EXHIBIT 4.12
PAGE 1
ESCROW AGREEMENT
Escrow Agreement made this day of 2004 between
(1) BAM! ENTERTAINMENT INC., a Delaware corporation ("BAM");
(2) The persons listed in Schedule 1 to this Agreement (the "VIS SHAREHOLDERS
AND THE SOED SHAREHOLDERS"); and
(3) THE BANK OF NEW YORK ("ESCROW AGENT").
(4) XXXXXXXXX XXXXXX XXXXX ("VIS REPRESENTATIVE")
RECITALS
WHEREAS, each of BAM, on the one hand, and the VIS Shareholders and SOED
Shareholders, on the other hand, have requested security for performance of
certain of the undertakings of the other pursuant to the VIS Deed of Warranty,
the SOED Deed of Warranty, BAM Warranties (all of which expressions are defined
in the Recommended Offer by BAM! Entertainment, Inc. to acquire the entire
issued share capital of VIS entertainment limited dated 24 March 2004 (the
"Offer Document")) and in respect of the Post Closing Adjustment (as defined
below), which Escrow Agent is agreeable to facilitate under the terms hereof;
NOW, THEREFORE, in consideration of the mutual covenants herein contained, and
for other good and valuable consideration, the parties hereto agree as follows:
1 APPOINTMENT.
BAM, the VIS Shareholders and SOED Shareholders each hereby appoint the
Escrow Agent to act as escrow holder for the BAM Warranty Escrow Account,
the Warranty Escrow Account and the Net Equity Escrow Account (each as
hereinafter defined) under the terms hereof. The Escrow Agent hereby
accepts such appointment and agrees to act as escrow holder for the BAM
Warranty Escrow Account, the Warranty Escrow Account and the Net Equity
Escrow Account in accordance with the terms hereof.
2 ESCROW DEPOSITS.
(a) On the date of Completion (as defined in the Offer Document) the VIS
Shareholders and the SOED Shareholders hereby direct BAM and BAM
agrees to deposit with Escrow Agent an original stock certificate in
the name of "The Bank of New York", as "Escrow Agent", for Seven
hundred and fifty thousand (750,000) BAM Shares (the "Warranty
Escrow Shares") (the number of BAM shares represented by the
certificate, as reduced in accordance with the terms hereof, the
"Warranty Escrow Account") constituting a portion of the BAM
Consideration Shares to be issued by BAM to the B Shareholders (or
other VIS Shareholders as appropriate) under the Offer (375,000 BAM
Shares) and a portion of the BAM SOED Shares to be issued to, or as
may be directed by, the SOED Shareholders under the SOED SPA
(375,000 BAM Shares). The Escrow Agent shall hold the Warranty
Escrow Shares in trust for the relevant B Shareholders (or other VIS
Shareholders) and SOED Shareholders (and any other persons as
directed by the SOED Shareholders to the VIS Representative (as
appropriate)) in accordance with the terms hereof (in each case as
notified in writing to the Escrow Agent by the VIS Representative).
PAGE 2
(b) On the date of Completion the VIS Shareholders and the SOED
Shareholders hereby direct BAM and BAM shall deposit with Escrow
Agent an original stock certificate in the name of "The Bank of New
York" as Escrow Agent for four hundred and fifty thousand (450,000)
BAM Shares ("the Net Equity Escrow Shares") (the number of BAM
Shares represented by the certificate, as reduced in accordance with
the terms hereof, the "Net Equity Escrow Account" constituting a
portion of the BAM Consideration Shares to be issued to the B
Shareholders (or other VIS Shareholders as appropriate) under the
Offer (225,000 BAM Shares) and a portion of the BAM SOED Shares to
be issued to, or as may be directed by, the SOED Shareholders under
the SOED SPA (225,000 BAM Shares). The Escrow Agent shall hold the
Net Equity Escrow Shares in trust for the relevant B Shareholders
(or other VIS Shareholders (as appropriate)) and SOED Shareholders
(and any other persons as directed by the SOED Shareholders to the
VIS Representative) in accordance with the terms hereof in each case
as notified in writing to the Escrow Agent by the VIS
Representative.
(c) On the date of Completion, BAM shall deposit with Escrow Agent an
original stock certificate in the name of "The Bank of New York as
Escrow Agent" for Seven Hundred Fifty Thousand (750,000) BAM Shares
(the number of BAM Shares represented by the certificate, as reduced
in accordance with the terms hereof, the "BAM Warranty Escrow
Account").
(d) The Escrow Agent shall deposit the BAM Warranty Escrow Account, the
Warranty Escrow Account and the Net Equity Escrow Account in three
separate accounts established at the offices of Escrow Agent. The
settlement date (the "Indemnity Settlement Date") in respect of
claims over the BAM Shares in the Warranty Escrow Account and the
BAM Warranty Escrow Account as referred to herein shall be such date
which is the later of (i) 12 months from the date of Completion and
(ii) the date of the resolution of any Contests as that term is
defined herein (the "Claim Period").
3 POST CLOSING STATEMENTS.
(a) BAM shall procure that VIS, at the expense of BAM, shall cause to be
delivered to Xxxxxxxxx Xxxxxx Xxxxx (the "VIS Representative"), as
soon as practicable after March 31, 2004, but in any event within 45
days after the date of Completion, (i) consolidated financial
statements for VIS and its subsidiaries and also including the
combined effect of SOED dated as at close of business on March 31
2004 prepared in accordance with accounting principles generally
accepted in the United Kingdom consistently applied ("UK GAAP") and
on a basis consistent with the methods used to prepare the audited
consolidated balance sheet and profit and loss account of VIS and
its subsidiaries for the financial year ended on November 30, 2002,
subject to the provisions set forth in the Appendix annexed to this
Agreement ("March 31 2004 Accounts"); (ii) an consolidated cash flow
statement of VIS and its subsidiaries also combining SOED for the
period starting January 1, 2004 and ending March 31, 2004 (the "Cash
Flow Statement"), (iii) a statement setting forth the calculation of
the consolidated net equity of VIS and its subsidiaries also
combining SOED as at March 31 2004 (the "Adjusted Closing Net Equity
Statement"), as derived from the March 31, 2004 Accounts, (iv) the
calculation of the Post Closing Adjustment (as defined below). VIS
shall use its best endeavours to deliver to BAM within 15 Business
Days of Completion at the expense of VIS the audited consolidated
balance sheet and profit and loss account of VIS and its
subsidiaries for the financial year ended on November 30, 2003. The
March 31 2004 Accounts and the Adjusted Closing Net Equity Statement
shall be prepared and calculated in accordance with the provision of
the Appendix annexed to this Agreement. The "Post Closing
Adjustment" shall be an amount
PAGE 3
equivalent to the amount by which the Adjusted Closing Net Equity
is less than the Adjusted Estimated Net Equity (as defined in the
Appendix).
