Exhibit 10.3
[SECURED CONVERTIBLE DEBENTURES AND WARRANTS]
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "AGREEMENT"), dated as of May 24,
2004, by and among BAM! ENTERTAINMENT, INC., a corporation organized under the
laws of the State of Delaware (the "COMPANY"), and the purchasers (the
"PURCHASERS") set forth on the execution pages hereof (the "EXECUTION PAGES").
WHEREAS:
A. The Company and each Purchaser are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by the provisions of Regulation D ("REGULATION D"), as promulgated by the United
States Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended (the "SECURITIES ACT").
B. Each Purchaser desires to purchase, severally and not jointly,
subject to the terms and conditions stated in this Agreement, (i) 2% Secured
Convertible Debentures (the "DEBENTURES") and (ii) warrants in the form attached
hereto as Exhibit A (including any warrants issued in replacement thereof, the
"WARRANTS"), to acquire shares of the Company's common stock, $0.001 par value
(the "COMMON STOCK"). The shares of Common Stock issuable upon exercise of or
otherwise pursuant to the Warrants are referred to herein as the "WARRANT
SHARES."
C. Contemporaneous with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Common Stock Registration
Rights Agreement in the form attached hereto as Exhibit B (the "COMMON STOCK
REGISTRATION RIGHTS AGREEMENT"), and a Warrant Shares Registration Rights
Agreement in the form attached hereto as Exhibit C (the "WARRANT SHARES
REGISTRATION RIGHTS AGREEMENTS" and collectively with the Common Stock
Registration Rights Agreement the "REGISTRATION RIGHTS AGREEMENTS") pursuant to
which the Company has agreed to provide certain registration rights under the
Securities Act and the rules and regulations promulgated thereunder, and
applicable state securities laws.
D. The Company has executed documentation regarding the acquisition of
VIS Entertainment plc ("VIS") and SOE Development Limited ("SOED").
E. Contemporaneous with the execution and delivery of this Agreement,
and further to and as a condition to the closing of the acquisitions of VIS and
SOED, the Company is executing documents with other purchasers for the sale of
(i) for new cash consideration, at least, in the aggregate, $3,500,000 of (a)
its Series A Cumulative Convertible Preferred Stock, $10,000 liquidation
preference per share (the "SERIES A STOCK") and/or (b) its Common Stock with a
per share purchase price at least equal to the market price of the Common Stock
on the Closing Date as determined by the rules of the and the same warrant
coverage as provided for hereunder, (ii) amended existing promissory notes owing
by SOED to certain debtholders (the "SOED NOTES") to extend the term thereof and
to make such notes convertible, at the option of the holder, into shares of
Common Stock, and (iii) warrants to purchase shares of Common Stock issued by
the Company to certain parties who effected the Financing Agreements, the
amendment of the SOED Notes and/or the going unconditional of VIS and the
closing of SOED the financings
referenced in subsections (i), (ii) and (iii) of this Recital E to be known as
the "ADDITIONAL FINANCINGS").
F. Contemporaneous with the Closing of the transactions referenced
herein, the acquisition of VIS shall have gone unconditional and the Company's
acquisition of SOED shall have closed.
NOW, THEREFORE, the Company and the Purchasers hereby agree as follows:
1. CERTAIN DEFINITIONS.
For purposes of this Agreement, the following terms shall have the
meanings ascribed to them as provided below:
"AFFILIATE" or "AFFILIATES" means, with respect to any Person, any other
Person that directly or indirectly controls, is controlled by, or is under
common control with, such Person.
"BUSINESS DAY" shall mean any day on which the principal United States
securities exchange or trading market on which the Common Stock is listed or
traded is open for trading.
"COMMON STOCK EQUIVALENTS" means, collectively, Options and Convertible
Securities.
"CONVERSION SHARES" means the shares of Common Stock issuable upon
conversion of the Debentures.
"CONVERTIBLE SECURITIES" means any stock or securities (other than
Options) convertible into or exercisable or exchangeable for Common Stock.
"INVESTMENT AMOUNT" shall mean the dollar amount to be invested in the
Company at the Closing pursuant to this Agreement by a Purchaser, as set forth
on the Execution Page hereto executed by such Purchaser.
"LIEN" means any lien, charge, claim, security interest, encumbrance,
right of first refusal or other restriction.
"MATERIAL ADVERSE EFFECT" shall mean an event that (i) adversely affect
the legality, validity or enforceability of any Transaction Document, (ii) have
or result in a material adverse effect on the results of operations, assets,
prospects, business or condition (financial or otherwise) of the Company and the
Subsidiaries, taken as a whole, or (iii) adversely impair the Company's ability
to perform fully on a timely basis its obligations under any of the Transaction
Document; provided, that none of the following alone shall be deemed, in and of
itself, to constitute a Material Adverse Effect: (i) a change in the market
price or trading volume of the Common Stock or (ii) changes in general economic
conditions or changes affecting the industry in which the Company operates
generally (as opposed to Company-specific changes) so long as such changes do
not have a disproportionate effect on the Company and its Subsidiaries taken as
a whole.
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"OPTIONS" means any rights, warrants or options to subscribe for or
purchase Common Stock or Convertible Securities.
"PERSON" means an individual, corporation, partnership, limited liability
company, trust, business trust, association, joint stock company, joint venture,
sole proprietorship, unincorporated organization, governmental authority or any
other form of entity not specifically listed herein.
"PROCEEDING" means an action, claim, suit, investigation or proceeding
(including, without limitation, an investigation or partial proceeding, such as
a deposition), whether commenced or threatened.
"PRO RATA PERCENTAGE" shall mean, with respect to any Purchaser, a
percentage computed by dividing such Purchaser's Investment Amount by the
aggregate Investment Amounts of all Purchasers.
"SECURITIES" shall mean the Debentures, the Conversion Shares, the
Warrants and the Warrant Shares.
"SHARES" means the shares of Preferred Stock to be issued and sold by the
Company and purchased by the Purchasers at the Closing.
"SUBSIDIARY" or "SUBSIDIARIES," when used with respect to subsidiaries of
the Company in Section 4 of this Agreement, means or includes only a
"Significant Subsidiary" as defined in Rule 405 of Regulation C under the
Securities Act.
"TRANSACTION DOCUMENTS" means this Agreement, the Warrants, the
Registration Rights Agreements, the Security Agreement, the Restricted Account
Agreement, the Transfer Agent Instructions and any other documents or agreements
executed in connection with the transactions contemplated hereunder.
"TRANSFER AGENT" means American Stock Transfer & Trust Company, or any
other transfer agent selected by the Company.
2. PURCHASE AND SALE OF SHARES AND WARRANTS.
a. Generally. Except as otherwise provided in this Section 2 and
subject to the satisfaction (or waiver) of the conditions set forth in Section 6
and Section 7 below, each Purchaser shall purchase the principal amount of
Debentures and Warrants determined as provided in this Section 2, and the
Company shall issue and sell such principal amount of Debentures and Warrants to
each Purchaser for such Purchaser's Investment Amount as provided below. The
Company's agreement with each of the Purchasers is a separate agreement, and the
sale of the Securities to each of the Purchasers is a separate sale.
b. Principal Amount of Debentures and Warrants; Form of Payment;
Closing Date.
i. On the Closing Date (as defined below), the Company shall sell
and each Purchaser shall buy (A) a principal amount of Debentures equal to such
Purchaser's Investment
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Amount and (B) Warrants exercisable for a number of shares of Common Stock equal
to 75% of the number of Conversion Shares underlying the Debentures referred to
in subclause (A) above (regardless of any limitations on ownership or
conversion). On the Closing Date, each Purchaser shall wire to the Custodian an
amount equal to such Purchaser's Investment Amount, such amount to be placed in
a deposit account pursuant to the terms and conditions of the Security Agreement
and the Restricted Account Agreement.
ii. On the Closing Date, each Purchaser shall pay its Investment
Amount by wire transfer, such amount to be placed in a deposit account pursuant
to the terms and conditions of the Security Agreement and the Restricted Account
Agreement as provided in Section 7 herein.
iii. Subject to the satisfaction (or waiver) of the conditions
thereto set forth in Section 6 and Section 7 below, the date and time of the
sale of the Debentures and Warrants pursuant to this Agreement (the "CLOSING")
shall be 3:00 p.m. California time on May 24, 2004 or such other date or time as
the Purchasers and the Company may mutually agree ("CLOSING DATE"). The Closing
shall occur at the offices of the Custodian, or at such other place as
Purchasers and the Company may otherwise mutually agree.
c. Terms of the Debentures. The terms and provisions of the Debentures
are set forth in the form of Debenture, attached hereto as Exhibit D.
3. THE PURCHASER'S REPRESENTATIONS AND WARRANTIES.
Each Purchaser severally and not jointly represents and warrants to the
Company as follows:
a. Purchase for Own Account. The Purchaser is purchasing the Securities
for the Purchaser's own account and not with a present view towards the
distribution thereof in violation of securities laws. The Purchaser understands
that the Purchaser must bear the economic risk of this investment indefinitely,
unless the Securities are registered pursuant to the Securities Act and any
applicable state securities or blue sky laws or an exemption from such
registration is available, and that the Company has no present intention of
registering any such Securities other than as contemplated by the Registration
Rights Agreements. Notwithstanding anything in this Section 3(a) to the
contrary, by making the foregoing representation, the Purchaser does not agree
to hold the Securities for any minimum or other specific term and reserves the
right to dispose of the Securities at any time in accordance with or pursuant to
a registration statement or an exemption from registration under the Securities
Act and any applicable state securities laws; provided, that in the case of any
transfer of the Securities pursuant to an exemption, such transfer is made in
accordance with the provisions of Section 3(e).
b. Information. The Purchaser has been furnished all materials
(excluding any material nonpublic information) relating to the business,
finances and operations of the Company and its Subsidiaries and materials
relating to the offer and sale of the Securities that have been requested by the
Purchaser. The Purchaser has been afforded the opportunity to ask questions of
the Company and has received what the Purchaser believes to be satisfactory
answers to any such inquiries. The Purchaser understands that its investment in
the Securities involves a high degree of risk.
