SmallCap Market of The Nasdaq Stock Market, Inc.("Nasdaq"),
then the closing or last sale price, respectively, reported for the
last business day immediately preceding the Determination Date.
(b) If the Company's Common Stock is not traded on the
American Stock Exchange or another national exchange or on the Nasdaq
but is traded on the NASD OTC Bulletin Board, then the mean of the
average of the closing bid and asked prices reported for the last
business day immediately preceding the Determination Date.
B-2
(c) Except as provided in clause (d) below, if the Company's
Common Stock is not publicly traded, then as the Holder and the Company
agree or in the absence of agreement by arbitration in accordance with
the rules then in effect of the American Arbitration Association,
before a single arbitrator to be chosen from a panel of persons
qualified by education and training to pass on the matter to be
decided.
(d) If the Determination Date is the date of a liquidation,
dissolution or winding up, or any event deemed to be a liquidation,
dissolution or winding up pursuant to the Company's charter, then all
amounts to be payable per share to holders of the Common Stock pursuant
to the charter in the event of such liquidation, dissolution or winding
up, plus all other amounts to be payable per share in respect of the
Common Stock in liquidation under the charter, assuming for the
purposes of this clause (d) that all of the shares of Common Stock then
issuable upon exercise of the Warrant are outstanding at the
Determination Date.
11.3 Company Acknowledgment. The Company will, at the time of
the exercise of the Warrant, upon the request of the holder hereof acknowledge
in writing its continuing obligation to afford to such holder any rights to
which such holder shall continue to be entitled after such exercise in
accordance with the provisions of this Warrant. If the holder shall fail to make
any such request, such failure shall not affect the continuing obligation of the
Company to afford to such holder any such rights.
11.4 Trustee for Warrant Holders. In the event that a bank or
trust company shall have been appointed as trustee for the holders of the
Warrant pursuant to Subsection 3.2, such bank or trust company shall have all
the powers and duties of a warrant agent (as hereinafter described) and shall
accept, in its own name for the account of the Company or such successor person
as may be entitled thereto, all amounts otherwise payable to the Company or such
successor, as the case may be, on exercise of this Warrant pursuant to this
Section 1.
1.5 Lockup. Notwithstanding whether or not the securities
issuable upon exercise of this Warrant become registered or otherwise tradeable
without restriction, the Holder hereby agrees that, until the occurrence of the
Compliance Event or a Non-Compliance Event (each as defined in the Note), it
shall not directly or indirectly sell, offer to sell, contract to sell
(including, without limitation, any short sale), grant any option to purchase or
otherwise transfer or dispose of all or any portion of this Warrant or any
securities of the Borrower issuable upon exercise of the Warrants during such
period. In order to enforce the foregoing covenant, the Borrower may impose
stop-transfer instructions with respect to the Warrants and the securities
issuable upon exercise of this Warrant until the end of such period.
1.6 Non-Compliance Event. Notwithstanding the foregoing, upon
the occurrence of the Non-Compliance Event (as defined in the Note), the
aggregate number of shares issuable upon exercise of this Warrant shall be
automatically increased to 500,000 and the exercise price of said Warrants shall
be adjusted to a price equal to the lesser of (i) the closing bid price of the
Borrower's Common Stock on the Nasdaq Stock Market on the Business Day
immediately preceding the date of the occurrence of the Non-Compliance Event,
and (y) the average of the closing bid price of the Borrower's Common Stock on
the Nasdaq Stock Market for the five (5) Business Days immediately preceding the
date of the occurrence of the Non-Compliance Event.
B-3
1.7 Lock-up on Non-Compliance Event. Notwithstanding the
foregoing, upon the occurrence of the Non-Compliance Event, the Lock-up
referenced in Section 1.5 herein shall be extended as to this Warrant and all
shares issuable upon exercise of this Warrant for a period of 180 days from the
date of the occurrence of the Non-Compliance Event.
12. Procedure for Exercise.
12.1 Delivery of Stock Certificates, Etc., on Exercise. The
Company agrees that the shares of Common Stock purchased upon exercise of this
Warrant shall be deemed to be issued to the Holder as the record owner of such
shares as of the close of business on the date on which this Warrant shall have
been surrendered and payment made for such shares in accordance herewith. As
soon as practicable after the exercise of this Warrant in full or in part, and
in any event within three (3) business days thereafter, the Company at its
expense (including the payment by it of any applicable issue taxes) will cause
to be issued in the name of and delivered to the Holder, or as such Holder (upon
payment by such Holder of any applicable transfer taxes) may direct in
compliance with applicable securities laws, a certificate or certificates for
the number of duly and validly issued, fully paid and nonassessable shares of
Common Stock (or Other Securities) to which such Holder shall be entitled on
such exercise, plus, in lieu of any fractional share to which such holder would
otherwise be entitled, cash equal to such fraction multiplied by the then Fair
Market Value of one full share, together with any other stock or other
securities and property (including cash, where applicable) to which such Holder
is entitled upon such exercise pursuant to Section 1 or otherwise.
