Exhibit 4.3
NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE
HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR
REASONABLY ACCEPTABLE TO THE COMPANY TO SUCH EFFECT, THE SUBSTANCE OF WHICH
SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THE TRANSFER OF THIS SECURITY AND
THE SECURITIES ISSUABLE UPON CONVERSION OF THIS SECURITY IS SUBJECT TO THE
RESTRICTIONS ON TRANSFER SET FORTH HEREIN. THIS SECURITY AND THE SECURITIES
ISSUABLE UPON CONVERSION OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A
BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.
Initial Set Price: $0.83 Date of Issuance: May 24, 2004
$______,000
2% SECURED CONVERTIBLE DEBENTURE
DUE NOVEMBER 24, 2006
This DEBENTURE is one of a series of duly authorized and issued 2%
Secured Convertible Debentures of BAM! Entertainment, Inc., a Delaware
corporation, having a principal place of business at 333 West Santa Clara
Street, Suite 716, San Jose, California 95113 (the "Company"), designated as its
2% Convertible Debenture, due November 24, 2006 (the "Debentures").
FOR VALUE RECEIVED, the Company promises to pay to ____________________ or
its registered assigns (the "Holder"), the principal sum of $______,000 on
November 24, 2006 or such earlier date as the Debentures are required to be
repaid as provided hereunder (the "Maturity Date"), and to pay interest to the
Holder on the aggregate unconverted and then outstanding principal amount of
this Debenture at the rate of 2% per annum, payable quarterly on January 1,
April 1, July 1 and October 1, beginning on the first such date after the
Original Issue Date and on each Conversion Date (as to that principal amount
then being converted), on each Forced Conversion Notice Date and on the Maturity
Date (except that, if any such date is not a
Business Day, then such payment shall be due on the next succeeding Business
Day) (each such date, an "Interest Payment Date"), in cash. Interest shall be
calculated on the basis of a 360-day year and shall accrue daily commencing on
the Original Issue Date until payment in full of the principal sum, together
with all accrued and unpaid interest and other amounts which may become due
hereunder, has been made. Interest shall cease to accrue with respect to any
principal amount converted, when the Company in fact delivers the Underlying
Shares. Interest hereunder will be paid to the Person in whose name this
Debenture is registered on the records of the Company regarding registration and
transfers of Debentures (the "Debenture Register"). All overdue accrued and
unpaid interest to be paid hereunder shall entail a late fee at the rate of 18%
per annum (or such lower maximum amount of interest permitted to be charged
under applicable law) ("Late Fee") which will accrue daily, from the date such
interest is due hereunder through and including the date of payment. EXCEPT AS
PROVIDED FOR IN SECTION 5, THE COMPANY MAY NOT PREPAY ANY PORTION OF THE
PRINCIPAL AMOUNT OF THIS DEBENTURE WITHOUT THE PRIOR WRITTEN CONSENT OF THE
HOLDER.
This Debenture is subject to the following additional provisions:
Section 1. Exchange of Debentures. This Debenture is exchangeable for an
equal aggregate principal amount of Debentures of different authorized
denominations, as requested by the Holder surrendering the same. No service
charge will be made for such registration of transfer or exchange, provided that
the Company shall not be required to pay any tax that may be payable in respect
of any transfer involved in the issuance and delivery of any such certificate in
a name other than that of the then present Holder of such Debentures, and the
Company shall not be required to issue or deliver such certificates unless or
until the person or persons requesting the issuance thereof shall have paid to
the Company the amount of such tax or shall have established to the satisfaction
of the Company that such tax has been paid.
Section 2. Registration and Transfer of Debentures. This Debenture has
been issued subject to certain investment representations of the original Holder
set forth in the Purchase Agreement and may be transferred or exchanged only in
compliance with the Purchase Agreement and applicable federal and state
securities laws and regulations. Prior to due presentment to the Company for
transfer of this Debenture, the Company and any agent of the Company may treat
the Person in whose name this Debenture is duly registered on the Debenture
Register as the owner hereof for the purpose of receiving payment as herein
provided and for all other purposes, whether or not this Debenture is overdue,
and neither the Company nor any such agent shall be affected by notice to the
contrary.
Section 3. Events of Default.
a) "Event of Default", wherever used herein, means any one of the
following events (whatever the reason and whether it shall be voluntary or
involuntary or effected by operation of law or pursuant to any judgment,
decree or order of any court, or any order, rule or regulation of any
administrative or governmental body):
2
i) any default in the payment of the principal of, interest
(including Late Fees) on, or liquidated damages in respect of, any
Debentures, free of any claim of subordination, as and when the same
shall become due and payable (whether on a Conversion Date or the
Maturity Date or by acceleration or otherwise) which default is not
cured, if possible to cure, within 5 Trading Days of notice of such
default sent by the Holder;
ii) the Company shall fail to observe or perform any other
covenant, agreement or warranty contained in, or otherwise commit
any material breach of any of the Transaction Documents (other than
a breach by the Company of its obligations to deliver shares of
Common Stock to the Holder upon conversion or interest payment)
which is not cured, if possible to cure, within 10 Trading Days
after notice of such default sent by the Holder;
iii) the Company or any of its subsidiaries shall commence, or
there shall be commenced against the Company or any such subsidiary
a case under any applicable bankruptcy or insolvency laws as now or
hereafter in effect or any successor thereto, or the Company or any
Subsidiary commences any other similar proceeding under any
reorganization, arrangement, adjustment of debt, relief of debtors,
dissolution, insolvency or liquidation or similar law of any
jurisdiction whether now or hereafter in effect relating to the
Company or any Subsidiary thereof or there is commenced against the
Company or any Subsidiary thereof any such bankruptcy, insolvency or
other proceeding which remains undismissed for a period of 60 days;
or the Company or any subsidiary thereof is adjudicated insolvent or
bankrupt; or any order of relief or other similar order approving
any such case or proceeding is entered; or the Company or any
Subsidiary thereof suffers any appointment of any custodian or the
like for it or any substantial part of its property which continues
undischarged or unstayed for a period of 60 days; or the Company or
any Subsidiary thereof makes a general assignment for the benefit of
creditors; or the Company shall fail to pay, or shall state that it
is unable to pay, or shall be unable to pay, its debts generally as
they become due; or the Company or any Subsidiary thereof shall
expressly indicate its consent to, approval of or acquiescence in
any of the foregoing;
iv) the Company or any Subsidiary shall default in any of its
obligations under any other Debenture or any mortgage, credit
agreement or other credit facility, indenture agreement, factoring
agreement or other instrument under which there may be issued, or by
which there may be secured or evidenced, any indebtedness for
borrowed money or money due under any long term leasing or factoring
arrangement of the Company in an amount exceeding $500,000 in the
aggregate for the Company and its Subsidiaries, whether such
indebtedness now exists or shall hereafter be created, and such
default shall result in such
3
indebtedness becoming or being declared due and payable prior to the
date on which it would otherwise become due and payable;
v) the Common Stock shall not be eligible for quotation on or
quoted for trading on a Trading Market and shall not again be
eligible for and quoted or listed for trading thereon within five
Trading Days;
vi) the Company shall be a party to any Change of Control
Transaction or shall agree to sell or dispose of all or in excess of
45% of its assets in one or more transactions (whether or not such
sale would constitute a Change of Control Transaction);
vii) the Company shall fail for any reason to deliver
certificates to a Holder on or prior to the 15th Trading Day after a
Conversion Date pursuant to and in accordance with Section 4(b) or
the Company shall provide notice to the Holder, including by way of
public announcement, at any time, of its intention not to comply
with requests for conversions of any Debentures in accordance with
the terms hereof; or
viii) the Company shall fail for any reason to deliver the
payment in cash pursuant to a Buy-In (as defined herein) within 15
Trading Days after notice thereof is delivered hereunder.