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c. Governmental Review. The Purchaser understands that no United States
federal or state agency or any other government or governmental agency has
passed upon or made any recommendation or endorsement of the Securities.
d. Authorization; Enforcement. The Purchaser has the requisite power
and authority to enter into and perform its obligations under this Agreement and
to purchase the Securities in accordance with the terms hereof. This Agreement
has been duly and validly authorized, executed and delivered on behalf of the
Purchaser and is a valid and binding agreement of the Purchaser enforceable
against the Purchaser in accordance with its terms, subject to applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and
other laws affecting creditors' rights and remedies generally and to general
principles of equity (regardless of whether enforcement is sought in a
proceeding at law or in equity).
e. Transfer or Resale. The Purchaser understands that (i) except as
provided in the Registration Rights Agreements, the Securities have not been and
are not being registered under the Securities Act or any state securities laws,
and may not be transferred unless (a) subsequently registered thereunder or sold
pursuant to Rule 144(k) under the Securities Act, or (b) the Purchaser shall
have delivered to the Company an opinion of counsel reasonably acceptable to the
Company (which opinion shall be in form, substance and scope customary for
opinions of counsel in comparable transactions) to the effect that the
Securities to be sold or transferred may be sold or transferred under an
exemption from such registration, and (ii) neither the Company nor any other
Person is under any obligation to register such Securities under the Securities
Act or any state securities laws or to comply with the terms and conditions of
any exemption thereunder, in each case, other than pursuant to the Registration
Rights Agreements.
f. Legends. The Purchaser understands that the Securities may bear a
restrictive legend in substantially the following form:
[NEITHER] THESE SECURITIES [NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE EXERCISABLE] HAVE [NOT] BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF
ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. THE SECURITIES
REPRESENTED HEREBY MAY NOT BE OFFERED OR SOLD IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER APPLICABLE
SECURITIES LAWS UNLESS OFFERED, SOLD OR TRANSFERRED UNDER AN
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE
LAWS. NOTWITHSTANDING THE FOREGOING, THESE SECURITIES [AND THE
SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES] MAY BE
PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR
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OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY SUCH SECURITIES.
Certificates evidencing Securities shall not contain such legend or any
other legend (i) while a Registration Statement covering the resale of such
Securities is effective under the Securities Act provided that at the time any
of the Purchasers requests a removal of the Legend on any certificate evidencing
all or any portion of any of the Securities, such Purchaser (or a broker acting
on such Purchaser's behalf) provides to the Company (or to the Transfer Agent on
the Company's behalf), reasonable written assurances to the effect that any of
the Securities, sold or to be sold by such Purchasers have been, or will be,
sold in accordance with the plan of distribution set forth in the Prospectus and
in compliance with the prospectus delivery requirements under the Securities
Act, or (ii) following any sale of such Securities pursuant to Rule 144, or
(iii) if such Securities are eligible for sale under Rule 144(k), or (iv) if
such legend is not required under applicable requirements of the Securities Act
(including judicial interpretations and pronouncements issued by the staff of
the SEC). The Company shall cause its counsel to issue the legal opinion
included in the Transfer Agent Instructions to the Transfer Agent on the
Effective Date. Following the Effective Date or at such earlier time as a legend
is no longer required for certain Securities, the Company will no later than
three Business Days following the delivery by a Purchaser to the Company or the
Transfer Agent of a legended certificate representing such Securities, deliver
or cause to be delivered to such Purchaser a certificate representing such
Securities that is free from all restrictive and other legends. If the Company
intentionally and willfully fails to deliver to the Purchaser such certificate
or certificates in accordance herewith, prior to the fifth trading day following
the aforementioned delivery by a Purchaser, the Company shall pay to such
Purchaser, in cash, an amount equal to 2% of the product of the number of shares
of Common Stock represented by such certificate(s) multiplied by the closing
sales price of the Common Stock as reported on the primary exchange on which the
Company's stock is quoted on the close of business of the aforementioned fifth
day, per month (or any portion thereof) until such delivery takes place, but in
no event in an amount to exceed $240,000. The Company may not make any notation
on its records or give instructions to any transfer agent of the Company that
enlarge the restrictions on transfer set forth in this Section.
The Company acknowledges and agrees that a Purchaser may from time to time
pledge or grant a security interest in some or all of the Securities in
connection with a bona fide margin agreement or other loan or financing
arrangement secured by the Securities and, if required under the terms of such
agreement, loan or arrangement, such Purchaser may transfer pledged or secured
Securities to the pledgees or secured parties. Such a pledge or transfer would
not be subject to approval of the Company and no legal opinion of the pledgee,
secured party or pledgor shall be required in connection therewith, but such
legal opinion may be required in connection with a subsequent transfer following
default by the Purchaser transferee of the pledge. Further, no notice shall be
required of such pledge. At the appropriate Purchaser's expense, the Company
will execute and deliver such reasonable documentation as a pledgee or secured
party of Securities may reasonably request in connection with a pledge or
transfer of the Securities, including the preparation and filing of any required
prospectus supplement under Rule 424(b)(3) of the Securities Act or other
applicable provision of the Securities Act to appropriately amend the list of
selling stockholders thereunder.
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g. Investor Status. The Purchaser is an "ACCREDITED INVESTOR" within
the meaning of Rule 501 Regulation D under the Securities Act. In the normal
course of its business, it invests in or purchases securities similar to the
Securities and it has such knowledge and experience in financial and business
matters as to be capable of evaluating the merits and risks of purchasing the
Securities. The Purchaser is not a registered broker dealer or an Affiliate of
any broker or dealer registered under Section 15(a) of the Exchange Act, or a
member of the National Association of Securities Dealers, Inc. or a Person
engaged in the business of being a broker dealer.
h. Restricted Securities. The Purchaser understands that the Securities
are characterized as "restricted securities" under the U.S. federal securities
laws inasmuch as they are being acquired from the Company in a transaction not
involving a public offering and that under such laws and applicable regulations
such securities may be resold without registration under the Securities Act only
in certain limited circumstances.
i. No Short Positions or Stock Ownership. Except as previously
disclosed to the Company in writing, each Purchaser has not, prior to the 30
Business Days prior to the Closing Date, entered into any Short Sales. For
purposes of this Section 3.2(i), a "SHORT SALE" by a Purchaser means a sale of
Common Stock that is marked as a short sale and that is executed at a time when
such Purchaser has no equivalent offsetting long position in the Common Stock.
For purposes of determining whether a Purchaser has an equivalent offsetting
long position in the Common Stock, all Common Stock and all Common Stock that
would be issuable upon conversion or exercise in full of all Options then held
by such Purchaser (assuming that such Options were then fully convertible or
exercisable, notwithstanding any provisions to the contrary, and giving effect
to any conversion or exercise price adjustments scheduled to take effect in the
future) shall be deemed to be held long by such Purchaser.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each Purchaser as follows:
a. Organization and Qualification. Each of the Company and its
Subsidiaries is a corporation duly organized and existing in good standing under
the laws of the jurisdiction in which it is incorporated, and has the requisite
corporate power to own its properties and to carry on its business as now being
conducted. Each of the Company and its Subsidiaries is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction
in which the nature of the business conducted by it makes such qualification
necessary and where the failure so to qualify would have a Material Adverse
Effect. The Company has no direct or indirect Subsidiaries other than those
listed in Schedule 4(a). Except as disclosed in Schedule 4 (a), the Company
owns, directly or indirectly, all of the capital stock or comparable equity
interests of each Subsidiary free and clear of any Lien, and all the issued and
outstanding shares of capital stock or comparable equity interests of each
Subsidiary are validly issued and are fully paid, non-assessable and free of
preemptive and similar rights.
b. Authorization; Enforcement. (i) The Company has the requisite
corporate power and authority to enter into and perform its obligations under
this Agreement, the Debentures, the Warrants, and the Registration Rights
Agreements, to issue and sell the Debentures and the Warrants in accordance with
the terms hereof and to issue Conversion Shares and the Warrant
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Shares in accordance with the terms of the Debentures and the Warrants,
respectively; (ii) the execution, delivery and performance of this Agreement and
the Debentures, the Warrants, the Registration Rights Agreements, the Restricted
Account Agreement and the Security Agreement (collectively, the "RELATED
AGREEMENTS") by the Company and the consummation by it of the transactions
contemplated hereby and thereby (including, without limitation, the reservation
for issuance and issuance of the Debentures, the Conversion Shares and the
Warrants and the reservation for issuance and issuance of the Warrant Shares)
have been duly authorized by the Company's Board of Directors and no further
consent or authorization of the Company, its Board of Directors or its
shareholders is required (the Company received stockholder approval for the
issuance of the Securities at a special meeting of stockholders held on March
30, 2004); (iii) this Agreement and the Related Agreements have been duly
executed and delivered by the Company; and (iv) this Agreement and the Related
Agreements constitute, and, upon execution and delivery by the Company and the
other parties thereto to the extent required of the Registration Rights
Agreements, the Security Agreement, the Restricted Account Agreement and the
Warrants, such agreements will constitute, valid and binding obligations of the
Company enforceable against the Company in accordance with their respective
terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer and other laws affecting creditors' rights and remedies
generally and to general principles of equity (regardless of whether enforcement
is sought in a proceeding at law or in equity).
