S-3

As Filed with the Securities and Exchange Commission on October 29, 2003       Registration No. 333-_____

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM S-3

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

BAM! ENTERTAINMENT, INC.

(Exact Name of Registrant as Specified in its Charter)

Delaware	7372	77-0553117
(State or other jurisdiction of incorporation or organization)	(Primary Standard Industrial Classification Code Number)	(I.R.S. Employer Identification Number)

333 West Santa Clara Street, Suite 716
San Jose, California 95113
Telephone (408) 298-7500
(Address of Principal Executive Offices and Zip Code)

Raymond C. Musci
Chief Executive Officer
333 West Santa Clara Street, Suite 716
San Jose, California 95113
Telephone (408) 298-7500
(Name, Address, including Zip Code, and Telephone Number, including Area Code, of Agent for Service)

Copies to

Thomas J. Poletti, Esq.
Ted Weitzman, Esq.
Kirkpatrick & Lockhart LLP
10100 Santa Monica Blvd., 7th Floor
Los Angeles, CA 90067
Telephone (310) 552-5000
Facsimile (310) 552-5001

     Approximate date of commencement of proposed sale to the public: From time to time after the effective date of this Registration Statement.

     If the only securities being registered on this Form are to be offered pursuant to dividend or interest reinvestment plans, please check the following box. o

     If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. x

     If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

     If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

     If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. o

CALCULATION OF REGISTRATION FEE

				Proposed		Proposed
				Maximum		Maximum
		Amount to be		Offering Price		Aggregate		Amount of
Title of each class of securities to be registered		Registered		per Share		Offering Price		Registration Fee
Common Stock, $.001 par value (1)			1,850,000	$	1.66	$	3,071,000	$	249
Common Stock, $.001 par value (2)			1,942,500	$	1.87	$	3,632,475	$	294
Common Stock, $.001 par value (3)			1,111,625	$	1.66	$	1,845,298	$	149
Common Stock, $.001 par value (4)			1,000,462	$	1.66	$	1,660,767	$	134
	Total Registration Fee		5,904,587					$	826

(Footnotes to table on next page)

          The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registration shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

(1)	The price of $1.66, which is the average of the high and low prices of the Registrant’s common stock on the Nasdaq Stock Market on October 28, 2003 is set forth solely for the purpose of computing the registration fee pursuant to Rule 457(c).
(2)	The shares of common stock being registered hereunder are being registered for resale by the selling stockholders named in the prospectus upon exercise of outstanding warrants. In accordance with Rule 416(a), the Registrant is also registering hereunder an indeterminate number of shares that may be issued and resold to prevent dilution resulting from stock splits, stock dividends or similar transactions. The price of $1.87, which is the price at which the warrants may be exercised, is set forth solely for the purpose of computing the registration fee pursuant to Rule 457(g).
(3)	The shares of common stock being registered hereunder are being registered for resale by the selling stockholders named in the prospectus upon exercise of additional investment rights. In accordance with Rule 416(a), the Registrant is also registering hereunder an indeterminate number of shares that may be issued and resold to prevent dilution resulting from stock splits, stock dividends or similar transactions. The price of $1.66, which is the average of the high and low prices of the Registrant’s common stock on the Nasdaq Stock Market on October 28, 2003, is set forth solely for the purpose of computing the registration fee pursuant to Rule 457(g).
(4)	The shares of common stock being registered hereunder are being registered for resale by the selling stockholders named in the prospectus upon exercise of warrants issuable upon exercise of additional investment rights. In accordance with Rule 416(a), the Registrant is also registering hereunder an indeterminate number of shares that may be issued and resold to prevent dilution resulting from stock splits, stock dividends or similar transactions. The price of $1.66, which is the price of the Registrant’s common stock as determined in accordance with Rule 457(c), is set forth solely for the purpose of computing the registration fee pursuant to Rule 457(g).

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement relating to these securities that has been filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

Subject to Completion, Dated October 29, 2003

PROSPECTUS

5,904,587 Shares

Common Stock

This prospectus relates to 5,904,587 shares of common stock of BAM! Entertainment, Inc. that may be sold from time to time by the selling stockholders named on page 17 of this prospectus. The selling stockholders may offer their shares through public or private transactions, in or off the over-the-counter market in the United States, at prevailing market prices, or at privately negotiated prices. For details of how the selling stockholders may offer their shares of common stock, please see the section of this prospectus called “Plan of Distribution.” We will not receive any proceeds from the sales by the selling stockholders.

Our common stock is traded on the Nasdaq SmallCap Market under the symbol “BFUN.” On October 28, 2003, the last reported sale price for our common stock on the Nasdaq SmallCap Market was $1.68 per share.

The securities offered by this prospectus involve a high degree of risk. See “Risk Factors” beginning on page 5.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

This prospectus is dated           , 2003

TABLE OF CONTENTS

Exhibit 4.3

Exhibit 23.1

Table of Contents

Prospectus Summary	3
Special Note on Forward Looking Statements	4
Risk Factors	5
Use of Proceeds	16
Selling Stockholders	17
Plan of Distribution	19
Legal Matters	21
Experts	21
Where You Can Find More Information	21
Incorporation of Certain Documents by Reference	21

You should rely only on the information contained or incorporated by reference in this prospectus or any prospectus supplement. We have not authorized anyone to provide you with information different from that contained or incorporated by reference into this prospectus. No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus. You must not rely on any unauthorized information or representation. You should assume that the information contained in this prospectus or any prospectus supplement is accurate only as of the date on the front of the document and that any information contained in any document we have incorporated by reference is accurate only as of the date of the document incorporated by reference, regardless of the time of delivery of this prospectus or any prospectus supplement or any sale of a security. These documents are not an offer to sell or a solicitation of an offer to buy these shares of common stock in any circumstances under which the offer or solicitation is unlawful.

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Prospectus Summary

This summary highlights some information from this prospectus, and it may not contain all of the information that is important to you. You should read the following summary together with the more detailed information regarding our company and the shares being sold in this offering, including “Risk Factors” and our consolidated financial statements and related notes, included elsewhere in, or incorporated by reference into, this prospectus.

Our Company

We develop and publish interactive entertainment software products. We currently publish titles for interactive entertainment hardware platforms, such as Sony’s PlayStation and PlayStation 2, Nintendo’s Gamecube, Nintendo 64, Game Boy Color and Game Boy Advance, Microsoft’s Xbox, portable handheld devices manufactured by Palm and Handspring, and for personal computers or PCs. We were incorporated in California in October 1999 under the name Bay Area Multimedia, Inc. We reincorporated in Delaware in September 2000 and changed our name to BAM! Entertainment, Inc. in December 2000. We commenced operations in October 1999 and shipped our first products in June 2000.

We license properties from a wide variety of sources, and publish titles based on the motion picture, sports and television properties of our licensors. We have entered into strategic license arrangements with entertainment and media companies that have developed well-known characters and brands and that are producing popular properties that are expected to form the basis of some of our future products.

We have offices in both the United States and Europe. International operations outside of North America are conducted through our office in England, where we perform international sales and marketing activities and manage local third-party developers. Domestically, we sell our products to mass merchandisers such as Toys “R” Us, Target, Kmart, Wal-Mart and Best Buy, specialty chains such as GameStop and Electronics Boutique, and independent distributors. Internationally, we sell our products through mass merchandisers, distributors and sub-distributors. Our products are manufactured exclusively by third parties.

We have experienced recurring net losses from inception (October 7, 1999) through June 30, 2003. During the year ended June 30, 2003, we used cash in operating activities of $10.5 million and incurred a net loss of $36.2 million. As of June 30, 2003, we had cash and cash equivalents of $1.1 million and an accumulated deficit of $59.8 million. These factors, among others, raise substantial doubt about our ability to continue as a going concern for a reasonable period of time.

On October 1, 2003, we completed the sale of 1,850,000 shares of our common stock and warrants to purchase another 1,665,000 shares of our common stock, resulting in gross proceeds (assuming no exercise of the warrants) of $1,776,000, in a private offering to institutional and accredited investors. The warrants have a five-year term and are exercisable at $1.87 per share. Certain placement agents utilized in connection with the private offering were issued warrants to purchase 277,500 shares of our common stock having identical terms as the warrants issued to the investors, except that these warrants are subject to a 180 day lock-up provision. We also issued to the investors additional investment rights to purchase an additional 1,111,625 shares of our common stock and warrants to purchase another 1,000,462 shares of our common stock. The shares of common stock underlying the additional investment rights are purchasable at $0.96 per share and the warrants underlying the additional investment rights have a five-year term and are exercisable at the greater of (i) $1.87 and (ii) the lesser of (x) the closing bid price of our common stock on the Nasdaq Stock Market on the business day immediately preceding the exercise date of the additional investment right, and (y) the average of the closing bid price of our common stock on the Nasdaq Stock Market for the five business days immediately preceding the exercise date of the

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additional investment right. The additional investment rights are exercisable until 45 business days after the effectiveness of this registration statement. In addition, we agreed to not offer, sell, grant any option to purchase or otherwise dispose of any debt or equity securities, with certain exceptions, until this registration statement is declared effective, and we granted to certain of the investors rights of first refusal with respect to any certain issuances of our securities for periods of up to two years following the effective date of this registration statement.

We will need to raise additional funds in order to satisfy our future liquidity requirements. These funds may come from either one or a combination of additional financings, exercise of outstanding warrants and additional investment rights, mergers or acquisitions, or via the sale or license of certain of our assets. Current market conditions present uncertainty as to our ability to secure additional financing or effectuate any merger or acquisition, as well as our ability to reach profitability. There can be no assurances that we will be able to secure additional financing or effectuate any such merger or acquisition, or obtain favorable terms on such financing if it is available, or as to our ability to achieve positive cash flow from operations. Continued negative cash flows create significant uncertainty about our ability to implement our operating plan and we may have to further reduce the scope of our planned operations. If cash and cash equivalents, together with cash generated from operations, are insufficient to satisfy our liquidity requirements, we will not have sufficient resources to continue operations for the next six months.

Special Note on Forward Looking Statements

This prospectus and the documents and information incorporated by reference in this prospectus, such as from “Item 1. Business” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended June 30, 2003, include “forward-looking statements” within the meaning of section 27A of the Securities Act of 1933, as amended and section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements include the information concerning our possible or assumed future operating results, business strategies, financing plans, competitive position, industry environment, the anticipated impact on our business and financial results of recent and future acquisitions, the effects of competition, our ability to produce new products in a cost-effective manner and estimates relating to our industry. Forward-looking statements may be identified by the use of words like “believes,” “intends,” “expects,” “may,” “will,” “should” or “anticipates,” or the negative equivalents of those words or comparable terminology, and by discussions of strategies that involve risks and uncertainties.

Actual results may differ materially from those expressed or implied by forward-looking statements for a number of reasons, including those appearing elsewhere in this prospectus under the heading “Risk Factors.” In addition, we base forward-looking statements on assumptions about future events, which may not prove to be accurate. In light of these risks, uncertainties and assumptions, you should be aware that the forward-looking events described in this prospectus and the documents incorporated by reference in this prospectus may not occur.

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Risk Factors

You should carefully consider and evaluate all of the information contained or incorporated by reference in this prospectus, including the following risk factors, before deciding to invest in our notes. Any of these risks could materially and adversely affect our business, financial condition and results of operations, which in turn could adversely affect the price of the notes and our common stock.