b) If any Event of Default occurs, the full principal amount of this
Debenture, together with interest and other amounts owing in respect
thereof, to the date of acceleration, shall become, at the Holder's
election, immediately due and payable in cash. The aggregate amount
payable upon acceleration following an Event of Default shall be equal to
the Mandatory Prepayment Amount. Commencing five Trading Days after the
occurrence of any Event of Default that results in the eventual
acceleration of this Debenture, the interest rate on this Debenture shall
accrue at the rate of (18%) per annum (or such lower maximum amount of
interest permitted to be charged under applicable laws). All Debentures
for which the Mandatory Prepayment Amount hereunder shall have been paid
in accordance herewith shall promptly be surrendered to or as directed by
the Company. The Holder need not provide and the Company hereby waives any
presentment, demand, protest or other notice of any kind, and the Holder
may immediately and without expiration of any grace period enforce any and
all of its rights and remedies hereunder and all other remedies available
to it under applicable law. Such declaration may be rescinded and annulled
by the Holder at any time prior to payment hereunder and the Holder shall
have all rights as a Debenture holder until such time, if any, as the full
payment under this Section shall have been received by it. No such
rescission or annulment shall affect any subsequent Event of Default or
impair any right consequent thereon.
4
Section 4. Conversion.
a) i) At any time after the Original Issue Date until this Debenture
is no longer outstanding, this Debenture shall be convertible into
shares of Common Stock at the option of the Holder, in whole or in
part at any time and from time to time (subject to the limitations
on conversion set forth in Section 4(a)(ii) hereof). The Holder
shall effect conversions by delivering to the Company the form of
Notice of Conversion attached hereto as Annex A (a "Notice of
Conversion"), specifying therein the principal amount of Debentures
to be converted and the date on which such conversion is to be
effected (a "Conversion Date"), which date shall not be more than 10
Trading Days after delivery of the Notice of Conversion and the
Conversion Certificate (as defined in the Custodial Agreement) as to
such conversion. If no Conversion Date is specified in a Notice of
Conversion, the Conversion Date shall be the date that such Notice
of Conversion is provided hereunder. To effect conversions
hereunder, the Holder shall not be required to physically surrender
Debentures to the Company unless the entire principal amount of this
Debenture plus all accrued and unpaid interest thereon has been so
converted. Conversions hereunder shall have the effect of lowering
the outstanding principal amount of this Debenture in an amount
equal to the applicable conversion. The Holder and the Company shall
maintain records showing the principal amount converted and the date
of such conversions. The Company shall deliver any objection to any
Notice of Conversion within 3 Trading Days after receipt of such
notice. The Holder and any assignee, by acceptance of this
Debenture, acknowledge and agree that, by reason of the provisions
of this paragraph, following conversion of a portion of this
Debenture, the unpaid and unconverted principal amount of this
Debenture may be less than the amount stated on the face hereof.
ii) Conversion Limitations. The Company shall not effect any
conversion of this Debenture, and the Holder shall not have the
right to convert any portion of this Debenture, pursuant to Section
4(a)(i) or otherwise, to the extent that after giving effect to such
conversion, the Holder (together with the Holder's affiliates), as
set forth on the applicable Notice of Conversion, would beneficially
own in excess of 4.99% of the number of shares of the Common Stock
outstanding immediately after giving effect to such conversion. For
purposes of the foregoing sentence, the number of shares of Common
Stock beneficially owned by the Holder and its affiliates shall
include the number of shares of Common Stock issuable upon
conversion of this Debenture with respect to which the determination
of such sentence is being made, but shall exclude the number of
shares of Common Stock which would be issuable upon (A) conversion
of the remaining, nonconverted portion of this Debenture
beneficially owned by the Holder or any of its affiliates and (B)
exercise or conversion of the unexercised or nonconverted portion of
any other securities of the Company
5
(including any other Debentures or the Warrants) subject to a
limitation on conversion or exercise analogous to the limitation
contained herein beneficially owned by the Holder or any of its
affiliates. Except as set forth in the preceding sentence, for
purposes of this Section 4(a)(ii), beneficial ownership shall be
calculated in accordance with Section 13(d) of the Exchange Act. To
the extent that the limitation contained in this Section 4(a)(ii)
applies, the determination of whether this Debenture is convertible
(in relation to other securities owned by the Holder) and of which a
portion of this Debenture is convertible shall be in the sole
discretion of such Holder. To ensure compliance with this
restriction, the Holder will be deemed to represent to the Company
each time it delivers a Notice of Conversion that such Notice of
Conversion has not violated the restrictions set forth in this
paragraph and the Company shall have no obligation to verify or
confirm the accuracy of such determination. For purposes of this
Section 4(a)(ii), in determining the number of outstanding shares of
Common Stock, the Holder may rely on the number of outstanding
shares of Common Stock as reflected in the most recent of the
following: (x) the Company's most recent Form 10-Q or Form 10-K, as
the case may be, (y) a more recent public announcement by the
Company or (z) any other notice by the Company or the Company's
transfer agent setting forth the number of shares of Common Stock
outstanding. Upon the written or oral request of the Holder, the
Company shall within two Trading Days confirm orally and in writing
to the Holder the number of shares of Common Stock then outstanding.