c. Capitalization. The capitalization of the Company as of the date
hereof is set forth on Schedule 4(c), including the authorized capital stock,
the number of shares issued and outstanding, the number of shares issuable and
reserved for issuance pursuant to the Company's stock option plans, the number
of shares issuable and reserved for issuance pursuant to securities exercisable
for, or convertible into or exchangeable for any shares of capital stock. All of
such outstanding shares of the Company's capital stock have been, or upon
issuance will be, validly issued, fully paid and nonassessable. Except as set
forth on Schedule 4(c), no shares of capital stock of the Company (including the
Conversion Shares and the Warrant Shares) or any of the Subsidiaries are subject
to preemptive rights or any other similar rights of the shareholders of the
Company or any liens or encumbrances. Except for the Securities and as disclosed
in Schedule 4(c), as of the date of this Agreement, (i) there are no outstanding
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever to which the Company or any of its Subsidiaries is a party
relating to the issuance by the Company or any of its Subsidiaries of securities
or rights convertible into or exercisable or exchangeable for, any shares of
capital stock of the Company or any of its Subsidiaries, or arrangements by
which the Company or any of its Subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or such Subsidiaries, and (ii)
there are no agreements or arrangements under which the Company or any of its
Subsidiaries is obligated to register the sale of any of its or their securities
under the Securities Act (except the Registration Rights Agreements). Except as
set forth on Schedule 4(c), there are no securities or instruments containing
antidilution or similar provisions that may be triggered by the issuance of the
Securities in accordance with the terms of this Agreement or the Related
Agreements and the holders of the securities and instruments listed on such
Schedule 4(c) have waived any rights they may have under such antidilution or
similar provisions in connection with the issuance of the Securities in
accordance with the terms of this Agreement or the Related Agreements. The
Company has made available to each Purchaser true and correct copies of the
Company's Certificate of Incorporation as in effect on the date hereof
("CERTIFICATE OF INCORPORATION"), the Company's By-laws as in effect on the date
hereof (the "BY-LAWS") and all other instruments and agreements governing
securities
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convertible into or exercisable or exchangeable for capital stock of the
Company, except for stock options granted under any benefit plan of the Company.
d. Issuance of Debentures, Warrants, Conversion Shares and Warrant
Shares. The Debentures are duly authorized and when issued and paid for in
accordance with the terms hereof, will be validly issued, fully paid and
non-assessable, and free from all taxes and Liens (other than those imposed
through acts or omissions of the Purchaser thereof) and will not be subject to
preemptive rights or other similar rights of shareholders of the Company. The
Conversion Shares and the Warrant Shares are duly authorized and reserved for
issuance, and, upon conversion of the Debentures and/or exercise of the
Warrants, as the case may be, in accordance with the terms thereof, will be
validly issued, fully paid and non-assessable and free from all taxes and Liens
(other than those imposed through acts or omissions of the Purchaser thereof)
and will not be subject to preemptive rights or other similar rights of
shareholders of the Company.
e. No Conflicts. The execution, delivery and performance of this
Agreement and the Related Agreements by the Company, and the consummation by the
Company of the transactions contemplated hereby and thereby (including, without
limitation, the reservation for issuance and issuance of the Debentures, the
Conversion Shares and the Warrant Shares, and the issuance of the Warrants, will
not (i) conflict with or result in a violation of the Certificate of
Incorporation or By-laws or (ii) conflict with, or constitute a default (or an
event which, with notice or lapse of time or both, would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of any agreement, indenture or instrument to which the Company or
any of its Subsidiaries is a party, or result in a violation of any law, rule,
regulation, order, judgment or decree (including (assuming the accuracy of the
representations and warranties of the Purchasers) the United States federal and
state securities laws and regulations) applicable to the Company or any of its
Subsidiaries or by which any property or asset of the Company or any of its
Subsidiaries is bound or affected (except, with respect to clause (ii), for such
conflicts, defaults, terminations, amendments, accelerations, cancellations and
violations as would not, individually or in the aggregate, have a Material
Adverse Effect). Neither the Company nor any of its Subsidiaries is in violation
of its Certificate of Incorporation, By-laws and other organizational documents
and neither the Company nor any of its Subsidiaries is in default (and no event
has occurred which, with notice or lapse of time or both, would put the Company
or any of its Subsidiaries in default) under, nor has there occurred any event
giving others (with notice or lapse of time or both) any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument to which the Company or any of its Subsidiaries is a party, except
for actual or possible violations, defaults or rights as would not, individually
or in the aggregate, have a Material Adverse Effect. The businesses of the
Company and its Subsidiaries are not being conducted in violation of any law,
ordinance or regulation of any governmental entity, except for actual or
possible violations, if any, the sanctions for which either singly or in the
aggregate would not have a Material Adverse Effect. Except as specifically
contemplated by this Agreement and as required under the Securities Act and any
applicable state securities laws and assuming the accuracy of the
representations and warranties of the Purchasers, the Company is not required to
obtain any consent, approval, authorization or order of, or make any filing or
registration with, any court or governmental agency or any regulatory or self
regulatory agency in order for it to execute, deliver or perform any of its
obligations under this Agreement (including without limitation the issuance and
sale of the Debentures, the Conversion Shares and Warrants as provided hereby),
the Warrants
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(including limitation the issuance of the Warrant Shares), the Registration
Rights Agreements, the Restricted Account Agreement or the Security Agreement
without, in each case in accordance with the terms hereof or thereof. Other than
as described in Schedule 4(e), the Company is not currently in violation of the
listing or maintenance requirements of the Nasdaq Stock Market. Following
discussions with Nasdaq and as described in Schedule 4(e), the Company does not
reasonably anticipate that the Common Stock will be delisted by The Nasdaq Stock
Market in the twelve month period following the Closing Date based on its rules
(and interpretations thereof) as currently in effect.
f. SEC Documents; Financial Statements. Since September 1, 2002, the
Company has timely filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC pursuant to the Securities
Exchange Act of 1934, as amended (the "EXCHANGE ACT"), and has filed all
registration statements and other documents required to be filed by it with the
SEC pursuant to the Securities Act (all of the foregoing filed prior to the date
hereof, and all exhibits included therein and financial statements and schedules
thereto and documents incorporated by reference therein, being hereinafter
referred to herein as the "SEC DOCUMENTS"). The Company has made available to
each Purchaser via the SEC's Electronic Data Gathering, Analysis and Retrieval
(XXXXX) system true and complete copies of the SEC Documents. As of their
respective dates, the SEC Documents complied in all material respects with the
requirements of the Exchange Act or the Securities Act, as the case may be, and
the rules and regulations of the SEC promulgated thereunder applicable to the
SEC Documents, and none of the SEC Documents, at the time they were filed with
the SEC, contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. Any statements made in any such SEC Documents that are or were
required to be updated or amended under applicable law have been so updated or
amended. As of their respective dates, the financial statements of the Company
included in the SEC Documents complied in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC
applicable with respect thereto. Such financial statements have been prepared in
accordance with United States generally accepted accounting principles,
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or (ii)
in the case of unaudited interim statements, to the extent they may not include
footnotes or may be condensed or summary statements) and fairly present in all
material respects the consolidated financial position of the Company and its
Subsidiaries as of the dates thereof and the results of their operations and
cash flows for the periods then ended (subject, in the case of unaudited
statements, to normal and recurring year-end audit adjustments). Except as set
forth in the SEC Documents, the Company has no liabilities, contingent or
otherwise, other than (i) liabilities incurred in the ordinary course of
business subsequent to the date of such SEC Documents and (ii) obligations under
contracts and commitments incurred in the ordinary course of business and not
required under generally accepted accounting principles to be reflected in such
SEC Documents, which liabilities and obligations referred to in clauses (i) and
(ii), individually or in the aggregate, would not have a Material Adverse
Effect.
g. Absence of Certain Changes. Since the date of the latest audited
financial statements included within the SEC Documents, except as specifically
disclosed in the SEC Documents, (i) there has been no event, occurrence or
development that, individually or in the aggregate, has had or that could result
in a Material Adverse Effect, (ii) the Company has not
10
incurred any liabilities (contingent or otherwise) other than (A) trade payables
and accrued expenses incurred in the ordinary course of business consistent with
past practice and (B) liabilities not required to be reflected in the Company's
financial statements pursuant to generally accepted accounting principals or
required to be disclosed in filings made with the SEC, (iii) the Company has not
altered its method of accounting or the identity of its auditors, (iv) the
Company has not declared or made any dividend or distribution of cash or other
property to its stockholders or purchased, redeemed or made any agreements to
purchase or redeem any shares of its capital stock, and (v) the Company has not
issued any equity securities to any officer, director or Affiliate, except
pursuant to existing Company stock option and stock purchase plans.
h. Absence of Litigation. Except as disclosed in the SEC Documents,
there is no action, suit, proceeding, inquiry or investigation before or by any
court, public board, government agency, self-regulatory organization or body
pending or, to the knowledge of the Company, threatened against or affecting the
Company, or any of its Subsidiaries, or any of their directors or officers in
their capacities as such which would have a Material Adverse Effect.
i. Intellectual Property. The Company and each of its Subsidiaries owns
or is licensed to use all patents, patent applications, trademarks, trademark
applications, trade names, service marks, copyrights, copyright applications,
licenses, permits, know-how (including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, systems or procedures) and
other similar rights and proprietary knowledge (collectively, "INTANGIBLES")
necessary for the conduct of its business as now being conducted and as proposed
to be conducted. Except as disclosed in the SEC Documents, neither the Company
nor any of its Subsidiaries has received written notice that it is infringing
upon or in conflict with any third party Intangibles. Except as disclosed in the
SEC Documents, neither the Company nor any of its Subsidiaries has entered into
any consent, indemnification, forbearance to xxx or settlement agreements with
respect to the validity of the Company's or such Subsidiary's ownership or right
to use its Intangibles. The Intangibles are valid and enforceable, and, without
the Company intending to allow such result, no registration relating thereto has
lapsed, expired or been abandoned or canceled or is the subject of cancellation
or other adversarial proceedings, and all applications therefor are pending and
in good standing. The Company has complied with its contractual obligations
relating to the protection of the Intangibles used pursuant to licenses with
such exceptions that would not and will not have a Material Adverse Effect. To
the Company's knowledge, no Person is infringing on or violating the Intangibles
owned or used by the Company.