(b) During the 30 Business Days immediately following the receipt by the
VIS Representative of the calculation of the Post Closing Adjustment
(the "Review Period"), the VIS Representative shall review or cause
its independent accountants to review the March 31 2004 Accounts
and Adjusted Closing Net Equity Statement and the calculation of the
Post Closing Adjustment, for which purpose BAM shall use its
reasonable endeavours to procure that SOED and VIS, the subsidiaries
of VIS and the auditors of VIS and its subsidiaries shall give the
VIS Representative and its independent accountants reasonable access
during normal business hours and upon giving 24 hours prior notice,
to all books, records and other materials and information used in
the preparation of the March 31 2004 Accounts. Adjusted Closing Net
Equity Statement and the calculation of the Post Closing Adjustment
and shall use reasonable endeavours to cooperate with the VIS
Representative to enable it to complete its review. The VIS
Representative shall notify BAM and the Escrow Agent in writing
prior to the expiration of the Review Period if the VIS
Representative disagrees with the March 31 2004 Accounts, Adjusted
Closing Net Equity Statement and the calculation of the Post Closing
Adjustment (the "Notice of Disagreement"), setting forth in
reasonable detail the disputed item or items and the basis for the
VIS Representative's disagreement. If no Notice of Disagreement is
issued to BAM and the Escrow Agent prior to the expiration of the
Review Period, then the March 31 2004 Accounts and Adjusted Closing
Net Equity Statement and the calculation of the Post Closing
Adjustment shall be deemed to have been accepted by the VIS
Representative and shall become final and binding upon the parties.
(c) During the 30 Business Days immediately following the delivery of a
Notice of Disagreement (if any) (the "Consultation Period"), the
VIS Representative and BAM shall seek in good faith to resolve any
differences that they may have with respect to the matters specified
in the Notice of Disagreement. If at the end of the Consultation
Period the VIS Representative and BAM have been unable to resolve
all differences that they may have with respect to the matters
specified in the Notice of Disagreement, the VIS Representative and
BAM shall submit all matters that remain in dispute with respect to
the Notice of Disagreement to a firm of independent accountants,
jointly selected by the VIS Representative and BAM and in the event
of failure to agree within 7 Business Days after the last day of the
Consultation Period, such firm shall be appointed by the President
of the Institute of Chartered Accountants of Scotland on the
application of either party. BAM and the VIS Representative shall be
entitled to make such representation and provide such information
and reports to the independent accountant within 20 Business Days of
the date of agreement, or, if later, determination of the identity
of the independent accountants. BAM and the VIS Representative shall
use their respective reasonable endeavours to procure that the
independent accountant issues his ruling within 40 Business Days
after the matter is submitted to him for consideration. The
determinations made by such independent accountants shall be set out
in a notice ("the Accountant Determination Notice") and shall be
final and binding (save in the case of manifest error) on the
parties for purposes of calculating the Post Closing Adjustment. The
Accountant Determination Notice shall be delivered to BAM, the VIS
Representative and the Escrow Agent within 10 Business Days after
the date of determination by said independent accountants. Such firm
of independent accountants shall act as experts and not as arbiters.
(d) The costs of the independent accountant shall be borne as directed
by him, or in the event of failure to direct, equally between (a)
BAM and (b) the SOED
PAGE 4
Shareholders and the B Shareholders (or other VIS Shareholders, as
appropriate). In relation to any share of the costs to be borne by
the SOED Shareholders and the B Shareholders (or other VIS
Shareholders, as appropriate) or any other reasonable costs properly
incurred by the VIS Representative, such costs shall be payable by
BAM and such number of the Net Equity Escrow Shares as are
equivalent (by reference to the BAM Share Fair Market Value (as
defined below)) to the value of this share of the independent
accountants costs or any other reasonable costs properly incurred by
the VIS Representative shall be upon written notice from BAM
released by the Escrow Agent from the Net Equity Escrow Account and
returned to and cancelled by BAM.
(e) If the amount of the Post Closing Adjustment is an amount in excess
of L100,000, the Escrow Agent shall within 10 Business Days after
its receipt of the final determination or Accountant Determination
Notice of the Post Closing Adjustment, deliver to BAM the original
stock certificates constituting the Net Equity Escrow Account
whereupon BAM shall cancel it and BAM shall issue to the Escrow
Agent a stock certificate for the remaining balance of the Net
Equity Escrow Shares after deduction of such Net Equity Escrow
Shares having a BAM Share Fair Market Value equal to the Post
Closing Adjustment up to a maximum of the Net Equity Escrow Shares.
The Escrow Agent shall then deliver the remaining balance of the Net
Equity Escrow Shares (if any) to American Stock Transfer and Trust
Company (the "Exchange Agent") with instructions to disburse:
(i) 50% of the Net Equity Escrow Shares remaining in the Net
Equity Escrow Account to the B Shareholders (notwithstanding
that such B Shares may have converted into A Shares following,
the date of issue of the Offer Document) (or other VIS
Shareholders as appropriate) as may be notified in writing to
the Escrow Agreement by the VIS Representative; and
(ii) 50% of the Net Equity Escrow Shares remaining in the Net
Equity Escrow Account to the SOED Shareholders (or as may be
directed by the SOED Shareholders to the VIS Representative)
as notified in writing to the Escrow Agent by the VIS
Representative.
(f) If the Adjusted Closing Net Equity is greater than the Adjusted
Estimated Net Equity or if the Post Closing Adjustment is less
than L100,000, there shall be no adjustment and within 10 Business
Days of receipt of the final determination or Accountant
Determination Notice of the amount of the Post Closing Adjustment,
the Escrow Agent shall deliver the remaining balance of the Net
Equity Escrow Shares (less any costs of an independent accountant
allocated to the SOED Shareholders and the B Shareholders (or other
VIS Shareholders as appropriate) and any reasonable costs properly
incurred by the VIS Representative) to the Exchange Agent with
instructions to disburse:
(i) 50% of the Net Equity Escrow Shares remaining in the Net
Equity Escrow Account to the B Shareholders (notwithstanding
that such B Shares may have converted into A Shares following
the date of issue of the Offer Document) (or other VIS
Shareholders as appropriate) as may be notified in writing to
the Escrow Agent by the VIS Representative; and
(ii) 50% of the Net Equity Escrow Shares remaining in the Net
Equity Escrow Account to the SOED Shareholders (or as may be
directed by the SOED Shareholders to the VIS Representative)
as notified in writing to the Escrow Agent by the VIS
Representative.