In any case, the number of outstanding shares of Common Stock shall
be determined after giving effect to the conversion or exercise of
securities of the Company, including this Debenture, by the Holder
or its affiliates since the date as of which such number of
outstanding shares of Common Stock was reported.
iii) Underlying Shares Issuable Upon Conversion of Principal
Amount. The number of shares of Common Stock issuable upon a
conversion shall be determined by the quotient obtained by dividing
(x) the outstanding principal amount of this Debenture to be
converted by (y) the Set Price.
(b) i) Not later than five Trading Days after any Conversion
Date, the Company will deliver to the Holder a certificate or
certificates representing the Underlying Shares which shall be free
of restrictive legends and trading restrictions (other than those
required by the Purchase Agreement) representing the number of
shares of Common Stock being acquired upon the conversion of
Debentures, and (B) a check in the amount of accrued and unpaid
interest on the principal amount of Debentures then being converted.
The Company shall, if available and if allowed under applicable
securities laws, use commercially reasonable efforts to deliver any
certificate or certificates required to be delivered by the Company
under this Section electronically through the Depository Trust
Corporation or another established clearing corporation performing
similar
6
functions. If in the case of any Notice of Conversion such
certificate or certificates are not delivered to or as directed by
the applicable Holder by the third Trading Day after a Conversion
Date, the Holder shall be entitled by written notice to the Company
at any time on or before its receipt of such certificate or
certificates thereafter, to rescind such conversion, in which event
the Company shall immediately return the certificates representing
the principal amount of Debentures tendered for conversion.
ii) If the Company fails for any reason to deliver to the
Holder such certificate or certificates pursuant to Section 4(b)(i)
by the fifth Trading Day after the Conversion Date, the Company
shall pay to such Holder, in cash, as partial liquidated damages and
not as a penalty, for each $5,000 of principal amount being
converted, $25 per Trading Day (increasing to $50 per Trading Day
after 3 Trading Days after such damages begin to accrue) for each
Trading Day after such fifth Trading Day until such certificates are
delivered. The Company's obligations to issue and deliver the
Underlying Shares upon conversion of this Debenture in accordance
with the terms hereof are absolute and unconditional, irrespective
of any action or inaction by the Holder to enforce the same, any
waiver or consent with respect to any provision hereof, the recovery
of any judgment against any Person or any action to enforce the
same, or any setoff, counterclaim, recoupment, limitation or
termination, or any breach or alleged breach by the Holder or any
other Person of any obligation to the Company or any violation or
alleged violation of law by the Holder or any other person and
irrespective of any other circumstance which might otherwise limit
such obligation of the Company to the Holder in connection with the
issuance of such Underlying Shares; provided, however, such delivery
shall not operate as a waiver by the Company of any such action the
Company may have against the Holder. In the event a Holder of this
Debenture shall elect to convert any or all of the outstanding
principal amount hereof, the Company may not refuse conversion based
on any claim that the Holder or any one associated or affiliated
with the Holder of has been engaged in any violation of law,
agreement or for any other reason, unless, an injunction from a
court, on notice, restraining and or enjoining conversion of all or
part of this Debenture shall have been sought and obtained. In the
absence of an injunction precluding the same, the Company shall
issue Conversion Shares or, if applicable, cash, upon a properly
noticed conversion. Nothing herein shall limit a Holder's right to
pursue actual damages or declare an Event of Default pursuant to
Section 3 herein for the Company's failure to deliver Conversion
Shares within the period specified herein and such Holder shall have
the right to pursue all remedies available to it at law or in equity
including, without limitation, a decree of specific performance
and/or injunctive relief. The exercise of any such rights shall not
prohibit the Holders from seeking to enforce damages pursuant to any
other Section hereof or under applicable law. Notwithstanding
anything herein to the contrary, liquidated damages hereunder
7
that accrue as to any Conversion Shares shall not be payable to a
Purchaser if the Purchaser has previously demanded, as to such
Conversion Shares, liquidated damages pursuant to Section 4.1(d) of
the Purchase Agreement or "buy-in" compensation pursuant to Section
4(b)(iii) of this Debenture.
(iii) In addition to any other rights available to the Holder,
if the Company fails for any reason to deliver to the Holder such
certificate or certificates pursuant to Section 4(b)(i) by the fifth
Trading Day after the Conversion Date, and if after such fifth
Trading Day the Holder is required by its brokerage firm to purchase
(in an open market transaction or otherwise) Common Stock to deliver
in satisfaction of a sale by such Holder of the Underlying Shares
which the Holder anticipated receiving upon such conversion (a
"Buy-In"), then the Company shall (A) pay in cash to the Holder (in
addition to any remedies available to or elected by the Holder) the
amount by which (x) the Holder's total purchase price (including
brokerage commissions, if any) for the Common Stock so purchased
exceeds (y) the product of (1) the aggregate number of shares of
Common Stock that such Holder was entitled to receive as a result of
the conversion at issue multiplied by (2) the actual sale price of
the Common Stock at the time of the sale (including brokerage
commissions, if any) giving rise to such purchase obligation and (B)
at the option of the Holder, either reissue Debentures in principal
amount equal to the principal amount of the attempted conversion or
deliver to the Holder the number of shares of Common Stock that
would have been issued had the Company timely complied with its
delivery requirements under Section 4(b)(i). For example, if the
Holder purchases Common Stock having a total purchase price of
$11,000 to cover a Buy-In with respect to an attempted conversion of
Debentures with respect to which the actual sale price of the
Underlying Shares at the time of the sale (including brokerage
commissions, if any) giving rise to such purchase obligation was a
total of $10,000 under clause (A) of the immediately preceding
sentence, the Company shall be required to pay the Holder $1,000.
The Holder shall provide the Company written notice indicating the
amounts payable to the Holder in respect of the Buy-In.
Notwithstanding anything contained herein to the contrary, if a
Holder requires the Company to make payment in respect of a Buy-In
for the failure to timely deliver certificates hereunder and the
Company timely pays in full such payment, the Company shall not be
required to pay such Holder partial liquidated damages under Section
4(b)(ii) in respect of the certificates resulting in such Buy-In.