12.2 Exercise. Payment may be made either (i) in cash or by
certified or official bank check payable to the order of the Company equal to
the applicable aggregate Exercise Price, (ii) by delivery of the Warrant, or
shares of Common Stock and/or Common Stock receivable upon exercise of the
Warrant in accordance with Section (b) below, or (iii) by a combination of any
of the foregoing methods, for the number of Common Shares specified in such
Exercise Notice (as such exercise number shall be adjusted to reflect any
adjustment in the total number of shares of Common Stock issuable to the Holder
per the terms of this Warrant) and the Holder shall thereupon be entitled to
receive the number of duly authorized, validly issued, fully-paid and
non-assessable shares of Common Stock (or Other Securities) determined as
provided herein. Notwithstanding any provisions herein to the contrary, if the
Fair Market Value of one share of Common Stock is greater than the Exercise
Price (at the date of calculation as set forth below), in lieu of exercising
this Warrant for cash, the Holder may elect to receive shares equal to the value
(as determined below) of this Warrant (or the portion thereof being exercised)
by surrender of this Warrant at the principal office of the Company together
with the properly endorsed Exercise Notice in which event the Company shall
issue to the Holder a number of shares of Common Stock computed using the
following formula:
X=Y (A-B)
-----------
A
Where X = the number of shares of Common Stock to be issued to the Holder
B-4
Y = the number of shares of Common Stock purchasable under the
Warrant or, if only a portion of the Warrant is being
exercised, the portion of the Warrant being exercised (at the
date of such calculation)
A= the Fair Market Value of one share of the Company's Common
Stock (at the date of such calculation)
B= Exercise Price (as adjusted to the date of such calculation)
13. Effect of Reorganization, Etc.; Adjustment of Exercise Price.
13.1 Reorganization, Consolidation, Merger, Etc. In case at
any time or from time to time, the Company shall (a) effect a reorganization,
(b) consolidate with or merge into any other person, or (c) transfer all or
substantially all of its properties or assets to any other person under any plan
or arrangement contemplating the dissolution of the Company, then, in each such
case, as a condition to the consummation of such a transaction, proper and
adequate provision shall be made by the Company whereby the Holder of this
Warrant, on the exercise hereof as provided in Section 1 at any time after the
consummation of such reorganization, consolidation or merger or the effective
date of such dissolution, as the case may be, shall receive, in lieu of the
Common Stock (or Other Securities) issuable on such exercise prior to such
consummation or such effective date, the stock and other securities and property
(including cash) to which such Holder would have been entitled upon such
consummation or in connection with such dissolution, as the case may be, if such
Holder had so exercised this Warrant, immediately prior thereto, all subject to
further adjustment thereafter as provided in Section 4.
13.2 Dissolution. In the event of any dissolution of the
Company following the transfer of all or substantially all of its properties or
assets, the Company, concurrently with any distributions made to holders of its
Common Stock, shall at its expense deliver or cause to be delivered to the
Holder the stock and other securities and property (including cash, where
applicable) receivable by the Holder of the Warrant pursuant to Section 3.1, or,
if the Holder shall so instruct the Company, to a bank or trust company
specified by the Holder and having its principal office in New York, NY as
trustee for the Holder of the Warrant (the "Trustee").
13.3 Continuation of Terms. Upon any reorganization,
consolidation, merger or transfer (and any dissolution following any transfer)
referred to in this Section 3, this Warrant shall continue in full force and
effect and the terms hereof shall be applicable to the shares of stock and other
securities and property receivable on the exercise of this Warrant after the
consummation of such reorganization, consolidation or merger or the effective
date of dissolution following any such transfer, as the case may be, and shall
be binding upon the issuer of any such stock or other securities, including, in
the case of any such transfer, the person acquiring all or substantially all of
the properties or assets of the Company, whether or not such person shall have
expressly assumed the terms of this Warrant as provided in Section 4. In the
event this Warrant does not continue in full force and effect after the
consummation of the transactions described in this Section 3, then the Company's
securities and property (including cash, where applicable) receivable by the
Holders of the Warrant will be delivered to Holder or the Trustee as
contemplated by Section 3.2.
B-5
14. Extraordinary Events Regarding Common Stock. In the event that the
Company shall (a) issue additional shares of the Common Stock as a dividend or
other distribution on outstanding Common Stock, (b) subdivide its outstanding
shares of Common Stock, or (c) combine its outstanding shares of the Common
Stock into a smaller number of shares of the Common Stock, then, in each such
event, the Exercise Price shall, simultaneously with the happening of such
event, be adjusted by multiplying the then Exercise Price by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such event and the denominator of which shall be the number
of shares of Common Stock outstanding immediately after such event, and the
product so obtained shall thereafter be the Exercise Price then in effect. The
Exercise Price, as so adjusted, shall be readjusted in the same manner upon the
happening of any successive event or events described herein in this Section 4.