RISKS RELATED TO OUR FINANCIAL RESULTS

If we are unable to successfully obtain additional financing or enter into a merger or acquisition, we may not have sufficient cash to continue operations for the next six months.

Although we raised gross proceeds of approximately $1.8 million through the sale of our common stock, warrants and additional investment rights on October 1, 2003, we will need to raise additional funds. These funds may come from either one or a combination of additional financings, exercise of outstanding warrants and additional investment rights, mergers or acquisitions, or otherwise obtain capital via sale or license of certain of our assets, in order to satisfy our future liquidity requirements. Current market conditions present uncertainty as to our ability to secure additional financing or effectuate any merger or acquisition, as well as our ability to reach profitability. There can be no assurances that we will be able to secure additional financing or effectuate any such merger or acquisition, or obtain favorable terms on such financing if it is available, or as to our ability to achieve positive cash flow from operations. Continued negative cash flows create significant uncertainty about our ability to implement our operating plan and we may have to further reduce the scope of our planned operations. If cash and cash equivalents, together with cash generated from operations, are insufficient to satisfy our liquidity requirements, we will not have sufficient resources to continue operations for the next six months.

Because we have a limited operating history, it is difficult to evaluate an investment in our common stock.

We were organized in October 1999 and released our first interactive entertainment software product in June 2000. It is difficult to evaluate our future prospects and an investment in our common stock because we have a limited operating history and the market for our products is rapidly evolving. Our prospects are uncertain and must be considered in light of the risks, expenses and difficulties frequently encountered by companies in the early stage of development.

Our future performance will depend upon a number of factors, including our ability to:

• secure additional financing and fund purchases of inventory;

• expand our domestic and international customer base;

• secure popular entertainment properties upon which to base future products;

• develop and enhance products in response to new interactive entertainment hardware platform releases, customer demand and competitive market conditions;

• expand our interactive entertainment software development and sales and marketing capabilities;

• expand our international operations;

• attract, retain and motivate qualified personnel; and

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• maintain adequate control of our expenses.

We have a history of operating losses and may never achieve profitability.

We incurred net losses of $36.2 million for the year ended June 30, 2003, $15.7 million for the year ended June 30, 2002 and $1.6 million for the year ended June 30, 2001. We will need to generate significant revenues and control expenses to achieve profitability. There can be no assurance that our revenues will grow in the future or that we will achieve sufficient revenues for profitability. If we fail to achieve profitability, or sustain or increase profitability if we achieve it, this will have a negative impact on our operating results.

Our revenues fluctuate due to seasonal demand and the nature of the interactive entertainment industry.

We have experienced and may continue to experience significant quarterly fluctuations in net sales and operating results. The interactive entertainment industry is highly seasonal, with sales typically higher during the fourth and first calendar quarters. This is due primarily to the increased demand for games during and immediately following the holiday buying season. Our failure or inability to introduce products on a timely basis to meet seasonal fluctuations in demand will, and historically have, harmed our business and operating results.

Our operating results would be, and historically have been, harmed by a decrease in sales, price erosions, and a failure to meet our sales expectations. Uncertainties associated with interactive entertainment software development, lengthy manufacturing lead times, production delays and the approval process for products by hardware manufacturers and other licensors make it difficult to predict the quarter in which our products will ship.

These and other factors could harm our business and have a material adverse effect on our operating results.

Product development schedules are frequently unpredictable, which may result in revenues and earnings not meeting analysts’ expectations.

Product development schedules for software products, particularly for new hardware platforms such as Sony’s PlayStation 2, Nintendo’s GameCube and Microsoft’s Xbox, are difficult to predict because they involve creative processes, use of new development tools for new platforms and the learning process, research and development, and experimentation associated with development for new technologies. Our revenues and earnings are dependent on our ability to meet our product release schedules, and our failure to meet those schedules have resulted in, and may again result in, revenues and earnings that fall short of analysts’ expectations for any individual quarter and the fiscal year.

Our earnings will be affected upon the issuance of shares of our common stock pursuant to third-party entertainment property license agreements.

Pursuant to a license agreement with a production company, we are obligated to issue 68,738 shares of our common stock after the release of any film for which we elect to produce interactive entertainment software products, up to 10 films or 687,375 shares of common stock. To date, we have elected to produce titles for three films and have issued 137,476 shares under this agreement for an aggregate value of $816,000. We are required to issue these shares when the films are released and will then incur a non-

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cash charge. We cannot estimate the aggregate dollar amount of these future non-cash charges as they will be based on our share price at a future point in time, but they may be substantial. All of the non-cash charges on the shares issued to date under the agreement had been amortized as of June 30, 2003.

In connection with the issuance of warrants pursuant to a separate license agreement with another production company, we incurred a non-cash charge of $97,000. We had amortized $8,000 of this charge as of June 30, 2003. The remaining charge will be amortized upon release of the software products on which the warrants are issued, over the life of the products, expected to be between three and six months. Under the agreement, additional warrants to purchase up to an additional 15,000 shares may be issued, contingent upon certain future events occurring. Upon issuance of the warrants we will incur an additional non-cash charge. We cannot estimate the aggregate dollar amount of these future non-cash charges as they are based on our share price at future points in time. Each of these future charges will affect our gross margins and profitability.

In connection with the issuance of warrants pursuant to a first look agreement with another production company, we granted a warrant to purchase up to 200,000 shares of our common stock, of which 15,000 became immediately exercisable upon the signing of the agreement. The remaining 185,000 will only become exercisable, in multiples of either 4,625 or 13,875 shares, upon certain future events occurring relating to the development and release of products. Upon the warrant for 15,000 shares becoming exercisable, we incurred a non-cash charge of $29,000, which has been fully amortized as of June 30, 2003. We will incur additional non-cash charges as the remaining 185,000 shares become exercisable. Upon release of the software products on which the warrants are exercisable, we will amortize the non-cash charges over the life of the products, which are expected to be between three and six months. We cannot estimate the aggregate dollar amount of these future non-cash charges as they will be based on our share price at future points in time. Each of these future charges will affect our gross margins and profitability.

RISKS RELATED TO OUR BUSINESS

Our ability to effectuate additional financing transactions to fund our operations could impair the value of your investment.

Although we raised gross proceeds of approximately $1.8 million through the sale of our common stock, warrants and additional investment rights on October 1, 2003, if we are not acquired by or merge with another entity or if we are not able to raise additional capital via sale or license of certain of our assets, we will need to consummate additional financing transactions pursuant to which we receive additional liquidity. These additional financings will likely take the form of us raising additional capital through either one or a combination of public or private equity offerings or debt financings and the exercise of outstanding warrants and additional investment rights. To the extent we raise additional capital by issuing equity securities, our stockholders will likely experience substantial dilution. Also, any new equity securities may have greater rights, preferences or privileges than our existing common stock.

We cannot assure you that we will be able to meet our future capital requirements.

If we are not acquired by or merge with another entity or if we are not able to raise additional capital via sale or license of certain of our assets, we will need to consummate additional financing transactions pursuant to which we receive additional liquidity. We cannot be certain that additional capital will be available to us on favorable terms, or at all. If we cannot effectuate financing transactions to raise needed funds on acceptable terms, we will not be able to develop or enhance our products, take advantage of future opportunities or respond to competitive pressures or unanticipated requirements. A material shortage of capital will require us to take drastic steps such as reducing our level of operations, disposing of selected assets or seeking protection under federal bankruptcy laws.

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We depend on a relatively limited number of products for a significant portion of our revenues.

A significant portion of our revenues is derived each quarter from a relatively limited number of products that were released in that quarter or the or in the immediately preceding quarter. During the year ended June 30, 2003, sales of four products each accounted for between 9% and 13% of our net revenues. During the year ended June 30, 2002, sales of four products each accounted for between 7% and 11% of our net revenues, while during the year ended June 30, 2001, sales of four products each accounted for between 14% and 28% of our net revenues. We expect that a limited number of products will continue to produce a disproportionately large amount of our net revenues. Due to this dependence on a limited number of brands, the failure of one or more products to achieve anticipated results could, and in the past has, significantly harmed our business and operating results.

We cannot assure you that new products introduced by us will achieve significant market acceptance and be sufficient in order for us to achieve profitability.

The interactive entertainment software market is characterized by short product life cycles, continually changing consumer preferences that are difficult to predict and frequent introduction of new products. The life cycle of a game generally consists of a relatively high level of sales during the first few months after introduction, followed by a decline in sales, and sales price erosion. Even the most successful titles remain popular for only limited periods of time, often less than six months. We believe that our success will be dependent on the production of successful titles on a continuous basis. We cannot assure you that new products introduced by us will achieve significant market acceptance or that such acceptance, if achieved, will be sufficient in order for us to achieve profitability.

The development cycle for new titles is long and during this time the market appeal of a title may decline.

We believe the development cycle for new titles is long, typically ranging from 12 to 24 months. After development of the initial product, we believe it may take between six and 12 additional months to develop the product for additional hardware platforms. In order to distribute a product, we must develop and test the necessary game software, obtain approval from the manufacturer and licensor if required, and have the initial order of cartridges or disks manufactured. During the development cycle, the market appeal of a title or of a property on which the title is based may decline. If market acceptance is not achieved, we may, and historically have, granted markdown allowances to maintain our relationship with retailers and our access to distribution channels. Because we introduce a relatively limited number of new products in a given period, the failure of one or more of our products to achieve market acceptance could and have harmed our business.

The introduction of new interactive entertainment hardware platforms creates risks relating to the development of titles for those hardware platforms.

The interactive entertainment industry is also characterized by rapid technological change. For example, the 128-bit hardware platform was released within five years of the release of the 64-bit hardware platform. As a result, we must continually anticipate these changes and adapt our offerings to emerging hardware platforms and evolving consumer preferences. Generally, because of the length of the development cycle, our development efforts must begin well in advance of the release of new hardware platforms in order to introduce titles on a timely basis with the release of such hardware platforms. Further, we have no control over the release dates of new hardware platforms or the number of units that will be shipped upon such release. It is difficult to ensure that our schedule for releasing new titles will coincide with the release of the corresponding hardware platforms. Additionally, if fewer than expected units of a new hardware platform are produced or shipped, such as occurred with Microsoft’s Xbox and

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Nintendo’s Gamecube and Game Boy Advance, developers of titles for those hardware platforms may experience lower than expected sales.

The introduction of new hardware platforms and technologies can also render existing titles obsolete and unmarketable. Generally, as more advanced hardware platforms are introduced, consumer demand for titles for older hardware platforms diminishes. In addition, a broad range of competing and incompatible emerging technologies may lead consumers to postpone buying decisions until a particular hardware platform gains widespread acceptance. As a result of such reduced consumer demand for titles on older hardware platforms, our titles for older hardware platforms may not generate sufficient sales to make our titles profitable.

The development of software products is complex and time consuming and may not lead to marketable titles.

The development of software products is complex and time consuming. Our development efforts may not lead to marketable titles or titles that generate sufficient revenues to recover their development and marketing costs, especially if a hardware platform does not reach or sustain an expected level of acceptance. This risk may increase in the future, as continuing increases in development costs require corresponding increases in net sales in order for us to achieve profitability.