PAGE 5
(g) In respect of any adjustment under this Clause 3 any fractions of
BAM Shares will be rounded to the nearest even number of BAM Shares
and in the event that the number of BAM Shares representing the Post
Closing Adjustment is an exact odd number, that number shall be
reduced to the nearest even number of BAM Shares.
4 WARRANTY ESCROW SHARES
(a) The cost of the premium for any warranty insurance (if any) obtained
by BAM with the agreement of the VIS Representative (not to be
unreasonably withheld or delayed) and any other associated costs in
respect of claims under the VIS Deed of Warranty and the SOED Deed
of Warranty shall be borne by BAM but a whole number of Warranty
Escrow Shares (calculated by reference to the BAM Share Fair Market
Value), equivalent to the aggregate of the cost of such insurance
premium and other associated costs (rounded down to the nearest
whole number of Warranty Escrow Shares) shall upon written notice
from BAM (providing confirmation of the amount and payment of such
premium and costs has been provided in writing to the VIS
Representative) be released by the Escrow Agent from the Warranty
Escrow Account and returned to BAM for cancellation.
(b) If any proceeding is threatened or instituted or any claim or demand
shall be asserted by any person in respect of which a payment may be
sought by BAM for breach of any of the warranties, indemnities,
covenants or undertakings contained within either the VIS Deed of
Warranty or the SOED Deed of Warranty (an "Indemnity Claim") BAM
shall promptly cause written notice of the assertion of any such
Indemnity Claim of which it has knowledge which is covered by the
warranties, indemnities, covenants and undertakings contained in
either of the VIS Deed of Warranty or the SOED Deed of Warranty
(each an "Indemnity Claim Notice") to be forwarded to the VIS
Representative and the Escrow Agent. Each Indemnity Claim Notice in
respect of any breach of the warranties, indemnities, covenants and
undertakings contained in either the VIS Deed of Warranty or the
SOED Deed of Warranty shall state specifically:
(i) the warranty, indemnity, covenant or undertaking with respect
to which the Indemnity Claim is made;
(ii) the facts giving rise to an alleged basis for the Indemnity
Claim;
(iii) the US Dollar amount of the loss asserted against the Warranty
Escrow Shares by reason of the Indemnity Claim ("the Loss");
and
(iv) the number of the Warranty Escrow Shares calculated on the
basis of the BAM Share Fair Market Value required to satisfy
the Loss.
(c) Within 30 Business Days of receipt of the Indemnity Claim Notice,
the VIS Representative shall deliver to BAM, a notice ("Objection
Notice") stating it intends to contest the indemnification
obligation under either the VIS Deed of Warranty or the SOED Deed of
Warranty as the case may be (a "Contest") or to accept liability
thereunder, a copy of such Objection Notice also being sent by the
VIS Representative to the Escrow Agent. If the VIS Representative
does not give an Objection Notice within that 30 Business Day
period, the VIS Representative will be deemed to accept liability as
it relates to the Warranty Escrow Shares. In such event BAM will
deliver a notice ("Claim Payment Notice") to the Escrow Agent that
there is a determination of liability with respect to the subject of
the Indemnity Claim. A copy of the letter from the VIS
Representative accepting liability, if any, must be sent to the
Escrow Agent together with the Claim
PAGE 6
Payment Notice or if no response has been received, the Claim
Payment Notice must include reference to the fact that no response
has been received and demonstrating effective service of the
Indemnity Claim Notice on the VIS Representative. The Escrow Agent
shall thereupon decrease the number of Warranty Escrow Shares
retained in the Warranty Escrow Account by an amount equivalent to
the amount in the Claim Payment Notice calculated on the basis of
the BAM Share Fair Market Value, rounded down to the nearest whole
number of Warranty Escrow Shares.
(d) If the VIS Representative on behalf of the VIS Warrantors and SOED
Warrantors gives a timely Objection Notice to the Escrow Agent and
BAM then:
(i) the Escrow Agent shall not take any further action with
respect to the Indemnity Claim Notice except as provided in
this Agreement; and
(ii) within 30 Business Days of the receipt thereof BAM and the VIS
Representative will select an independent expert being Senior
Counsel of not less than 10 years experience to determine the
dispute under English law ("Independent Expert").
(e) The Independent Expert shall be selected by the mutual agreement of
BAM and the VIS Representative. If the parties cannot agree on the
identity of the Independent Expert within 10 Business Days of the
date of an Objection Notice then an appropriate expert will be
determined by the President of the Law Society of England and Wales.
The decision of the Independent Expert shall be final and binding on
the parties save in the case of manifest error and the costs of the
Independent Expert shall be home as directed by him or, in the event
of failure to direct, equally between (a) BAM and (b) the SOED
Shareholders, and the holders of the B Shares (or other VIS
Shareholders, as appropriate). In relation to any share of the costs
to be borne by the SOED Shareholders and the B Shareholders (or
other VIS Shareholders, as appropriate) such costs together with any
other reasonable costs properly incurred by the VIS Representative
shall be payable by BAM but such number of the Warranty Escrow
Shares (calculated on the basis of the BAM Share Fair Market Value)
as are equivalent to the value of this share of the Independent
Expert's costs together with any other reasonable costs properly
incurred by the VIS Representative shall be released by the Escrow
Agent from the Warranty Escrow Account and returned to and cancelled
by BAM. BAM and the VIS Representative shall be entitled to make
such representation and provide such information and reports to the
Independent Expert within 20 Business Days of the date of agreement
or, if later, determination of the identity of the Independent
Expert. BAM and the VIS Representative shall use their respective
reasonable endeavours to procure that the Independent Expert issues
his ruling within 40 Business Days after the matter is submitted to
him for consideration. The Independent Expert shall determine
whether BAM has a reasonable basis of success in respect of the
Indemnity Claim on the balance of probabilities and, if so, an
amount of the estimate of the Indemnity Claim considered by the
Independent Expert which BAM might reasonably be expected to
receive. If the decision of the Independent Expert is in favour of
BAM so that there is a determination of Loss, BAM will deliver a
notice ("Independent Expert Notice") to the VIS Representative and
the Escrow Agent together with a copy of the report of the
Independent Expert stating that:
(i) there is a determination of liability pursuant to this Clause
4; and
PAGE 7
(ii) the liability of the VIS Warrantors and the amount to be
recovered therefrom in order to satisfy the Loss (up to a
maximum aggregate amount of L100,000): and then
(iii) the number of Warranty Escrow Shares (calculated on the basis
of the BAM Share Fair Market Value) included in the Warranty
Escrow Account required to satisfy the remainder of the Loss.
(f) Upon receipt of the Independent Expert Notice the Escrow Agent shall
decrease the number of Warranty Escrow Shares by an amount
equivalent to the amount in the Independent Expert Notice calculated
on the basis of the BAM Share Fair Market Value rounded down to the
nearest whole number of Warranty Escrow Shares.