The number of shares of Common Stock that the holder of this Warrant shall
thereafter, on the exercise hereof as provided in Section 1, be entitled to
receive shall be increased to a number determined by multiplying the number of
shares of Common Stock that would otherwise (but for the provisions of this
Section 4) be issuable on such exercise by a fraction of which (a) the numerator
is the Exercise Price that would otherwise (but for the provisions of this
Section 4) be in effect, and (b) the denominator is the Exercise Price in effect
on the date of such exercise.
15. Certificate as to Adjustments. In each case of any adjustment or
readjustment in the shares of Common Stock (or Other Securities) issuable on the
exercise of the Warrant, the Company at its expense will promptly cause its
Chief Financial Officer or other appropriate designee to compute such adjustment
or readjustment in accordance with the terms of the Warrant and prepare a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based, including a
statement of (a) the consideration received or receivable by the Company for any
additional shares of Common Stock (or Other Securities) issued or sold or deemed
to have been issued or sold, (b) the number of shares of Common Stock (or Other
Securities) outstanding or deemed to be outstanding, and (c) the Exercise Price
and the number of shares of Common Stock to be received upon exercise of this
Warrant, in effect immediately prior to such adjustment or readjustment and as
adjusted or readjusted as provided in this Warrant. The Company will forthwith
mail a copy of each such certificate to the holder of the Warrant and any
Warrant agent of the Company (appointed pursuant to Section 11 hereof).
16. Reservation of Stock, Etc., Issuable on Exercise of Warrant. The
Company will at all times reserve and keep available, solely for issuance and
delivery on the exercise of the Warrant, shares of Common Stock (or Other
Securities) from time to time issuable on the exercise of the Warrant.
B-6
17. Assignment; Exchange of Warrant. Subject to compliance with
applicable securities laws, this Warrant, and the rights evidenced hereby, may
be transferred by any registered holder hereof (a "Transferor") in whole or in
part. On the surrender for exchange of this Warrant, with the Transferor's
endorsement in the form of Exhibit B attached hereto (the "Transferor
Endorsement Form") and together with evidence reasonably satisfactory to the
Company demonstrating compliance with applicable securities laws, which shall
include, without limitation, a legal opinion from the Transferor's counsel that
such transfer is exempt from the registration requirements of applicable
securities laws, the Company at its expense but with payment by the Transferor
of any applicable transfer taxes) will issue and deliver to or on the order of
the Transferor thereof a new Warrant of like tenor, in the name of the
Transferor and/or the transferee(s) specified in such Transferor Endorsement
Form (each a "Transferee"), calling in the aggregate on the face or faces
thereof for the number of shares of Common Stock called for on the face or faces
of the Warrant so surrendered by the Transferor.
18. Replacement of Warrant. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of any such loss, theft or destruction of this
Warrant, on delivery of an indemnity agreement or security reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender and cancellation of this Warrant, the Company at its
expense will execute and deliver, in lieu thereof, a new Warrant of like tenor.
19. Registration Rights. The Holder of this Warrant has been granted
certain registration rights by the Company. These registration rights are set
forth in a Registration Rights Agreement entered into by the Company and
Purchaser dated as of even date of this Warrant.
20. Maximum Exercise. The Holder shall not be entitled to exercise this
Warrant on an exercise date, in connection with that number of shares of Common
Stock which would be in excess of the sum of (i) the number of shares of Common
Stock beneficially owned by the Holder and its affiliates on an exercise date,
and (ii) the number of shares of Common Stock issuable upon the exercise of this
Warrant with respect to which the determination of this proviso is being made on
an exercise date, which would result in beneficial ownership by the Holder and
its affiliates of more than 4.99% of the outstanding shares of Common Stock of
the Company on such date. For the purposes of the proviso to the immediately
preceding sentence, beneficial ownership shall be determined in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulation
13d-3 thereunder. Notwithstanding the foregoing, the restriction described in
this paragraph may be revoked upon 75 days prior notice from the Holder to the
Company and is automatically null and void upon an Event of Default under the
Note.
21. Warrant Agent. The Company may, by written notice to the each
Holder of the Warrant, appoint an agent for the purpose of issuing Common Stock
(or Other Securities) on the exercise of this Warrant pursuant to Section 1,
exchanging this Warrant pursuant to Section 7, and replacing this Warrant
pursuant to Section 8, or any of the foregoing, and thereafter any such
issuance, exchange or replacement, as the case may be, shall be made at such
office by such agent.
B-7
22. Transfer on the Company's Books. Until this Warrant is transferred
on the books of the Company, the Company may treat the registered holder hereof
as the absolute owner hereof for all purposes, notwithstanding any notice to the
contrary.
23. Notices, Etc. All notices and other communications from the Company
to the Holder of this Warrant shall be mailed by first class registered or
certified mail, postage prepaid, at such address as may have been furnished to
the Company in writing by such Holder or, until any such Holder furnishes to the
Company an address, then to, and at the address of, the last Holder of this
Warrant who has so furnished an address to the Company.