j. Environment. Except as disclosed in the SEC Documents (i) there is
no environmental liability, nor factors likely to give rise to any environmental
liability, affecting any of the properties of the Company or any of its
Subsidiaries that, individually or in the aggregate, would have a Material
Adverse Effect and (ii) neither the Company nor any of its Subsidiaries has
violated any environmental law applicable to it now or previously in effect,
other than such violations or infringements that, individually or in the
aggregate, have not had and will not have a Material Adverse Effect.
k. Title. The Company and each of its Subsidiaries has good title in
fee simple to all real property and good title to all personal property owned by
it which is material to its business, free and clear of all liens, encumbrances
and defects except for such defects in title that,
11
individually or in the aggregate, would not have a Material Adverse Effect. Any
real property and facilities held under lease by the Company or any of its
Subsidiaries are held by the Company or such Subsidiary under valid, subsisting
and enforceable leases with such exceptions which have not had and will not have
a Material Adverse Effect.
l. Insurance. Except as disclosed in the SEC Documents, the Company and
its Subsidiaries maintain such insurance relating to their business, operations,
assets, key-employees and officers and directors as is appropriate to their
business, assets and operations, in such amounts and against such risks as are
customarily carried and insured against by owners of comparable businesses,
assets and operations, and such insurance coverages will be continued in full
force and effect to and including the Closing Date other than those insurance
coverages in respect of which the failure to continue in full force and effect
would not reasonably be expected to have a Material Adverse Effect.
m. Acknowledgment Regarding the Purchasers' Purchase of the Securities.
The Company acknowledges and agrees that no Purchaser is acting as a financial
advisor or is acting as a fiduciary of the Company (or in any similar capacity)
with respect to this Agreement or the transactions contemplated hereby, and the
relationship between the Company and the Purchasers is "arms length" and that
any statement made by any Purchaser or any of its Affiliates, representatives or
agents in connection with this Agreement and the transactions contemplated
hereby is not advice or a recommendation and is merely incidental to such
Purchaser's purchase of Securities and has not been relied upon by the Company,
its officers or directors in any way except for the Purchaser's representations
and warranties in Section 3 hereof. The Company further represents to the
Purchaser that the Company's decision to enter into this Agreement has been
based solely on an independent evaluation by the Company and its
representatives.
n. No Brokers. Except as described in Schedule 4(n), all of which are
payable at the Closing, to the knowledge of the Company, to registered
broker-dealers, no brokerage or finder's fees or commissions are or will be
payable by the Company to any broker, financial advisor or consultant, finder,
placement agent, investment banker, bank or other Person with respect to the
transactions contemplated by this Agreement, and the Company has not taken any
action that would cause any Purchaser to be liable for any such fees or
commissions.
o. Tax Status. The Company and each of its Subsidiaries has made or
filed all material federal, state and local income and all other tax returns,
reports and declarations required by any jurisdiction to which it is subject
(unless and only to the extent that the Company or the applicable Subsidiary has
set aside on its books provisions adequate for the payment of all unpaid and
unreported taxes) and has paid all taxes and other governmental assessments and
charges that are material in amount, shown or determined to be due on such
returns, reports and declarations, except those being contested in good faith
and has set aside on its books provisions adequate for the payment of all taxes
for periods subsequent to the periods to which such returns, reports or
declarations apply. There are no material unpaid taxes claimed to be due by the
taxing authority of any jurisdiction. The Company has not executed a waiver with
respect to any statute of limitations relating to the assessment or collection
of any federal, state or local tax. None of the Company's tax returns have been
or is being audited by any taxing authority.
p. No General Solicitation. Neither the Company nor to the knowledge of
the Company any Person participating on the Company's behalf in the transactions
contemplated
12
hereby has conducted any "general solicitation" or "general advertising" as such
terms are used in Regulation D, with respect to any of the Securities being
offered hereby; provided, however, that the Company makes no representation or
warranty with respect to the activities of any of the placement agents or any
Affiliate of any of them engaged by the Company in connection with the
transactions contemplated by this Agreement (collectively the "PLACEMENT
AGENTS").
q. Securities Laws. Neither the Company, nor any Affiliate of the
Company, nor any Person acting on its behalf or on behalf of such Affiliate,
has, directly or indirectly, made any offers or sales of any security or
solicited any offers to buy any security under circumstances that would require
registration of the Securities being offered hereby under the Securities Act or
cause this offering of Securities to be integrated with any prior offering of
securities of the Company for purposes of the Securities Act and Nasdaq Rules
provided, however, that the Company makes no representation or warranty with
respect to the activities of any of the Placement Agents or any of Affiliate of
any of them. Assuming the truth and accuracy of the Purchasers' representations
and warranties, the offer, sale and delivery of Conversion Stock upon conversion
of the Debentures and Common Stock upon exercise of the Warrants will be exempt
from the registration requirements of Section 5 of the Securities Act.
r. Form S-3 Eligibility. The Company is currently eligible to register
the resale of its Common Stock on a registration statement on Form S-3 under the
Securities Act. The Company is not aware of any facts or circumstances
(including without limitation any required approvals or waivers of any
circumstances that may delay or prevent the obtaining of accountant's consents)
that would prohibit or delay the preparation and filing of a registration
statement on Form S-3 with respect to the Registrable Securities (as defined in
the Registration Rights Agreements) provided that such registration is not
deemed a "primary offering" in which case the Company could face potential
qualification problems regarding the requirement of having an aggregate market
value held by non-affiliates of $75 million or more.
s. Disclosure. The Company confirms that neither it nor any other
Person acting on its behalf has provided any of the Purchasers or their agents
or counsel with any information that constitutes or might constitute material,
nonpublic information. The Company understands and confirms that each of the
Purchasers will rely on the foregoing representations in effecting transactions
in securities of the Company. All disclosure provided to the Purchasers
regarding the Company, its business and the transactions contemplated hereby,
including the Schedules to this Agreement, furnished by or on behalf of the
Company are true and correct and do not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements made therein, in the light of the circumstances under which they were
made, not misleading. No event or circumstance has occurred or information
exists with respect to the Company or any of its Subsidiaries or its or their
business, properties, prospects, operations or financial conditions, which,
under applicable law, rule or regulation, requires public disclosure or
announcement by the Company but which has not been so publicly announced or
disclosed, except, until such time as the press release is issued as
contemplated by Section 5(i), the execution of this Agreement. The Company
acknowledges and agrees that no Purchaser makes or has made any representations
or warranties with respect to the transactions contemplated hereby other than
those specifically set forth in Section 3.
t. Solvency. Based on the financial condition of the Company as of the
Closing Date, (i) the Company's fair saleable value of its assets exceeds the
amount that will be required
13
to be paid on or in respect of the Company's existing debts and other
liabilities (including known contingent liabilities) as they mature; (ii) the
Company's assets do not constitute unreasonably small capital to carry on its
business for the current fiscal year as now conducted and as proposed to be
conducted including its capital needs taking into account the particular capital
requirements of the business conducted by the Company, and projected capital
requirements and capital availability thereof; and (iii) the current cash flow
of the Company, together with the proceeds the Company would receive, were it to
liquidate all of its assets, after taking into account all anticipated uses of
the cash, would be sufficient to pay all amounts on or in respect of its debt
when such amounts are required to be paid. The Company does not intend to incur
debts beyond its ability to pay such debts as they mature (taking into account
the timing and amounts of cash to be payable on or in respect of its debt).
u. Internal Accounting Controls. The Company and the Subsidiaries
maintain a system of internal accounting controls sufficient to provide
reasonable assurance that (i) transactions are executed in accordance with
management's general or specific authorizations, (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain asset accountability,
(iii) access to assets is permitted only in accordance with management's general
or specific authorization, and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
v. Transactions With Affiliates and Employees. Except as set forth on
Schedule 4(v), none of the officers or directors of the Company and, to the
knowledge of the Company, none of the employees of the Company is presently a
party to any transaction with the Company or any Subsidiary (other than for
services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to the
knowledge of the Company, any entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or
partner.
w. Seniority. As of the Closing Date, no indebtedness of the Company is
senior to the Debentures in right of payment, whether with respect to interest
or upon liquidation or dissolution, or otherwise, other than indebtedness
secured by purchase money security interests (which is senior only as to
underlying assets covered thereby) and capital lease obligations (which is
senior only as to the property covered thereby).
