Exhibit 3.1
CERTIFICATE OF DESIGNATIONS, RIGHTS AND PREFERENCES
OF
SERIES A CUMULATIVE CONVERTIBLE PREFERRED STOCK
OF
BAM! ENTERTAINMENT, INC.
BAM! ENTERTAINMENT, INC., a Delaware corporation (the "Corporation"), does
hereby state and certify that pursuant to the authority expressly vested in the
Board of Directors of the Corporation (the "Board") by the Certificate of
Incorporation of the Corporation, as amended to date, which authorizes the
issuance of 10,000,000 shares of preferred stock, $0.001 per share, in one or
more series, the Board duly adopted the following resolutions, which resolutions
remain in full force and effect as of the date hereof:
RESOLVED, that, pursuant to Article 4, of the Certificate of Incorporation
of the Corporation, as amended to date, the Board hereby authorizes the issuance
of, and fixes the designation and preferences and relative, participating,
optional and other special rights, and qualifications, limitations and
restrictions, of a series of preferred stock of the Corporation consisting of
1,500 shares, par value $0.001 per share, to be designated "Series A Cumulative
Convertible Preferred Stock" (hereinafter, the "Convertible Preferred Stock" or
the "Preferred Stock"); and be it
RESOLVED, that each share of Convertible Preferred Stock shall rank
equally in all respects and shall be subject to the following terms and
provisions:
1. Dividends. The holders of the Convertible Preferred Stock shall be
entitled to receive, out of funds legally available therefor, cumulative
dividends payable as set forth in this Section 1.
(a) Dividends on the Convertible Preferred Stock shall accrue from
the date of original issuance of the shares of Convertible Preferred Stock (the
"Date of Original Issue"), shall be cumulative from the Date of Original Issue,
and such dividends shall be payable, whether or not earned or declared by the
Board of Directors of the Corporation on the Dividend Payment Dates as set forth
below. Until paid, the right to receive dividends on the Convertible Preferred
Stock shall accumulate, and shall be payable in cash in arrears, on March 31,
June 30, September 30 and December 31 of each year (each, a "Dividend Payment
Date"), commencing on June 30, 2004 (the "Initial Dividend Payment Date"), and
if such Dividend Payment Date is not a business day, then the Dividend Payment
Date will be the immediately preceding business day. Dividends shall be payable
to holders of record of shares of the Convertible Preferred Stock as they appear
on the Corporation's stock register on the record date. The record date, which
shall not be greater than five (5) days before such Dividend Payment Date, shall
be fixed by the Board of Directors of the Corporation. Any dividend payment made
on shares of the Convertible Preferred Stock shall first be credited against the
dividends accumulated with respect to the
earliest dividend period for which dividends have not been paid.
(b) The dividend rate (the "Dividend Rate") on each share of
Convertible Preferred Stock shall be 10% per share per annum on $10,000 (the
Liquidation Preference (as hereinafter defined) of each such share) for the
period from the Date of Original Issue until the Initial Dividend Payment Date
and, for each dividend period thereafter, which shall commence on the last day
of the preceding dividend period and shall end on the next Dividend Payment
Date, shall be at the Dividend Rate (as adjusted from time to time as
hereinafter provided) on such Liquidation Preference. The amount of dividends
per share of the Convertible Preferred Stock payable for each dividend period or
part thereof (the "Dividend Value") shall be computed by multiplying the
Dividend Rate for such dividend period by a fraction the numerator of which
shall be the number of days in the dividend period or part thereof on which such
share was outstanding and the denominator of which shall be 365 and multiplying
the result by the Liquidation Preference.
"Current Market Price" means, in respect of any share of Common
Stock on any date herein specified:
(1) if there shall not then be a public market for the
Common Stock, the higher of (a) the book value per share of Common
Stock at such date, and (b) the Appraised Value (as hereinafter
defined) per share of Common Stock at such date, or
(2) if there shall then be a public market for the Common
Stock, the higher of (x) the book value per share of Common Stock at
such date, and (y) the average of the daily market prices for the 20
consecutive trading days immediately before such date. The daily
market price for each such trading day shall be (i) the closing
price on such day on the principal stock exchange (including Nasdaq)
on which such Common Stock is then listed or admitted to trading, or
quoted, as applicable, (ii) if no sale takes place on such day on
any such exchange, the last reported closing price on such day as
officially quoted on any such exchange (including Nasdaq), (iii) if
the Common Stock is not then listed or admitted to trading on any
stock exchange, the last reported closing bid price on such day in
the over-the-counter market, as furnished by the National
Association of Securities Dealers Automatic Quotation System or the
National Quotation Bureau, Inc., (iv) if neither such corporation at
the time is engaged in the business of reporting such prices, as
furnished by any similar firm then engaged in such business, or (v)
if there is no such firm, as furnished by any member of the National
Association of Securities Dealers, Inc. (the "NASD") selected
mutually by holders of a majority of the Convertible Preferred Stock
and the Corporation or, if they cannot agree upon such selection, as
selected by two such members of the NASD, one of which shall be
selected by holders of a majority of the Convertible Preferred Stock
and one of which shall be selected by the Corporation (as
applicable, the "Daily Market Price").
"Appraised Value" means, in respect of any share of Common Stock on
any date herein specified, the fair saleable value of such share of Common Stock
(determined without
giving effect to the discount for (i) a minority interest or (ii) any lack of
liquidity of the Common Stock or to the fact that the Corporation may have no
class of equity registered under the Exchange Act of 1934, as amended (the
"Exchange Act")) as of the last day of the most recent fiscal month end prior to
such date specified, based on the value of the Corporation (assuming the
conversion and exercise of all of the Corporation's authorized and issued
capital stock), as determined by a nationally recognized investment banking firm
selected by the Corporation's Board of Directors and having no prior
relationship with the Corporation, and reasonably acceptable to not less than a
majority in interest of the holders of the Preferred Stock then outstanding.