24. Voluntary Adjustment by the Company. Upon the occurrence of a
Compliance Event, the Company may thereafter, at any time during the term of
this Warrant, reduce the then current Exercise Price to any amount for any
period of time deemed appropriate by the Board of Directors of the Company. Upon
the occurrence of a Non-Compliance Event, this paragraph shall be of no force or
effect.
25. No Shorting. The Purchaser or any of its affiliates and investment
partners will not and will not cause any person or entity, directly or
indirectly, to engage in "short sales" of the Company's Common Stock or any
other hedging strategies.
26. Miscellaneous. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought. This Warrant shall be governed by and construed in accordance with
the laws of State of New York without regard to principles of conflicts of laws.
Any action brought concerning the transactions contemplated by this Warrant
shall be brought only in the state courts of New York or in the federal courts
located in the state of New York; provided, however, that the Holder may choose
to waive this provision and bring an action outside the state of New York. The
individuals executing this Warrant on behalf of the Company agree to submit to
the jurisdiction of such courts and waive trial by jury. The prevailing party
shall be entitled to recover from the other party its reasonable attorney's fees
and costs. In the event that any provision of this Warrant is invalid or
unenforceable under any applicable statute or rule of law, then such provision
shall be deemed inoperative to the extent that it may conflict therewith and
shall be deemed modified to conform with such statute or rule of law. Any such
provision which may prove invalid or unenforceable under any law shall not
affect the validity or enforceability of any other provision of this Warrant.
The headings in this Warrant are for purposes of reference only, and shall not
limit or otherwise affect any of the terms hereof. The invalidity or
unenforceability of any provision hereof shall in no way affect the validity or
enforceability of any other provision. The Company acknowledges that legal
counsel participated in the preparation of this Warrant and, therefore,
stipulates that the rule of construction that ambiguities are to be resolved
against the drafting party shall not be applied in the interpretation of this
Warrant to favor any party against the other party.
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK;
SIGNATURE PAGE FOLLOWS.]
B-8
IN WITNESS WHEREOF, the Company has executed this Warrant as of the
date first written above.
BAM! ENTERTAINMENT, INC.
WITNESS:
By:
--------------------------------
Name:
--------------------------------
Title:
----------------------------------- --------------------------------
B-9
EXHIBIT C
FORM OF OPINION
K&L DRAFT 11/26/03
SUBJECT TO OPINION COMMITTEE APPROVAL
1. The Company is a corporation validly existing and in good standing
under the laws of the State of Delaware. The Company has all requisite corporate
power to own, operate and lease its properties and to carry on its business as
described in the SEC Reports.
2. The Company has the corporate power to execute, deliver and perform
its obligations under the Transaction Documents. The Company has taken all
corporate action necessary to authorize (i) the execution, delivery and
performance of the Transaction Documents and (ii) the sale, issuance and
delivery of the Note and Warrant pursuant to the Transaction Documents. As of
the date hereof, the Note Shares and the Warrant Shares are duly authorized and
the Note Shares when issued and sold in accordance with the terms of the Note,
and the Warrant Shares, when issued and sold in accordance with the terms of the
Warrant, will be validly issued, fully paid and non-assessable, respectively.
3. The execution, delivery and performance by the Company of the
Transaction Documents, and the consummation by the Company of the transactions
contemplated thereby do not, with or without the giving of notice or the passage
of time or both (a) violate the Certificate of Incorporation or the By-laws of
the Company, or (b) violate any existing obligation of the Company under the
express terms of any court judgment, decree, order or award listed, if any, in
Schedule A to the Officers Certificate.
4. Each of the Transaction Documents is a legal, valid and binding
obligation of the Company, enforceable against the Company in accordance with
its respective terms.
5. The stockholders of the Company have no preemptive rights under any
statute or Certificate of Incorporation or Bylaws of the Company or, to our
knowledge, rights of first refusal with respect to: (a) the issuance of the Note
and the subsequent conversion of the Note into Note Shares (b) the issuance of
the Warrant and the subsequent exercise of the Warrant into Warrant Shares, that
in either case have not been properly waived or complied with pursuant to the
terms of any applicable agreement.
6. Subject to the accuracy of the Purchaser's representations and
warranties in Section 5 of the Purchase Agreement and Company's representations
and warranties in Section 4.18 of the Purchase Agreement and assuming that the
activities of any Placement Agent, if any, if imputed to the Company, would not
violate such representations, it is not necessary to register the Note, the Note
Shares, the Warrant and the Warrant Shares under the Securities Act of 1933 in
connection with the offer and issuance of such securities to the Purchaser under
the circumstances contemplated by the Purchase Agreement.
7. To our knowledge, at the date of this opinion letter, there is no
action or proceeding pending before any court, governmental agency or
arbitrator, or overtly threatened in writing, against the Company, except as
disclosed in the SEC Reports. To our knowledge, at the date of this opinion
letter, there is no action or proceeding pending before any court, governmental
agency or arbitrator, or overtly threatened in writing, against the Company that
seeks to enjoin the performance or the consummation of the Transaction
Documents. In rendering the foregoing opinions, please note that we have not
conducted a docket search in any jurisdiction with respect to litigation that
may be pending against the Company or any of its Subsidiaries or officers or
directors, nor have we undertaken any further inquiry, beyond obtaining the
Officers Certificate.