Notwithstanding anything herein to the contrary, Buy-In compensation
hereunder that is payable as to any Conversion Shares shall not be
payable to a Purchaser if the Purchaser has previously demanded, as
to such Conversion Shares, liquidated damages pursuant to Section
4.1(d) of the Purchase Agreement or liquidated damages pursuant to
Section 4(b)(ii) of this Debenture.
8
(iv) Notwithstanding anything herein to the contrary, if after
the Effective Date the VWAP for each of any 15 consecutive Trading
Days ("Threshold Period"), which 15 consecutive Trading Day period
shall have commenced only after the Effective Date, exceeds the then
effective Set Price (defined below) by 100%, the Company may, within
3 Trading Days after any such Threshold Period, deliver a notice to
the Holder (a "Forced Conversion Notice" and the date such notice is
received by the Holder, the "Forced Conversion Notice Date") to
cause the Holder to immediately convert all or part of the then
outstanding principal amount of Debentures pursuant to Section
4(a)(i) and the Holder shall surrender (if the entire Debenture is
converted) this Debenture to the Company for conversion within 5
Trading Days of the Forced Conversion Notice Date. The Company may
only effect a Forced Conversion Notice if (a) during the period
beginning with the Threshold Period and ending on the 3rd Trading
Day following the Forced Conversion Notice Date, all of the Equity
Conditions shall have been met and (b) the average daily trading
volume of the Common Stock exceeds 100,000 shares during the
Threshold Period. If any of the Equity Conditions shall cease to be
satisfied at any time during the required period, then the Forced
Conversion Notice shall be null and void, ab initio. To the extent
that the limitation of Section 4(a)(ii) would prevent the conversion
of all or a portion of this Debenture on the Forced Conversion
Notice Date, then from and after the Forced Conversion Notice Date:
(x) the Debenture shall cease to accrue interest, and (y) all Events
of Default (other than (A) Events of Default arising out of
nonpayment at maturity or upon a Redemption Demand following a
Holder Redemption Right, (B) Events of Default arising out of breach
of a covenant contained in the Debenture relating to conversion of
the Debentures, or (C) Event of Default 3(a)(ii) arising out of a
Transaction Document other than the Debentures) shall be deemed to
be waived and (z) the Holder shall deliver (and shall be deemed to
have delivered) a Consent Certificate pursuant to the Custodial and
Security Agreement releasing all funds on deposit with the Custodian
pursuant to the Custodial and Security Agreement.
(c) i) The conversion price in effect on any Conversion Date
shall be equal to $0.83 (subject to adjustment herein)(the "Set
Price").
ii) If the Company, at any time while the Debentures are
outstanding: (A) shall pay a stock dividend or otherwise make a
distribution or distributions on shares of its Common Stock or any
other equity or equity equivalent securities payable in shares of
Common Stock (which, for avoidance of doubt, shall not include any
shares of Common Stock issued by the Company pursuant to this
Debenture, including as interest thereon), (B) subdivide its
outstanding shares of Common Stock into a larger number of shares,
(C) combine (including by way of reverse stock split) its
outstanding shares of Common Stock into a smaller number of shares,
or (D) issue by reclassification of shares of the Common Stock any
shares of capital stock of the Company, then the Set Price shall be
multiplied by a
9
fraction of which the numerator shall be the number of shares of
Common Stock (excluding treasury shares, if any) outstanding before
such event and of which the denominator shall be the number of
shares of Common Stock outstanding after such event. Any adjustment
made pursuant to this Section shall become effective immediately
after the record date for the determination of stockholders entitled
to receive such dividend or distribution and shall become effective
immediately after the effective date in the case of a subdivision,
combination or re-classification.
iii) [INTENTIONALLY DELETED]
iv) If the Company, at any time while Debentures are
outstanding, shall distribute to all holders of Common Stock (and
not to Holders) evidences of its indebtedness or assets or rights or
warrants to subscribe for or purchase any security,1 then in each
such case the Set Price shall be equal to the greater of (x) the
product of (I) the Set Price in effect immediately prior to the
record date fixed for determination of stockholders entitled to
receive such distribution and (II) a fraction of which the
denominator shall be the VWAP determined as of the record date
mentioned above, and of which the numerator shall be such VWAP on
such record date less the then fair market value at such record date
of the portion of such assets or evidence of indebtedness so
distributed applicable to one outstanding share of the Common Stock
as determined by the Board of Directors in good faith, and (y) the
Set Price as of the record date mentioned above, less the then fair
market value at such record date of the portion of such assets or
evidence of indebtedness so distributed applicable to one
outstanding share of the Common Stock as determined by the Board of
Directors in good faith. In either case the adjustments shall be
described in a statement provided to the Holders of the portion of
assets or evidences of indebtedness so distributed or such
subscription rights applicable to one share of Common Stock. Such
adjustment shall be made whenever any such distribution is made and
shall become effective immediately after the record date mentioned
above.
v) All calculations under this Section 4 shall be made to the
nearest cent or the nearest 1/100th of a share, as the case may be.
For purposes of this Section 4, the number of shares of Common Stock
outstanding as of a given date shall be the sum of the number of
shares of Common Stock (excluding treasury shares, if any)
outstanding.
vi) Whenever the Set Price is adjusted pursuant to any of
Section 4(c)(ii) - (v), the Company shall promptly mail to each
Holder a notice setting forth the Set Price after such adjustment
and setting forth a brief statement of the facts requiring such
adjustment. If the Company enters into a Variable Rate
10
Transaction or an MFN Transaction, despite the prohibition thereon
in the Purchase Agreement, the Company shall be deemed to have
issued Capital Shares or Capital Shares Equivalents at the lowest
possible conversion or exercise price at which such securities may
be converted or exercised in the case of a Variable Rate
Transaction, or the lowest possible adjustment price in the case of
an MFN Transaction.