(g) Whenever an Indemnity Claim is to he paid by the Escrow Agent
pursuant to this Clause 4, the Escrow Agent shall within 10 Business
Days after its receipt of an Independent Expert's Notice, deliver to
BAM the original stock certificates constituting the Warranty Escrow
Shares whereupon BAM shall cancel it and BAM shall issue to the
Escrow Agent a stock certificate for the remaining balance of the
Warranty Escrow Shares after deduction of such number of Warranty
Escrow Shares as equates to the amount of Loss determined in the
Independent Expert Notice.
(h) Within 10 Business Days after the Indemnity Settlement Date the
Escrow Agent shall deliver the certificate representing the balance
of the Warranty Escrow Shares remaining after settlement of
Indemnity Claims to the Exchange Agent with instructions to
disburse:
(i) 50% of the Warranty Escrow Shares remaining in the Warranty
Escrow Account to the B Shareholders (notwithstanding that
such B Shares may have converted into A Shares following the
date of issue of the Offer Document) (or other VIS
Shareholders as appropriate) as may be notified in writing to
the Escrow Agent by the VIS Representative; and
(ii) 50% of the Warranty Escrow Shares remaining in the VIS
Warranty Escrow Account to the SOED Shareholders (or as may be
directed by the SOED Shareholders to the VIS Representative)
as notified in writing to the Escrow Agent by the VIS
Representative.
(j) In respect of any adjustments under this clause 4 any fractions of
BAM Shares will be rounded down to the nearest whole number of BAM
Shares and the decision of the Escrow Agent as to the allocation on
this basis shall be final and binding on the holders of the B Shares
(or other VIS Shareholders, as appropriate) and the SOED
Shareholders.
5 BAM WARRANTY ESCROW SHARES
(a) BAM has agreed to grant certain warranties, indemnities,
undertakings and covenants in respect of BAM as set out in Appendix
V of the Offer Document to provide comfort to the holders of the VIS
Shares and SOED Shares ("BAM Warranties"). In order to provide
security for claims for breach of the BAM Warranties. BAM has agreed
that 750,000 BAM Shares which do not form part of the BAM
Consideration Shares or the BAM SOED Shares shall be deposited with
the Escrow Agent ("BAM Warranty Escrow Account") until the Indemnity
Settlement Date.
PAGE 8
(b) The 750,000 BAM Shares deposited with the Escrow Agent shall be
referred to as the BAM Warranty Escrow Shares.
(c) If any claim or demand shall be asserted by the VIS Representative
for breach of any of the BAM Warranties (a "BAM Warranty Claim")
during the Claim Period, the VIS Representative shall cause written
notice of the assertion of any such BAM Warranty Claim of which it
has knowledge (each a "BAM Indemnity Claim Notice") to be forwarded
to BAM and the Escrow Agent. Each BAM Indemnity Claim Notice in
respect of any breach of the BAM Warranties shall state
specifically:
(i) the warranty, indemnity, covenant or undertaking with respect
to which the BAM indemnity Claim is made;
(ii) the facts giving rise to an alleged basis for the BAM Warranty
Claim;
(iii) the US Dollar amount of the loss asserted against the BAM
Warranty Escrow Shares by reason of the BAM Warranty Claim
("the Loss"); and
(iv) the number of the BAM Warranty Escrow Shares calculated on the
basis of the BAM Share Fair Market Value required to satisfy
the Loss.
(d) Within 30 Business Days of the receipt of a BAM Indemnity Claim
Notice, BAM shall deliver to the VIS Representative and the Escrow
Agent, a notice ("Objection Notice") stating it intends to contest
the indemnification obligation under the BAM Warranties (a
"Contest") or to accept liability thereunder. If BAM does not give
an Objection Notice within that 30 Business Day period, BAM will be
deemed to accept liability as it relates to such BAM Warranty Claim.
In such event the VIS Representative will deliver a notice ("Claim
Payment Notice") to the Escrow Agent and BAM that there is a
determination of liability with respect to the subject of the BAM
Warranty Claim. A copy of the letter from BAM accepting liability,
if any, must be sent to the Escrow Agent together with the Claim
Payment Notice; or, if no response has been received, the Claim
Payment Notice must include reference to the fact that no response
has been received and demonstrate effective service of the BAM
Indemnity Claim Notice on BAM. The Escrow Agent shall thereupon
adjust the number of BAM Warranty Escrow Shares retained in the BAM
Warranty Escrow Account by the amount of the claim set out in the
BAM Indemnity Claim Notice calculated on the basis of the BAM Share
Fair Market Value, rounded down to the nearest whole number of BAM
Warranty Escrow Shares.
(e) If BAM gives a timely Objection Notice to the Escrow Agent and the
VIS Representative, then:
(i) the Escrow Agent shall not take any further action with
respect to the BAM Indemnity Claim Notice except as provided
in this Agreement;
(ii) within 30 Business Days of the receipt thereof BAM and the VIS
Representative will select arbitrators and submit the dispute
to binding arbitration in California; and
(iii) The arbitrators shall be selected by the mutual agreement of
BAM and the VIS Representative, If BAM and the VIS
Representative cannot agree on the arbitrator, then each may
select one arbitrator and the two designated arbitrators shall
select the third arbitrator. If the third
PAGE 9
arbitrator can not be agreed upon, the President of the
American Arbitration Association shall select the third
arbitrator. A decision by the individual arbitrator or a
majority decision by the three arbitrators shall be final and
binding upon the parties. Such arbitration shall follow the
International Arbitration Rules of the American Arbitration
Association and must be resolved by the arbitrators within
thirty (30) Business Days after the matter is submitted to
arbitration. If the arbitration is ruled favourably for the B
Shareholders and/or the SOED Shareholders so that there is a
determination of Loss under the BAM Warranties, the VIS
Representative will deliver a Notice ("Arbitration Award
Notice") to the Escrow Agent stating that: (a) there is a
determination of liability and (b) the number of BAM Warranty
Escrow Shares included in the BAM Warranty Escrow Account
required to satisfy the Loss (calculated on the basis of the
BAM Share Fair Market Value). Upon receipt of the Arbitration
Award Notice, Escrow Agent shall decrease the BAM Warranty
Escrow Shares by an amount equivalent to the amount in the
Arbitration Award Notice calculated on the basis of the BAM
Share Fair Market Value rounded down to the nearest whole
number of BAM Warranty Escrow Shares.