(c) Except as hereinafter provided, no dividends shall be declared
or paid or set apart for payment on the shares of Common Stock or any other
class or series of capital stock of the Corporation for any dividend period
unless full cumulative dividends have been or contemporaneously are declared and
paid on the Convertible Preferred Stock through the most recent Dividend Payment
Date. If full cumulative dividends have not been paid on shares of the
Convertible Preferred Stock, all dividends declared on shares of the Convertible
Preferred Stock shall be paid pro rata to the holders of outstanding shares of
the Convertible Preferred Stock.
(d) The holders of the Convertible Preferred Stock shall each be
entitled to receive dividends, on a pari passu basis with the holders of shares
of Common Stock, out of any assets legally available therefor, with the amount
of such dividends to be distributed to the holders of Convertible Preferred
Stock computed on the basis of the number of shares of Common Stock which would
be held by such holder if, immediately prior to the declaration of the dividend,
all of the shares of Convertible Preferred Stock had been converted into shares
of Common Stock at the then current Conversion Value (as hereinafter defined).
2. Voting Rights. Except as otherwise provided herein or by law, the
holders of the Convertible Preferred Stock shall have full voting rights and
powers, subject to the Beneficial Ownership Cap as defined in Section 5(h),
equal to the voting rights and powers of holders of Common Stock and shall be
entitled to notice of any stockholders meeting in accordance with the Bylaws of
the Corporation, and shall be entitled to vote, with respect to any question
upon which holders of Common Stock have the right to vote, including, without
limitation, the right to vote for the election of directors, voting together
with the holders of Common Stock as one class. Each holder of shares of
Convertible Preferred Stock shall be entitled to the number of votes equal to
the number of shares of Common Stock into which such shares of Convertible
Preferred Stock could be converted on the record date for the taking of a vote,
subject to the Beneficial Ownership Cap limitations set forth in Section 5(h),
or, if no record date is established, at the day prior to the date such vote is
taken or any written consent of stockholders is first executed. Fractional votes
shall not, however, be permitted and any fractional voting rights resulting from
the above formula (after aggregating all shares into which shares of Convertible
Preferred Stock held by each holder could be converted) shall be rounded to the
nearest whole number (with one-half being rounded upward).
3. Rights on Liquidation.
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation (any such event being hereinafter
referred to as a "Liquidation"),
before any distribution of assets of the Corporation shall be made to or set
apart for the holders of Common Stock, the holders of Convertible Preferred
Stock shall be entitled to receive, payment out of such assets of the
Corporation in an amount equal to $10,000 per share of Convertible Preferred
Stock (such applicable amount being referred to as the "Liquidation Preference"
for the Convertible Preferred Stock), plus any accumulated and unpaid dividends
thereon (whether or not earned or declared) on the Convertible Preferred Stock.
If the assets of the Corporation available for distribution to the holders of
Convertible Preferred Stock shall not be sufficient to make in full the payment
herein required, such assets shall be distributed pro-rata among the holders of
Convertible Preferred Stock based on the Liquidation Preference of the shares of
Convertible Preferred Stock held by each such holder.
(b) If the assets of the Corporation available for distribution to
stockholders exceed the aggregate amount of the Liquidation Preferences payable
with respect to all shares of Convertible Preferred Stock then outstanding,
then, after the payment required by paragraph 3(a) above shall have been made or
irrevocably set aside, the holders of Common Stock shall be entitled to receive
with respect to each share of Common Stock payment of a pro rata portion of such
assets based on the aggregate number of shares of Common Stock held by each such
holder. The holders of the Convertible Preferred Stock shall participate in such
a distribution on a pro-rata basis with the holders of the Common Stock, with
the amount distributable to the holders of Convertible Preferred Stock to be
computed on the basis of the number of shares of Common Stock which would be
held by them if immediately prior to the Liquidation all of the outstanding
shares of Convertible Preferred Stock had been converted into shares of Common
Stock at the then current Conversion Value.
(c) A Change of Control (as defined below) of the Corporation
shall not be deemed a Liquidation, but shall instead be governed by the terms of
Section 7 below.
4. Actions Requiring the Consent of Holders of Preferred Stock. As long
as any shares of Convertible Preferred Stock issued on the Date of Original
Issue are outstanding, with respect to those matters described in Sections 4(a)
and 4(b) below, or at least 10% of the number of shares of Convertible Preferred
Stock issued on the Date of Original Issue are outstanding with respect to those
matters described in Sections 4(c), 4(d) and 4(e) below, the written consent of
the holders of at least a majority of the shares of Convertible Preferred Stock,
at the time outstanding, shall be necessary for effecting or validating any of
the following transactions or acts; provided, however, that holders of shares of
Convertible Preferred Stock (other than the subscribers under that certain
Securities Purchase Agreement dated as of May 17, 2004 and their affiliates) who
are affiliates of the Corporation (and the Corporation itself) shall not
participate in such vote and the shares of Convertible Preferred Stock of such
holders shall be disregarded and deemed not to be outstanding for purposes of
such vote:
(a) Any amendment, alteration or repeal of any of the provisions
of this Certificate of Designation (including any increase in the number of
shares of Preferred Stock authorized hereunder), whether by merger,
consolidation or otherwise;
(b) Any amendment, alteration or repeal of the Certificate of
Incorporation or Bylaws of the Corporation that will adversely affect the rights
or obligations of the holders of the Convertible Preferred Stock, whether by
merger, consolidation or otherwise;
(c) The authorization, creation, offer or sale by the Corporation
of, or the increase in the number of authorized shares of, any stock of any
class, or any security convertible into stock of any class, or the authorization
or creation of any new class of preferred stock (or any action which would
result in another series of preferred stock) ranking in terms of liquidation
preference, redemption rights or dividend rights, pari passu with or senior to,
the Convertible Preferred Stock in any manner;
(d) The redemption, purchase or other acquisition, directly or
indirectly, of any shares of capital stock of the Corporation or any of its
subsidiaries or any option, warrant or other right to purchase or acquire any
such shares, or any other security, other than the: (i) redemption of Preferred
Stock pursuant to the terms hereof, (ii) redemption of the warrants to purchase
shares of Common Stock that are issued or issuable (the "Warrants") under that
certain Securities Purchase Agreement entered into among the Corporation and the
purchasers of the Preferred Stock on the Date of Original Issue (the "Preferred
Stock Purchase Agreement"), pursuant to the redemption terms of the Warrants,
(iii) repurchase of shares at cost from employees of the Corporation upon
termination of employment with the Corporation in accordance with written
agreements pursuant to which the shares were issued, or (iv) repurchase or
redemption of shares pursuant to written agreements outstanding on the Date of
Original Issue; and
(e) The declaration or payment of any dividend or other
distribution (whether in cash, stock or other property) with respect to the
capital stock of the Corporation or any subsidiary, other than a dividend or
other distribution pursuant to the terms of the Convertible Preferred Stock.