vii) If (A) the Company shall declare a dividend (or any other
distribution) on the Common Stock; (B) the Company shall declare a
special nonrecurring cash dividend on or a redemption of the Common
Stock; (C) the Company shall authorize the granting to all holders
of the Common Stock rights or warrants to subscribe for or purchase
any shares of capital stock of any class or of any rights; (D) the
approval of any stockholders of the Company shall be required in
connection with any reclassification of the Common Stock, any
consolidation or merger to which the Company is a party, any sale or
transfer of all or substantially all of the assets of the Company,
of any compulsory share exchange whereby the Common Stock is
converted into other securities, cash or property; (E) the Company
shall authorize the voluntary or involuntary dissolution,
liquidation or winding up of the affairs of the Company; then, in
each case, the Company shall cause to be filed at each office or
agency maintained for the purpose of conversion of the Debentures,
and shall cause to be mailed to the Holders at their last addresses
as they shall appear upon the stock books of the Company, at least
20 calendar days prior to the applicable record or effective date
hereinafter specified, a notice stating (x) the date on which a
record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not
to be taken, the date as of which the holders of the Common Stock of
record to be entitled to such dividend, distributions, redemption,
rights or warrants are to be determined or (y) the date on which
such reclassification, consolidation, merger, sale, transfer or
share exchange is expected to become effective or close, and the
date as of which it is expected that holders of the Common Stock of
record shall be entitled to exchange their shares of the Common
Stock for securities, cash or other property deliverable upon such
reclassification, consolidation, merger, sale, transfer or share
exchange; provided, that the failure to mail such notice or any
defect therein or in the mailing thereof shall not affect the
validity of the corporate action required to be specified in such
notice. Holders are entitled to convert Debentures during the 20-day
period commencing the date of such notice to the effective date of
the event triggering such notice.
viii) If, at any time while this Debenture is outstanding, (A)
the Company effects any merger or consolidation of the Company with
or into another Person, (B) the Company effects any sale of all or
substantially all of its assets in one or a series of related
transactions, (C) any tender offer or exchange offer (whether by the
11
Company or another Person) is completed pursuant to which holders of
Common Stock are permitted to tender or exchange their shares for
other securities, cash or property, or (D) the Company effects any
reclassification of the Common Stock or any compulsory share
exchange pursuant to which the Common Stock is effectively converted
into or exchanged for other securities, cash or property (in any
such case, a "Fundamental Transaction"), then upon any subsequent
conversion of this Debenture, the Holder shall have the right to
receive, for each Underlying Share that would have been issuable
upon such conversion absent such Fundamental Transaction, the same
kind and amount of securities, cash or property as it would have
been entitled to receive upon the occurrence of such Fundamental
Transaction if it had been, immediately prior to such Fundamental
Transaction, the holder of one share of Common Stock (the "Alternate
Consideration"). For purposes of any such conversion, the
determination of the Set Price shall be appropriately adjusted to
apply to such Alternate Consideration based on the amount of
Alternate Consideration issuable in respect of one share of Common
Stock in such Fundamental Transaction, and the Company shall
apportion the Set Price among the Alternate Consideration in a
reasonable manner reflecting the relative value of any different
components of the Alternate Consideration. If holders of Common
Stock are given any choice as to the securities, cash or property to
be received in a Fundamental Transaction, then the Holder shall be
given the same choice as to the Alternate Consideration it receives
upon any conversion of this Debenture following such Fundamental
Transaction. To the extent necessary to effectuate the foregoing
provisions, any successor to the Company or surviving entity in such
Fundamental Transaction shall issue to the Holder a new debenture
consistent with the foregoing provisions and evidencing the Holder's
right to convert such debenture into Alternate Consideration. The
terms of any agreement pursuant to which a Fundamental Transaction
is effected shall include terms requiring any such successor or
surviving entity to comply with the provisions of this paragraph (c)
and insuring that this Debenture (or any such replacement security)
will be similarly adjusted upon any subsequent transaction analogous
to a Fundamental Transaction.
(ix) Notwithstanding the foregoing, no adjustment will be made
under this paragraph (c) in respect of (A) the granting or issuance
of shares of Capital Shares or of options to employees, officers or
directors of the Company pursuant to any stock option plan agreement
or arrangement duly adopted or approved by a majority of the
non-employee members of the Board of Directors of the Company or a
majority of the members of a committee of non-employee directors
established for such purpose, or (B) upon the exercise of this
Debenture or any other Debenture of this series or of any other
series or any Warrant or security issued by the Company in
connection with the offer and sale of this Company's securities
pursuant to the Purchase Agreement, or (C) the issuance of any
Common Stock as payment of interest with respect to any Debenture,
or (D) upon the exercise of or conversion of any Capital Shares
Equivalents, rights, options or
12
warrants issued and outstanding on the Original Issue Date, provided
such securities have not been amended in order to reduce the
exercise or conversion price thereof or increase the number of
Shares issuable thereunder since the date of the Purchase Agreement
except as a result of the Purchase Agreement.
(d) The Company covenants that it will at all times reserve and keep
available out of its authorized and unissued shares of Common Stock solely
for the purpose of issuance upon conversion of the Debentures and payment
of interest on the Debenture, each as herein provided, free from
preemptive rights or any other actual contingent purchase rights of
persons other than the Holders, not less than such number of shares of the
Common Stock as shall (subject to any additional requirements of the
Company as to reservation of such shares set forth in the Purchase
Agreement) be issuable (taking into account the adjustments and
restrictions of Section 4(b)) upon the conversion of the outstanding
principal amount of the Debentures and payment of interest hereunder. The
Company covenants that all shares of Common Stock that shall be so
issuable shall, upon issue, be duly and validly authorized, issued and
fully paid, nonassessable and, if the Registration Statement is then
effective under the Securities Act, registered for public sale in
accordance with such Registration Statement.
(e) Upon a conversion hereunder the Company shall not be required to
issue stock certificates representing fractions of shares of the Common
Stock, but may if otherwise permitted, make a cash payment in respect of
any final fraction of a share based on the VWAP at such time. If the
Company elects not, or is unable, to make such a cash payment, the Holder
shall be entitled to receive, in lieu of the final fraction of a share,
one whole share of Common Stock.
(f) The issuance of certificates for shares of the Common Stock on
conversion of the Debentures shall be made without charge to the Holders
thereof for any documentary stamp or similar taxes that may be payable in
respect of the issue or delivery of such certificate, provided that the
Company shall not be required to pay any tax that may be payable in
respect of any transfer involved in the issuance and delivery of any such
certificate upon conversion in a name other than that of the Holder of
such Debentures so converted and the Company shall not be required to
issue or deliver such certificates unless or until the person or persons
requesting the issuance thereof shall have paid to the Company the amount
of such tax or shall have established to the satisfaction of the Company
that such tax has been paid.