(f) Whenever a BAM Warranty Claim is to be paid by the Escrow Agent to
the VIS Shareholders and the SOED Shareholders, the Escrow Agent
shall, within 10 Business Days after its receipt of the earlier of
agreement of any claim or an Arbitration Award Notice, deliver to
BAM the original stock certificates constituting the BAM Warranty
Escrow Shares whereupon BAM shall
(i) reissue a certificate to the Escrow Agent representing the
number of BAM Warranty Escrow Shares representing the amount
of the Loss to be paid (calculated on the basis of the BAM
Share Fair Market Value); and
(ii) shall forthwith return to the Escrow Agent a stock certificate
for the remaining balance of those shares to be held as the
BAM Warranty Escrow Shares. For the purpose of calculating the
number of BAM Warranty Escrow Shares required to satisfy the
Loss, the Escrow Agent shall use an assumed price per share
calculated by reference to the BAM Share Fair Market Value.
(g) Save to the extent BAM Warranty Claims are pending or in dispute at
the Indemnity Settlement date, within 10 Business Days after the
Indemnity Settlement Date the Escrow Agent shall deliver the
certificate representing the balance of the BAM Warranty Escrow
Shares remaining after the settlement of BAM Warranty Claims (if
any) to BAM for cancellation or retention as appropriate.
(h) Within 5 Business Days of the Escrow Agent receiving the certificate
representing the BAM Warranty Shares set forth in Section 5(f)(i)
above, the Escrow Agent shall deliver such certificate representing
the number of BAM Warranty Escrow Shares representing the amount of
the Loss to the Exchange Agent with instructions to disburse such
BAM Warranty Escrow Shares amongst the VIS Shareholders and the SOED
Shareholders as directed in writing to the Escrow Agent by the VIS
Representative. This BAM Warranty Escrow Shares issued in settlement
of BAM Warranty Claims shall be allocated amongst the VIS
Shareholders and SOED Shareholders as directed in writing by the VIS
Representative.
PAGE 10
(i) In respect of any adjustments under this clause 5 any fractions of
BAM Shares will be rounded down to the nearest whole number of BAM
Shares and the decision of the Escrow Agent as to the allocation on
this basis shall be final and binding on the holders of the VIS
Shares and SOED Shareholders.
(j) Claims for breach of the VIS Deed of Warranty and/or the SOED Deed
of Warranty may be offset against claims for breach of the BAM
Warranties and vice versa.
(k) BAM undertakes to file a registration statement with the Securities
and Exchange Commission to register all BAM Warranty Escrow Shares
released from the BAM Warranty Escrow Account to VIS Shareholders
and SOED Shareholders within 30 days of the relevant settlement date
which shall be freely transferable subject to the terms of the Lock
Up Agreement.
6 PARTICIPATION OF ALL VIS SHAREHOLDERS
Notwithstanding any other provision of this document if the value of the
BAM Consideration Shares at Completion (and as set out in the letter from
the Chairman of VIS accompanying the Offer Document) is sufficient to
allow at least the 20% IRR calculated in accordance with the articles of
association of VIS to be received by the holders of the B Shares under the
Offer (with not less than 45,000 BAM Consideration Shares being available
to the holders of the Ordinary and A Shares) the escrow arrangements will
be adjusted to reflect the participation of all VIS Shareholders, and not
just holders of B Shares in the BAM Consideration Shares and any
participation of the VIS Shareholders shall be notified in writing to the
Escrow Agent by the VIS Representative in accordance with this Agreement.
7 VIS REPRESENTATIVE
(a) The VIS Representative shall not be responsible for any of the
warranties, indemnities, covenants or undertakings contained in the
VIS Deed of Warranty, the SOED Deed of Warranty or in respect of the
BAM Warranties or for the performance of any agreements, except the
performance of its express duties under this Escrow Agreement.
(b) The VIS Representative shall not be bound by any notice of or any
demand with respect to any waiver, modifications, amendments or
rescission of this Escrow Agreement, unless in writing and signed by
BAM and the VIS Representative. No amendment or modification of the
Offer, the SOED SPA, the VIS Deed of Warranty, the SOED Deed of
Warranty or the BAM Warranties shall affect the rights or duties of
Escrow Agent hereunder, unless the prior written consent of the VIS
Representative shall have been obtained.
(c) The VIS Representative shall not be liable to anyone whatsoever by
any reason of error of judgment or for any act done or step taken or
omitted by them in good faith or for any mistake of fact or law or
for anything which they may do or refrain from doing in connection
herewith unless caused by or arising out of their own gross
negligence or fraud. In no event shall the VIS Representative be
liable for any indirect, special, consequential damages, or punitive
damages.
(d) The VIS Representative shall not owe any duty of care to the B
Shareholders (or any of the VIS Shareholders) or the SOED
Shareholders in respect of the operation of the Warranty Escrow
Account, the BAM Warranty Escrow Account and the Net
PAGE 11
Equity Escrow Account and the pursuit and defense of claims under
the VIS Deed of Warranty, SOED Deed of Warranty and BAM Warranties,
as appropriate. No responsibility or liability or right of action
will lie against the VIS Representative in this regard and the VIS
Representative shall take such action to pursue or defend any claim
as he sees fit in his absolute discretion. The VIS Representative
shall in his sole discretion determine whether it is reasonable to
pursue any claim for breach of the BAM Warranties and any decision
to pursue or not to pursue a claim under the BAM Warranties by the
VIS Representative shall be final and binding on all of the B
Shareholders (and any other VIS Shareholders) and the SOED
Shareholders.
(e) In the event that the VIS Representative determines that it would be
appropriate to pursue a claim for breach of the BAM Warranties, the
pursuit of such claim shall be conditional on appropriating funding
for the costs and anticipated costs of such pursuit to be paid by
any or all of the B Shareholders (and any other VIS Shareholders)
and the SOED Shareholders. The VIS Representative shall, as soon as
practicable, notify the B Shareholders (and any other VIS
Shareholders as appropriate) and the SOED Shareholders of its
intention to pursue a claim for breach of the BAM Warranties and the
amount or expected amount of the costs of pursuing such a claim and
requesting that any B Shareholder (and any other VIS Shareholders)
or SOED Shareholder who wishes to participate in such pursuit and
therefore benefit from any BAM Warranty Escrow Shares to be issued
on settlement of any claim under the BAM Warranties. Only B
Shareholders (and any other VIS Shareholders) and SOED Shareholders
who contribute towards the costs of pursuit of a claim for breach of
the BAM Warranties shall be entitled to receive any BAM Warranty
Escrow Shares to be issued if such pursuit is successful. Any such
BAM Warranty Escrow Shares shall be allocated to B Shareholders (and
any other VIS Shareholders) and SOED Shareholders who have
contributed towards the costs of pursuit, in proportion to their
contribution towards the costs. Failure to receive any notice
requesting payment of a contribution or inadvertent failure to issue
such a notice to any of the B Shareholders (and any other VIS
Shareholders) and SOED Shareholders shall not give a right of action
against the VIS Representative nor invalidate the pursuit of any
breach of the BAM Warranties or the allocation of any BAM Warranty
Escrow Shares to be issued if such claim is successful.