The technological advancements of the most popular hardware platforms also allow more complex software products. As software products become more complex, the risk of undetected errors in products when first introduced increases. We cannot assure you that, despite testing, errors will not be found in new products or releases after shipments have been made, resulting in loss of or delay in timely market acceptance, product returns, loss of revenues and damage to our reputation. In the past, we have experienced delays in the introduction of new titles and we anticipate that we will experience similar delays in the future in connection with the introduction of additional new titles, including products currently under development. Because net revenues associated with the initial shipments of a new product generally constitute a high percentage of the total net revenues associated with the life of a product, any delay in the introduction of, or the presence of a defect in, one or more new products could harm the ultimate success of the products or our business and operating results.

The costs of developing and marketing products for existing and anticipated interactive entertainment hardware platforms can be substantial and could negatively impact our business.

The costs associated with the introduction of products for new hardware platforms, such as Sony’s PlayStation 2, Nintendo’s GameCube and Microsoft’s Xbox, could harm our business as we believe the costs of developing and publishing titles for these hardware platforms require greater financial and technical resources than prior development and publishing efforts. Additionally, during periods of new technology introductions, forecasting our revenues and earnings is more difficult than in more stable or rising product markets.

If interactive entertainment hardware platforms fail to achieve significant market acceptance, it may harm our business.

Our sales are dependent on, among other factors, the popularity and unit sales of the interactive entertainment hardware platforms of the various manufacturers. The interactive entertainment industry has experienced periods of significant growth in consumer interest and popularity, followed by periods in which consumer demand for interactive entertainment products has slowed. Unexpected shortfalls in the market acceptance of a particular hardware platform, such as occurred with Microsoft’s Xbox and Nintendo’s Gamecube and Game Boy Advance, can and have significantly harmed consumer demand for titles released or scheduled for release for that hardware platform. Therefore, we are dependent upon the

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successful marketing efforts of the manufacturers of the various hardware platforms to meet financial expectations.

Over 48% of our net revenues are derived from sales to our four largest customers. We could be adversely affected if any of them reduced or terminated their purchases from us or did not pay their obligations to us.

Revenues from our four largest customers collectively accounted for 48% of our net revenues for the year ended June 30, 2003, as compared to 48% of our net revenues for the year ended June 30, 2002, and 52% of our revenues for the year ended June 30, 2001. As of June 30, 2003, four customers each accounted for between 8% and 19% of our gross trade accounts receivable, as of June 30, 2002, four customers each accounted for between 8% and 12% of our gross trade accounts receivable and as of June 30, 2001, four customers each accounted for between 9% and 23% of our gross trade accounts receivable. We have no written agreements or other understandings with any of our customers that relate to future purchases. Therefore, purchases by these customers or any others could be reduced or terminated at any time. A substantial reduction or a termination of purchases by any of our largest customers would negatively impact us.

Substantially all of our sales are made on credit, which exposes us to bad debt risk.

Our sales are typically made on credit, with terms that vary depending upon the customer and other factors. While we attempt to carefully monitor the creditworthiness of our customers and distributors, we bear the risk of their inability to pay our receivables and of any delay in payment. A business failure by any of our largest customers, such as occurred with Kmart in January 2002, would negatively impact us, as could a business failure by any of our distributors or other retailers.

Product returns and markdown allowances could negatively impact our business.

We have experienced, and are exposed to the risk of product returns and markdown allowances with respect to our customers. The decrease in demand for products based upon older hardware platforms may lead to a high level of these product returns and markdown allowances. We also allow distributors and retailers to return defective and damaged products in accordance with negotiated terms. Product returns and markdown allowances that exceed our expectations could negatively impact our business.

We cannot publish our interactive entertainment software titles without the approval of hardware manufacturers. Our ability to continue to develop and market our titles is dependent on the hardware manufacturers continuing to do business with us.

We are wholly dependent on the manufacturers of interactive entertainment hardware platforms and our ability to obtain or maintain non-exclusive licenses with them, both for the rights to publish and to manufacture titles for their hardware platforms. We are required to obtain a license to develop and publish titles for each hardware platform for which we develop and publish titles. Each license specifies the territory to which it applies, and such licenses range from as broad as multi-national distribution to as narrow as approval on a title-by-title basis. Our existing hardware platform licenses for Sony’s PlayStation and PlayStation 2, Nintendo’s Game Boy Color and Game Boy Advance, Nintendo 64, Nintendo GameCube, and Microsoft’s Xbox require that we obtain approval for the publication of new titles on a title-by-title basis. As a result, the number of titles we are able to publish for these hardware platforms, along with our ability to time the release of these titles is dependent upon decisions made by third party manufacturers. Accordingly, our revenues from titles for these hardware platforms may be limited. Should any manufacturer choose not to renew or extend our license agreement at the end of its current term, or if the manufacturer were to terminate our license for any reason, we would be unable to publish additional titles for that manufacturer’s hardware platform.

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We are dependent on Sony and Nintendo for the manufacture of products that we develop for their hardware platforms.

When we develop interactive entertainment software titles for a hardware platform offered by Sony or Nintendo, the products are manufactured exclusively by that hardware manufacturer. Our hardware platform licenses with Sony and Nintendo provide that the manufacturer may change prices for the manufacturing of products at any time. In addition, these licenses include other provisions that give the manufacturer substantial control over our costs and the release of new titles. Since each of the manufacturers is also a publisher of games for its own hardware platforms and manufactures products for all of its other licensees, a manufacturer may give priority to its own products or those of our competitors in the event of insufficient manufacturing capacity. We would be materially harmed by unanticipated delays in the manufacturing and delivery of products.

If we cannot retain our key personnel and attract and retain additional key personnel, our business will be harmed.

We depend to a significant extent on the contributions and industry experience of our key personnel, in particular our Chief Executive Officer, Raymond C. Musci, and our Vice Chairman, Anthony R. Williams. If we fail to retain the services of our key personnel, our ability to secure additional licenses and develop and sell new products might be impaired. In addition, our future success will also depend upon our ability to continue to attract, motivate and retain highly qualified employees and third-party contractors, particularly software design and development personnel and outside sales representatives. Competition for highly skilled employees is intense and we may not be successful in attracting and retaining such personnel.

We are dependent upon licenses to properties originated and owned by third parties for the development of our titles.

Many of our titles, such as those from our Powerpuff Girls series, Dexter’s Laboratory series, Ecks v Sever and Reign of Fire are based upon entertainment properties licensed from third parties. We cannot assure you that we will be able to obtain new licenses, or renew existing ones, on reasonable terms, if at all. If we are unable to obtain licenses for the properties which we believe offer significant consumer appeal, we would be required to obtain licenses for less popular properties or would have to develop all of our titles based upon internally developed concepts.

To the extent a licensed property is less popular than we anticipate, or is unsuccessful, sales of titles based on that property may be negatively impacted.

We have in the past experienced unsuccessful releases of titles based on properties that we licensed from third parties. Titles based on less popular properties, or on internally developed concepts, typically require greater marketing expense in order to establish brand identity and may not achieve broad market acceptance or prove to be successful.

We are dependent on third-party interactive entertainment software developers for developing and completing our titles.

We rely on third-party interactive entertainment software developers for the development of our interactive entertainment software titles. Quality third-party developers are continually in high demand. For this reason, we cannot assure you that the third-party software developers who have developed titles for us in the past will continue to be available to develop software for us in the future. Due to the limited number of third-party software developers and the lack of control that we exercise over them, we cannot assure you that these developers will complete titles for us on a timely basis or within acceptable quality standards, if at all.

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Our future success is highly dependent on our proprietary software and intellectual property.

We rely primarily on a combination of copyright, trademark and trade secret laws, employee and third-party nondisclosure agreements and other methods to protect our proprietary rights. We require our employees, consultants and other outside individuals and entities to execute confidentiality and nondisclosure agreements upon the start of employment, consulting or other contractual relationships with us. However, our ability to police these individuals and entities and enforce these agreements is costly and uncertain. We are aware that unauthorized copying occurs within our industry. If a significantly greater amount of unauthorized copying of our interactive entertainment software products were to occur, our business would be harmed. We generally obtain ownership of the software code and related documentation from third-party software developers. In instances where we do not retain sole ownership of the source code, the owner may use or license the code for development of other software products that may compete directly with our products and we may not have sufficient rights in the source code to produce derivative products.

We rely on existing copyright laws to prevent unauthorized distribution of our products. Existing copyright laws afford only limited protection. Policing unauthorized use of our products is difficult, and software piracy is a persistent problem, especially in international markets. In addition, the laws of some countries in which our products are or may be distributed either do not protect our products and intellectual property rights to the same extent as the laws of the United States or are weakly enforced. Legal protection of our rights may be ineffective in these countries. Any unauthorized use of our proprietary information could result in costly and time-consuming litigation to enforce our proprietary rights.

Other parties may assert claims against us that we are infringing upon their intellectual property rights and we are required to indemnify hardware manufacturers from certain claims in exchange for the right to purchase titles and manufacture our software for their hardware application.

We cannot be certain that our products do not infringe upon the intellectual property rights of others. We may be subject to legal proceedings and claims from time to time in the ordinary course of our business, including claims of alleged infringement of the intellectual property rights of third parties. If our products violate third-party proprietary rights, we cannot assure you that we would be able to obtain licenses to continue offering such products on commercially reasonable terms, or at all. In addition, we must indemnify the hardware manufacturers with respect to all loss, liability and expense resulting from any claim against them involving the development, marketing, sale or use of our products. This includes any claims for copyright or trademark infringement brought against them. As a result, we bear the risk that the properties upon which our software titles are based, or that the information and technology licensed from the hardware manufacturer and incorporated in our software, may infringe the rights of third parties. Any claims against us or the parties we indemnify relating to the infringement of third-party proprietary rights, even if not meritorious, could result in the expenditure of significant financial and managerial resources. Their claims could also result in injunctions preventing us from offering these products. Such claims could severely harm our financial condition and ability to compete.

We face risks associated with doing business in foreign countries, including our ability to generate international demand for our products.

We intend to increase our international revenues. We cannot assure you that we will be able to generate international market demand for our products. International sales and operations are subject to a number of risks, including:

• international consumer acceptance of existing and proposed titles;

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• the impact of possible recessions in foreign economies;

• our ability to protect our intellectual property;

• the time and costs associated with translating and localizing products for foreign markets;

• foreign currency fluctuations;

• unexpected changes in regulatory requirements;

• difficulties and costs of staffing and managing foreign operations, or licensing to foreign entities ; and

• political and economic instability.

A significant downturn in general economic condition which results in a reduction in discretionary spending has reduced, and may continue to reduce, demand for our products and could harm our business.

Our product sales are affected by a retail customer’s ability and desire to spend disposable income on the purchase of our software titles. Any significant downturn in general economic conditions which results in a reduction of discretionary spending could result in a reduction in demand for our products and could harm our business. The United States economy is currently undergoing a period of slowdown, which some observers view as a recession. The United States and world economic condition has been worsened by the terrorist attacks on September 11, 2001. Moreover, any further terrorist activities, or the effect of the United States’ political, economic or military response to such activities, could result in the further deterioration of the United States and world economy. Such industry downturns have been, and may continue to be, characterized by diminished product demand and erosion of average selling prices. A continued economic downturn or recession would have a significant adverse effect on our operating results in future periods.

RISKS RELATED TO OUR INDUSTRY

Competition within the interactive entertainment software industry is intense and poses an ongoing threat to the success of our business.