(g) Any and all notices or other communications or deliveries to be
provided by the Holders hereunder, including, without limitation, any
Notice of Conversion, shall be in writing and delivered personally, by
facsimile or sent by a nationally recognized overnight courier service,
addressed to the Company, at the address set forth above, facsimile number
___________________ or such other address or facsimile number as the
Company may specify for such purposes by notice to the Holders delivered
in
13
accordance with this Section 4(g). Any and all notices or other
communications or deliveries to be provided by the Company hereunder shall
be in writing and delivered personally, by facsimile, sent by a nationally
recognized overnight courier service addressed to each Holder at the
facsimile telephone number or address of such Holder appearing on the
books of the Company, or if no such facsimile telephone number or address
appears, at the principal place of business of the Holder. Any notice or
other communication or deliveries hereunder shall be deemed given and
effective on the earliest of (i) the date of transmission, if such notice
or communication is delivered via facsimile at the facsimile number
specified on the signature page attached hereto prior to 5:30 p.m. (New
York City time) on a Trading Day and an electronic confirmation of
delivery is received by the sender, (ii) the next Trading 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 Trading Day or later than 5:30 p.m. (New York City time) on any
Trading Day, (iii) three Trading Days following the date of mailing, if
sent by U.S. nationally recognized overnight courier service, or (iv) upon
actual receipt by the party to whom such notice is required to be given.
Section 5. Redemption.
(a) Redemption On Account of SEC Decision. Subject to the provisions
of this Section 5, if the SEC determines, after the Company has used
commercially reasonable efforts to convince the SEC otherwise, that the
resale of the Conversion Shares pursuant to the Registration Statement is
an indirect primary offering and therefore the resale registration
statement must be on the form that the company is eligible to use for a
primary offering, the Company shall deliver a notice to the Holders (an
"Required Redemption Notice" and the date such notice is deemed delivered
hereunder, the "Required Redemption Notice Date") that it shall redeem all
of the then outstanding Debentures, for an amount, in cash, equal to the
outstanding principal amount of this Debenture, together with accrued but
unpaid interest, on the 20th Trading Day following the Required Redemption
Notice Date (such date, the "Required Redemption Date" and such
redemption, the "Required Redemption"). The Required Redemption Amount is
due in full on the Required Redemption Date. Notwithstanding anything
herein to the contrary, at any time prior to the Required Redemption Date,
the Holder, in its sole determination upon notice to the Company prior to
the Required Redemption Date, as to all or part of the outstanding
principal amount of this Debenture, may elect in lieu of the Required
Redemption, to either (i) convert such principal amount of this Debenture
pursuant to Section 4 or (ii) waive its registration rights under the
Common Stock Registration Rights Agreement as to the Conversion Shares and
agree to a withdrawal of the Conversion Shares from the Registration
Statement in which case such outstanding principal amount of this
Debenture shall remain outstanding after the Required Redemption Date. The
Company covenants and agrees that it will honor all Conversion Notices
tendered from the time of delivery of the Required Redemption
14
Notice through the later of the Required Redemption Date or the date all
amounts owing thereon are due and paid in full.
(b) Redemption Procedure. The payment of cash pursuant to a Required
Redemption shall be made on the Required Redemption Date. If any portion
of the cash payment for an Required Redemption shall not be paid by the
Company by the respective due date, interest shall accrue thereon at the
rate of 12% per annum (or the maximum rate permitted by applicable law,
whichever is less) until the payment of the Required Redemption Amount
plus all amounts owing thereon is paid in full.
(c) Required Redemption at Election of the Holder. Upon the
occurrence of a Holder Redemption Right (as defined below), the Holder
shall have the right, at the Holder's sole election, to demand (a
"Redemption Demand") an immediate redemption in cash of the full principal
amount of this Debenture, together with accrued but unpaid interest and
other amounts owing in respect thereof. If any portion of the cash payment
for a Redemption Demand shall not be paid by the Company by the 5th
Trading Day after a Redemption Demand, interest shall accrue thereon at
the rate of 12% per annum (or the maximum rate permitted by applicable
law, whichever is less) until such payment is made. All Debentures for
which the Redemption Demand price hereunder shall have been paid in
accordance herewith shall promptly be surrendered to or as directed by the
Company. Such Redemption Demand may be rescinded and annulled by the
Holder at any time prior to payment hereunder and the Holder shall have
all rights as a Debenture holder until such time, if any, as the full
payment under this Section shall have been received by it. No such
rescission or annulment shall affect any subsequent Redemption Demand or
impair any right consequent thereon. The following events shall constitute
a "Holder Redemption Right":
(i) a Registration Statement (as defined under either of the
Registration Rights Agreements) registering the resale of all of the
securities required to be registered pursuant to the Registration
Rights Agreements shall not have been declared effective by the SEC
on or prior to the 180th calendar day after the Original Issue Date;
or
(ii) if, during any Registration Period (as defined in the
Registration Rights Agreements), the effectiveness of the
Registration Statement required to be effective pursuant to the
applicable Registration Rights Agreement lapses for any reason or
the Holder shall not be permitted to resell Registrable Securities
(as defined in the applicable Registration Rights Agreement) under
the Registration Statement, in either case, for more than 25
consecutive Trading Days or 35 non-consecutive Trading Days during
any 12 month period; provided, however, that in the event that the
Company is negotiating a merger, consolidation, acquisition or sale
of all or substantially all of its assets or a similar transaction
and in the written opinion of counsel to the Company, the
Registration Statement, would be
15
required to be amended to include information concerning such
transactions or the parties thereto that is not available or may not
be publicly disclosed at the time, the Company shall be permitted an
additional 20 consecutive Trading Days during any 12 month period
relating to such an event.
Section 6. Definitions. For the purposes hereof, in addition to the terms
defined elsewhere in this Debenture: (a) capitalized terms not otherwise defined
herein have the meanings given to such terms in the Purchase Agreement, and (b)
the following terms shall have the following meanings:
"Change of Control Transaction" means the occurrence after the date
hereof of any of (i) an acquisition after the date hereof by an individual
or legal entity or "group" (as described in Rule 13d-5(b)(1) promulgated
under the Exchange Act) of effective control (whether through legal or
beneficial ownership of capital stock of the Company, by contract or
otherwise) of in excess of 45% of the voting securities of the Company, or
(ii) a replacement at one time or within a one year period of more than
one-half of the members of the Company's board of directors which is not
approved by a majority of those individuals who are members of the board
of directors on the date hereof (or by those individuals who are serving
as members of the board of directors on any date whose nomination to the
board of directors was approved by a majority of the members of the board
of directors who are members on the date hereof), or (iii) the execution
by the Company of an agreement to which the Company is a party or by which
it is bound, providing for any of the events set forth above in (i) or
(ii).