(f) The holders of the B Shares and the SOED Shares shall be entitled to
remove the VIS Representative and appoint another person as the VIS
Representative in place of the VIS Representative by notice in
writing to the VIS Representative (copied to each of BAM and the
Escrow Agent) signed by or on behalf of the holders of 75% of the B
Shares and the SOED Shares, with the whole of the B Shares
contributing to 50% of such calculation and the whole of the SOED
Shares contributing to the other 50% of such calculation, pro rata
to the number of B Shares and SOED Shares as appropriate contained
within each such proportion.
8 RESIGNATION/REMOVAL
PAGE 12
Escrow Agent shall have the right in its discretion, to withdraw and
resign as escrow agent by giving written notice to BAM at least thirty
(30) days in advance of the effective date of such resignation. Escrow
Agent may be removed and replaced by another escrow agent at any time by
written agreement of BAM and the VIS Representative. Escrow Agent shall
deliver over to the successor escrow agent, the Warranty Escrow Shares,
Net Equity Escrow Shares and the BAM Warranty Escrow Shares (or the
balance thereof) and, upon such delivery, shall thereafter be released and
relieved from any and all further liability and responsibility thereafter
accruing hereunder.
9 ASSIGNMENT
The Escrow Agreement is personal to BAM, holders of B Shares (and any
other VIS Shareholders) and the SOED Shareholders and none of their
interests nor rights hereunder may be transferred, conveyed or assigned by
any of them, whether by operation of law or otherwise without the prior
written consent of BAM and the VIS Representative (on behalf of the VIS
Shareholders and SOED Shareholders), as the case may be.
10 ARBITRATION
Save as otherwise set out in this Escrow Agreement regarding the
resolution of any dispute, all disputes between BAM and the VIS
Representative, relating to the release of the Warranty Escrow Shares, the
BAM Warranty Escrow Shares and the Net Equity Escrow Shares and/or the
Escrow Agent's rights, obligations, and liabilities arising from or
related to this Agreement shall be resolved by mandatory binding expedited
arbitration under the International Arbitration Rules of the American
Arbitration Association ("AAA") in effect as of the date the request for
arbitration is filed (the "Rules") before a single, neutral arbitrator,
selected in accordance with the Rules. Each of the parties may initiate
such an arbitration pursuant to the Rules. The arbitration shall be held
in San Xxxx. California (such site being herein referred to as the
"Forum"). BAM and the VIS Representative and the Escrow Agent will abide
by any decision rendered in such arbitration, and that any court having
jurisdiction may enforce such a decision. Each of the parties hereto
submits to the non-exclusive personal jurisdiction of the courts of the
Forum as an appropriate place for compelling arbitration or giving legal
confirmation of any arbitration award, and irrevocably waives any
objection which it may now or hereafter have to the venue of any such
enforcement proceeding brought in any of said courts and any claim of
inconvenient forum. Service of process for all arbitration proceedings may
be made in accordance with the Rules and shall be deemed effective as
provided therein. Notwithstanding the foregoing, in the event that the
Escrow Agent is a party to any dispute hereunder such dispute shall be
brought in any court of law in the state of New York, USA.
11 GOVERNING LAW
The Escrow Agreement shall be governed by, and construed in accordance
with, the laws of the State of California in the United States of America
(save for any matters referred to independent accountants pursuant to
clauses 3 or to the Independent Expert pursuant to clause 4, where such
matters in dispute shall be governed by, and construed in accordance with,
English law). Each party, to the extent permitted by law, knowingly
voluntarily and intentionally waives its right to trial by jury in any
action or other legal proceeding arising out of or relating to this Escrow
Agreement and the transactions contemplated hereby.
12 VIS REPRESENTATIVE
PAGE 13
(a) None of the B Shareholders (and any other VIS Shareholders) or the SOED
Shareholders shall have any separate and independent right to pursue any
claim for breach of the BAM Warranties or in relation to the defense or
otherwise of any claim for breach of the warranties, indemnities,
covenants and undertakings set out in the VIS Deed of Warranty or the SOED
Deed of Warranty or in relation to the agreement or dispute in relation to
the March 31 2004 Accounts, Adjusted Closing Net Equity Statement and Post
Closing Adjustment and each of the B Shareholders and all other VIS
Shareholders and SOED Shareholders unconditionally and irrevocably appoint
Xxxxxxxxx Xxxxxx Xxxxx as the VIS Representative and any replacement to
the VIS Representative who may be appointed following the date of this
Escrow Agreement, in accordance with the terms of this Escrow Agreement,
to act on their behalf in respect of all matters relative to this Escrow
Agreement.
b) Notwithstanding the foregoing provisions of this Escrow Agreement, the VIS
Representative shall act on the reasonable instructions in writing of the
holders of 75% of the B Shares and the SOED Shares, with the whole of the
B Shares contributing to 50% of such calculation and the whole of the SOED
Shares contributing to the other 50% of such calculation, pro rota to the
number of B Shares and SOED Shares, as appropriate in each proportion, in
relation to any matter which is the subject of a decision of the VIS
Representative in and in accordance with this Escrow Agreement subject to
and conditional upon the VIS Representative being indemnified and
reimbursed for all costs and expenses incurred or to be incurred in
complying with such reasonable instructions by such Shareholders or
otherwise through adjustment to the number of relevant Escrow Shares in
the Warranty Escrow Account and/or the Net Equity Escrow Account, as
appropriate, in accordance with this Escrow Agreement.
13 DEFINITIONS
All definitions in the Offer Document shall have the same meanings in this
Escrow Agreement, in addition the following term shall bear the following
meaning:
"BAM Share Fair Market Value" means the average of the closing prices of
the BAM Shares on the NASDAQ stock market (or, if the BAM Shares cease
trading on the NASDAQ stock market, such other national securities trading
market in which primary trading of the BAM Shares occurs) for all the
trading days during the 90 day period immediately preceding Completion as
notified in writing to the Escrow Agent by BAM and the VIS Representative.
14 NOTICES
All notices, requests, claims, demands and other communications under this
Agreement shall be in writing and shall be deemed given if delivered
personally or sent by facsimile, electronic mail, or overnight courier
(providing proof of delivery) to the parties at the following addresses
(or at such other address for a party as shall be specified by like
notice):
(a) if to the VIS Representative to:
Xxxxxxxxx Xxxxxx Xxxxx
c/o Caimsea Investments Ltd.