5. COVENANTS AND OTHER AGREEMENTS.
a. Satisfaction of Conditions. The parties shall use their reasonable
efforts to satisfy in a timely manner each of the conditions set forth in
Section 6 and Section 7 of this Agreement.
b. Form D; Blue Sky Laws. The Company agrees to file a Form D with
respect to the Securities as required under Regulation D and to provide a copy
thereof to each Purchaser promptly after such filing. The Company shall, on or
before the Closing Date, take such action as the Company shall reasonably
determine is necessary to qualify the Securities for sale to the Purchasers
pursuant to this Agreement under applicable securities or "blue sky" laws of the
14
states of the United States or obtain exemption therefrom, and shall provide
evidence of any such action so taken to each Purchaser on or prior to the
Closing Date.
c. Reporting Status. So long as a Purchaser beneficially owns any
Securities or has the right to acquire any Securities pursuant to this
Agreement, the Company shall use its reasonable efforts to timely file all
reports required to be filed with the SEC pursuant to the Exchange Act, and
shall not terminate its status as an issuer required to file reports under the
Exchange Act even if the Exchange Act or the rules and regulations thereunder
would permit such termination.
d. Use of Proceeds. The Company shall use the net proceeds from the
sale of the Debentures and the Warrants for general corporate purposes and
working capital, but in no event shall the Company use such net proceeds to
repurchase any outstanding securities of the Company.
e. Financial Information. For the Registration Period (as defined in
the Registration Rights Agreements), the Company agrees to send to each
Purchaser within ten days after the filing with the SEC, to the extent not
available through the SEC's XXXXX system, a copy of its Annual Report on Form
10-K, its Quarterly Reports on Form 10-Q, its proxy and information statements
and any Current Reports on Form 8-K.
f. Reservation of Shares. The Company has and shall at all times have
authorized and reserved for the purpose of issuance a sufficient number of
shares of Common Stock to provide for the full conversion of the Debentures and
exercise of the Warrants, and the issuance of the Conversion Shares and Warrant
Shares, as the case may be, in connection therewith and as otherwise required
hereby and thereby (without regard to any limitations on beneficial ownership).
The Company shall not reduce the number of shares of Common Stock reserved for
issuance under this Agreement (except as a result of the issuance of the
Conversion Shares hereunder), the Warrants (except as a result of the issuance
of the Warrant Shares upon the exercise of the Warrants), or the Registration
Rights Agreements, without the consent of the Purchasers.
g. Listing. The Company will apply for the listing of the Conversion
Shares and the Warrant Shares, in each case, upon each national securities
exchange and automated quotation system, if any, upon which shares of Common
Stock are then listed or quoted and shall maintain, so long as any other shares
of Common Stock shall be so listed, such listing of all Conversion Shares from
time to time issued or issuable upon conversion of the Debentures and all
Warrant Shares from time to time issued or issuable upon exercise of the
Warrants. The Company shall use its best efforts to include its shares of Common
Stock in The Nasdaq Stock Market at the earliest practical date, and, in any
event, by the date the first registration statement covering the resale of the
Conversion Shares is declared effective by the SEC, and the Company will comply
in all respects with its reporting, filing and other obligations under the
bylaws or rules of The Nasdaq Stock Market.
h. No Integrated Offerings. The Company shall not make any offers or
sales of any security (other than the Securities) under circumstances that would
require registration of the Securities being offered or sold hereunder under the
Securities Act or Nasdaq rules or cause this offering of Securities to be
integrated with any other non-exempt offering of securities under the
15
Securities Act or Nasdaq rules, other than the warrants issuable to any of the
Placement Agents in connection with the transactions contemplated by this
Agreement and the shares of common stock issuable upon exercise of such
warrants.
i. Securities Laws Disclosure; Publicity. The Company shall, on or
before 9:30 a.m., Eastern Standard Time, on ________ __, issue a press release
reasonably acceptable to the Purchasers disclosing the transactions contemplated
hereby. No later than the first Business Day following the Closing Date, the
Company shall file a Current Report on Form 8-K with the SEC (the "8-K FILING")
describing the transactions contemplated by the Transaction Documents and
including as exhibits to such Current Report on Form 8-K this Agreement and the
form of Warrants, in the form required by the Exchange Act. Thereafter, the
Company shall timely make any filings and notices required by the SEC or
applicable law with respect to the transactions contemplated hereby and provide
copies thereof to the Purchasers promptly after filing. Except with respect to
the 8-K Filing and the press release referenced above (a copy of which will be
provided to the Purchasers for their review as early as practicable prior to its
filing), the Company shall, at least two Business Days prior to the filing or
dissemination of any disclosure required by this paragraph, provide a copy
thereof to the Purchasers for their review. The Company and the Purchasers shall
consult with each other in issuing any press releases or otherwise making public
statements or filings and other communications with the SEC or any regulatory
agency or The Nasdaq Stock Market with respect to the transactions contemplated
hereby, and neither party shall issue any such press release or otherwise make
any such public statement, filing or other communication without the prior
consent of the other, except if such disclosure is required by law, in which
case the disclosing party shall promptly provide the other party with prior
notice of such public statement, filing or other communication. Notwithstanding
the foregoing, the Company shall not publicly disclose the name of any
Purchaser, or include the name of any Purchaser in any filing with the SEC or
any regulatory agency or The Nasdaq Stock Market, without the prior written
consent of such Purchaser, except to the extent such disclosure (but not any
disclosure as to the controlling Persons thereof) is required by law or The
Nasdaq Stock Market regulations, in which case the Company shall provide the
Purchasers with prior notice of such disclosure. The Company shall not, and
shall cause each of its Subsidiaries and its and each of their respective
officers, directors, employees and agents not to, provide any Purchaser with any
material nonpublic information regarding the Company or any of its Subsidiaries
from and after the filing of the 8-K Filing without the express written consent
of such Purchaser. No Purchaser shall have any liability to the Company, its
Subsidiaries, or any of its or their respective officers, directors, employees,
stockholders or agents for any such disclosure. Subject to the foregoing,
neither the Company nor any Purchaser shall issue any press releases or any
other public statements with respect to the transactions contemplated hereby;
provided, however, that the Company shall be entitled, without the prior
approval of any Purchaser, to make any press release or other public disclosure
with respect to such transactions (i) in substantial conformity with the 8-K
Filing and contemporaneously therewith and (ii) as is required by applicable law
and regulations (provided that in the case of clause (i) the Purchasers shall be
consulted by the Company in connection with any such press release or other
public disclosure prior to its release). Each press release disseminated in the
United States to the public generally during the 12 months preceding the date of
this Agreement did not at the time of release contain any untrue statement of a
material fact.
j. Furnishing of Information. As long as any Purchaser owns Securities,
the Company covenants to timely file (or obtain extensions in respect thereof
and file within the
16
applicable grace period) all reports required to be filed by the Company after
the date hereof pursuant to the Securities Exchange Act of 1934, as amended (the
"EXCHANGE ACT"). Upon the request of any Purchaser, the Company shall deliver to
such Purchaser a written certification of a duly authorized officer as to
whether it has complied with the preceding sentence. During the earlier of (i)
the date two years from the Closing Date or (ii) as long as any Purchaser owns
Securities, if the Company is not required to file reports pursuant to such
laws, it will prepare and furnish to the Purchasers and make publicly available
in accordance with paragraph (c) of Rule 144 such information as is required for
the Purchasers to sell the Securities under Rule 144. The Company further
covenants that it will take such further action as any holder of Securities may
reasonably request to satisfy the provisions of Rule 144 applicable to the
issuer of securities relating to transactions for the sale of securities
pursuant to Rule 144.
k. Integration. The Company shall not, and shall use its best efforts
to ensure that no Affiliate of the Company shall, sell, offer for sale or
solicit offers to buy or otherwise negotiate in respect of any security (as
defined in Section 2 of the Securities Act) that would be integrated with the
offer or sale of the Securities in a manner that would require the registration
under the Securities Act of the sale of the Securities to the Purchasers, or
that would be integrated with the offer or sale of the Securities for purposes
of the rules and regulations of The Nasdaq Stock Market.
l. Subsequent Placements.
(1) From the date hereof until the Registration Statement (as defined in
the Registration Rights Agreements) is declared effective by the SEC (the
"BLOCKOUT PERIOD"), the Company will not, directly or indirectly, offer, sell,
grant any option to purchase, or otherwise dispose of (or announce any offer,
sale, grant or any option to purchase or other disposition of) any of its or the
Subsidiaries' equity or equity equivalent securities, including without
limitation any debt, preferred stock or other instrument or security that is, at
any time during its life and under any circumstances, convertible into or
exchangeable or exercisable for Common Stock or Common Stock Equivalents (any
such offer, sale, grant, disposition or announcement being referred to as a
"SUBSEQUENT PLACEMENT"). The restrictions contained in this Section 5(l) shall
not apply to Excluded Securities (as defined below).
(2) The restrictions contained in paragraph 5(l)(1) of this Section
shall not apply to any of the following "EXCLUDED SECURITIES:" (A) the
Debentures, (B) the Conversion Shares, (C) the Warrants, (D) any warrants issued
to any of the Placement Agents provided in the sale of the Debentures or the
Preferred Stock, (E) any shares of Common Stock issued upon exercise of the
Warrants or any warrants issued to any of the Placement Agents provided in the
sale of the Debentures or the Preferred Stock, (F) shares of Preferred Stock or
Common Stock issued in connection with or upon conversion of securities issued
further to the Additional Financings (including the Preferred Stock), (G)
warrants issued in connection with the Additional Financings, (H) shares of
Common Stock issued upon exercise of warrants issued in connection with the
Additional Financings, (I) shares of Common Stock issued upon conversion of the
SOED Notes, or (J) any Common Stock issued (1) upon exercise or conversion of
any options or other securities described in Schedule 4(c) (provided that such
exercise or conversion occurs in accordance with the terms thereof, without
amendment or modification, and that the applicable exercise or conversion price
or ratio is described in such schedule), (2) in connection with any grant of
options, warrants or the issuance of additional securities to employees,
officers, directors
17
or consultants of the Company pursuant to a stock option plan or stock purchase
plan duly adopted by the Company's board of directors or in respect of the
issuance of Common Stock upon exercise of any such options or warrants, (3)
pursuant to a bona fide firm commitment underwritten public offering through any
investment banker (excluding any equity line) in an aggregate offering amount
greater than $5,000,000, or (4) in connection with a bona fide joint venture or
development agreement or strategic partnership or to an independent Person, the
primary purpose of which is not to raise equity capital.