C-1
EXHIBIT D
FORM OF ESCROW AGREEMENT
This Agreement is dated as of the 3rd day of December , 2003 among BAM!
Entertainment, Inc. , a Delaware corporation (the "COMPANY") and Laurus Master
Fund, Ltd. (the "PURCHASER"), and Dechert LLP (the "ESCROW AGENT").
WITNESSETH:
WHEREAS, the Company and the Purchaser have entered into a
Securities
Purchase Agreement ("PURCHASE AGREEMENT") for the sale by the Company to the
Purchaser of a secured convertible term note ("NOTE") and issuance by the
Company of a common stock purchase warrant ("WARRANT") to the Purchaser in the
aggregate principal amounts and in the denominations set forth on Schedule A
hereto; and
WHEREAS, the parties hereto require the Company to deliver the Note
against payment therefor, with such Note, the Warrant and payment to be
delivered to the Escrow Agent to be held in escrow and released by the Escrow
Agent in accordance with the terms and conditions of this Agreement; and
WHEREAS, the Escrow Agent is willing to serve as escrow agent pursuant
to the terms and conditions of this Agreement;
NOW THEREFORE, the parties agree as follows:
ARTICLE I
INTERPRETATION
1.1. Definitions. Whenever used in this Agreement, the following terms
shall have the meanings set forth below. Terms not otherwise defined herein
shall have the meaning set forth in the Purchase Agreement.
(a) "Agreement" means this Agreement and all amendments
made hereto and thereto by written agreement between
the parties.
(b) "Company Documents" means collectively, the
Securities Purchase Agreement, the Note, Registration
Rights Agreement, Warrant, and the Legal Opinion.
(c) "Closing Payment" means the fees to be paid to Laurus
Capital Management LLC set forth on Schedule A
hereto.
(d) "Disbursment Letter" means that certain letter
delivered to the Escrow Agent by each of the
Purchaser and the Company setting forth wire
instructions and amounts to be funded at the Closing.
D-1
(e) "Escrowed Payment" means $1,500,000.
(f) "Legal Opinion" means the original signed legal
opinion of ▇▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP.
(g) "Purchaser Documents" means the Escrowed Payment, the
Purchase Agreement, the Registration Rights
Agreement, the Security Agreement and the
Disbursement Letter.
(h) "Note" means the convertible term note of the Company
issued to the Purchaser in the amount of $1,500,000.
(i) "Registration Rights Agreement" means that certain
registration rights agreement executed and delivered
pursuant to the Purchase Agreement.
(j) "Warrant" means the common stock purchase warrant of
the Company to purchase up to 166,667 shares of the
Company's common stock (subject to adjustment as set
forth in the Warrant), issued to Purchaser in
connection with the Note .
1.2. Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto with respect to the matters contained herein and
pertaining to the Company Documents and Purchaser Documents and supersedes all
prior agreements, understandings, negotiations and discussions of the parties,
whether oral or written. There are no warranties, representations and other
agreements made by the parties in connection with the subject matter hereof
except as specifically set forth in this Agreement.
1.3. Extended Meanings. In this Agreement words importing the singular
number include the plural and vice versa; words importing the masculine gender
include the feminine and neuter genders. The word "person" includes an
individual, body corporate, partnership, trustee or trust or unincorporated
association, executor, administrator or legal representative.
1.4. Waivers and Amendments. This Agreement may be amended, modified,
superseded, cancelled, renewed or extended, and the terms and conditions hereof
may be waived, only by a written instrument signed by all parties, or, in the
case of a waiver, by the party entitled to the benefit thereof waiving
compliance. Except as expressly stated herein, no delay on the part of any party
in exercising any right, power or privilege hereunder shall operate as a waiver
thereof, nor shall any waiver on the part of any party of any right, power or
privilege hereunder preclude any other or future exercise of any other right,
power or privilege hereunder.
1.5. Headings. The division of this Agreement into articles, sections,
subsections and paragraphs and the insertion of headings are for convenience of
reference only and shall not affect the construction or interpretation of this
Agreement.
D-2
1.6. Law Governing this Agreement. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York without
regard to principles of conflicts of laws. Any action brought by any party
against any other party concerning the transactions contemplated by this
Agreement shall be brought only in the state courts of New York or in the
federal courts located in the state of New York. Each of the parties hereto and
the individuals executing this Agreement and other agreements on behalf of the
Company agree to submit to the jurisdiction of such courts and waive trial by
jury. The prevailing party shall be entitled to recover from the other party its
reasonable attorney's fees and costs. In the event that any provision of this
Agreement or any other agreement delivered in connection herewith is invalid or
unenforceable under any applicable statute or rule of law, then such provision
shall be deemed inoperative to the extent that it may conflict therewith and
shall be deemed modified to conform with such statute or rule of law. Any such
provision which may prove invalid or unenforceable under any law shall not
affect the validity or enforceability of any other provision of any agreement.