Xxxxxxxxx Xxxxx
0-0 Xxxx Xxxxxx
Xxxxxx XXX 0XX
Fax: 00 00 (0) 00 0000 0000
PAGE 14
with a copy to:
McGrigors
Princes Exchange
0 Xxxx Xxxx Xxxxxx
Xxxxxxxxx XX0 0XX
Attn: Xxxx Xxxxx
Fax: 00 00 (0) 000 000 0000
(x) if to BAM!. to:
BAM! Entertainment, Inc.
000 Xxxx Xxxxx Xxxxx Xx., Xxxxx 000
Xxx Xxxx, XX 00000
Attn: Xxx Xxxxx. President
Fax: (000) 000-0000
with a copy to:
Xxxxxxxxxxx & Xxxxxxxx LLP
00000 Xxxxx Xxxxxx Xxxx.
0xx Xxxxx
Xxx Xxxxxxx, XX 00000
Attn: Xxxxxx X. Xxxxxxx
Fax: (000) 000-0000
(c) if to Escrow Agent, to:
The Bank of New York
Insurance Trust and Escrow Xxxx
000 Xxxxxxx Xxxxxx, 0X
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxxxx Xxxxx
Fax: (000) 000-0000
15 FINAL AGREEMENTS
This Agreement is intended by the parities hereto to be the final,
complete, and exclusive expression of the agreement between them. This
Agreement supersedes any and all prior oral or written agreements relating
to the subject matter hereof. No modification, rescission, waiver,
release, or amendment of any provision of this Agreement shall be made,
except by a written agreement signed by the parties hereto by a duly
authorized representative thereof (the VIS Representative being the duly
authorised representative of all of the VIS Shareholders and SOED
Shareholders).
16 COUNTERPARTS
This Agreement may be entered into in any number of counterparts and by
the parties to it on separate counterparts, each of which when executed
and delivered shall be an original, but all the counterparts together
shall constitute one and the same document. This agreement may be validly
exchanged by fax.
PAGE 15
17 LIABILITY
For the avoidance of doubt any liability of individual SOED Shareholders
and individual VIS Shareholders under this Agreement shall be limited to
the equivalent of their proportion of the Net Equity Escrow Shares or
Warranty Escrow Shares, as appropriate, provided that this limitation
shall not in any way limit the obligations of the SOED Warrantors and the
VIS Warrantors under the SOED Deed of Warranty and the VIS Deed of
Warranty respectively.
IN WITNESS WHEREOF, the undersigned have executed this Escrow Agreement as of
the date herein above set forth.
SIGNATURE OF VIS SHAREHOLDER/SOED SHAREHOLDER
------------------
PLEASE PRINT YOUR NAME IN THE SPACE ABOVE AND THEN SIGN BELOW, IN THE PRESENCE
OF A WITNESS
Signature by individual(s).
sole or first named
registered shareholder":
Witnessed by:
1.
---------------
1. Name: Address:
Signature:
JOINT HOLDERS:
2.________________
2. Name:__________________ Address:_______________
_______________________ Signature:_____________
3.________________
3. Name:__________________ Address:_______________
_______________________ Signature:_____________
4.________________
4. Name:__________________ Address:_______________
_______________________ Signature:_____________
Execution by
corporation: ___________________________ ___________________
Name of Director/Authorised Signature
Signatory
__________________ ___________________________ ___________________
Name of Company Name of Director/Secretary/ Signature
Authorised Signatory/witness
* You must have your signature witnessed. You should have your signature
witnessed by a person who is over 18 years of age and who is not one of the
joint registered holders (if any). The witness should NOT however be a spouse or
a member of your immediate family. The witness should also print their full name
and home address in the space provided.
BAM! ENTERTAINMENT, INC.
By: /s/ XXX XXXXX
---------------------
Name: Xxx Xxxxx
Title: President
PAGE 00
XXX XXXX XX XXX XXXX
________________________
By:_____________________
Name:___________________
Title: its President
VIS REPRESENTATIVE
By: /s/ [ILLEGIBLE]
_____________________
Name:___________________
PAGE 17
SCHEDULE 1
VIS SHAREHOLDERS AND SOED SHAREHOLDERS
VIS SHAREHOLDERS SOED SHAREHOLDERS
----------------------------------------------- ------------------------------------------
3i Group plc Xxxxxxxxxx Xxxxxxx Xxxxx van der Kuyl
Avanti Capital plc Xxxxxxx Xxxxx
Xxxxxx Xxxx Xxxxx Xxxxxxx
Xxxxx Xxxxxxx Xxxx Xxxxx
Bamboo Investments plc Xxxxxxxxx Xxxxxx Xxxxx
Xxxx Xxxxx Xxxxxxx Xxxxxxxx
Xxxxx Xxxxx Coppertop Concepts Limited
Xxxxx Xxxxx Lord Catto's Settlement of November 1976
Xxxxxxx Xxxx Xxxxx Xxxxxxxx Investments Limited
Xxxxxxxxx Xxxxxx Xxxxx XX Services
Xxxxx Xxxxxx & Xxxxxxxxx Xxxxxx Xxxxx (as
trustees of Lord Catto's settlement of November
1976)
The Estate of the Late Lord Catto Xxxxx Xxxxx
Xxxx Xxxxxxxxx Xxxx Xxxxxxxxx
Xxxxxxx Xxxxxxxx Xxxx Xxxxxxxx
Xxxx X Xxxxx Five Oceans Foundation
Xxxx Xxxxxxxx Xxxxxx Xxxxxx
Flextech Television Limited Xxxxxxxx Xxxxx
XX Xxxx Xxxxxxx Xxxxxx
Xxxxxxx Xxxxxxx Northern Edge Limited
Xxxxxx Xxxxxx Xxxx Xxxxxxxx
Xxxxxx Xxxxxx Xxxxx Xxxx
Xxxxxxxx Xxxxxxxx Xxx Xxxxxxx Xxxxxxx
Xxxxx Xxxxxxxx Xxxxxxx Xxxxxx Xxxxxxx
Xxxxx & Xxxxxxxx Xxxxxxxx Xxxxx Xxxxxx
T Guy & Xxxxx. Xxxxx Xxxxxx Scottish Enterprise
Xxxxxxxx Xxxxx Julian Summer
Xxxxx Xxxxxxx TBI Financial Services Limited
Xxxxx Xxxxxxx-Mackenzic The Xxxxxxxx Portfolio Investments Limited
Xxxxx Xxxxx (Nominees) Limited (HSBC)
Xxxxxxx Xxxxxx
Kleinwort Xxxxxx Limited
Iain Xxxxxxx Xxxxxxxxxxx
M Xxxxx Xxxxxxx
Ran Meinertzhagen
Xxxxxxx X Xxxxx
Xxxxx Xxxxxxxx Investments Ltd
Xxxxxxx Xxxxx
Xxxxxx Xxxxx
Northern Edge
Xxxx Xxxxxxxx
Xxxx Xxxx
Xxxx Xxxxx Xxxx
Xxx X Xxxxxxx
Mairi Ritohie
Xxxxx Xxxxxxx Xxxxxx
PAGE 18
Scottish Enterprise
Scottish Equity Partnership
Xxxxx Xxxxxx
TBI Financial Services
TC Nominees (No 1) Limited
Xxxxx Xxxxxxx
Trustees of the Xxxx Xxxxxxxx Interest
in Possession Settlement
Trustees of the Xxx Xxxxxx Interest in Possession
Settlement
Christiaan R D van der Kuyl
Xxx Xxxxxxx
Xxxxxx Xxxxxxxx
PAGE 19
APPENDIX
BASIS OF PREPARATION OF MARCH 31 2004 ACCOUNTS, ADJUSTED CLOSING NET
EQUITY STATEMENT AND POST CLOSING ADJUSTMENT
1 FURTHER DEFINITIONS
In this Agreement unless the context otherwise requires:
"ACCOUNTING STANDARDS" means SSAPs and FRSs adopted and/or issued by the