5. Conversion.
(a) Right to Convert. Subject to the limitation set forth in
Section 5(h) hereof, the holder of any share or shares of Convertible Preferred
Stock shall have the right at any time and from time to time, at such holder's
option, to convert all or any lesser portion of such holder's shares of
Convertible Preferred Stock into such number of fully paid and non-assessable
shares of Common Stock as is determined by dividing (i) the aggregate
Liquidation Preference of the shares of Convertible Preferred Stock to be
converted plus accrued and unpaid dividends thereon by (ii) the applicable
Conversion Value (as defined below) then in effect for such Convertible
Preferred Stock. No fractional shares or scrip representing fractional shares
shall be issued upon the conversion of any Convertible Preferred Stock. With
respect to any fraction of a share of Common Stock called for upon any
conversion, the Corporation shall pay to the holder an amount in cash equal to
such fraction multiplied by the Current Market Price per share of the Common
Stock.
(b) Mandatory Conversion. Subject to the limitation set forth in
Section 5(h) hereof, at any time after twelve months following the Original
Issue Date all, but not less than all, the outstanding Convertible Preferred
Stock shall be converted at the option of the Corporation upon thirty (30) days
prior written notice ("Notice Period") to the holders of the Convertible
Preferred Stock (the "Notice"), following the occurrence of the following event
(a "Conversion Triggering Event"), as of the expiration of the thirty day period
set forth in the Notice, into such number of fully paid and non-assessable
shares of Common Stock as is
determined by dividing (i) the aggregate Liquidation Preference of the shares of
Convertible Preferred Stock to be converted plus accrued and unpaid dividends
thereon by (ii) the applicable Conversion Value (as hereinafter defined) then in
effect for such Convertible Preferred Stock:
(i) The Registration Statement (as hereinafter defined)
covering all of the shares of Common Stock into which the Preferred Stock
is convertible is effective (or all of the shares of Common Stock into
which the Preferred Stock is convertible may be sold without restriction
pursuant to Rule 144(k) promulgated by the Securities and Exchange
Commission under the Securities Act of 1933, as amended (the "Securities
Act")) at all times during the Notice Period and Pricing Period;
(ii) the Daily Market Price (solely as provided in clause
(2)(i) or (2)(ii) of the definition of Current Market Price) of the Common
Stock is greater than $1.20 per share (subject to adjustment for stock
dividends, subdivisions and combinations) for twenty of the thirty
consecutive trading days prior to the date the Notice is distributed to
the holders ("Pricing Period"); and
(iii) all of the Common Stock issuable upon conversion of the
Preferred Stock is listed on the Nasdaq Small Cap Market, Nasdaq National
Market System, American Stock Exchange or New York Stock Exchange, as the
case may be, at all times during the Notice Period and Pricing Period.
"Registration Statement" shall have the meaning established in the Common
Stock Registration Rights Agreement dated the Date of Original Issue by and
among the Corporation and the other parties signatory thereto.
(c) Mechanics of Conversion.
(i) Such right of conversion (other than mandatory
conversion) shall be exercised by the holder of shares of Convertible
Preferred Stock by delivering (which may be by facsimile) to the
Corporation a conversion notice in the form attached hereto as Exhibit A
(the "Conversion Notice"), appropriately completed and duly signed and
specifying the number of shares of Convertible Preferred Stock that the
holder elects to convert (the "Converting Shares") into shares of Common
Stock, and by surrender not later than two (2) business days thereafter of
the certificate or certificates representing such Converting Shares unless
such conversion is pursuant to book-entry as described below. The
Conversion Notice shall also contain a statement of the name or names
(with addresses and tax identification or social security numbers) in
which the certificate or certificates for Common Stock shall be issued, if
other than the name in which the Converting Shares are registered.
Promptly after the receipt of the Conversion Notice, the Corporation shall
issue and deliver, or cause to be delivered, to the holder of the
Converting Shares or such holder's nominee, a certificate or certificates
for the number of shares of Common Stock issuable upon the conversion of
such Converting Shares. Such conversion shall be deemed to have been
effected as of the close of business on the date of receipt by the
Corporation of the Conversion Notice (the "Conversion Date"), and the
person or persons entitled to receive the shares of Common Stock issuable
upon conversion shall be treated for all purposes as the holder or holders
of record of such
shares of Common Stock as of the close of business on the Conversion Date.