m. Reimbursement. If any Purchaser or any of its Affiliates or any
officer, director, partner, controlling Person, employee or agent of a Purchaser
or any of its Affiliates (a "RELATED PERSON") becomes involved in any capacity
in any Proceeding brought by or against any Person in connection with or as a
result of any misrepresentation, breach or inaccuracy of any representation,
warranty, covenant or agreement made by the Company in any Transaction
Documents, the Company will indemnify and hold harmless such Purchaser or
Related Person for its reasonable legal and other expenses (including the costs
of any investigation, preparation and travel) and for any Losses incurred in
connection therewith, as such expenses or Losses are incurred, excluding only
Losses that result directly from such Purchaser's or Related Person's gross
negligence or willful misconduct. The conduct of any Proceedings for which
indemnification is available under this paragraph shall be governed by Section 6
of the Registration Rights Agreements. The indemnification obligations of the
Company under this paragraph shall be in addition to any liability that the
Company may otherwise have and shall be binding upon and inure to the benefit of
any successors, assigns, heirs and personal representatives of the Purchasers
and any such Related Persons. The Company also agrees that neither the
Purchasers nor any Related Persons shall have any liability to the Company or
any Person asserting claims on behalf of or in right of the Company in
connection with or as a result of the transactions contemplated by the
Transaction Documents, except to the extent that any Losses incurred by the
Company result from the gross negligence or willful misconduct of the applicable
Purchaser or Related Person in connection with such transactions. If the Company
breaches its obligations under any Transaction Document, then, in addition to
any other liabilities the Company may have under any Transaction Document or
applicable law, the Company shall pay or reimburse the Purchasers on demand for
all costs of collection and enforcement (including reasonable attorneys fees and
expenses). Without limiting the generality of the foregoing, the Company
specifically agrees to reimburse the Purchasers on demand for all costs of
enforcing the indemnification obligations in this paragraph.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to issue and sell Debentures and
Warrants to a Purchaser at the Closing hereunder is subject to the satisfaction,
at or before the Closing Date, of each of the following conditions thereto;
provided, however, that these conditions are for the Company's sole benefit and
may be waived by the Company at any time in its sole discretion.
a. The applicable Purchaser shall have executed the signature page to
this Agreement and the Registration Rights Agreements, and delivered the same to
the Company.
b. The applicable Purchaser shall have delivered such Purchaser's
Investment Amount in accordance with Section 2(b) above.
18
c. The representations and warranties of the applicable Purchaser shall
be true and correct in all material respects as of the date when made and as of
the Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date, which representations and
warranties shall be true and correct as of such date), and the applicable
Purchaser shall have performed, satisfied and complied in all material respects
with the covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by the applicable Purchaser at or prior to
the Closing Date.
d. No statute, rule, regulation, executive order, decree, ruling,
injunction, action, proceeding or interpretation shall have been enacted,
entered, promulgated, endorsed or adopted by any court or governmental authority
of competent jurisdiction or any self-regulatory organization, or the staff of
any thereof, having authority over the matters contemplated hereby which
questions the validity of, or challenges or prohibits the consummation of, any
of the transactions contemplated by this Agreement.
7. CONDITIONS TO EACH PURCHASER'S OBLIGATION TO PURCHASE DEBENTURES AND
WARRANTS.
The obligation of each Purchaser hereunder to purchase Debentures and
Warrants to be purchased by it hereunder is subject to the satisfaction, at or
before the Closing Date, of each of the following conditions, provided, however,
that these conditions are for such Purchaser's sole benefit and may be waived by
such Purchaser at any time in such Purchaser's sole discretion:
a. The Company shall have executed the signature pages to this
Agreement and the Registration Rights Agreements, and delivered the same to the
Purchaser.
b. The Company shall have delivered to the Purchaser duly executed
certificates representing the duly executed Debentures and duly executed
Warrants as provided in Section 2(b) above.
c. The representations and warranties of the Company shall be true and
correct in all material respects as of the date when made and as of the Closing
Date as though made at that time (except for representations and warranties that
speak as of a specific date, which representations and warranties shall be true
and correct as of such date) and the Company shall have performed, satisfied and
complied in all material respects with the covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by the
Company at or prior to the Closing Date. The Purchaser shall have received a
certificate, executed on behalf of the Company by its Chief Executive Officer or
Chief Financial Officer, dated as of the Closing Date, attaching true and
correct copies of the resolutions adopted by the Company's Board of Directors
authorizing the execution, delivery and performance by the Company of its
obligations under this Agreement and the Related Agreements.
d. No statute, rule, regulation, executive order, decree, ruling,
injunction, action, proceeding or interpretation shall have been enacted,
entered, promulgated, endorsed or adopted by any court or governmental authority
of competent jurisdiction or any self-regulatory organization, or the staff of
any thereof, having authority over the matters contemplated hereby which
questions the validity of, or challenges or prohibits the consummation of, any
of the transactions contemplated by this Agreement.
19
e. From the date of this Agreement through the Closing Date, there
shall not have occurred any Material Adverse Effect.
f. The Purchasers shall have received an opinion of the Company's
counsel, dated as of the Closing Date, relating to the matters set forth in
Exhibit E attached hereto.
g. The Additional Financings shall have been consummated
contemporaneously with the Closing of the transactions contemplated by this
Agreement.
h. The Company's acquisition of VIS shall have gone unconditional and
the Company's acquisition of SOED shall have closed, each contemporaneously with
the Closing of the transactions contemplated by this Agreement.
i. The Company and the Purchaser shall have entered into a Security
Agreement in the form attached hereto as Exhibit F-1 (the "SECURITY AGREEMENT")
and the Company, the Purchaser and North Fork Bank shall have entered into a
Restricted Account Agreement in the form attached hereto as Exhibit F-2 (the
"Restricted Account Agreement")..
20
8. GOVERNING LAW MISCELLANEOUS.
a. Governing Law; Venue; Waiver Of Jury Trail. ALL QUESTIONS CONCERNING
THE CONSTRUCTION, VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS AGREEMENT
SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NEW YORK. THE COMPANY AND PURCHASERS HEREBY IRREVOCABLY SUBMIT TO
THE EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING IN THE CITY
OF NEW YORK, BOROUGH OF MANHATTAN FOR THE ADJUDICATION OF ANY DISPUTE BROUGHT BY
THE COMPANY OR ANY PURCHASER HEREUNDER, IN CONNECTION HEREWITH OR WITH ANY
TRANSACTION CONTEMPLATED HEREBY OR DISCUSSED HEREIN (INCLUDING WITH RESPECT TO
THE ENFORCEMENT OF ANY OF THE TRANSACTION DOCUMENTS), AND HEREBY IRREVOCABLY
WAIVE, AND AGREE NOT TO ASSERT IN ANY SUIT, ACTION OR PROCEEDING BROUGHT BY THE
COMPANY OR ANY PURCHASER, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE
JURISDICTION OF ANY SUCH COURT, OR THAT SUCH SUIT, ACTION OR PROCEEDING IS
IMPROPER. EACH PARTY HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE OF PROCESS AND
CONSENTS TO PROCESS BEING SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING BY
MAILING A COPY THEREOF VIA REGISTERED OR CERTIFIED MAIL OR OVERNIGHT DELIVERY
(WITH EVIDENCE OF DELIVERY) TO SUCH PARTY AT THE ADDRESS IN EFFECT FOR NOTICES
TO IT UNDER THIS AGREEMENT AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE GOOD
AND SUFFICIENT SERVICE OF PROCESS AND NOTICE THEREOF. NOTHING CONTAINED HEREIN
SHALL BE DEEMED TO LIMIT IN ANY WAY ANY RIGHT TO SERVE PROCESS IN ANY MANNER
PERMITTED BY LAW. THE COMPANY AND PURCHASERS HEREBY WAIVE ALL RIGHTS TO A TRIAL
BY JURY.
b. Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party. This Agreement, once executed by a party, may be
delivered to the other parties hereto by facsimile transmission of a copy of
this Agreement bearing the signature of the party so delivering this Agreement.
c. Headings. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
d. Severability. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement or the
validity or enforceability of this Agreement in any other jurisdiction.
e. Entire Agreement; Amendments; Waiver. This Agreement and the
instruments referenced herein contain the entire understanding of the parties
with respect to the matters covered herein and therein and, except as
specifically set forth herein or therein, neither the Company nor the Purchasers
make any representation, warranty, covenant or undertaking with respect to such
matters. No provision of this Agreement may be waived or amended other than by
an instrument in writing signed by the Company and, by the Purchasers as
provided in
21
Section 8(m) hereof. Notwithstanding the preceding sentence, the parties hereto
recognize that certain amendments may be requested by the Nasdaq Trading and
Market Services in order that the Conversion Shares and Warrant Shares issued
hereunder be accepted for listing on The Nasdaq Stock Market and agree that
approval for such amendments shall be given. Any waiver by the Purchasers, on
the one hand, or the Company, on the other hand, of a breach of any provision of
this Agreement shall not operate as or be construed to be a waiver of any other
breach of such provision of or any breach of any other provision of this
Agreement. The failure of the Purchasers, on the one hand, or the Company, on
the other hand to insist upon strict adherence to any term of this Agreement on
one or more occasions shall not be considered a waiver or deprive that party of
the right thereafter to insist upon strict adherence to that term or any other
term of this Agreement.
f. Notices. Any notices required or permitted to be given under the
terms of this Agreement shall be sent by certified or registered mail (return
receipt requested) or delivered personally or by courier or by confirmed
telecopy, and shall be effective five days after being placed in the mail, if
mailed, or upon receipt or refusal of receipt, if delivered personally or by
courier or confirmed telecopy, in each case addressed to a party. The addresses
for such communications shall be:
If to the Company:
BAM! Entertainment, Inc.