1.7. Consent to Jurisdiction. Subject to Section 1.6 hereof, each of
the Company, the Escrow Agent and the Purchaser hereby waives, and agrees not to
assert in any such suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of such court, that the suit, action or
proceeding is brought in an inconvenient forum or that the venue of the suit,
action or proceeding is improper. Nothing in this Section shall affect or limit
any right to serve process in any other manner permitted by law.
1.8. Construction. Each party acknowledges that its legal counsel
participated in the preparation of this Agreement and, therefore, stipulates
that the rule of construction that ambiguities are to be resolved against the
drafting party shall not be applied in the interpretation of this Agreement to
favor any party against any other.
ARTICLE II
DELIVERIES TO THE ESCROW AGENT
2.1. Delivery of Company Documents to Escrow Agent. On or about the
date hereof, the Company shall deliver to the Escrow Agent the Company Documents
executed by the Company to the extent it is a party thereto.
2.2 Delivery of Purchaser Documents to Escrow Agent. On or about the
date hereof, the Purchaser shall deliver to the Escrow Agent the Purchaser
Documents executed by the Purchaser.
2.3. Intention to Create Escrow Over Company Documents and Purchaser
Documents. The Purchaser, the Company intend that the Company Documents and
Purchaser Documents shall be held in escrow by the Escrow Agent pursuant to this
Agreement for their benefit as set forth herein.
2.4. Escrow Agent to Deliver Company Documents and Purchaser Documents.
The Escrow Agent shall hold and release the Company Documents and Purchaser
Documents only in accordance with the terms and conditions of this Agreement.
D-3
ARTICLE III
RELEASE OF COMPANY DOCUMENTS AND PURCHASER DOCUMENTS
3.1. Release of Escrow. Subject to the provisions of Section 4.2, the
Escrow Agent shall release the Company Documents and Purchaser Documents
pursuant to (a), (b), (c) or (d) below, as follows:
(a) Upon receipt by the Escrow Agent of the Company Documents
and the corresponding Purchaser Documents, the Escrow Agent will simultaneously
release the Company Documents to the Purchaser and release the corresponding
Purchaser Documents to the Company except that (i) the Escrowed Payment shall be
reduced by the amount of the Closing Payment; and (ii) the due diligence and
legal fees for counsel to the Purchaser, which shall be paid pursuant to Section
2(c) of the
Securities Purchase Agreement, will be released to the Purchaser. At
the request of the Escrow Agent, the Company will provide written facsimile or
original instructions to the Escrow Agent as to the disposition of all funds
releasable to the Company.
(b) Upon receipt by the Escrow Agent of joint written
instructions ("JOINT INSTRUCTIONS") signed by the Company and the Purchaser, it
shall deliver the Company Documents and Purchaser Documents in accordance with
the terms of the Joint Instructions.
(c) Upon receipt by the Escrow Agent of a final and
non-appealable judgment, order, decree or award of a court of competent
jurisdiction (a "COURT ORDER"), the Escrow Agent shall deliver the Company
Documents and Purchaser Documents in accordance with the Court Order. Any Court
Order shall be accompanied by an opinion of counsel for the party presenting the
Court Order to the Escrow Agent (which opinion shall be satisfactory to the
Escrow Agent) to the effect that the court issuing the Court Order has competent
jurisdiction and that the Court Order is final and non-appealable.
(d) In the event that the closing of the transactions
contemplated by the Purchase Agreement has not occurred by December 2, 2003, the
Company Documents shall be returned to the Company upon the Escrow Agent's
receipt of written notice from the Company requesting that the Company Documents
be returned.
3.2. Acknowledgement of Company and Purchaser; Disputes. The Company
and the Purchaser acknowledge that the only terms and conditions upon which the
Company Documents and Purchaser Documents are to be released are set forth in
Articles 3 and 4 of this Agreement. The Company and the Purchaser reaffirm their
agreement to abide by the terms and conditions of this Agreement with respect to
the release of the Company Documents and Purchaser Documents. Any dispute with
respect to the release of the Company Documents and Purchaser Documents shall be
resolved pursuant to Section 4.2 or by agreement among the Company and
Purchaser.