The interactive entertainment industry is intensely competitive. Many of our competitors have greater name recognition among consumers and licensors of entertainment properties, broader product lines and greater financial, marketing and other resources than us. Accordingly, these competitors may be able to market their products more effectively, make larger offers or guarantees in connection with the acquisition of licensed entertainment properties, adopt more aggressive pricing policies or pay more to third-party developers. We believe that other technology, entertainment and media companies are increasing their focus on the interactive entertainment software market, which might result in greater competition for us. In addition, many of our competitors are developing online interactive entertainment software products and interactive networks that will be competitive with our interactive entertainment software products.

Competitive pressures could have the following effects on us:

• as competition for popular entertainment properties increases, our cost of acquiring licenses for

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	those properties may increase, resulting in reduced margins;
•	we might not be able to achieve full distribution of our products with our customers;
•	as competition for retail shelf space becomes more intense, we may need to increase our marketing expenditures to maintain sales of our interactive entertainment software titles; and
•	we could be required to reduce the wholesale unit prices of our titles.

Competition for limited shelf space and promotional resources among interactive entertainment software publishers is intense and poses an ongoing threat to the success of our business.

There is intense competition among developers and publishers of interactive entertainment software products for high quality retail shelf space and promotional support from retailers. As the number of titles and hardware platforms increases, competition for shelf space will intensify and may require us to increase our marketing expenditures. Due to increased competition for limited shelf space, retailers and distributors are in an increasingly better position to negotiate favorable terms of sale, including price discounts, price protection, marketing and display fees and product return policies. Our products constitute a relatively small percentage of any retailer’s sales volume, and we cannot assure you that retailers will continue to purchase our products or to provide our products with adequate levels of shelf space and promotional support. As a result of their positions in the industry, the manufacturers of interactive entertainment hardware platforms generally have better bargaining positions with respect to retail pricing, shelf space and retailer accommodations than do any of their licensees, including us.

Government restrictions including the possible adoption of an interactive entertainment software rating system could harm our business.

Legislation is periodically introduced at the state and federal levels in the United States and in foreign countries to establish a system for providing consumers with information about graphic violence and sexually explicit material contained in interactive entertainment software products. Under such a system, interactive entertainment software publishers would be expected to comply by identifying particular products within defined rating categories. In addition, these publishers would be required to communicate these ratings to consumers through appropriate package labeling and through advertising and marketing presentations consistent with each product’s rating. Many foreign countries have laws which permit governmental entities to censor the content of products, including interactive entertainment software. In some instances, we may be required to modify our products to comply with the requirement of such governmental entities, which could delay the release of those products in such countries. These delays could harm our business. We currently voluntarily submit our products to industry-created review boards and publish their ratings on our game packaging. Some retailers may refuse to carry titles that bear an unacceptable rating. We believe that mandatory government-run interactive entertainment software products rating systems eventually will be adopted in many countries which represent significant markets or potential markets for us. Due to the uncertainties in the implementation of such a rating system, confusion in the marketplace may occur. We are unable to predict what effect, if any, such a rating system would have on our business.

Potential opposition by consumer advocacy groups to certain software content could harm our business.

Consumer advocacy groups have in the past opposed sales of interactive entertainment software products containing graphic violence and sexually explicit content. These groups have pressed for legislation in

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these areas and engaged in public demonstrations and media campaigns. While to date such actions have not harmed our business, we cannot assure you that these groups will not target our products in the future. If that occurs, we may be required to significantly change or discontinue one or more of our titles.

RISKS RELATED TO OUR COMMON STOCK

Our stock price has been volatile and we expect it to continue to be volatile.

Prior to our initial public offering in November 2001, there was no public market for our common stock. Since our initial public offering the market price of our common stock has been volatile. We have experienced a decline in the market price of our common stock from the initial public offering price. The stock market has experienced significant price and volume fluctuations that affected the market price for the common stock of many technology, communications and entertainment and media companies. These market fluctuations were sometimes unrelated or disproportionate to the operating performance of these companies. Any significant stock market fluctuations in the future, irrespective of our actual performance or prospects, could result in a further decline in the market price of our common stock.

If our common stock is delisted from The Nasdaq SmallCap Market, the liquidity and price of our common stock may be adversely affected.

Our common stock is listed on The Nasdaq SmallCap Market. In order for our common stock to continue to be listed on The Nasdaq SmallCap Market, however, we must continue to satisfy specified listing maintenance standards established by Nasdaq, including (i) required levels of total assets, net tangible assets, stockholders’ equity or revenues, (ii) minimum market value of our public float and (iii) a minimum bid price per share.

We transferred to The Nasdaq SmallCap Market from The Nasdaq National Market on March 27, 2003. Nasdaq advised us at the time of transfer that we met all the specified listing requirements of The Nasdaq SmallCap Market with the exception of the minimum $1.00 bid price per share requirement and that we had until November 17, 2003 to regain compliance with this requirement. On September 29, 2003, Nasdaq advised us that we had regained compliance with the Rule, and that we now met all the specified listing requirements of Nasdaq SmallCap Market.

If our common stock is delisted from The Nasdaq SmallCap Market, our common stock would trade on the Over-The-Counter Bulletin Board, which is viewed by most investors as a less desirable and less liquid marketplace. Thus, delisting from The Nasdaq SmallCap Market could adversely affect the liquidity and price of our common stock and could have a long-term impact on our ability to raise additional capital in the future.

Anti-takeover provisions in our charter documents and in Delaware law could prevent or delay a change in control and, as a result, negatively impact our stockholders.

Provisions of our certificate of incorporation and bylaws may discourage, delay or prevent a merger or acquisition or make removal of incumbent directors or officers more difficult. These provisions may discourage takeover attempts and bids for our common stock at a premium over the market price. These provisions include:

• the ability of our board of directors to alter our bylaws without stockholder approval;

• the restriction on the ability of stockholders to call special meetings;

• the restriction on the ability of our stockholders to act by written consent;

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• the establishment of advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted on by stockholders at stockholders meetings; and

• the establishment of a classified board of directors with staggered, three-year terms, which prevents a majority of the board from being elected at one time.

In addition, we are subject to Section 203 of the Delaware General Corporation Law, which prohibits a publicly held Delaware corporation from engaging in a merger, asset or stock sale or other transaction with an interested stockholder for a period of three years following the date such person became an interested stockholder, unless prior approval of our board of directors is obtained or as otherwise provided. These provisions of Delaware law also may discourage, delay or prevent someone from acquiring or merging with us without obtaining the prior approval of our board of directors, which may cause the market price of our common stock to decline.

Use of Proceeds

We will not receive any proceeds from the sale by any selling stockholder of the 5,904,587 shares of our common stock being offered in this prospectus. If the warrants that were issued to the selling stockholders to purchase 1,942,500 shares of our common stock are exercised, we will receive estimated proceeds of $3.6 million. If the additional investment rights that were granted to the selling stockholders to purchase an additional 1,111,625 shares of our common stock are exercised, we will receive estimated proceeds of $1.1 million. If the warrants to purchase 1,000,462 shares of our common stock that would be issued with the additional investment right shares are exercised, we will receive additional proceeds of no less than approximately $1.9 million and possibly more depending on the market price of our common stock on the exercise date and the five trading days immediately prior thereto. All of such proceeds would be issued for general corporate purposes including working capital and possible acquisitions, although we currently have no commitments or agreements and are not involved in any negotiations with respect to any acquisitions of companies, products or assets. We will incur approximately $150,000 of expenses relating to the registration of the shares being offered and sold by the selling stockholders, including the SEC registration fee and legal, accounting, printing and other expenses of this offering; a portion of the proceeds, if any, received from the exercise of the warrants or additional investment rights referenced above may be used to pay such expenses.

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Selling Stockholders

On October 1, 2003, we sold and issued (i) 1,850,000 shares of our common stock, (ii) warrants to purchase 1,942,500 shares of our common stock (including warrants to purchase 277,500 shares of common stock issued to certain placement agents utilized in connection with the offering) and (iii) additional investment rights to purchase 1,111,625 additional shares of our common stock and additional warrants to purchase 1,000,462 shares of our common stock, pursuant to transactions exempt from registration under the Securities Act of 1933. Selling stockholders may exercise the warrants to purchase shares of our common stock, and they may exercise additional investment rights to purchase shares of our common stock and warrants to purchase additional shares of our common stock. The issued shares of common stock, the shares of common stock underlying the warrants, the shares of common stock underlying the additional investment rights and the shares of common stock underlying the warrants that comprise a part of the additional investment rights are being registered to permit public sales of the shares, and the selling stockholders may offer the shares for resale from time to time pursuant to this prospectus.

The following table sets forth certain information regarding the selling stockholders and the shares offered by them in this prospectus. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to the securities, or the right to acquire voting or investment power within 60 days through the exercise of an option, warrant or right, through the conversion of a security, or through the power to revoke a trust. All shares of our common stock registered in this offering represent shares issued to each selling stockholder or shares that have been or may be acquired within 60 days of October 6, 2003 upon the exercise of the warrants issued to each selling stockholder. The percentage ownership is calculated based on 16,672,928 shares, which represents the number of shares of our commons stock that were outstanding as of October 6, 2003, and the total number of shares issuable to each selling stockholder upon the exercise of the warrants. The shares issuable upon the exercise of the warrants by each selling stockholder, however, are not deemed outstanding for the purpose of computing the percentage ownership of any other selling stockholder. None of the selling stockholders within the past three years has had any material relationship with us or any of our affiliates. To our knowledge, subject to applicable community property laws, each person named in the table has sole voting and investment power with respect to the shares of common stock set forth opposite such person’s name, unless otherwise indicated in the table.

Because the selling securityholders may offer all or some of their shares from time to time, we cannot estimate the amount of the shares that will be held by the selling securityholders upon the termination of this offering. See “Plan of Distribution.”

	Number of Shares of			Percentage of Shares
	Common Stock			of Common Stock			Number of Shares of
	Beneficially Owned			Beneficially Owned			Common Stock
	Prior to the			Prior to the			Registered for Sale
Selling Stockholder	Offering			Offering			Hereby
Vertical Ventures LLC 641 Lexington Ave., 26th Floor New York, NY 10022		834,205	(1)		4.99	%		2,401,651
Crescent International LTD c/o Greenlight (Switzerland) SA 84 Av.Louis-Casai CH 1216 Cointrin, Geneva Switzerland		858,441	(2)		4.99	%		998,048
OTAPE Investments LLC One Manhattenville Road Purchase, NY 10577		860,094	(3)		4.99	%		902,349

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	Number of Shares of			Percentage of Shares
	Common Stock			of Common Stock			Number of Shares of
	Beneficially Owned			Beneficially Owned			Common Stock
	Prior to the			Prior to the			Registered for Sale
Selling Stockholder	Offering			Offering			Hereby
Smithfield Fiduciary LLC c/o Highbridge Capital Management 9 West 57th Street, 27th Floor New York, NY 10019		712,891	(4)		4.2	%		712,891
AIG DKR Soundshore Private
Investors Holding Fund Ltd. 1281 East Main Street Stamford, CT 06902		288,749	(5)		1.7	%		288,749
JAS Securities, LLC 120 Broadway, 9th Floor New York, NY 10271		256,986	(6)		1.5	%		256,986
HD Brous & Co., Inc. 60 Cuttermill Road, Suite 500 Great Neck, NY 11021		202,813	(7)		1.2	%		202,813
WestPark Holdings, LLC 1900 Avenue of the Stars, Suite 310 Los Angeles, CA 90067		74,687	(7)		*			74,687
Truk Opportunity Fund, LLC 45 Rockefeller Plaza, Suite 2000 New York, NY 10111		66,413	(8)		*			66,413

* Less than 1%

(1)  Vertical Ventures LLC holds (a) 789,584 shares of our common stock, (b) warrants to purchase up to 710,625 shares of our common stock and (c) additional investment rights to purchase up to 474,443 additional shares of our common stock and warrants to purchase up to 426,999 additional shares of our common stock. Further to the terms of the warrants, the additional investment rights and the warrants comprising a portion of the additional investment rights held by Vertical Ventures LLC, the warrants and the additional investment rights are not exercisable to the extent that (a) the number of shares of our common stock held by Vertical Ventures LLC and (b) the number of shares of our common stock issuable upon exercise of the warrants, the additional investment rights and the warrants comprising a portion of the additional investment rights would result in beneficial ownership by Vertical Ventures LLC of more than 4.99% of our outstanding shares of common stock (“Vertical’s Maximum Percentage”). By written notice to us, Vertical Ventures LLC may waive these provisions, or increase or decrease Vertical’s Maximum Percentage, but any such waiver or increase will not be effective until the 61st day after such notice is delivered to us (any such waiver of increase or decrease will apply only to Vertical Ventures LLC and not to any other holder of warrants, additional investment rights or warrants comprising a portion of the additional investment rights). Vertical Ventures LLC beneficially owns 44,621 shares of common stock underlying warrants that are currently exercisable or exercisable within 60 days. Joshua Silverman has voting control and investment power over securities held by Vertical Ventures LLC. Mr. Silverman disclaims beneficial ownership of the securities held by Vertical Ventures LLC.