"Common Stock" means the common stock, $0.001 par value per share,
of the Company and stock of any other class into which such shares may
hereafter have been reclassified or changed.
"Conversion Date" shall have the meaning set forth in Section
4(a)(i) hereof.
"Equity Conditions" shall mean (i) the Company is not in default in
honoring all conversions and redemptions scheduled to occur or occurring
by virtue of one or more Conversion Notices, if any, (ii) all liquidated
damages and other amounts owing in respect of the Debentures shall have
been paid; (iii) there is an effective Registration Statement pursuant to
which the Holder is permitted to utilize the prospectus thereunder to
resell all of the shares issuable pursuant to the Transaction Documents
(and the Company believes, in good faith, that such effectiveness will
continue uninterrupted for the foreseeable future), (iv) the Common Stock
is trading on the Trading Market and all of the shares issuable pursuant
to the Transaction Documents are listed for trading on a Trading Market
(and the Company believes, in good faith, that trading of the Common Stock
on a Trading Market will continue uninterrupted for the foreseeable
future), (v) there is a sufficient number of authorized but unissued and
otherwise unreserved shares of Common Stock for the issuance of all of the
shares issuable pursuant to the
16
Transaction Documents (other than shares issuable in lieu of cash interest
payments), (vi) there is then existing no Event of Default or event which,
with the passage of time or the giving of notice, would constitute an
Event of Default and (vii) all of the shares issued and still owned by a
Holder or issuable pursuant to the Transaction Documents to the extent
required by the Company pursuant to the relevant Section under this
Debenture, would not violate the limitations set forth in Section 4(a)(ii)
and (ix) no public announcement of a pending or proposed Fundamental
Transaction or acquisition transaction has occurred that has not been
consummated.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Late Fees" shall have the meaning set forth in the second paragraph
to this Debenture.
"Mandatory Prepayment Amount" for any Debentures shall equal the sum
of (a) the greater of: (i) 110% of the principal amount of this Debenture,
or (ii) the principal amount of this Debenture to be prepaid, divided by
the Set Price on (A) the date the Mandatory Prepayment Amount is demanded
or otherwise due or (B) the date the Mandatory Prepayment Amount is paid
in full, whichever is less, multiplied by the VWAP on (A) the date the
Mandatory Prepayment Amount is demanded or otherwise due or (B) the date
the Mandatory Prepayment Amount is paid in full, whichever is greater plus
all other accrued and unpaid interest hereon, and (b) all other amounts,
costs, expenses and liquidated damages due in respect of such Debentures.
"Original Issue Date" shall mean the date of the first issuance of
the Debentures regardless of the number of transfers of any Debenture and
regardless of the number of instruments which may be issued to evidence
such Debenture.
"Person" means an individual or corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited
liability company, joint stock company, government (or an agency or
subdivision thereof) or other entity of any kind.
"Purchase Agreement" means the Securities Purchase Agreement, dated
as of May 24, 2004, to which the Company and the original Holder are
parties, as amended, modified or supplemented from time to time in
accordance with its terms.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the date of the Purchase Agreement, to which the
Company and the original Holder are parties, as amended, modified or
supplemented from time to time in accordance with its terms.
"Registration Statement" means a registration statement meeting the
requirements set forth in the Registration Rights Agreement and covering
among other things the resale
17
of the Underlying Shares by the Holder (as provided therein) and naming
the Holder as a "selling stockholder" thereunder.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
"Set Price" shall have the meaning set forth in Section 4(c)(i).
"Trading Day" means any day during which the Trading Market shall be
open for business.
"Trading Market" means initially the NASDAQ Small-Cap Market and
shall also include the, the American Stock Exchange, the New York Stock
Exchange, or the NASDAQ National Market, whichever is at the time the
principal trading exchange or market for the Common Stock, based upon
share volume.
"Transaction Documents" shall have the meaning set forth in the
Purchase Agreement.
"Underlying Shares" means the shares of Common Stock issuable upon
conversion of Debentures or as payment of interest in accordance with the
terms hereof.
"VWAP" means, for any date, the price determined by the first of the
following clauses that applies: (a) if the Common Stock is then listed or
quoted on a Trading Market, the daily volume weighted average price of the
Common Stock for such date (or the nearest preceding date) on the Trading
Market on which the Common Stock is then listed or quoted as reported by
Bloomberg Financial L.P. (based on a Trading Day from 9:30 a.m. Eastern
Time to 4:00 p.m. Eastern Time); (b) if the Common Stock is not then
listed or quoted on the Principal Market and if prices for the Common
Stock is then quoted on the OTC Bulletin Board, the volume weighted
average price of the Common Stock for such date (or the nearest preceding
date) on the OTC Bulletin Board (c) if the Common Stock is not then listed
or quoted on the OTC Bulletin Board and if prices for the Common Stock are
then reported in the "Pink Sheets" published by the National Quotation
Bureau Incorporated (or a similar organization or agency succeeding to its
functions of reporting prices), the most recent bid price per share of the
Common Stock so reported prior to the day in question; or (d) in all other
cases, the fair market value of a share of Common Stock as determined by
an independent appraiser selected in good faith by the Purchasers and
reasonably acceptable to the Company.
Section 7. Obligation Unconditional. Except as expressly provided herein,
no provision of this Debenture shall alter or impair the obligation of the
Company, which is absolute and
18
unconditional, to pay the principal of, interest and liquidated damages (if any)
on, this Debenture at the time, place, and rate, and in the coin or currency,
herein prescribed. THIS DEBENTURE IS A DIRECT DEBT OBLIGATION OF THE COMPANY
AND, PURSUANT TO THE CUSTODIAL AGREEMENT DATED THE DATE HEREOF BY AND BETWEEN
THE COMPANY AND THE PURCHASERS (AS DEFINED THEREIN), IS SECURED BY A FIRST
PRIORITY SECURITY INTEREST IN CERTAIN SECURED PROCEEDS (AS DEFINED IN THE
CUSTODIAL AGREEMENT). This Debenture ranks pari passu with all other Debentures
now or hereafter issued under the terms set forth herein. As long as this
Debenture is outstanding, the Company shall not and shall cause its Subsidiaries
not to, without the consent of the Holder, amend its certificate of
incorporation, bylaws or other charter documents so as to materially and
adversely affect any rights of the Holder.