ARTICLE IV
CONCERNING THE ESCROW AGENT
4.1. Duties and Responsibilities of the Escrow Agent. The Escrow
Agent's duties and responsibilities shall be subject to the following terms and
conditions:
D-4
(a) The Purchaser and the Company acknowledge and agree that
the Escrow Agent (i) shall not be responsible for or bound by, and shall not be
required to inquire into whether either the Purchaser or the Company is entitled
to receipt of the Company Documents and Purchaser Documents pursuant to any
other agreement or otherwise; (ii) shall be obligated only for the performance
of such duties as are specifically assumed by the Escrow Agent pursuant to this
Agreement; (iii) may rely on and shall be protected in acting or refraining from
acting upon any written notice, instruction, instrument, statement, request or
document furnished to it hereunder and believed by the Escrow Agent in good
faith to be genuine and to have been signed or presented by the proper person or
party, without being required to determine the authenticity or correctness of
any fact stated therein or the propriety or validity or the service thereof;
(iv) may assume that any person purporting to give notice or make any statement
or execute any document in connection with the provisions hereof has been duly
authorized to do so; (v) shall not be responsible for the identity, authority or
rights of any person, firm or corporation executing or delivering or purporting
to execute or deliver this Escrow Agreement or any document deposited hereunder
or any endorsement thereon or assignment thereof; (vi) shall not be under any
duty to give the property held by Escrow Agent hereunder any greater degree of
care than Escrow Agent gives its own similar property; and (vii) may consult
counsel satisfactory to Escrow Agent, the opinion of such counsel to be full and
complete authorization and protection in respect of any action taken, suffered
or omitted by Escrow Agent hereunder in good faith and in accordance with the
opinion of such counsel.
(b) The Purchaser and the Company acknowledge that the Escrow
Agent is acting solely as a stakeholder at their request and that the Escrow
Agent shall not be liable for any action taken by Escrow Agent in good faith and
believed by Escrow Agent to be authorized or within the rights or powers
conferred upon Escrow Agent by this Agreement. The Purchaser and the Company,
jointly and severally, agree to indemnify and hold harmless the Escrow Agent and
any of Escrow Agent's partners, employees, agents and representatives for any
action taken or omitted to be taken by Escrow Agent or any of them hereunder,
including the fees of outside counsel and other costs and expenses of defending
itself against any claim or liability under this Agreement, except in the case
of gross negligence or willful misconduct on Escrow Agent's part committed in
its capacity as Escrow Agent under this Agreement. The Escrow Agent shall owe a
duty only to the Purchaser and Company under this Agreement and to no other
person.
(c) The Purchaser and the Company jointly and severally agree
to reimburse the Escrow Agent for its reasonable out-of-pocket expenses
(including counsel fees) incurred in connection with the performance of its
duties and responsibilities hereunder.
(d) The Escrow Agent may at any time resign as Escrow Agent
hereunder by giving five (5) days prior written notice of resignation to the
Purchaser and the Company. Prior to the effective date of the resignation as
specified in such notice, the Purchaser and Company will issue to the Escrow
Agent a Joint Instruction authorizing delivery of the Company Documents and
Purchaser Documents to a substitute Escrow Agent selected by the Purchaser and
the Company. If no successor Escrow Agent is named by the Purchaser and Company,
the Escrow Agent may apply to a court of competent jurisdiction in the State of
New York for appointment of a successor Escrow Agent, and to deposit the Company
Documents and Purchaser Documents with the clerk of any such court.
(e) The Escrow Agent does not have and will not have any
interest in the Company Documents and Purchaser Documents, but is serving only
as escrow agent, having only possession thereof.
D-5
(f) The Escrow Agent shall not be liable for any action taken
or omitted by it in good faith and reasonably believed by it to be authorized
hereby or within the rights or powers conferred upon it hereunder, nor for
action taken or omitted by it in good faith, and in accordance with advice of
counsel (which counsel may be of the Escrow Agent's own choosing), and shall not
be liable for any mistake of fact or error of judgement or for any acts or
omissions of any kind except for its own willful misconduct or gross negligence.
(g) This Agreement sets forth exclusively the duties of the
Escrow Agent with respect to any and all matters pertinent thereto and no
implied duties or obligations shall be read into this Agreement.
(h) The Escrow Agent shall be permitted to act as counsel for
the Purchaser or the Company, as the case may be, in any dispute as to the
disposition of the Company Documents and Purchaser Documents, in any other
dispute among the Purchaser and the Company, whether or not the Escrow Agent is
then holding the Company Documents and Purchaser Documents and continues to act
as the Escrow Agent hereunder.
(i) The provisions of this Section 4.1 shall survive the
resignation of the Escrow Agent or the termination of this Agreement.
4.2. Dispute Resolution: Judgments. Resolution of disputes arising
under this Agreement shall be subject to the following terms and conditions:
(a) If any dispute shall arise with respect to the delivery,
ownership, right of possession or disposition of the Company Documents and
Purchaser Documents, or if the Escrow Agent shall in good faith be uncertain as
to its duties or rights hereunder, the Escrow Agent shall be authorized, without
liability to anyone, to (i) refrain from taking any action other than to
continue to hold the Company Documents and Purchaser Documents pending receipt
of a Joint Instruction from the Purchaser and Company, or (ii) deposit the
Company Documents and Purchaser Documents with any court of competent
jurisdiction in the State of New York, in which event the Escrow Agent shall
give written notice thereof to the Purchaser and the Company and shall thereupon
be relieved and discharged from all further obligations pursuant to this
Agreement. The Escrow Agent may, but shall be under no duty to, institute or
defend any legal proceedings which relate to the Company Documents and Purchaser
Documents. The Escrow Agent shall have the right to retain counsel if it becomes
involved in any disagreement, dispute or litigation on account of this Agreement
or otherwise determines that it is necessary to consult counsel.