(2)  Crescent International LTD holds (a) 328,125 shares of our common stock, (b) warrants to purchase up to 295,313 shares of our common stock and (c) additional investment rights to purchase up to 197,163 additional shares of our common stock and warrants to purchase up to 177,447 additional shares of our common stock. Further to the terms of the warrants, the additional investment rights and the warrants comprising a portion of the additional investment rights held by Crescent International LTD, the warrants and the additional investment rights are not exercisable to the extent that (a) the number of shares of our common stock held by Crescent International LTD and (b) the number of shares of our common stock issuable upon exercise of the warrants, the additional investment rights and the warrants comprising a portion of the additional investment rights would result in beneficial ownership by Crescent International LTD of more than 4.99% of our outstanding shares of common stock (“ Crescent’s Maximum Percentage”). By written notice to us, Crescent International LTD may waive these provisions, or increase or decrease Crescent’s Maximum Percentage, but any such waiver or increase will not be

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effective until the 61^st day after such notice is delivered to us (any such waiver of increase or decrease will apply only to Crescent International LTD and not to any other holder of warrants, additional investment rights or warrants comprising a portion of the additional investment rights). Crescent International LTD beneficially owns 530,316 shares of common stock underlying warrants that are currently exercisable or exercisable within 60 days. Mel Craw and Maxi Brezzi, in their capacity as managers for GreenLight (Switzerland) SA, the investment advisor to Crescent International LTD, are the individuals that have voting and dispositive power over the shares to be sold by Crescent International LTD. Messrs. Craw and Brezzi disclaim beneficial ownership of these securities.

(3)  OTAPE Investments LLC holds (a) 296,662 shares of our common stock, (b) warrants to purchase up to 266,995 shares of our common stock and (c) additional investment rights to purchase up to 178,259 additional shares of our common stock and warrants to purchase up to 160,433 additional shares of our common stock. Further to the terms of the warrants, the additional investment rights and the warrants comprising a portion of the additional investment rights held by OTAPE Investments LLC, the warrants and the additional investment rights are not exercisable to the extent that (a) the number of shares of our common stock held by OTAPE Investments LLC and (b) the number of shares of our common stock issuable upon exercise of the warrants, the additional investment rights and the warrants comprising a portion of the additional investment rights would result in beneficial ownership by OTAPE Investments LLC of more than 4.99% of our outstanding shares of common stock (the “Maximum Percentage”). By written notice to us, OTAPE Investments LLC may waive these provisions, or increase or decrease the Maximum Percentage, but any such waiver or increase will not be effective until the 61^st day after such notice is delivered to us (any such waiver of increase or decrease will apply only to OTAPE Investments LLC and not to any other holder of warrants, additional investment rights or warrants comprising a portion of the additional investment rights). OTAPE Investments LLC beneficially owns 563,432 shares of common stock underlying warrants that are currently exercisable or exercisable within 60 days.

(4)  Highbridge Capital Management, LLC is the trading manager of Smithfield Fiduciary LLC and consequently has voting control and investment power over securities held by Smithfield Fiduciary LLC. Glenn Dubin and Henry Swieca control Highbridge Capital Management, LLC. Each of Highbridge Capital Management, LLC, Glenn Dubin and Henry Swieca diclaims beneficial ownership of the securities held by Smithfield Fiduciary LLC. Includes 210,938 warrants exercisable within 60 days, and 140,831 shares and 126,747 warrants underlying additional investment rights that may be exercised within 60 days.

(5)  Includes 85,438 warrants exercisable within 60 days, and 57,042 shares and 51,338 warrants underlying additional investment rights that may be exercised within 60 days. DKR Capital Partner L.P. (“DKR LP”) is a registered investment adviser with the Securities and Exchange Commission and, as such, is the investment manager of AIG DKR Soundshore Private Investors Holding Fund, Ltd. (the “Fund”). DKR LP has retained Basso Securities to act as the portfolio manager to the Fund. Howard Fischer is president of Basso Securities. DKR LP and Basso Securities have shared voting and investment power over these securities.

(6)  Includes 76,040 warrants exercisable within 60 days, and 50,767 shares and 45,690 warrants underlying additional investment rights that may be exercised within 60 days.

(7)  Represents warrants currently exercisable or exercisable within 60 days, although the warrants and underlying shares are subject to a 180 day lock-up provision.

(8)  Includes 19,651 warrants exercisable within 60 days, and 13,120 shares and 11,808 warrants underlying additional investment rights that may be exercised within 60 days. Michael E. Fein and Stephen Saltzstein, as principals of Atoll Asset Management, LLC, the managing member of Truk Opportunity Fund, LLC, exercise investment and voting control over the shares to be sold by Truk Opportunity Fund, LLC. Both Mr. Fein and Mr. Saltzstein disclaim beneficial ownership of the securities beneficially owned by this selling stockholder.

Plan of Distribution

The selling stockholders may, from time to time, sell any or all of their shares of common stock on any stock exchange, market or trading facility on which the shares are traded or in private transactions. These sales may be at fixed or negotiated prices. The selling stockholders may use any one or more of the following methods when selling shares:

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• ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;

• block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;

• purchases by a broker-dealer as principal and resale by the broker-dealer for its account;

• an exchange distribution in accordance with the rules of the applicable exchange;

• privately negotiated transactions;

• short sales;

• broker-dealers may agree with the selling stockholders to sell a specified number of such shares at a stipulated price per share;

• a combination of any such methods of sale; and

• any other method permitted pursuant to applicable law.

The selling stockholders may also sell shares under Rule 144 under the Securities Act of 1933, if available, rather than under this prospectus.

The selling stockholders may also engage in short sales against the box, puts and calls and other transactions in our securities or derivatives of our securities and may sell or deliver shares in connection with these trades.

Broker-dealers engaged by the selling stockholders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the selling stockholders (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated. The selling stockholders do not expect these commissions and discounts to exceed what is customary in the types of transactions involved. Any profits on the resale of shares of common stock by a broker-dealer acting as principal might be deemed to be underwriting discounts or commissions under the Securities Act of 1933. Discounts, concessions, commissions and similar selling expenses, if any, attributable to the sale of shares will be borne by a selling stockholder. The selling stockholders may agree to indemnify any agent, dealer or broker-dealer that participates in transactions involving sales of the shares if liabilities are imposed on that person under the Securities Act of 1933.

The selling stockholders may from time to time pledge or grant a security interest in some or all of the shares of common stock owned by them and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell the shares of common stock from time to time under this prospectus after we have filed an amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act of 1933 amending the list of selling stockholders to include the pledgee, transferee or other successors in interest as selling stockholders under this prospectus.

The selling stockholders also may transfer the shares of common stock in other circumstances, in which case the transferees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus and may sell the shares of common stock from time to time under this prospectus after we have filed an amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act of 1933 amending the list of selling stockholders to include the pledgee, transferee or other successors in interest as selling stockholders under this prospectus.

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The selling stockholders and any broker-dealers or agents that are involved in selling the shares of common stock may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares of common stock purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act.

We are required to pay all fees and expenses incident to the registration of the shares of common stock. We have agreed to indemnify the selling stockholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act of 1933.

The selling stockholders have advised us that they have not entered into any agreements, understandings or arrangements with any underwriters or broker-dealers regarding the sale of their shares of common stock, nor is there an underwriter or coordinating broker acting in connection with a proposed sale of shares of common stock by any selling stockholder. If we are notified by any selling stockholder that any material arrangement has been entered into with a broker-dealer for the sale of shares of common stock, if required, we will file a supplement to this prospectus. If the selling stockholders use this prospectus for any sale of the shares of common stock, they will be subject to the prospectus delivery requirements of the Securities Act.

The anti-manipulation rules of Regulation M under the Securities Exchange Act of 1934 may apply to sales of our common stock and activities of the selling stockholders.

Legal Matters

The validity of the issuance of the shares offered in this prospectus will be passed upon for us by Kirkpatrick & Lockhart, LLP, Los Angeles, California.

Experts

The consolidated financial statements and the related consolidated financial statement schedules incorporated in this prospectus by reference from the Company’s Annual Report on Form 10-K for the year ended June 30, 2003 have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report, which is incorporated herein by reference (which report expresses an unqualified opinion and includes an explanatory paragraph referring to the uncertainty of the Company’s ability to continue as a going concern), and have been so included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.

Where You Can Find More Information

We file annual, quarterly and special reports, along with other information with the SEC. You may read and copy any document we file at the public reference facilities maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. Our common stock is traded on The American Stock Exchange and the Toronto Stock Exchange. You may inspect reports and other information concerning us at the offices of the American Stock Exchange, Inc., 86 Trinity Place, New York, New York 10006. These filings and other information may also be inspected without charge at a Web site maintained by the SEC. The address of the site is http://www.sec.gov.

Incorporation of Certain Documents by Reference

The documents listed in paragraphs (a) through (d) below have been filed with the Securities and Exchange Commission (the “SEC”) and are hereby incorporated by reference into this Registration

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Statement. All documents that we subsequently file pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”), prior to the filing of a post-effective amendment which indicates that all securities offered herein have been sold or which deregisters all securities then remaining unsold, shall be deemed to be incorporated by reference into this Registration Statement and to be a part hereto from the date of filing of such documents.

(a)	our annual report on Form 10-K for the year ended June 30, 2003 filed with the SEC on September 30, 2003;
(b)	our current reports on Form 8-K filed with the SEC on October 3, 2003, October 2, 2003, September 30, 2003, August 20, 2003 and July 23, 2003; and
(c)	our preliminary proxy statement filed with the SEC on October 27, 2003; and
(d)	The description of our common stock contained in our registration statement on Form 8-A, as filed with the SEC on July 13, 2001, including any amendment or report filed for the purpose of updating such description.

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PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 14. Other Expenses of Issuance and Distribution.