Section 8. Replacement Debentures. If this Debenture shall be mutilated,
lost, stolen or destroyed, the Company shall execute and deliver, in exchange
and substitution for and upon cancellation of a mutilated Debenture, or in lieu
of or in substitution for a lost, stolen or destroyed Debenture, a new Debenture
for the principal amount of this Debenture so mutilated, lost, stolen or
destroyed but only upon receipt of evidence of such loss, theft or destruction
of such Debenture, and of the ownership hereof, and indemnity, if requested, all
reasonably satisfactory to the Company.
Section 9. Limitation on Additional Liens on Secured Proceeds. So long as
any portion of this Debenture is outstanding, the Company will not and will not
permit any of its subsidiaries to, directly or indirectly, enter into, create,
incur, assume or suffer to exist any Liens of any kind, on or with respect to
any of the Secured Proceeds (as that term is defined in the Custodial
Agreement).
Section 10. Governing Law. All questions concerning the construction,
validity, enforcement and interpretation of this Debenture shall be governed by
and construed and enforced in accordance with the internal laws of the State of
New York, without regard to the principles of conflicts of law thereof. Each
party agrees that all legal proceedings concerning the interpretations,
enforcement and defense of the transactions contemplated by this Debenture and
any of the Transaction Documents (whether brought against a party hereto or its
respective affiliates, directors, officers, shareholders, employees or agents)
shall be commenced exclusively in the state and federal courts sitting in the
City of New York, borough of Manhattan (the "New York Courts"). Each party
hereby irrevocably submits to the exclusive jurisdiction of the New York Courts
for the adjudication of any dispute hereunder or in connection herewith or with
any transaction contemplated hereby or discussed herein (including with respect
to the enforcement of any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, or that
the New York Courts are an improper or inconvenient venue for such proceeding.
Each party hereby irrevocably waives personal service of process and consents to
process being served in any such suit, action or proceeding by mailing a copy
thereof via registered or certified mail or overnight delivery (with evidence of
delivery) to such party at the address in effect for notices to it under this
Debenture and agrees that such service shall
19
constitute good and sufficient service of process and notice thereof. Nothing
contained herein shall be deemed to limit in any way any right to serve process
in any manner permitted by law. Each party hereto hereby irrevocably waives, to
the fullest extent permitted by applicable law, any and all right to trial by
jury in any legal proceeding arising out of or relating to this Debenture or the
transactions contemplated hereby. If either party shall commence an action or
proceeding to enforce any provisions of this Debenture, then the prevailing
party in such action or proceeding shall be reimbursed by the other party for
its attorneys' fees and other costs and expenses incurred with the
investigation, preparation and prosecution of such action or proceeding.
Section 11. Waiver. Any waiver by the Company or Holders of a majority of
the outstanding principal amount of the Debentures of a breach of any provision
of this Debenture shall not operate as or be construed to be a waiver of any
other breach of such provision or of any breach of any other provision of this
Debenture. The failure of the Company or said Holders to insist upon strict
adherence to any term of this Debenture on one or more occasions shall not be
considered a waiver or deprive that party of the right thereafter to insist upon
strict adherence to that term or any other term of this Debenture. Any waiver
must be in writing.
Section 12. Severability. If any provision of this Debenture is invalid,
illegal or unenforceable, the balance of this Debenture shall remain in effect,
and if any provision is inapplicable to any person or circumstance, it shall
nevertheless remain applicable to all other persons and circumstances. If it
shall be found that any interest or other amount deemed interest due hereunder
violates applicable laws governing usury, the applicable rate of interest due
hereunder shall automatically be lowered to equal the maximum permitted rate of
interest. The Company covenants (to the extent that it may lawfully do so) that
it shall not at any time insist upon, plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay, extension or usury law or other
law which would prohibit or forgive the Company from paying all or any portion
of the principal of or interest on this Debenture as contemplated herein,
wherever enacted, now or at any time hereafter in force, or which may affect the
covenants or the performance of this indenture, and the Company (to the extent
it may lawfully do so) hereby expressly waives all benefits or advantage of any
such law, and covenants that it will not, by resort to any such law, hinder,
delay or impeded the execution of any power herein granted to the Holder, but
will suffer and permit the execution of every such as though no such law has
been enacted.
Section 13. Payments Due on Non-Trading Days. Whenever any payment or
other obligation hereunder shall be due on a day other than a Trading Day, such
payment shall be made on the next succeeding Trading Day.
*********************
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IN WITNESS WHEREOF, the Company has caused this Convertible Debenture to
be duly executed by a duly authorized officer as of the date first above
indicated.
BAM! ENTERTAINMENT, INC.
By:_________________________________________
Name:
Title:
ANNEX A
NOTICE OF CONVERSION
The undersigned hereby elects to convert principal under the 2% Convertible
Debenture of BAM! Entertainment, Inc. (the "Company"), due on November 24, 2006,
into shares of common stock, $0.001 par value per share (the "Common Stock"), of
the Company according to the conditions hereof, as of the date written below. If
shares 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 and is
delivering herewith such certificates and opinions as reasonably requested by
the Company in accordance therewith. No fee will be charged to the holder for
any conversion, except for such transfer taxes, if any.
By the delivery of this Notice of Conversion the undersigned represents and
warrants to the Company that its ownership of the Company's Common Stock does
not exceed the amounts determined in accordance with Section 13(d) of the
Exchange Act, specified under Section 4 of this Debenture.
The undersigned agrees to comply with the prospectus delivery requirements under
the applicable securities laws in connection with any transfer of the aforesaid
shares of Common Stock.
Conversion calculations:
Date to Effect Conversion:
Principal Amount of Debentures to be Converted:
Number of shares of Common Stock to be issued:
Signature:
Name:
Address:
SCHEDULE 1
CONVERSION SCHEDULE
2% Convertible Debentures due on November __, 2006, in the aggregate principal
amount of $5,000,000 issued by BAM! Entertainment, Inc. This Conversion Schedule
reflects conversions made under Section 4 of the above referenced Debenture.
Dated:
Aggregate
Principal
Amount
Remaining
Subsequent to
Conversion
Date of Conversion (or original
(or for first entry, Amount of Principal
Original Issue Date) Conversion Amount) Company Attest
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