(ii) The Corporation shall effect such issuance of Common
Stock (and certificates for unconverted Preferred Stock) within three (3)
trading days of the Conversion Date and shall transmit the certificates by
messenger or reputable overnight delivery service to reach the address
designated by such holder within three (3) trading days after the receipt
by the Corporation of such Conversion Notice. If certificates evidencing
the Common Shares are not received by the holder within five (5) Trading
Days of the Conversion Notice, then the holder will be entitled to revoke
and withdraw its Conversion Notice, in whole or in part, at any time prior
to its receipt of those certificates. In lieu of delivering physical
certificates representing the Common Stock issuable upon conversion of
Converting Shares or in payment of dividends hereunder, provided the
Corporation's transfer agent is participating in the Depository Trust
Company ("DTC") Fast Automated Securities Transfer ("FAST") program, upon
request of the holder, the Corporation shall use its commercially
reasonable efforts to cause its transfer agent to electronically transmit
the Common Stock issuable upon conversion or dividend payment to the
holder, by crediting the account of the holder's prime broker with DTC
through its Deposit Withdrawal Agent Commission ("DWAC") system. The time
periods for delivery described above, and for delivery of Common Stock in
payment of dividends hereunder, shall apply to the electronic transmittals
through the DWAC system. The parties agree to coordinate with DTC to
accomplish this objective. The person or persons entitled to receive the
Common Stock issuable upon such conversion shall be treated for all
purposes as the record holder or holders of such Common Stock at the close
of business on the Conversion Date. If the conversion has not been
rescinded in accordance with this paragraph and the Corporation
intentionally and willfully fails to deliver to the holder such
certificate or certificates (or shares through DTC) pursuant to this
Section 5 (free of any restrictions on transfer or legends, if such shares
have been registered, or available for resale under Rule 144(k)) in
accordance herewith, prior to the seventh trading day after the Conversion
Date (assuming timely surrender of the Convertible Preferred Stock
certificates unless conversion is pursuant to book-entry), the Corporation
shall pay to such holder, in cash, an amount equal to 2% of the
Liquidation Preference of all Preferred Stock held by such holder per
month until such delivery takes place but in no event in an amount to
exceed $240,000.
The Corporation's obligation to issue Common Stock upon
conversion of Preferred Stock shall be absolute, is independent of any
covenant of any holder of Preferred Stock, and shall not be subject to:
(i) any offset or defense; or (ii) any claims against the holders of
Preferred Stock whether pursuant to this Certificate of Designations, the
Preferred Stock Purchase Agreement, the Common Stock Registration Rights
Agreement, the Warrants or otherwise.
(iii) Subject to the provisions of Section 5(h), in the event
that a Conversion Triggering Event has occurred, all the shares of
Preferred Stock shall be converted on the effective date set forth in the
Notice as if the holders thereof had delivered a Conversion Notice with
respect to such shares on such day. Promptly thereafter, the holders of
the Convertible Preferred Stock shall deliver their certificates
evidencing the Convertible Preferred Stock to the Corporation or its duly
authorized
transfer agent, and upon receipt thereof, the Corporation shall issue or
cause its transfer agent to issue certificates evidencing the Common Stock
into which the Convertible Preferred Shares have been converted.
(d) Beneficial Ownership Cap. To the extent that any shares of
Convertible Preferred Stock are not automatically converted upon the occurrence
of a Conversion Triggering Event on account of the application of Section 5(h),
such shares of Convertible Preferred Stock shall be deemed converted
automatically under this Section 5 at the first moment thereafter when Section
5(h) would not prevent such conversion. Notwithstanding the preceding sentence,
following the Conversion Triggering Event, on the effective date of conversion
set forth in the Notice, the right to: (a) accrue dividends on Preferred Stock
(other than dividends pursuant to Section 1(e) hereof); (b) the liquidation
preference of the Preferred Stock, including, without limitation, the right to
be treated as holders of Preferred Stock in the event of a merger or
consolidation; (c) the veto rights described in Section 4 hereof; and (d) the
participation rights provided in Section 10 hereof, (e) the redemption rights in
Section 13 hereof, and (f) all other preferential contractual rights granted to
holders of the Preferred Stock (but not the Common Stock), shall cease
immediately, provided in each case that such rights shall cease only if the
underlying shares are timely delivered to holders.
(e) Conversion Value. The initial conversion value for the
Convertible Preferred Stock shall be $0.83 per share of Common Stock, such value
to be subject to adjustment in accordance with the provisions of this Section 5.
Such conversion value in effect from time to time, as adjusted pursuant to this
Section 5, is referred to herein as a "Conversion Value." All of the remaining
provisions of this Section 5 shall apply separately to each Conversion Value in
effect from time to time with respect to Convertible Preferred Stock.
(f) Stock Dividends, Subdivisions and Combinations. If at any time
while the Preferred Stock is outstanding, the Corporation shall:
(i) cause the holders of its Common Stock to be entitled to
receive a dividend payable in, or other distribution of, additional shares
of Common Stock,
(ii) subdivide its outstanding shares of Common Stock into a
larger number of shares of Common Stock, or
(iii) combine its outstanding shares of Common Stock into a
smaller number of shares of Common Stock,
then in each such case the Conversion Value shall be multiplied by a fraction of
which the numerator shall be the number of shares of Common Stock (excluding
treasury shares, if any) outstanding immediately before such event and of which
the denominator shall be the number of shares of Common Stock outstanding
immediately after such event. Any adjustment made pursuant to clause (i) of this
paragraph shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution,
and any adjustment pursuant to clauses (ii) or (iii) of this paragraph shall
become effective immediately after the effective date of such subdivision or
combination. If any event requiring an adjustment under this paragraph occurs
during the period that a Conversion Value is calculated hereunder,
then the calculation of such Conversion Value shall be adjusted appropriately to
reflect such event.