The following table sets forth the costs and expenses payable by the Registrant in connection with this offering, other than underwriting commissions and discounts, all of which are estimated except for the SEC registration fee.

Item		Amount
SEC registration fee		$	826
Printing and engraving expenses			5,000
Legal fees and expenses			75,000
Accounting fees and expenses			15,000
Transfer agent and registrar’s fees and expenses			2,000
Miscellaneous expenses			52,174
	Total	$	150,000

Item 15. Indemnification of Directors and Officers.

Under Section 145 of the General Corporation Law of the State of Delaware, we can indemnify our directors and officers against liabilities they may incur in such capacities, including liabilities under the Securities Act of 1933, as amended (the “Securities Act”). Our certificate of incorporation provides that, pursuant to Delaware law, our directors shall not be liable for monetary damages for breach of the directors’ fiduciary duty of care to us and our stockholders. This provision in the certificate of incorporation does not eliminate the duty of care, and in appropriate circumstances equitable remedies such as injunctive or other forms of nonmonetary relief will remain available under Delaware law. In addition, each director will continue to be subject to liability for breach of the director’s duty of loyalty to us or our stockholders, for acts or omissions not in good faith or involving intentional misconduct or knowing violations of the law, for actions leading to improper personal benefit to the director, and for payment of dividends or approval of stock repurchases or redemptions that are unlawful under Delaware law. The provision also does not affect a director’s responsibilities under any other law, such as the federal securities laws or state or federal environmental laws.

Our bylaws provide for the indemnification of our directors to the fullest extent permitted by the Delaware General Corporation Law. Our bylaws further provide that our Board of Directors has sole discretion to indemnify our officers and other employees. We may limit the extent of such indemnification by individual contracts with our directors and executive officers, but have not done so. We are not, however, required to indemnify any director or executive officer in connection with any proceeding initiated by us and approved by a majority of our Board of Directors, that alleges (a) unlawful misappropriation of corporate assets, (b) disclosure of confidential information or (c) any other willful breach of such director or executive officer’s duty to us or our stockholders. We are required to advance, prior to the final disposition of any proceeding, promptly on request, all expenses incurred by any director or executive officer in connection with that proceeding on receipt of an undertaking by or on behalf of that director or executive officer to repay those amounts if it should be determined ultimately that he or she is not entitled to be indemnified under our bylaws or otherwise.

We also have directors’ and officers’ liability insurance.

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Item 16. Exhibits.

Exhibit
Number			Description of Exhibit
	4.1		Form of Stock Purchase Warrant dated as of September 30, 2003 by and between the Registrant and each of the Purchasers (incorporated by reference to Exhibit 4.1 of the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 2, 2003).
	4.2		Form of Additional Investment Right dated as of September 30, 2003 by and between the Registrant and each of the Purchasers (incorporated by reference to Exhibit 4.2 of the Registrant’s Current Report on Form 8-K/A filed with the Securities and Exchange Commission on October 3, 2003).
	4.3		Form of Additional Investment Right Warrant that may be entered into by and between the Registrant and each of the Purchasers, which is attached as Exhibit 1 to the Form of Additional Investment Right and incorporated by reference therein.
	4.4		Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 of the Registrant’s Registration Statement on Form S-1, as amended (File No 333-62436), filed with the Securities and Exchange Commission on September 4, 2001).
	5.1	*	Opinion of Kirkpatrick & Lockhart, LLP.
	10.1		Securities Purchase Agreement dated as of September 30, 2003 by and among the Registrant and the Purchasers set forth on the execution pages thereof (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 2, 2003).
	23.1		Consent of Deloitte & Touche LLP.
	23.2		Consent of Kirkpatrick & Lockhart, LLP (contained in Exhibit 5.1).
	24.1		Power of Attorney (included on signature page).

* To be filed by amendment.

Item 17. Undertakings

     The undersigned Registrant hereby undertakes:

1. To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:

a)

To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933 (the “Securities Act”);

b)

To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post- effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in

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volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement;

c)

To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; provided, however, that paragraphs (a) and (b) above do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed by the Registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement.

2.	That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
3.	To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
4.	The undersigned Registrant hereby undertakes that, for purposes of determining any liability under the Securities Act, each filing of the Registrant’s annual report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
5.	The undersigned Registrant hereby undertakes to deliver or cause to be delivered with the prospectus, to each person to whom the prospectus is sent or given, the latest annual report to security holders that is incorporated by reference in the prospectus and furnished pursuant to and meeting the requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of 1934; and, where interim financial information required to be presented by Article 3 of Regulation S-X are not set forth in the prospectus, to deliver, or cause to be delivered to each person to whom the prospectus is sent or given, the latest quarterly report that is specifically incorporated by reference in the prospectus to provide such interim financial information.
6.	Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers, and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer, or controlling person of the Registrant in the successful defense of any action, suit, or proceeding) is asserted by such director, officer, or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
7.	The undersigned Registrant hereby undertakes that:

a) For the purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or

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	497(h) under the Securities Act shall be deemed to be part of the registration statement as of the time it was declared effective.
b)	For the purposes of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

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SIGNATURES

     Pursuant to the requirements of the Securities Act, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements of filing on Form S-3 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of San Jose, State of California, on October 28, 2003.

BAM! ENTERTAINMENT, INC.
By:	/s/ RAYMOND C. MUSCI
	Raymond C. Musci Chief Executive Officer

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POWER OF ATTORNEY

          KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Raymond C. Musci as his true and lawful attorneys-in-fact and agents, with full power of substitution for him in any and all capacities, to sign (1) any and all amendments (including post-effective amendments) to this Registration Statement and (2) any registration statement or post-effective amendment thereto to be filed with the Securities and Exchange Commission pursuant to Rule 462(b) under the Securities Act of 1933, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

          Pursuant to the requirements of the Securities Act, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.

SIGNATURE	TITLE	DATE
/s/ RAYMOND C. MUSCI	Chief Executive Officer and Director (Principal Executive Officer)	October 28, 2003
Raymond C. Musci
/s/ ANTHONY R. WILLIAMS	Vice Chairman of the Board	October 28, 2003
Anthony R. Williams
/s/ STEPHEN M. AMBLER Stephen M. Ambler	Chief Financial Officer and Vice President of Finance (Principal Financial and Accounting Officer)	October 28, 2003
	Director
Mark Dyne
/s/ DAVID E. TOBIN	Director	October 28, 2003
David E. Tobin
/s/ ANTHONY G. WILLIAMS	Director	October 28, 2003
Anthony G. Williams
/s/ ROBERT T. SLEZAK	Director	October 28, 2003
Robert T. Slezak
/s/ ROBERT E. LLOYD	Director	October 28, 2003
Robert E. Lloyd

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INDEX TO EXHIBITS

Exhibit
Number			Description of Exhibit
	4.1		Form of Stock Purchase Warrant dated as of September 30, 2003 by and between the Registrant and each of the Purchasers (incorporated by reference to Exhibit 4.1 of the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 2, 2003).
	4.2		Form of Additional Investment Right dated as of September 30, 2003 by and between the Registrant and each of the Purchasers (incorporated by reference to Exhibit 4.2 of the Registrant’s Current Report on Form 8-K/A filed with the Securities and Exchange Commission on October 3, 2003).
	4.3		Form of Additional Investment Right Warrant that may be entered into by and between the Registrant and each of the Purchasers, which is attached as Exhibit 1 to the Form of Additional Investment Right and incorporated by reference therein.
	4.4		Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 of the Registrant’s Registration Statement on Form S-1, as amended (File No 333-62436), filed with the Securities and Exchange Commission on September 4, 2001).
	5.1	*	Opinion of Kirkpatrick & Lockhart, LLP.
	10.1		Securities Purchase Agreement dated as of September 30, 2003 by and among the Registrant and the Purchasers set forth on the execution pages thereof (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 2, 2003).
	23.1		Consent of Deloitte & Touche LLP.
	23.2		Consent of Kirkpatrick & Lockhart, LLP (contained in Exhibit 5.1).
	24.1		Power of Attorney (included on signature page).

* To be filed by amendment.

