EXHIBIT 10.5
BRILLIANT DIGITAL ENTERTAINMENT, INC.
0000 Xxxxxxx Xxxxxx Xxxxxxxxx, Xxxxx 000
Xxxxxxxx Xxxxx, XX 00000
October 2, 2002
To the Holders of Secured Convertible Promissory Notes
of Brilliant Digital Entertainment, Inc. Set
Forth on the Schedule Attached Hereto
Re: Extension of Maturity Date
Gentlemen:
This letter agreement (this "AGREEMENT") constitutes the binding agreement
of Brilliant Digital Entertainment, Inc., a Delaware corporation (the "COMPANY")
and each of you that accepts the Company's offer in accordance with the terms of
this Agreement (each, a "PARTICIPATING HOLDER"), pursuant to which each
Participating Holder, to the extent a holder of the following, shall amend (i)
the Secured Convertible Promissory Note, dated as of May 23, 2001, issued by the
Company in favor of the Participating Holder, as previously amended by that
certain Amendment No. One to Secured Convertible Promissory Note, dated as of
December 19, 2001 (as amended, each a "MAY CONVERTIBLE NOTE" and collectively,
the "MAY CONVERTIBLE NOTES"), and (ii) the Secured Convertible Promissory Note,
dated as of December 19, 2001, issued by the Company in favor of the
Participating Holder (each a "DECEMBER CONVERTIBLE NOTE" and collectively, the
"DECEMBER CONVERTIBLE NOTES").
For good and valuable consideration, receipt of which is hereby
acknowledged, the Company and each Participating Holder agree as follows:
1. AMENDMENTS TO CONVERTIBLE NOTES. Concurrently with the execution and
delivery of this Agreement by a Participating Holder, such Participating Holder
shall execute and deliver to the Company, to the extent applicable to the
Participating Holder, (i) that certain Amendment No. Two to Secured Convertible
Promissory Note, dated as of October 4, 2002, substantially in the form attached
hereto as EXHIBIT A (the "MAY NOTE Amendment"), which May Note Amendment shall
amend the Participating Holder's respective May Convertible Note to change the
Maturity Date (as defined therein) from November 10, 2002 to December 31, 2003,
and (ii) that certain Amendment No. One to Secured Convertible Promissory Note,
dated as of October 4, 2002, substantially in the form attached hereto as
EXHIBIT B (the "DECEMBER NOTE AMENDMENT"), which December Note Amendment shall
amend the Participating Holder's respective December Convertible Note to change
the Maturity Date (as defined therein) from November 10, 2002 to December 31,
2003.
2. CONSIDERATION FOR AMENDMENTS. In consideration of each Participating
Holder's amendment of the May Convertible Note and/or December Convertible Note,
as soon as practicable following receipt by the Company of this Agreement and
the May Note Amendment and/or December Note Amendment, as applicable,
countersigned by the Participating Holder, the
Company shall issue to such Participating Holder a warrant expiring October 4,
2005 (each, a "WARRANT") initially exercisable for a number of shares of Common
Stock equal to (i) one hundred seventy five percent (175%) of the outstanding
principal amount (which, for purposes of clarity, shall not include accrued but
unpaid interest) of the May Convertible Note and/or December Convertible Note
being amended by the Participating Holder pursuant to this Agreement, divided by
(ii) a price (the "EXERCISE PRICE") which represents a twelve and one-half
percent (12.5%) premium over the volume weighted average per share price of the
Company's Common Stock for the five (5) trading days immediately preceding
October 4, 2002. Each Warrant shall have an exercise price per share equal to
the Exercise Price, and shall otherwise be on the terms set forth in the form of
Warrant attached as EXHIBIT C to this Agreement.
3. PARTICIPATING PURCHASER REPRESENTATIONS. Each Participating Holder
represents and warrants to the Company with respect to itself as follows:
3.1. INVESTMENT REPRESENTATIONS.
3.1.1. The Participating Holder has such knowledge and experience
in financial and business matters, including investments of the type represented
by this Agreement and the Warrants, as to be capable of evaluating the merits of
an investment in the Company and can bear the economic risk of an investment in
the Warrant and the shares of Common Stock that may be acquired by the
Participating Holder upon exercise of the Warrant (the "WARRANT SHARES" and,
together with the Warrant, the "SECURITIES");
3.1.2. The Participating Holder is an "accredited investor" as
such term is defined in Rule 501 of Regulation D under the Securities Act of
1933 (the "SECURITIES ACT"); and
3.1.3. The Participating Holder is acquiring the Warrant and, to
the extent exercised, will be acquiring the Warrant Shares, for investment
purposes only, for its own account and not with a view to, or for resale in
connection with, the distribution or other disposition thereof in contravention
of the Securities Act or any state securities law.