(g) Certain Other Distributions. If at any time while the
Preferred Stock is outstanding the Corporation shall take a record of the
holders of its Common Stock for the purpose of entitling them to receive any
dividend or other distribution of:
(i) cash,
(ii) any evidences of its indebtedness, any shares of
stock of any class or any other securities or property or assets of any
nature whatsoever (other than cash or additional shares of Common Stock as
provided in Section 5(f) hereof), or
(iii) any warrants or other rights to subscribe for or
purchase any evidences of its indebtedness, any shares of stock of any
class or any other securities or property or assets of any nature
whatsoever (in each case set forth in subparagraphs 5(g)(i), 5(g)(ii) and
5(g)(iii) hereof, the "Distributed Property"),
then upon any conversion of Preferred Stock that occurs after such record date,
the holder of Preferred Stock shall be entitled to receive, in addition to the
shares of Common Stock otherwise issuable upon such conversion of the Preferred
Stock ("Conversion Shares"), the Distributed Property that such holder would
have been entitled to receive in respect of such number of Conversion Shares had
the holder been the record holder of such Conversion Shares as of such record
date. Such distribution shall be made whenever any such conversion is made. In
the event that the Distributed Property consists of property other than cash,
then the fair value of such Distributed Property shall be as determined in good
faith by the Board of Directors of the Corporation and set forth in reasonable
detail in a written valuation report (the "Valuation Report") prepared by the
Board of Directors. The Corporation shall give written notice of such
determination and a copy of the Valuation Report to all holders of Preferred
Stock, and if the holders of a majority of the outstanding Preferred Stock
object to such determination within twenty (20) business days following the date
such notice is given to all of the holders of Preferred Stock, the Corporation
shall submit such valuation to an investment banking firm of recognized national
standing selected by not less than a majority of the holders of the Preferred
Stock and acceptable to the Company in its reasonable discretion, whose opinion
shall be binding upon the Corporation and the Preferred Stockholders. A
reclassification of the Common Stock (other than a change in par value, or from
par value to no par value or from no par value to par value) into shares of
Common Stock and shares of any other class of stock shall be deemed a
distribution by the Corporation to the holders of its Common Stock of such
shares of such other class of stock within the meaning of this Section 5(g) and,
if the outstanding shares of Common Stock shall be changed into a larger or
smaller number of shares of Common Stock as a part of such reclassification,
such change shall be deemed a subdivision or combination, as the case may be, of
the outstanding shares of Common Stock within the meaning of Section 5(f).
(h) Blocking Provisions.
(i) Except as provided otherwise in this Section 5(h)(i),
the number of Conversion Shares that may be acquired by any holder, and
the number of shares of
Convertible Preferred Stock that shall be entitled to voting rights under
Section 2 hereof, shall be limited to the extent necessary to insure that,
following such conversion (or deemed conversion for voting purposes), the
number of shares of Common Stock then beneficially owned by such holder
and its Affiliates and any other persons or entities whose beneficial
ownership of Common Stock would be aggregated with the holder's for
purposes of Section 13(d) of the Exchange Act (including shares held by
any "group" of which the holder is a member, but excluding shares
beneficially owned by virtue of the ownership of securities or rights to
acquire securities that have limitations on the right to convert, exercise
or purchase similar to the limitation set forth herein) does not exceed
4.95% of the total number of shares of Common Stock of the Corporation
then issued and outstanding (the "Beneficial Ownership Cap"); provided
that for all purposes herein, the "Beneficial Ownership Cap" shall equal
9.95% with respect to holders of Convertible Preferred Stock who, on the
Date of Original Issue, beneficially own together with any other persons
or entities whose beneficial ownership of Common Stock would be aggregated
with the holder's for purposes of Section 13(d) of the Exchange Act
(including shares held by any "group" of which the holder is a member, but
excluding shares beneficially owned by virtue of the ownership of
securities or rights to acquire securities that have limitations on the
right to convert, exercise or purchase similar to the limitation set forth
herein) in excess of 4.95% of the total number of shares of Common Stock
of the Corporation then issued and outstanding. For purposes hereof,
"group" has the meaning set forth in Section 13(d) of the Exchange Act and
applicable regulations of the Securities and Exchange Commission, and the
percentage held by the holder shall be determined in a manner consistent
with the provisions of Section 13(d) of the Exchange Act. As used herein,
the term "Affiliate" means any person or entity that, directly or
indirectly through one or more intermediaries, controls or is controlled
by or is under common control with a person or entity, as such terms are
used in and construed under Rule 144 under the Securities Act. With
respect to a holder of Preferred Stock, any investment fund or managed
account that is managed on a discretionary basis by the same investment
manager as such holder will be deemed to be an Affiliate of such holder.
Each delivery of a Conversion Notice by a holder of Preferred Stock will
constitute a representation by such Holder that it has evaluated the
limitation set forth in this paragraph and determined, subject to the
accuracy of information filed under the Securities Act and the Exchange
Act by the Corporation with respect to the outstanding Common Stock of the
Corporation, that the issuance of the full number of shares of Common
Stock requested in such Conversion Notice is permitted under this
paragraph. This paragraph shall be construed and administered in such
manner as shall be consistent with the intent of the first sentence of
this paragraph. Any provision hereof which would require a result that is
not consistent with such intent shall be deemed severed herefrom and of no
force or effect with respect to the conversion contemplated by a
particular Conversion Notice.
(ii) In the event the Corporation is prohibited from issuing
shares of Common Stock as a result of any restrictions or prohibitions
under applicable law or the rules or regulations of any stock exchange,
interdealer quotation system or other self-regulatory organization, the
Corporation shall as soon as possible seek the approval of its
stockholders and take such other action to authorize the issuance of the
full number of shares of Common Stock issuable upon the full conversion of
the then outstanding shares
of Convertible Preferred Stock.
(iii) Notwithstanding the foregoing provisions of Section
5(h), any holder of Preferred Stock shall have the right prior to the Date
of Original Issue upon written notice to the Corporation, or after the
Date of Original Issue upon 61 days prior written notice to the
Corporation, to choose not to be governed by the Beneficial Ownership Cap
provided herein.
(i) Common Stock Reserved. The Corporation shall at all times
reserve and keep available out of its authorized but unissued Common Stock,
solely for issuance upon the conversion of shares of Convertible Preferred Stock
as herein provided, such number of shares of Common Stock as shall from time to
time be issuable upon the conversion of all the shares of Convertible Preferred
Stock at the time outstanding (without regard to any ownership limitations
provided in Section 5(h)).