EX-4.3 3 v93938orexv4w3.txt EXHIBIT 4.3 EXHIBIT 4.3 TO ADDITIONAL INVESTMENT RIGHT VOID AFTER 5:00 P.M., CALIFORNIA TIME, ON SEPTEMBER 30, 2008 NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE 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"), OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. THE SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED OR SOLD IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER APPLICABLE SECURITIES LAWS UNLESS OFFERED, SOLD OR TRANSFERRED UNDER AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS. NOTWITHSTANDING THE FOREGOING, THESE SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY SUCH SECURITIES. Date: ________, 20___ BAM! ENTERTAINMENT, INC. ADDITIONAL INVESTMENT RIGHT STOCK PURCHASE WARRANT THIS CERTIFIES THAT, for value received, ________________, or its registered assigns, is entitled to purchase from BAM! ENTERTAINMENT, INC., a corporation organized under the laws of the State of Delaware (the "COMPANY"), at any time or from time to time during the period specified in Section 2 hereof, ________ fully paid and nonassessable shares of the Company's common stock, $0.001 par value (the "COMMON STOCK"), at an exercise price per share (the "EXERCISE PRICE") equal to the greater of (i) $1.87 and (ii) the lesser of (x) the closing bid price of the Company's Common Stock on the Nasdaq Stock Market on the Business Day immediately preceding the exercise date of the Additional Investment Right, and (y) the average of the closing bid price of the Company's Common Stock on the Nasdaq Stock Market for the five (5) Business Days immediately preceding the exercise date of the Additional Investment Right. The number of shares of Common Stock purchasable hereunder (the "WARRANT SHARES") and the Exercise Price are subject to adjustment as provided in Section 4 hereof. The term "WARRANTS" means this Warrant and the other Warrants of the Company issued further to the exercise of Additional Investment Rights issued pursuant to that certain Securities Purchase Agreement, dated as of September 30, 2003, by and among the Company and the other signatories thereto (the "SECURITIES PURCHASE AGREEMENT"). Capitalized terms used herein but not defined shall have the meaning ascribed to them in the Securities Purchase Agreement. This Warrant is subject to the following terms, provisions and conditions: 1. (a) Manner of Exercise; Issuance of Certificates. Subject to the provisions hereof, including, without limitation, the limitations contained in Section 7 hereof, this Warrant may be exercised at any time during the Exercise Period (as defined below) by the holder hereof, in whole or in part, by delivery of a completed exercise agreement in the form attached hereto (the "EXERCISE AGREEMENT"), to the Company by 5 p.m. California time on any Business Day at the Company's principal executive offices (or such other office or agency of the Company as it may designate by notice to the holder hereof) and upon payment to the Company as provided in Section 1(b) below of the applicable Exercise Price for the Warrant Shares specified in the Exercise Agreement. The Warrant Shares so purchased shall be deemed to be issued to the holder hereof or such holder's designee, as the record owner of such shares, as of the close of business on the date on which this Warrant shall have been surrendered and the completed Exercise Agreement shall have been delivered and payment shall have been made for such shares as set forth above or, if such day is not a Business Day, on the next succeeding Business Day. The Warrant Shares so purchased, representing the aggregate number of shares specified in the Exercise Agreement, shall be delivered to the holder hereof within a reasonable time, not exceeding five (5) Business Days, after this Warrant shall have been so exercised (the "DELIVERY PERIOD"). If the Company's transfer agent is participating in the Depository Trust Company ("DTC") Fast Automated Securities Transfer program, and so long as the certificates therefor do not require a legend and the holder is not obligated to return such certificate for the placement of a legend thereon, the Company shall cause its transfer agent to electronically transmit the Warrant Shares so purchased to the holder by crediting the account of the holder or its nominee with DTC through its Deposit Withdrawal Agent Commission system ("DTC TRANSFER"). If the aforementioned conditions to a DTC Transfer are not satisfied, the Company shall deliver to the holder physical certificates representing the Warrant Shares so purchased. Further, the holder may instruct the Company to deliver to the holder physical certificates representing the Warrant Shares so purchased in lieu of delivering such shares by way of DTC Transfer. Any certificates so delivered shall be in such denominations as may be requested by the holder hereof, shall be registered in the name of such holder or such other name as shall be designated by such holder and, following the date on which the Warrant Shares may be sold by the holder pursuant to Rule 144(k) promulgated under the Securities Act (or a successor rule), shall not bear any restrictive legend. If this Warrant shall have been exercised only in part, then, unless this Warrant has expired, the Company shall, at its expense, at the time of delivery of such certificates, deliver to the holder a new Warrant representing the number of shares with respect to which this Warrant shall not then have been exercised. (b) Payment of Exercise Price. The holder shall pay the Exercise Price in immediately available funds; provided, however, if the Registration Statement did not become effective on or before the Registration Deadline (as defined in that certain Common Stock Registration Rights Agreement of even date herewith between the Company and the Initial Investors set forth therein) and is not effective at the time holder exercises this Warrant, the holder hereof may satisfy its obligation to pay the Exercise Price through a "cashless exercise," in which event the Company shall issue to the holder hereof the number of Warrant Shares determined as follows: 2 X = Y [(A-B)/A] where: X = the number of Warrant Shares to be issued to the holder. Y = the number of Warrant Shares with respect to which this Warrant is being exercised. A = the average of the Closing Prices for the five Trading Days immediately prior to (but not including) the Exercise Date. B = the Exercise Price. For purposes of Rule 144 promulgated under the Securities Act, it is intended, understood and acknowledged that the Warrant Shares issued in a cashless exercise transaction shall be deemed to have been acquired by the holder hereof, and the holding period for the Warrant Shares shall be deemed to have commenced, on the date this Warrant was originally issued pursuant to the Purchase Agreement. 2. Period of Exercise. Except as set forth in Section 7(g) and (h) below, this Warrant may be exercised at any time or from time to time (an "EXERCISE DATE") during the period (the "EXERCISE PERIOD") beginning on (a) the date hereof and ending (b) at 5:00 p.m., California time, on September 29, 2008. Notwithstanding anything to the contrary herein, the Exercise Period shall be extended for each day following the effective date that the that the holder hereof may not sell shares under the Registration Statement (as defined in the in that certain Warrant Share Registration Rights Agreement of even date herewith between the Company and the Initial Investors set forth therein) or pursuant to Rule 144(k) under the Securities Act if the holder effected a "cashless exercise of this Warrant pursuant to Section. 3. Certain Agreements of the Company. The Company hereby covenants and agrees as follows: (a) Shares to be Fully Paid. All Warrant Shares will, upon issuance in accordance with the terms of this Warrant, be validly issued, fully paid and nonassessable and free from all taxes, liens, claims and encumbrances. (b) Reservation of Shares. During the Exercise Period, the Company shall at all times have authorized, and reserved for the purpose of issuance upon exercise of this Warrant, 3 a sufficient number of shares of Common Stock to provide for the exercise in full of this Warrant (without giving effect to the limitations on exercise set forth in Section 7(g) or 7(h) hereof). (c) Listing. The Company has secured the listing of the shares of Common Stock issuable upon exercise of or otherwise pursuant to this Warrant upon each national securities exchange or automated quotation system, if any, upon which shares of Common Stock are then listed or become listed (subject to official notice of issuance upon exercise of this Warrant) and shall maintain, so long as any other shares of Common Stock shall be so listed, such listing of all shares of Common Stock from time to time issuable upon the exercise of or otherwise pursuant to this Warrant; and the Company shall so list on each national securities exchange or automated quotation system, as the case may be, and shall maintain such listing of, any other shares of capital stock of the Company issuable upon the exercise of or otherwise pursuant to this Warrant if and so long as any shares of the same class shall be listed on such national securities exchange or automated quotation system. (d) Certain Actions Prohibited. The Company will not, by amendment of its charter or through any reorganization, transfer of assets, consolidation, merger, dissolution, issuance or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed by it hereunder, but will at all times in good faith assist in the carrying out of all the provisions of this Warrant. Without limiting the generality of the foregoing, the Company (i) will not increase the par value of any shares of Common Stock receivable upon the exercise of this Warrant above the Exercise Price then in effect, and (ii) will take all such actions as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of this Warrant. (e) Successors and Assigns. This Warrant will be binding upon any entity succeeding to the Company by merger, consolidation, or acquisition of all or substantially all of the Company's assets. (f) Blue Sky Laws. The Company shall, on or before the date of issuance of any Warrant Shares, take such actions as the Company shall reasonably determine are necessary to qualify the Warrant Shares for, or obtain exemption for the Warrant Shares for, sale to the holder of this Warrant upon the exercise hereof under applicable securities or "blue sky" laws of the states of the United States, and shall provide evidence of any such action so taken to the holder of this Warrant prior to such date; provided, however, that the Company shall not be required to qualify as a foreign corporation or file a general consent to service of process in any such jurisdiction. 4. Antidilution Provisions. During the Exercise Period, the Exercise Price and the number of Warrant Shares issuable upon the exercise of the Warrants, shall be subject to adjustment from time to time as provided in this Section 4. In the event that any adjustment of the Exercise Price as required herein results in a fraction of a cent, such Exercise Price shall be rounded up or down to the nearest cent; provided that, in no event shall the Exercise Price per share be reduced below $0.01. 4 (a) Subdivision or Combination of Common Stock. If the Company, at any time during the Exercise Period, subdivides (by any stock split, stock dividend, recapitalization, reorganization, reclassification or otherwise) its shares of Common Stock into a greater number of shares, then, after the date of record for effecting such subdivision, the Exercise Price in effect immediately prior to such subdivision will be proportionately reduced. If the Company, at any time during the Exercise Period, combines (by reverse stock split, recapitalization, reorganization, reclassification or otherwise) its shares of Common Stock into a smaller number of shares, then, after the date of record for effecting such combination, the Exercise Price in effect immediately prior to such combination will be proportionately increased. (b) Adjustment in Number of Shares. Upon each adjustment of the Exercise Price pursuant to the provisions of this Section 4 other than a Company Reduction as defined in Section 4(k), the number of shares of Common Stock issuable upon exercise of this Warrant shall be increased or decreased to equal the quotient obtained by dividing (i) the product of (A) the Exercise Price in effect immediately prior to such adjustment, multiplied by (B) the number of shares of Common Stock issuable upon exercise of this Warrant immediately prior to such adjustment, by (ii) the adjusted Exercise Price. (c) Consolidation, Merger or Sale. In case of any consolidation of the Company with, or merger of the Company into, any other entity, or in case of any sale or conveyance of all or substantially all of the assets of the Company other than in connection with a plan of complete liquidation of the Company at any time during the Exercise Period, then as a condition of such consolidation, merger or sale or conveyance, adequate provision will be made whereby the holder of this Warrant will have the right to acquire and receive upon exercise of this Warrant in lieu of the shares of Common Stock immediately theretofore acquirable upon the exercise of this Warrant, such shares of stock, securities, cash or assets as may be issued or payable with respect to or in exchange for the number of shares of Common Stock immediately theretofore acquirable and receivable upon exercise of this Warrant had such consolidation, merger or sale or conveyance not taken place. In any such case, the Company will make appropriate provision to insure that the provisions of this Section 4 will thereafter be applicable as nearly as may be in relation to any shares of stock or securities thereafter deliverable upon the exercise of this Warrant. The Company will not effect any consolidation, merger or sale or conveyance unless prior to the consummation thereof, the successor entity (if other than the Company) assumes by written instrument the obligations under this Warrant and the obligations to deliver to the holder of this Warrant such shares of stock, securities or assets as, in accordance with the foregoing provisions, the holder may be entitled to acquire. If a transaction constitutes or results in a Change of Control, then at the request of the holder hereof delivered before the 90th day after such transaction, the Company (or any such successor or surviving entity) will purchase the Warrant from the holder of this Warrant for a purchase price, payable in cash within five Business Days after such request (or, if later, on the effective date of such transaction), equal to the Black-Scholes value of the remaining unexercised portion of this Warrant on the date of such request. For the purposes of this Section, "CHANGE OF CONTROL" means the consummation of a "Rule 13e-3 transaction" as defined in Rule 13e-3 under the Exchange Act with respect to the Company that is initiated or agreed to by a member of the Company's management. (d) Distribution of Assets. In case the Company shall declare or make any distribution of its assets (other than cash) (or rights to acquire its assets (other than cash)) to all holders of Common Stock as a partial liquidating dividend, stock repurchase, by way of return of 5 capital or otherwise (including any dividend or distribution to the Company's stockholders of shares (or rights to acquire shares) of capital stock of a subsidiary) (a "DISTRIBUTION"), at any time during the Exercise Period, then, upon exercise of this Warrant for the purchase of any or all of the shares of Common Stock subject hereto, the holder of this Warrant shall be entitled to receive its pro-rata amount of such assets (or such rights) as would have been payable to the holder had such holder been the holder of such shares of Common Stock on the record date for the determination of stockholders entitled to such Distribution. (e) Notice of Adjustment. Upon the occurrence of any event which requires any adjustment of the Exercise Price other than a Company Reduction as defined in Section 4(k), then, and in each such case, the Company shall give notice thereof to the holder of this Warrant, which notice shall state the Exercise Price resulting from such adjustment and the increase or decrease in the number of Warrant Shares issuable upon exercise of this