3.2. TRANSFER RESTRICTIONS. The Participating Holder acknowledges and
agrees that the Securities are subject to the following transfer restrictions:
3.2.1. The Securities have not been registered under the
Securities Act, and the Participating Holder agrees not to sell, pledge,
distribute, offer for sale, transfer or otherwise dispose of the Securities, as
applicable, in the absence of (i) an effective registration statement under the
Securities Act as to Securities, as applicable, and registration or
qualification of the Securities under any applicable Blue Sky or state
securities laws then in effect, or (ii) an opinion of counsel, reasonably
satisfactory to the Company, that such registration and qualification are not
required. Upon exercise of the Warrants, each of the certificates evidencing the
Warrant Shares shall bear a legend in substantially the following form:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY OTHER APPLICABLE SECURITIES LAWS AND
HAVE BEEN ISSUED IN RELIANCE UPON AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE
2
SECURITIES ACT AND SUCH OTHER SECURITIES LAWS. NEITHER THIS
SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE
REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED,
HYPOTHECATED OR OTHERWISE DISPOSED OF, EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR
PURSUANT TO A TRANSACTION THAT IS EXEMPT FROM, OR NOT SUBJECT TO,
SUCH REGISTRATION.
3.2.2. In the reasonable discretion of the Company, the Company
may condition any transfer of all or any portion of the Securities (other than a
disposition satisfying the conditions set forth in clause (i) of SECTION
3.2.1(I) above) upon the transferee's delivery to the Company of a written
agreement, in form and substance reasonably satisfactory to the Company, whereby
the transferee (i) makes such representations and warranties to and for the
benefit of the Company as are comparable to the representations and warranties
of the Participating Holder hereto, as and to the extent applicable to the
proposed disposition, and (ii) agrees to be bound by the transfer restrictions
set forth in this SECTION 3.2.
3.3. MANNER OF SALE. At no time was the Participating Holder presented
with or solicited by or through any leaflet, public promotional meeting,
television advertisement or any other form of general solicitation or
advertising.
4. REGISTRATION RIGHTS. The Company agrees that each Participating Holder
shall be entitled to have the Warrant Shares registered with the Securities and
Exchange Commission for resale under the Securities Act upon the same terms as
the registration rights granted by the Company to the Participating Holder with
respect to the shares of Common Stock underlying the Participating Holder's May
Convertible Note and/or December Convertible Note.
5. HOLDBACK AGREEMENT. Notwithstanding registration of the Warrant
Shares, prior to January 23, 2003, each Participating Holder agrees not to
affect any private or public sale of, make any short sale of, loan, pledge,
grant any option with respect to, or otherwise dispose of or transfer for value,
any of the Warrant Shares acquired by such Participating Holder upon exercise of
the Warrant issued hereunder.
6. AUTHORIZATION. The Company, and each subsidiary (a "SUBSIDIARY") of
the Company that executes this Agreement, has the full legal right, power and
authority to conduct its business and affairs. The Company and each Subsidiary
has the full legal right, power and authority to enter into and perform its
obligations under this Agreement, the May Note Amendment, the December Note
Amendment and the Warrant (collectively, the "TRANSACTION DOCUMENTS"), to the
extent a party thereto. The execution and delivery by the Company and each
Subsidiary of each Transaction Document to which it is a party, and the
performance by the Company and each Subsidiary of its respective obligations
under each Transaction Document to which it is a party, are within the corporate
powers of the Company and each Subsidiary, and have been duly authorized by all
necessary corporate action properly taken. The officer(s) executing the
Transaction Documents are duly authorized to act on behalf of the Company and
each Subsidiary.
3
7. ACKNOWLEDGEMENT AND REAFFIRMATION OF SECURITY AGREEMENTS. The Company,
and each Subsidiary, hereby agree that (i) the Security and Pledge Agreement,
dated as of May 23, 2001, as amended, executed by the Company and each
Subsidiary (the "May Security Agreement") and (ii) the Security and Pledge
Agreement, dated as of December 19, 2001, as amended, executed by the Company
and each Subsidiary (the "December Security Agreement") are and shall continue,
after the amendments to the May Convertible Notes and December Convertible Notes
contemplated herein, in full force and effect and are hereby confirmed in all
respects and the Company and each Subsidiary hereby reaffirms each and every
obligation thereunder and each of the waivers and consents made therein. The
Company and each Subsidiary agree that all references in the May Security
Agreement to the Convertible Notes shall mean and be a reference to the
Convertible Notes as amended by the May Note Amendments and the Company and each
Subsidiary agree that all references in the December Security Agreement to the
Convertible Notes shall mean and be a reference to the Convertible Notes as
amended by the December Note Amendments.