(j) Book-Entry. Notwithstanding anything to the contrary set forth
herein, upon conversion of any Preferred Shares in accordance with the terms
hereof, the holder thereof shall not be required to physically surrender such
holder's certificates for Preferred Shares to the Corporation unless such holder
is converting all of the Preferred Shares then held by such holder. The holders
of Preferred Shares and the Corporation shall maintain records showing the
number of Preferred Shares so converted hereunder, the number of Common Shares
received upon conversion and the dates of such conversions, or shall use such
other method, reasonably satisfactory to the holders and the Corporation, so as
not to require physical surrender of certificates for Preferred Shares upon each
such conversion. In connection therewith a form of ledger to maintain a record
of such transactions is attached hereto as Exhibit B. Notwithstanding the
foregoing, if any Preferred Shares are converted as aforesaid, such holder of
Preferred Shares may not transfer its Preferred Shares unless such holder first
physically surrenders to the Corporation all certificates representing any
Preferred Shares which have previously been converted in whole or in part,
whereupon the Corporation will forthwith issue and deliver upon the order of
such holder new certificate(s) evidencing Preferred Shares, registered as such
holder may request, representing in the aggregate, together with all other
certificates evidencing Preferred Shares held by such holder, the remaining
number of Preferred Shares held by such holder. Each holder of Preferred Shares
(and any successor in interest or assignee), by acceptance of Preferred Shares,
acknowledges that, by reason of the provisions of this paragraph, following
conversion of any Preferred Shares, the number of Preferred Shares actually
owned by such holder may be less than the number of Preferred Shares set forth
on the face of the certificates representing Preferred Shares and held by such
holder.
6. Other Provisions Applicable to Adjustments. The following provisions
shall be applicable to the making of adjustments of the number of shares of
Common Stock into which the Convertible Preferred Stock is convertible and the
current Conversion Value provided for in Section 5:
(a) When Adjustments to Be Made. The adjustments required by
Section 5 shall be made whenever and as often as any specified event requiring
an adjustment shall occur, except that any adjustment to the Conversion Value
that would otherwise be required may be postponed (except in the case of a
subdivision or combination of shares of the Common Stock, as
provided for in Section 5(f)) up to, but not beyond the Conversion Date if such
adjustment either by itself or with other adjustments not previously made adds
or subtracts less than 1% of the shares of Common Stock into which such
Convertible Preferred Stock is convertible immediately prior to the making of
such adjustment. Any adjustment representing a change of less than such minimum
amount (except as aforesaid) which is postponed shall be carried forward and
made as soon as such adjustment, together with other adjustments required by
Section 5 and not previously made, would result in a minimum adjustment or on
the Conversion Date. For the purpose of any adjustment, any specified event
shall be deemed to have occurred at the close of business on the date of its
occurrence.
(b) Fractional Interests. In computing adjustments under Section
5, fractional interests in Common Stock shall be taken into account to the
nearest 1/100th of a share.
(c) When Adjustment Not Required. If the Corporation undertakes a
transaction contemplated under Section 5(g) and as a result takes a record of
the holders of its Common Stock for the purpose of entitling them to receive a
dividend or distribution or subscription or purchase rights or other benefits
contemplated under Section 5(g) and shall, thereafter and before the
distribution to stockholders thereof, legally abandon its plan to pay or deliver
such dividend, distribution, subscription or purchase rights or other benefits
contemplated under Section 5(g), then thereafter no adjustment shall be required
by reason of the taking of such record and any such adjustment previously made
in respect thereof shall be rescinded and annulled.
(d) Escrow of Stock. If after any property becomes distributable
pursuant to Section 5 by reason of the taking of any record of the holders of
Common Stock, but prior to the occurrence of the event for which such record is
taken, a holder of the Convertible Preferred Stock either converts the
Convertible Preferred Stock or there is a mandatory conversion during such
period or such holder is unable to convert shares pursuant to Section 5(h), such
holder of Convertible Preferred Stock shall continue to be entitled to receive
any shares of Common Stock issuable upon conversion under Section 5 by reason of
such adjustment (as if such Preferred Stock were not yet converted) and such
shares or other property shall be held in escrow for the holder of the
Convertible Preferred Stock by the Corporation to be issued to holder of the
Convertible Preferred Stock upon and to the extent that the event actually takes
place. Notwithstanding any other provision to the contrary herein, if the event
for which such record was taken fails to occur or is rescinded, then such
escrowed shares shall be canceled by the Corporation and escrowed property
returned to the Corporation.
7. Merger, Consolidation or Disposition of Assets.
(a) If, after the Date of Original Issue and while the Preferred
Stock is outstanding, there occurs: (i) an acquisition by an individual or legal
entity or group (as set forth in Section 13(d) of the Exchange Act) of more than
one-half of the voting rights or equity interests in the Corporation and such
acquisition is approved by the Corporation's Board of Directors; or (ii) a
merger or consolidation of the Corporation where the holders of the
Corporation's voting securities prior to such transaction fail to continue to
hold at least 50% of the voting power of the Corporation and such transaction is
approved by the Corporation's Board of Directors; or (iii) a sale, transfer or
other disposition of all or substantially all the
Corporation's property, assets or business to another corporation (each, a
"Change of Control"), then the holder of the Convertible Preferred Stock shall
have the right thereafter to receive, at the holder's election, which election
which must be delivered by the holder to the Corporation within 10 days after
receiving notice from the Corporation of the right to make such election:
(i) upon the conversion of the Convertible Preferred Stock,
the number of shares of common stock of the successor or acquiring
corporation or of the Corporation, if it is the surviving corporation, and
any cash, shares of stock or other securities or property of any nature
whatsoever (including warrants or other subscription or purchase rights)
in addition to or in lieu of common stock of the successor or acquiring
corporation ("Other Property") receivable upon or as a result of such
Change of Control by a holder of the number of shares of Common Stock into
which the Convertible Preferred Stock is convertible immediately prior to
such event, or
(ii) at the effective time of such Change of Control, 120% of
the Liquidation Preference that would have been payable immediately prior
to the effective time of such Change of Control plus accrued but unpaid
dividends.