000 Xxxx Xxxxx Xxxxx Xxxxxx, Xxxxx 000
Xxx Xxxx, XX 00000
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
Attention: Xxxxxxx Xxxxx
President
With a copy to:
Xxxxxxxxxxx & Xxxxxxxx LLP
00000 Xxxxx Xxxxxx Xxxx, 0xx Xxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Telephone (000) 000-0000
Fax (000) 000-0000
Attention: Xxxxxx Xxxxxxx, Esq.
If to the Purchaser, to the address set forth under the Purchaser's name on the
Execution Page hereto executed by such Purchaser.
Each party hereto may from time to time change its address or facsimile number
for notices under this Section 8(f) by giving at least ten (10) days' prior
written notice of such changed address or facsimile number, in the case of the
Purchasers to the Company, and in the case of the Company to all of the
Purchasers.
g. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted assigns.
The Company may not assign
22
this Agreement or any rights or obligations hereunder without the prior written
consent of the Purchasers. Any Purchaser may assign its rights under this
Agreement to any Person to whom such Purchaser assigns or transfers any
Securities, provided such transferee agrees in writing to be bound, with respect
to the transferred Securities, by the provisions hereof that apply to the
"Purchasers." Notwithstanding anything to the contrary herein, Securities may be
assigned to any Person in connection with a bona fide margin account or other
loan or financing arrangement secured by such Securities.
h. Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except that each Related Person is an intended third party
beneficiary and (in each case) may enforce the indemnity provisions directly
against the parties with obligations thereunder.
i. Survival. The representations and warranties of the Company and the
agreements and covenants of the Company shall survive the Closing
notwithstanding any due diligence investigation conducted by or on behalf of the
Purchasers. Moreover, none of the representations and warranties made by the
Company herein shall act as a waiver of any rights or remedies a Purchaser may
have under applicable federal or state securities laws.
j. Further Assurances. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
k. Termination. In the event that the Closing Date shall not have
occurred on or before _______ __, 2004, unless the parties agree otherwise, this
Agreement shall terminate at the close of business on such date. Notwithstanding
any termination of this Agreement, any party not in breach of this Agreement
shall preserve all rights and remedies it may have against another party hereto
for a breach of this Agreement prior to or relating to the termination hereof.
l. Joint Participation in Drafting. Each party to this Agreement has
participated in the negotiation and drafting of this Agreement, the Registration
Rights Agreements and the Warrants. As such, the language used herein and
therein shall be deemed to be the language chosen by the parties hereto to
express their mutual intent, and no rule of strict construction will be applied
against any party to this Agreement, the Registration Rights Agreements or the
Warrants.
m. Determinations. All consents, approvals and other determinations to
be made by the Purchasers pursuant to this Agreement and all waivers and
amendments to or of any provisions in this Agreement prior to the Closing Date
to be binding upon a Purchaser shall be made by such Purchaser and except as
otherwise expressly provided herein, all consents, approvals and other
determinations to be made by the Purchasers pursuant to this Agreement and all
waivers and amendments to or of any provisions in this Agreement after the
Closing Date shall be made by Purchasers that have invested more than fifty-one
percent (51%) of the aggregate Investment Amounts invested by all Purchasers.
23
n. Fees and Expenses. At Closing, the Company shall pay to Laurus
Capital Management, LLC an aggregate of $35,000 and an escrow agent fee in the
amount of $1,500 for their legal fees and expenses incurred in connection with
the preparation and negotiation of the Transaction Documents. Laurus Capital
Management , LLC may retain such amounts at the Closing. Except as expressly set
forth in the Transaction Documents to the contrary, each party shall pay the
fees and expenses of its advisers, counsel, accountants and other experts, if
any, and all other expenses incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement. The Company
shall pay all transfer agent fees, stamp taxes and other taxes and duties levied
in connection with the issuance of the Securities.
o. Rescission and Withdrawal Right. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, whenever any Purchaser exercises a right, election,
demand or option under a Transaction Document and the Company does not timely
perform its related obligations within the periods therein provided, then such
Purchaser may rescind or withdraw, in its sole discretion from time to time upon
written notice to the Company, any relevant notice, demand or election in whole
or in part without prejudice to its future actions and rights.
p. Replacement of Securities. If any certificate or instrument
evidencing any Securities is mutilated, lost, stolen or destroyed, the Company
shall issue or cause to be issued in exchange and substitution for and upon
cancellation thereof, or in lieu of and substitution therefor, a new certificate
or instrument, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction and customary and reasonable
indemnity, if requested. The applicants for a new certificate or instrument
under such circumstances shall also pay any reasonable third-party costs
associated with the issuance of such replacement Securities.
q. Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Purchasers and the Company will be entitled to specific performance under the
Transaction Documents. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations described in the foregoing sentence and hereby agrees to waive in
any action for specific performance of any such obligation the defense that a
remedy at law would be adequate.
r. Payment Set Aside. To the extent that the Company makes a payment or
payments to any Purchaser hereunder or pursuant to the Warrants or any Purchaser
enforces or exercises its rights hereunder or thereunder, and such payment or
payments or the proceeds of such enforcement or exercise or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside,
recovered from, disgorged by or are required to be refunded, repaid or otherwise
restored to the Company by a trustee, receiver or any other Person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.
s. Adjustments in Share Numbers and Prices. In the event of any stock
split, subdivision, dividend or distribution payable in shares of Common Stock
(or other securities or
24
rights convertible into, or entitling the holder thereof to receive directly or
indirectly shares of Common Stock), combination or other similar
recapitalization or event occurring after the date hereof, each reference in any
Transaction Document to a number of shares or a price per share shall be amended
to appropriately account for such event.
t. Independent Nature of Purchasers' Obligations and Rights. The
obligations of each Purchaser under any Transaction Document are several and not
joint with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser under any Transaction Document. The decision of each Purchaser to
purchase Shares pursuant to this Agreement has been made by such Purchaser
independently of any other Purchaser and independently of any information,
materials, statements or opinions as to the business, affairs, operations,
assets, properties, liabilities, results of operations, condition (financial or
otherwise) or prospects of the Company or of the Subsidiary which may have been
made or given by any other Purchaser or by any agent or employee of any other
Purchaser, and no Purchaser or any of its agents or employees shall have any
liability to any other Purchaser (or any other Person) relating to or arising
from any such information, materials, statements or opinions. Nothing contained
herein or in any Transaction Document, and no action taken by any Purchaser
pursuant thereto, shall be deemed to constitute the Purchasers as a partnership,
an association, a joint venture or any other kind of entity, or create a
presumption that the Purchasers are in any way acting in concert or as a group
with respect to such obligations or the transactions contemplated by the
Transaction Document. Each Purchaser acknowledges that no other Purchaser has
acted as agent for such Purchaser in connection with making its investment
hereunder and that no other Purchaser will be acting as agent of such Purchaser
in connection with monitoring its investment hereunder. Each Purchaser shall be
entitled to independently protect and enforce its rights, including without
limitation the rights arising out of this Agreement or out of the other
Transaction Documents, and it shall not be necessary for any other Purchasers to
be joined as an additional party in any proceeding for such purpose.
u. Usury. To the extent it may lawfully do so, the Company hereby
agrees not to insist upon or plead or in any manner whatsoever claim, and will
resist any and all efforts to be compelled to take the benefit or advantage of,
usury laws wherever enacted, now or at any time hereafter in force, in
connection with any claim, action or proceeding that may be brought by any
Purchaser in order to enforce any right or remedy under any Transaction
Document. Notwithstanding any provision to the contrary contained in any
Transaction Document, it is expressly agreed and provided that the total
liability of the Company under the Transaction Documents for payments in the
nature of interest shall not exceed the maximum lawful rate authorized under
applicable law (the "MAXIMUM RATE"), and, without limiting the foregoing, in no
event shall any rate of interest or default interest, or both of them, when
aggregated with any other sums in the nature of interest that the Company may be
obligated to pay under the Transaction Documents exceed such Maximum Rate. It is
agreed that if the maximum contract rate of interest allowed by law and
applicable to the Transaction Documents is increased or decreased by statute or
any official governmental action subsequent to the date hereof, the new maximum
contract rate of interest allowed by law will be the Maximum Rate applicable to
the Transaction Documents from the effective date forward, unless such
application is precluded by applicable law. If under any circumstances
whatsoever, interest in excess of the Maximum Rate is paid by the Company to any
Purchaser with respect to indebtedness evidenced by the Transaction Documents,
such excess shall be applied by such Purchaser to the unpaid principal
25
balance of any such indebtedness or be refunded to the Company, the manner of
handling such excess to be at such Purchaser's election.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
26
IN WITNESS WHEREOF, the undersigned Purchasers and the Company have caused
this Agreement to be duly executed as of the date first above written.
COMPANY:
BAM! ENTERTAINMENT, INC.
By: /s/ Xxxxxxx Xxxxxx
----------------------
Name: Xxxxxxx Xxxxxx
Title:CFO/VP Finance
27
[PURCHASER SIGNATURE PAGES SPA BFUNC]
IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.
PURCHASERS SIGNATURE PAGE BFUNC (CONT...)
Name of Investing Entity: Laurus Master Fund, Ltd.
Signature of Authorized Signatory of Investing Entity: /s/ Illegible
--------------------------
Name of Authorized Signatory: Xxxxx Grin
Title of Authorized Signatory: Partner Email
Address of Authorized Entity: Xxxxx@Xxxxxxxxxxx.xxx
Subscription Amount: $2,500,000
Warrant Shares:2,259,036
Address for Notice of Investing Entity: Laurus Master Fund, Ltd.
000 Xxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx, 000000
Attn: Xxxx X. Xxxxxx, Esq.