8. ACKNOWLEDGEMENT AND REAFFIRMATION OF GUARANTEES. (a) Each Subsidiary
hereby agrees that (i) the Guaranty, dated as of May 23, 2001, executed by each
Subsidiary (the "May Guaranty") and (ii) the Guaranty, dated as of December 19,
2001, executed by each Subsidiary (the "December Guaranty"), are and shall
continue, after the amendments to the May Convertible Notes and December
Convertible Notes contemplated herein, in full force and effect and are hereby
confirmed in all respects and each Subsidiary hereby reaffirms each and every
obligation thereunder and each of the waivers and consents made therein. Each
Subsidiary agrees that all references in the May Guaranty to the Convertible
Notes, or words of similar import, shall mean and be a reference to the
Convertible Notes as amended by the May Note Amendments and each Subsidiary
agrees that all references in the December Guaranty to the Convertible Notes, or
words of similar import, shall mean and be a reference to the Convertible Notes
as amended by the December Note Amendments. Any reference in the May Guaranty to
Secured Obligations or Convertible Note Loans shall include, to the extent
applicable, the Convertible Notes as amended by the May Note Amendments and any
reference in the December Guaranty to Secured Obligations or Convertible Note
Loans shall include, to the extent applicable, the Convertible Notes as amended
by the December Note Amendments.
(b) Each Subsidiary acknowledges that the amendments to the May
Convertible Notes and the December Convertible Notes contemplated herein
directly benefit each Subsidiary and that such amendments provide for an
extension of the maturity date of the May Convertible Notes and the December
Convertible Notes to December 31, 2003.
9. MISCELLANEOUS. This Agreement and the exhibits and schedules attached
hereto represent the entire agreement between the parties concerning the subject
matter hereof, and all oral discussions and prior agreements are merged herein;
provided, if there is a conflict between this Agreement and any other document
executed contemporaneously herewith with respect to the obligations described
herein, the provision of this Agreement shall control. This Agreement shall be
construed and enforced in accordance with, and shall be governed by, the laws of
the State of California, without regard to the conflict of law principles
thereof. Any dispute arising under or in relation to this Agreement shall be
resolved in any competent court located in Los Angeles County, State of
California, and the Company and each Participating Holder hereby irrevocably
submit to the jurisdiction of any such court. This Agreement may be executed in
any
4
number of counterparts and by different parties to this Agreement in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same Agreement.
If the terms and provisions of this Agreement are acceptable to you, please
indicate your acceptance and approval by signing, or by causing to be signed on
your behalf, the enclosed copy of this Agreement and the accompanying May Note
Amendment and/or December Note Amendment, and returning such signed documents to
the undersigned.
Very truly yours,
BRILLIANT DIGITAL ENTERTAINMENT, INC.,
a Delaware corporation
By: /s/ Xxx Xxxxxx
---------------------------
Xxx Xxxxxx
Its: Chief Financial Officer and
Chief Operating Officer
ACCEPTED:
PARTICIPATING HOLDER:
------------------------------------
(Print Name of Participating Holder)
------------------------------------
(Signature)
------------------------------------
(Title, if applicable)
Address:
---------------------------
---------------------------
---------------------------
AGREED:
BRILLIANT DIGITAL ENTERTAINMENT, INC.,
a Delaware corporation
By: /s/ Xxx Xxxxxx
---------------------------
Xxx Xxxxxx
Its: Chief Financial Officer and
Chief Operating Officer
5
BRILLIANT STUDIOS, INC.
By: ---------------------------
Xxx Xxxxxx
Its: Chief Financial Officer and
Chief Operating Officer
BRILLIANT B3D, INC.
By: ---------------------------
Xxx Xxxxxx
Its: Chief Financial Officer and
Chief Operating Officer
6
SCHEDULE OF
NOTE HOLDERS
PRINCIPAL AMOUNT PRINCIPAL AMOUNT
OF MAY OF DECEMBER
NAME OF NOTE HOLDER CONVERTIBLE NOTE CONVERTIBLE NOTE
------------------- ---------------- ----------------
Xxxxxx Xxxxx $ 2,000,000 $ 350,000
0000 Xxxxxxx Xxxxxx Xxxx.
Xxxxx 000
Xxxxxxxx Xxxxx, XX 00000
Europlay 1, LLC 214,150 --
00000 Xxxxxxx Xxxx., Xxxxx 000
Xxxxxx, Xxxxxxxxxx 00000
Xxxxxxx Xxxx, Inc. 50,000 --
X.X. Xxx 00
Xxxxxxx, XX 00000
Capel Capital, Ltd. -- 400,000
X.X. Xxx 000 ----------- ---------
Xxxxxxx Xxxxx
Xx. Xxxxx Xxxx
Xxxxxxxx, Xxxxxxx Xxxxxxx
Total $ 2,264,150 $ 750,000
=========== =========
7
EXHIBIT A
TO
LETTER AGREEMENT
Dated October 2, 2002
FORM OF MAY NOTE AMENDMENT
8
EXHIBIT B
TO
LETTER AGREEMENT
Dated October 2, 2002
FORM OF DECEMBER NOTE AMENDMENT
9
EXHIBIT C
TO
LETTER AGREEMENT
Dated October 2, 2002
FORM OF WARRANT
10