If a timely election is not made pursuant to this Section 7(a), the holder
shall receive the benefit of Section 7(a)(i) and shall not be entitled to the
benefit of Section 7(a)(ii).
(b) In case of any such Change of Control, the successor or
acquiring corporation (if other than the Corporation) shall expressly assume the
due and punctual observance and performance of each and every covenant and
condition contained in this Certificate of Designation to be performed and
observed by the Corporation and all the obligations and liabilities hereunder,
subject to such modifications as may be deemed equitable and appropriate (as
determined by resolution of the Board of Directors of the Corporation) in order
to provide for adjustments of shares of the Common Stock (or other securities or
property) into which the Convertible Preferred Stock is convertible which shall
be as nearly equivalent as practicable to the adjustments provided for in
Section 5. For purposes of Section 5, common stock of the successor or acquiring
corporation shall include stock of such corporation of any class which is not
preferred as to dividends or assets on liquidation over any other class of stock
of such corporation and which is not subject to redemption and shall also
include any evidences of indebtedness, shares of stock or other securities which
are convertible into or exchangeable for any such stock, either immediately or
upon the arrival of a specified date or the happening of a specified event and
any warrants or other rights to subscribe for or purchase any such stock.
(c) The foregoing provisions of this Section 7 shall similarly
apply to successive Change of Control transactions.
8. Other Action Affecting Common Stock. In case at any time or from
time to time the Corporation shall take any action in respect of its Common
Stock, other than the payment of dividends permitted by Section 5 or any other
action described in Section 5, then, unless such action will not have a
materially adverse effect upon the rights of the holder of Convertible Preferred
Stock, the number of shares of Common Stock or other stock into which the
Convertible Preferred Stock is convertible exercisable and/or the purchase price
thereof shall be adjusted in such manner as may be equitable in the
circumstances; provided, that the mere
authorization or issuance of additional shares of capital stock of the Company
shall not be considered any action in respect of its Common Stock for purposes
of this Section 8.
9. Certain Limitations. Notwithstanding anything herein to the
contrary, the Corporation agrees not to enter into any transaction which, by
reason of any adjustment hereunder, would cause the current Conversion Value to
be less than the par value per share of Common Stock.
10. Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Conversion Value, the Corporation, at its
expense, shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and prepare and furnish to each holder of Convertible
Preferred Stock a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is based.
The Corporation shall, upon the written request at any time of any holder of
Convertible Preferred Stock, furnish or cause to be furnished to such holder a
like certificate setting forth (i) such adjustments and readjustments, (ii) the
Conversion Value at the time in effect for the Convertible Preferred Stock and
(iii) the number of shares of Common Stock and the amount, if any, or other
property which at the time would be received upon the conversion of Convertible
Preferred Stock owned by such holder (without regard to the ownership
limitations set forth in Section 5(h)).
11. Notices of Record Date. In the event of any fixing by the
Corporation of a record date for the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any shares of
Common Stock or other securities, or any right to subscribe for, purchase or
otherwise acquire, or any option for the purchase of, any shares of stock of any
class or any other securities or property, or to receive any other right, the
Corporation shall mail to each holder of Convertible Preferred Stock at least
twenty (20) days prior to the date specified therein, a notice specifying the
date on which any such record is to be taken for the purpose of such dividend,
distribution or rights, and the amount and character of such dividend,
distribution or right.
12. Redemption.
(a) Redemption at the Holders' Elections. If a Redemption
Triggering Event (as defined below) has occurred, and a holder has so elected,
the Corporation shall redeem the Convertible Preferred Stock of any holder who
gives a Demand for Redemption (as defined below). The Corporation shall
thereafter redeem the shares of Convertible Preferred Stock as set forth in the
Demand for Redemption. The Corporation shall effect such redemption by paying in
cash for each such share to be redeemed an amount equal to the greater of (i)
the Redemption Price (as defined below) or (ii) the total number of shares of
Common Stock into which such Convertible Preferred Stock is convertible
multiplied by the Current Market Price at the time of the Redemption Triggering
Event.
"Redemption Triggering Event" means:
(i) the Corporation's failure or refusal to convert any
shares of Convertible Preferred Stock in accordance with the terms hereof,
or the providing of
written notice to such effect;
(ii) any breach of any material warranty or representation of
the Corporation as of the date made in the Securities Purchase Agreement
(as defined herein) or of any agreement delivered therewith which breach,
if capable of being cured, has not been cured within ten (10) days after
notice of such breach has been given in writing by the holders of a
majority of Preferred Stock to the Corporation (the "Breach Cure Period");
or
(iii) any breach by the Corporation of any material covenant
or other material provision of the Securities Purchase Agreement or of any
agreement delivered therewith which is within the control of the
Corporation, and which breach, if capable of being cured, has not been
cured within the Breach Cure Period.
"Redemption Price" means (i) all accrued but unpaid dividends as of
the date of Demand for Redemption with respect to each share to be
redeemed, plus (ii) 100% of the Liquidation Preference of each share to be
redeemed.
(b) Demand for Redemption. A holder desiring to elect a redemption
as herein provided shall deliver a notice (the "Demand for Redemption") to the
Corporation while such Redemption Triggering Event continues specifying the
following:
(i) The approximate date and nature of the Redemption
Triggering Event;
(ii) The number of shares of Convertible Preferred Stock to
be redeemed; and
(iii) The address to which the payment of the Redemption Price
shall be delivered, or, at the election of the holder, wire instructions
with respect to the account to which payment of the Redemption Price shall
be required.