ASB pursuant to section 256, of the 1985 Act;
"ASB" means Accounting Standard Board Limited (company number 2526824) or
such alternative body prescribed by the Secretary of State from time to
time pursuant to section 256, of the 1985 Act;
"MARCH 31 2004 ACCOUNTS" means consolidated financial statements for VIS
and its subsidiaries and also including the combined effect of SOED dated
as at close of business on March 31 2004 prepared in accordance with
accounting principles generally accepted in the United Kingdom
consistently applied ("UK GAAP") and on a basis consistent with the
methods used to prepare the audited consolidated balance sheet and profit
and loss account of VIS and its subsidiaries for the financial year ended
on November 30, 2002;
"ADJUSTED ESTIMATED NET EQUITY" is as defined in section 3(i) of this
Appendix
"ADJUSTED CLOSING NET EQUITY" is as defined in the Adjusted Closing Net
Equity Statement defined in clause 3(a) of the Escrow Agreement and as set
out in 3(ii) of this Appendix;
"FRS" means a Financial Reporting Standard issued by the ASB; and
"SSAP" means a Statement of Standard Accounting Practice adopted by the
ASB.
2 GENERAL REQUIREMENTS
The Company has heretofore delivered to BAM copies of its audited
consolidated financial statements, for the year ended November 30, 2002,
which have been prepared by the Company and audited by KPMG, together with
the unaudited estimated balance sheet for the period ending March 31 2004,
(the "Estimated Balance Sheet"), and the related estimated profit and loss
and cash flow statement for the period ending March 31, 2004
(collectively, the "VIS FINANCIAL ESTIMATES"). The Company's audited
consolidated financial statements for the period ended November 30, 2002
were prepared in accordance with generally accepted accounting principles
in the United Kingdom, consistently applied ("UK GAAP") and show a true
and fair view of the profits or losses of the Company as at their date.
The Company shall use its best endeavours to deliver to BAM the audited
consolidated financial statements for the year ended November 30, 2003 of
VIS and its subsidiaries ("November 30, 2003 Accounts") within 15 Business
Days after the date of Completion.
Subject to the provisions of paragraphs 3 and 4 of this Appendix, the
March 31 2004 Accounts shall be prepared under the historical cost
convention and on a basis consistent with the audited consolidated balance
sheet and profit and loss account of VIS and its subsidiaries for the
financial year ended on November 30, 2002 and also including the combined
effect of SOED and, subject as aforesaid in accordance with accounting
principles generally accepted in the United Kingdom (including Accounting
Standards). The adjustment provisions specified in clause 3 shall take
priority over the application of the
PAGE 20
Accounting Standards in relation to the calculation of Adjusted Closing
Net Equity and preparation of the March 31 2004 Accounts.
The Company will engage KPMG, the Company's current auditors, to complete
the review of the 31 March, 2004 Accounts required in connection with this
transaction and the preparation of the November 30, 2003 Accounts.
3 POST CLOSING ADJUSTMENT
The "Post Closing Adjustment" shall be:
(i) the sum of L1,614,041 ("Adjusted Estimated Net Equity")
(ii) less, the Adjusted Closing Net Equity amount derived from the
March 31 2004 Accounts (the "Adjusted Closing Net Equity").
The following principles and calculations have been and will be observed
in drawing up the March 31 2004 Accounts and Adjusted Closing Net Equity
amounts:
(a) All Sterling amounts have been (and will be) translated at an
exchange rate of US$1.83=L1.
(b) The development costs and related funding for the three principal
games under development (Narc, SOE, and Brave) will be accounted for
on the same basis as in the audited accounts for the financial year
ended on November 30, 2002.
(c) The Adjusted Estimated Net Equity equals L1,614,041 which was
calculated as follows:
i. the net asset balance sheet account as defined according to UK
GAAP and as reported on the Estimated Balance Sheet statement
of the Company;
ii. less: Intangible asset balances for goodwill of L1,575,770, as
defined according to UK GAAP and as reported on the Estimated
Balance Sheet of the Company;
iii. less an adjustment for an accrued loss on Brave of
L121,000;
iv. less an adjustment for accrued interest to SOED of L60,000;
v. less an adjustment for deal fees of L100,000;
(d) The Adjusted Closing Net Equity equal is defined as follows:
i. the net asset balance sheet amount set out in March 31 2004
Accounts;
ii. Less: Intangible asset balances for goodwill;
(e) Not withstanding anything contained herein to the contrary, the
balance sheet accounting treatment of the following items is
provided for clarification purposes:
i. VIS is accounting for its investment in VIS iTV on an equity
accounting basis under UK GAAP and this basis will be applied
in the March 31 2004 Accounts calculation;
PAGE 21
ii. The Estimated Balance Sheet of VIS does not include any fees and
costs related to the Offer in excess of L100,000 and the
Adjusted Closing Net Equity will include fees and costs related
to the Offer in excess of L100,000;
iii. The Estimated Balance Sheet of VIS does not include any accrued
interest to SOED in excess of L60,000 and the Adjusted Closing
Net Equity will include accrued interest to SOED in excess of
L60,000;
iv. The March 31 2004 Accounts of VIS are combined with the balance
sheets for SOED and do not exclude any SOED assets or
liabilities.
(f) NO CHANGES IN ACCOUNTING STANDARDS.
Unless otherwise taken into account in accordance with the preceding
provisions of this Appendix, the March 31 2004 Accounts shall be
prepared without regard to any changes in Accounting Standards from
those applied in the preparation of the audited consolidated
accounts of VIS and its subsidiaries for the period ended 30
November, 2002.