(b) The Escrow Agent is hereby expressly authorized to comply
with and obey any Court Order. In case the Escrow Agent obeys or complies with a
Court Order, the Escrow Agent shall not be liable to the Purchaser and Company
or to any other person, firm, corporation or entity by reason of such
compliance.
D-6
ARTICLE V
GENERAL MATTERS
5.1. Termination. This escrow shall terminate upon the release of all
of the Company Documents and Purchaser Documents or at any time upon the
agreement in writing of the Purchaser and Company.
5.2. Notices. All notices, request, demands and other communications
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given one (1) day after being sent by telecopy (with copy delivered by
overnight courier, regular or certified mail):
(a) If to the Company, to: BAM! Entertainment, Inc.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: President
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to: ▇▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇, LLP
▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ - ▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
(b) If to the Purchaser, to:
LAURUS MASTER FUND, LTD.
c/o Ironshore Corporate Services Ltd.
▇.▇. ▇▇▇ ▇▇▇▇ G.T., Queensgate House,
South Church St
Grand Cayman, Cayman Islands
Fax: ▇▇▇-▇▇▇-▇▇▇▇
(c) If to the Escrow Agent, to:
Dechert LLP
▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
or to such other address as any of them shall give to the others by notice made
pursuant to this Section 5.2.
5.3. Interest. The Escrowed Payment shall not be held in an interest
bearing account nor will interest be payable in connection therewith.
D-7
5.4. Assignment; Binding Agreement. Neither this Agreement nor any
right or obligation hereunder shall be assignable by any party without the prior
written consent of the other parties hereto. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective legal
representatives, successors and assigns.
5.5. Invalidity. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal, or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions contained herein shall not be in any way impaired
thereby, it being intended that all of the rights and privileges of the parties
hereto shall be enforceable to the fullest extent permitted by law.
5.6 Counterparts/Execution. This Agreement may be executed in any
number of counterparts and by different signatories hereto on separate
counterparts, each of which, when so executed, shall be deemed an original, but
all such counterparts shall constitute but one and the same instrument. This
Agreement may be executed by facsimile transmission.
D-8
5.7. Agreement. Each of the undersigned states that he has read the
foregoing Funds Escrow Agreement and understands and agrees to it.
BAM! ENTERTAINMENT, INC.
the "Company"
By:
-------------------------------------
Name:
Title:
PURCHASER:
LAURUS MASTER FUND, LTD.
By:
-------------------------------------
Name:
Title:
ESCROW AGENT:
DECHERT LLP
By:
-------------------------------------
Name:
Title:
D-9
SCHEDULE A TO FUNDS ESCROW AGREEMENT
------------------------------------------------------------------------ ---------------------------------------------------------
PURCHASER PRINCIPAL NOTE AMOUNT
------------------------------------------------------------------------ ---------------------------------------------------------
LAURUS MASTER FUND, LTD., $1,500,000 Term Note
▇/▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇.,
▇.▇. ▇▇▇ ▇▇▇▇ G.T.,
Queensgate House, South Church Street,
Grand Cayman, Cayman Islands
Fax: ▇▇▇-▇▇▇-▇▇▇▇
------------------------------------------------------------------------ ---------------------------------------------------------
TOTAL $1,500,000
------------------------------------------------------------------------ ---------------------------------------------------------
------------------------------------------------------------------------ ---------------------------------------------------------
FUND MANAGER CLOSING PAYMENT
------------------------------------------------------------------------ ---------------------------------------------------------
LAURUS CAPITAL MANAGEMENT, L.L.C. Closing payment payable in connection with investment by
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, 14th Floor Laurus Master Fund, Ltd. for which Laurus ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ Management, L.L.C. is the Manager.
Fax: ▇▇▇-▇▇▇-▇▇▇▇
------------------------------------------------------------------------ ---------------------------------------------------------
TOTAL $52,500
------------------------------------------------------------------------ ---------------------------------------------------------
WARRANTS
------------------------------------------------------------------------ ---------------------------------------------------------
WARRANT RECIPIENT WARRANTS IN CONNECTION WITH OFFERING
------------------------------------------------------------------------ ---------------------------------------------------------
LAURUS MASTER FUND, LTD. 166,667 Warrants (subject to adjustment as set forth in
A Cayman Island corporation the Warrant) issuable in connection with investment by
c/o Ironshore Corporate Services Ltd. Laurus Master Fund, Ltd.
▇.▇. ▇▇▇ ▇▇▇▇ G.T.
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
------------------------------------------------------------------------ ----------------------------------------------------------
TOTAL 166,667 WARRANTS
------------------------------------------------------------------------ ----------------------------------------------------------
D-10