A holder may deliver the certificates evidencing the Convertible Preferred
Stock to be redeemed with the Demand for Redemption or under separate cover.
Payment of the Redemption Price shall be made not later than two (2) business
days after the date on which each of the following conditions has been
satisfied: (i) a holder has delivered a Demand for Redemption and the
certificates evidencing the shares of Convertible Preferred Stock to be
redeemed; and (ii) any Breach Cure Period has expired.
(c) Status of Redeemed or Purchased Shares. Any shares of the
Convertible Preferred Stock at any time purchased, redeemed or otherwise
acquired by the Corporation shall not be reissued and shall be retired.
13. Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
specified in this Section prior to 5:00 p.m. (New York City time) on a business
day, (b) the next business day after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number specified in
this Section on a day that is not a business day or later than 5:00 p.m. (New
York City time) on any business day, or (c) the business day following the date
of mailing, if sent by U.S. nationally recognized overnight courier service such
as Federal Express. The address for such notices and communications shall be as
follows: (i) if to the Corporation, to BAM! Entertainment, Inc., 333 West Santa
Clara Street, Suite 716, San Jose, California 95113, facsimile: (408) 298-9600,
Attention: Chief Financial Officer, or (ii) if to a holder of Preferred Stock,
to the address or facsimile number appearing on the Corporation's stockholder
records or, in either case, to such other address or facsimile number as the
Corporation or a holder of Preferred Stock may provide to the other in
accordance with this Section.
15. Stock Transfer Taxes. The issue of stock certificates upon
conversion of the Convertible Preferred Stock shall be made without charge to
the converting holder for any tax in respect of such issue; provided, however,
that the Corporation shall be entitled to withhold any applicable withholding
taxes with respect to such issue, if any. The Corporation shall not, however, be
required to pay any tax which may be payable in respect of any transfer involved
in the issue and delivery of shares in any name other than that of the holder of
any of the Convertible Preferred Stock converted, and the Corporation shall not
be required to issue or deliver any such stock certificate unless and until the
person or persons requesting the issue thereof shall have paid to the
Corporation the amount of such tax or shall have established to the satisfaction
of the Corporation that such tax has been paid.
[signature page follows]
IN WITNESS WHEREOF, the undersigned being a duly authorized officer of the
Corporation, does file this Certificate of Designations, Rights and Preferences,
hereby declaring and certifying that the facts stated herein are true and
accordingly has hereunto set his hand this 19th day of May, 2004.
BAM! ENTERTAINMENT, INC.
By: /s/ Stephen Ambler
--------------------------------
Name: Stephen Ambler
Title: Chief Financial Officer
EXHIBIT A TO CERTIFICATE OF DESIGNATIONS
OF
BAM! ENTERTAINMENT, INC.
FORM OF CONVERSION NOTICE
(To be executed by the registered Holder in order to convert shares of Preferred
Stock)
The undersigned hereby irrevocably elects to convert the number of shares
of Series A Cumulative Convertible Preferred Stock (the "Preferred Stock")
indicated below into shares of common stock, par value $0.001 per share (the
"Common Stock"), of BAM! Entertainment, Inc., a Delaware corporation (the
"Corporation"), according to the Certificate of Designations of the Preferred
Stock and the conditions hereof, as of the date written below. The undersigned
hereby requests that certificates for the shares of Common Stock to be issued to
the undersigned pursuant to this Conversion Notice be issued in the name of, and
delivered to, the undersigned or its designee as indicated below. If the shares
of Common Stock are to be issued in the name of a person other than the
undersigned, the undersigned will pay all transfer taxes payable with respect
thereto. A copy of the certificate representing the Preferred Stock being
converted is attached hereto.
______________________________________________________________________________
Date of Conversion (Date of Notice)
______________________________________________________________________________
Number of shares of Preferred Stock owned prior to Conversion
______________________________________________________________________________
Number of shares of Preferred Stock to be Converted
______________________________________________________________________________
Stated Value of Preferred Stock to be Converted
______________________________________________________________________________
Amount of accumulated and unpaid dividends on shares of Preferred Stock to be
Converted
______________________________________________________________________________
Number of shares of Common Stock to be Issued (including conversion of accrued
but unpaid dividends on shares of Preferred Stock to be Converted)
______________________________________________________________________________
Applicable Conversion Value
______________________________________________________________________________
Number of shares of Preferred Stock owned subsequent to Conversion
Conversion Information:[NAME OF HOLDER]
_______________________________________
Address of Holder:
_______________________________________
_______________________________________
Issue Common Stock to (if different than above):
Name: _______________________________
Address: ____________________________
_____________________________________
Tax ID #: ___________________________
The undersigned represents, subject to the accuracy of information filed
under the Securities Act and the Exchange Act by the Corporation with respect to
the outstanding Common Stock of the Corporation, as of the date hereof that,
after giving effect to the conversion of Preferred Shares pursuant to this
Conversion Notice, the undersigned will not exceed the "Beneficial Ownership
Cap" contained in Section 5(h) of the Certificate of Designation of the
Preferred Stock.
_______________________________________
Name of Holder
By: ___________________________________
Name:
Title:
EXHIBIT B TO CERTIFICATE OF DESIGNATIONS
OF
BAM! ENTERTAINMENT, INC.
RECORD OF CONVERSIONS/REDEMPTIONS
FOR
SERIES A CUMULATIVE CONVERTIBLE PREFERRED STOCK
HOLDER: ______________________ INITIAL NO. OF PREFERRED SHARES__________
PREFERRED
COMMON SHARES SHARES BALANCE
DATE OF PREFERRED RECEIVED UPON AFTER
CONVERSION/ SHARES PREFERRED CONVERSION/ CASH RECEIVED CONVERSION/ INITIALS
REDEMPTION CONVERTED SHARES REDEEMED REDEMPTION UPON REDEMPTION REDEMPTION (CORP./HOLDER)
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