Address for Delivery of Securities for Investing Entity (if not same as above):
28
SCHEDULE 4(a)
SUBSIDIARIES
Bam Entertainment Limited
Bam Studios (Europe) Limited
SCHEDULE 4c
AUTHORIZED STOCK:
Common Stock 100,000,000 shares at $0.001 par value
Redeemable Convertible Preferred Stock 10,000,000 shares at $0.001 par value
ISSUED AND OUTSTANDING STOCK:
Common Stock 20,410,984 shares (see below)
Redeemable Convertible Preferred Stock 0 shares
STOCK OPTION PLAN
Number of shares reserved for issuance (2 plans) 5,000,000 shares
Number of shares issued under plan 309,876 shares
Number of options outstanding 3,293,778 shares (see below)
OPTIONS GRANTED OUTSIDE OF PLAN
Number of options outstanding 250,000 shares (see below)
EMPLOYEE SHARE PURCHASE PLAN
Number of shares reserved for issuance 705,000 shares
Number of shares issued under plan 31,752 shares
WARRANTS
Number of warrants outstanding 5,921,029 shares (see below)
ADDITIONAL INVESTMENT RIGHTS (rights to buy shares
at 92 cents per share - Right ends 45 days on June
25 2004)
Cranshire Capital 529520 shares
Omicron Master Trust 317712 shares
Vertical Ventures 529520 shares
Truk International Funds 5846 shares
Truk Opportunity Funds 29229 shares
AS Capital Ptns 158856 shares
Basso Equity Opportunity Holdings 97432 shares
SRG Capital 158856 shares
Crescent International 428699 shares
Bristol Investment Fund 211808 shares
WARRANTS ISSUABLE UPON EXERCISE OF ABOVE
ADDITIONAL INVESTMENT RIGHTS (at greater of $1.40
and market price) For
Cranshire Capital 317,712 shares
Omicron Master Trust 190,627 shares
Vertical Ventures 317,712 shares
Truk International Funds 3,508 shares
Truk Opportunity Funds 17,538 shares
AS Capital Ptns 95,313 shares
Basso Equity Opportunity Holdings 58,459 shares
SRG Capital 95,313 shares
Crescent International 257,220 shares
Bristol Investment Fund 127,085 shares
CONVERTIBLE NOTE ($1.5m Note converible into
Common Stock at a conversion price of $1.28)
per share)
Laurus Master Fund 1,171,875 shares (includes anti dilution rights)
AGREEMENTS THAT REQUIRE A REGISTRATION STATEMENT
TO BE FILED (that has not yet been filed)
Southpaw warrants 200,000 shares
Plus any warrants issued in connection with above
additional investment rights
Page 1 of 4
Page 2 of 4
SCHEDULE 4c
CAPITALIZATION TABLE
SHARES
NAME OWNED WARRANTS OPTIONS TOTAL
14-MAY-04 14-MAY-04 14-MAY-04
Aardman 35,000 35,000
AIG DKR 85,831 136,776 222,607
Xxxxxx Xxxxxxx 5,212 382,906 388,118
AR Xxxxxxxx Settlement 2,205,361 2,205,361
AS Capital Ptrs 163,044 97,826 260,870
Basso 157,042 60,000 217,042
Xxxxxxx Xxxxx 13,000 13,000
Xxxxxxxxxxxxx Xxxxxx 303 12,875 13,178
Xxxxxxxxxx Xxxxx 89,576 89,576
Xxxxxxxx Xxxx 17,760 17,760
Xxxxx Xxx 304 81,300 81,604
Xxxxx Xxxxxxx 10,500 10,500
Xxxxxxxxxxx Xxxxx 31,501 31,501
Bristol 217,391 130,435 347,826
Xxxxx Xxxxx 30,000 30,000
Xxxxxx Xxxxx 3,182 19,683 22,865
Cranshire 326,087 326,087
Crescent 440,000 736,760 1,176,760
Xxxx Xxxxxx 20,000 20,000
Xxxxxxx Xxxxx 52,806 52,806
Xxxx Xxxx 89,576 309,600 399,176
Xxxx Xxxxx 73,328 73,328
Europlay Capital 200,000 200,000
Xxxxxxxx Xxxxxx 27,463 27,463
Franchise Films 68,738 68,738
Xxxxxxxx Xxxxx 35,475 35,475
Xxxxxxxxx Xxxxxxx 200,000 200,000
HD Xxxxx 202,813 202,813
XXX 76,040 76,040
Xxxx Xxxxxx 10,000 10,000
Xxxxxxxxxxx & Xxxxxxxx 5,212 47,000 52,212
Laurus Master Funds 166,667 166,667
Xxxxxx Xxxx 444,167 444,167
Xxxxx Xxxxxx 45,825 45,825
Xxxxxx Xxxxx 7,500 7,500
Xxxxxx Xxxx 6,500 6,500
Xxxxxxxx Xxxx 12,478 12,478
Xxxxxx Xxxxxx 16,450 16,450
Xxxxx Xxxxxxx 3,109,964 416,978 3,526,942
Xxxxxxxx Xxxxxx 1,371 34,063 35,434
Xxxxx Xxxxx 29,375 29,375
Omicron 195,652 195,652
OTAPE 427,428 427,428
Xxxxxxx Xxxxx 986 33,450 34,436
Xxxxxx Xxxxx 81,865 81,865
Xxxxxxxxxx Xxxx 200,000 200,000
Selected Ventures LLC 137,474 137,474
Xxxxxxx Xxxxx 22,387 22,387
Smithfield 337,685 337,685
Southpaw 200,000 200,000
Spyglass 470,000 470,000
SRG 97,826 97,826
Xxxxxx, Xxxxxx 250,000 250,000 (250,000 options outside of plan)
Xxxxxxxx Xxxxxx 57,600 57,600
Xxxxxx Xxxxxx 5,000 5,000
Time 100,000 100,000
Transcap 100,000 100,000
Truk International 6,000 23,251 29,251
Truk Opportunity 64,954 29,808 94,762
Page 3 of 4
SHARES
NAME OWNED WARRANTS OPTIONS TOTAL
14-MAY-04 14-MAY-04 14-MAY-04
Tsele Magnolia 29,880 29,880
Valencia Phoenix 11,500 11,500
Veritical Ventures 543,478 1,463,711 2,007,189
VIS 10,000 10,000
Westpark Capital 111,949 111,949
Xxxxxxxx Xxxxxxx G 35,000 238,800 273,800
Xxxxxxxx Xxxxxxx R 109,519 416,978 526,497
Xxxxx Xxxxx 12,500 12,500
Xxxx Xxxxxx 113 26,425 26,538
Other (includes held in brokerage accounts) 12,825,528 12,825,528
TOTAL 20,410,984 5,921,029 3,543,778 29,875,791
Page 4 of 4
SCHEDULE 4(e)
NO CONFLICTS
BAM! Entertainment, Inc., a Delaware corporation (the "Company"), currently does
not meet the required listing maintenance standards of The Nasdaq SmallCap
Market. On November 24, 2003, the Company received a notification letter from
The Nasdaq Stock Market that its common stock failed to meet these required
listing standards. The Company provided Nasdaq with a plan setting forth how it
expected to regain compliance with the required listing standards. On February
10, 2004, the Company received a staff determination letter of delisting from
Nasdaq, which provided that its plan was not accepted by Nasdaq and its common
stock would be delisted on February 19, 2004, pending the right to appeal
Nasdaq's decision. The Company requested an oral hearing before the Nasdaq
Listing Qualification Panel to appeal Nasdaq's determination to delist its
common stock, which under applicable rules, stays the delisting of its common
stock, pending a decision by the Nasdaq Panel. At a hearing on March 11, 2004,
the Company presented a plan, which required the completion of the VIS and SOED
acquisitions, to the Nasdaq Panel for achieving and sustaining compliance with
the required listing standards. On April 13, 2004, the Company received a letter
from the Nasdaq Panel which provided that it had been granted a temporary
exception to the required listing standards and the listing of its common stock
was continued until May 17, 2004.
On or before May 17, 2004, the Company was required to file its quarterly report
on Form 10-Q for the three months ended March 31, 2004, which was required to
include a balance sheet with pro forma adjustments evidencing the completion of
the VIS and SOED acquisitions and the private placement of its common stock in
connection therewith subsequent to March 31, 2004, resulting in a minimum of $18
million in stockholders' equity. On May 5, 2004, the Company received a
notification of additional concern from the Nasdaq Panel indicating that its
common stock was not in compliance with Nasdaq's minimum $1.00 bid price per
share requirement for continued listing on The Nasdaq SmallCap Market, and that
the Company must present a plan evidencing its ability to regain compliance with
the minimum bid price requirement for at least ten consecutive days prior to
November 1, 2004. On May 10, 2004, the Company filed a Form NT 10-Q allowing it
to obtain a five-day extension through May 24, 2004 to file its Form 10-Q. As a
result of the completion of the VIS and SOED acquisitions, the Company's
stockholders' equity as of March 31, 2004 on a pro forma basis exceeded the
minimum stockholders' equity requirement of $2.5 million required by Nasdaq's
standards for continued listing on The Nasdaq SmallCap Market, but did not
exceed the $18 million requirement as set out in the April 13, 2004 letter.
SCHEDULE 4(v)
RELATED PARTY TRANSACTION
Bam Entertainment Inc entered into a consulting agreement with Europlay Capital
Advisors, LLC in November 2003.
Xxxx Xxxx, a manager and member of Europlay Capital Advisors, LLC, has served on
BAM'S Board of Directors since July 2000
Xxxxxxx X Xxxxxxxx, a director and vice president of the Company, loaned the
Company $250,000 in August 2003. The loan, which bears interest at 6%, was
repayable on April 30, 2004, but has yet to be repaid.