Warrant, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. Such calculation shall be certified by the chief financial officer of the Company. (f) Minimum Adjustment of the Exercise Price. No adjustment of the Exercise Price shall be made in an amount of less than 1% of the Exercise Price in effect at the time such adjustment is otherwise required to be made, but any such lesser adjustment shall be carried forward and shall be made at the time and together with the next subsequent adjustment which, together with any adjustments so carried forward, shall amount to not less than 1% of such Exercise Price. (g) No Fractional Shares. No fractional shares of Common Stock are to be issued upon the exercise of this Warrant, but the Company shall pay a cash adjustment in respect of any fractional share which would otherwise be issuable in an amount equal to the same fraction of the closing bid price of a share of Common Stock on the Principal Market on the date of such exercise. (h) Other Notices. In case at any time: (i) the Company shall declare any dividend upon the Common Stock payable in shares of stock of any class or make any other distribution (other than dividends or distributions payable in cash out of retained earnings consistent with the Company's past practices with respect to declaring dividends and making distributions) to the holders of the Common Stock; (ii) the Company shall offer for subscription pro rata to the holders of the Common Stock any additional shares of stock of any class or other rights; (iii) there shall be any capital reorganization of the Company, or reclassification of the Common Stock, or consolidation or merger of the Company with or into, or sale of all or substantially all of its assets to, another corporation or entity; or (iv) there shall be a voluntary or involuntary dissolution, liquidation or winding-up of the Company; then, in each such case, the Company shall give to the holder of this Warrant (a) notice of the date or estimated date on which the books of the Company shall close or a record shall be taken 6 for determining the holders of Common Stock entitled to receive any such dividend, distribution, or subscription rights or for determining the holders of Common Stock entitled to vote in respect of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding-up and (b) in the case of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding-up, notice of the date (or, if not then known, a reasonable estimate thereof by the Company) when the same shall take place. Such notice shall also specify the date on which the holders of Common Stock shall be entitled to receive such dividend, distribution, or subscription rights or to exchange their Common Stock for stock or other securities or property deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation, or winding-up, as the case may be. Such notice shall be given at least fifteen (15) days prior to the record date or the date on which the Company's books are closed in respect thereto. Failure to give any such notice or any defect therein shall not affect the validity of the proceedings referred to in clauses (i), (ii), (iii) and (iv) above. Notwithstanding the foregoing, the Company may publicly disclose the substance of any notice delivered hereunder prior to delivery of such notice to the holder of this Warrant. (i) Certain Events. If, at any time during the Exercise Period, any event occurs of the type contemplated by the adjustment provisions of this Section 4 but not expressly provided for by such provisions, the Company will give notice of such event as provided in Section 4(e) hereof, and the Company's Board of Directors will make an appropriate adjustment in the Exercise Price and the number of shares of Common Stock acquirable upon exercise of this Warrant so that the rights of the holder shall be neither enhanced nor diminished by such event. (j) Certain Definitions. (i) "BUSINESS DAY" means any day, other than a Saturday or Sunday or a day on which banking institutions in the State of New York are authorized or obligated by law, regulation or executive order to close. (ii) "COMMON STOCK," for purposes of this Section 4, includes the Common Stock and any additional class of stock of the Company having no preference as to dividends or distributions on liquidation, provided that the shares purchasable pursuant to this Warrant shall include only Common Stock in respect of which this Warrant is exercisable, or shares resulting from any subdivision or combination of such Common Stock, or in the case of any reorganization, reclassification, consolidation, merger, or sale of the character referred to in Section 4(c) hereof, the stock or other securities or property provided for in such Section. (iii) "PRINCIPAL MARKET" means the Nasdaq Stock Market or, if the Common Stock is not traded on the Nasdaq Stock Market, then the principal securities exchange or trading market for the Common Stock. (k) Adjustment of Exercise Price by the Company. To the extent permitted by applicable law, the Company at any time shall have the right to reduce the Exercise Price (a "COMPANY REDUCTION") by any amount for any period of time; provided that the conditions of this Section 4(k) are satisfied. The Company may exercise its right to Company Reduction by delivering to each holder of the Warrants written notice (a "COMPANY REDUCTION NOTICE") at least 15 Business Days prior to the first day of the Company Reduction Period (as defined 7 below). The Company Reduction Notice shall state the reduced Exercise Price (the "Alternative Exercise Price") and the period (the "Company Reduction Period") during which the Alternative Exercise Price will be in effect, which Company Reduction Period must be at least 15 Business Days in duration. A Company Reduction Notice shall be irrevocable. The Exercise Price shall be adjusted upon the expiration of the Company Reduction Period to the Exercise Price that otherwise would then be in effect if the Company Reduction had not occurred. Notwithstanding anything to the contrary in this Section 4(k), the Alternative Exercise Price shall at no time be greater than the Exercise Price that otherwise would be in effect during such Company Reduction Period if such Company Reduction had not occurred. 5. Issue Tax. The issuance of certificates for Warrant Shares upon the exercise of this Warrant shall be made without charge to the holder of this Warrant or such shares for any issuance tax or other costs in respect thereof, provided that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than the holder of this Warrant. 6. No Rights or Liabilities as a Stockholder. This Warrant shall not entitle the holder hereof to any voting rights or other rights as a stockholder of the Company. No provision of this Warrant, in the absence of affirmative action by the holder hereof to purchase Warrant Shares, and no mere enumeration herein of the rights or privileges of the holder hereof, shall give rise to any liability of such holder for the Exercise Price or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company. 7. Transfer, Exchange, Redemption and Replacement of Warrant. (a) Restriction on Transfer. This Warrant and the rights granted to the holder hereof are transferable in whole or in part, at any one time, upon surrender of this Warrant, together with a properly executed assignment in the form attached hereto, at the office or agency of the Company referred to in Section 7(e) below, provided, however, that any transfer or assignment shall be subject to the conditions set forth in Sections 7(f), 7(g) 7(h) and 8 hereof and to the provisions of Sections 3(e) and 3(f) of the Securities Purchase Agreement. Until due presentment for registration of transfer on the books of the Company, the Company may treat the registered holder hereof as the owner and holder hereof for all purposes, and the Company shall not be affected by any notice to the contrary. Notwithstanding anything to the contrary contained herein, the registration rights described in Section 8 hereof are assignable only in accordance with the provisions of the Warrant Shares Registration Rights Agreement. (b) Warrant Exchangeable for Different Denominations. This Warrant is exchangeable, upon the surrender hereof by the holder hereof at the office or agency of the Company referred to in Section 7(e) below, for new Warrants of like tenor of different denominations representing in the aggregate the right to purchase the number of shares of Common Stock which may be purchased hereunder, each of such new Warrant to represent the right to purchase such number of shares as shall be designated by the holder hereof at the time of such surrender. (c) Replacement of Warrant. Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction, or mutilation of this Warrant and, in the case of any such loss, theft, or destruction, upon delivery of an indemnity agreement reason- 8 ably satisfactory in form and amount to the Company, or, in the case of any such mutilation, upon surrender and cancellation of this Warrant, the Company, at its expense, will execute and deliver, in lieu thereof, a new Warrant of like tenor. (d) Cancellation; Payment of Expenses. Upon the surrender of this Warrant in connection with any transfer, exchange, or replacement as provided in this Section 7, this Warrant shall be promptly canceled by the Company. The Company shall pay all taxes (other than securities transfer taxes) and all other expenses (other than legal expenses, if any, incurred by the holder or transferees) and charges payable in connection with the preparation, execution, and delivery of Warrants pursuant to this Section 7. (e) Warrant Register. The Company shall maintain, at its principal executive offices (or such other office or agency of the Company as it may designate by notice to the holder hereof), a register for this Warrant, in which the Company shall record the name and address of the person in whose name this Warrant has been issued, as well as the name and address of each transferee and each prior owner of this Warrant. (f) Exercise or Transfer Without Registration. If, at the time of the surrender of this Warrant in connection with any exercise, transfer, or exchange of this Warrant, this Warrant (or, in the case of any exercise, the Warrant Shares issuable hereunder), shall not be registered under the Securities Act and under applicable state securities or blue sky laws, the Company may require, as a condition of allowing such exercise, transfer, or exchange, (i) that the holder or transferee of this Warrant, as the case may be, furnish to the Company a written opinion of counsel (which opinion shall be reasonably acceptable to the Company and shall be in form, substance and scope customary for opinions of counsel in comparable transactions) to the effect that such exercise, transfer, or exchange may be made without registration under the Securities Act and under applicable state securities or blue sky laws, (ii) that the holder or transferee execute and deliver to the Company an investment letter in form and substance reasonably acceptable to the Company and (iii) that the transferee be an "ACCREDITED INVESTOR" as defined in Rule 501(a) promulgated under the Securities Act; provided that no such opinion, letter, or status as an "accredited investor" shall be required in connection with a transfer pursuant to Rule 144 under the Securities Act. (g) Additional Restrictions on Exercise or Transfer. Notwithstanding anything in Section 1 or Section 3 hereof to the contrary, this Warrant shall not be exercisable to the extent (but only to the extent) that (a) the number of shares of Common Stock beneficially owned by the holder of this Warrant and its affiliates (other than shares of Common Stock which may be deemed beneficially owned through the ownership of the unexercised portion of the Warrants or the unexercised or unconverted portion of any other securities of the Company subject to a limitation on exercise or exercise analogous to the limitation contained herein) and (b) the number of shares of Common Stock issuable upon exercise of the Warrants (or portion thereof) with respect to which the determination described herein is being made, would result in beneficial ownership by such holder and its affiliates of more than 4.99% (the "MAXIMUM PERCENTAGE") of the outstanding shares of Common Stock. To the extent the above limitation applies, the determination of whether and to what extent this Warrant shall be exercisable with respect to other securities owned by such holder shall be in the sole discretion of the holder and submission of this Warrant for full or partial exercise shall be deemed to be the holder's determination of whether and the extent to which this Warrant is exercisable, in each case subject 9 to such aggregate percentage limitation. No prior inability to exercise the Warrants pursuant to this Section shall have any effect on the applicability of the provisions of this Section with respect to any subsequent determination of exercisability. For purposes of the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulation 13D-G thereunder, except as otherwise provided in clause (a) hereof. By written notice to the Company, the holder may waive the provisions of this Section or increase or decrease the Maximum Percentage to any other percentage specified in such notice, but (i) any such waiver or increase will not be effective until the 61st day after such notice is delivered to the Company, and (ii) any such waiver or increase or decrease will apply only to the holder and not to any other holder of Warrants. (h) Limitation on Number of Warrant Shares. Notwithstanding any provision hereof to the contrary, the Company shall not be obligated to issue any Warrant Shares upon exercise of the Warrants if the issuance of such shares would exceed that number of shares which the Company may issue upon exercise of the Warrants (the "Exchange Cap") without breaching the Company's obligations under the rules and regulations of the Principal Market, except that such limitation shall not apply in the event that the Company obtains the approval of its stockholders as required by the applicable rules of the Principal Market (or any successor rule or regulation) for issuances of Shares in excess of such amount. Until such approval is obtained, no purchaser of the Warrants pursuant to the Securities Purchase Agreement (the "Purchasers") shall be issued, upon exercise of the Warrants, Shares in an amount greater than the product of (i) the Exchange Cap amount then in effect multiplied by (ii) a fraction, the numerator of which is the number of shares of Common Stock issued to such Purchaser pursuant to the Securities Purchase Agreement and the denominator of which is the aggregate number of shares of Common Stock issued to all Purchases pursuant to the Securities Purchase Agreement (the "Cap Allocation Amount"). In the event that any Purchaser shall sell or otherwise transfer any of such Purchaser's Warrants, the transferee shall be allocated a pro rata portion of such Purchaser's Cap Allocation Amount. In the event that any holder of the Warrants shall convert and exercise, as the case may be, all of such holder's Warrants into a number of Shares which, in the aggregate, is less than such holder's Cap Allocation Amount, then the difference between such holder's Cap Allocation Amount and the number of Shares actually issued to such holder shall be allocated to the respective Cap Allocation Amounts of the remaining holders of Warrants on a pro rata basis in proportion to the number of Shares then issuable under the Warrants then held by each such holder. The restrictions contained in this Section 7(h) may not be amended without the consent of the holder of this Warrant and the holders of a majority of the Company's outstanding Common Stock (excluding the holder of this Warrant to the extent (and only to the extent) at the record date for determining stockholders entitled to vote thereon, such holder holds any of the Company's Common Stock purchased pursuant to the Securities Purchase Agreement or upon exercise of the any Warrants sold thereunder). 8. Registration Rights. The initial holder of this Warrant (and certain assignees thereof) are entitled to the benefit of such registration rights in respect of the Warrant Shares as are set forth in the Warrant Shares Registration Rights Agreement, including the right to assign such rights to certain assignees, as set forth therein. 9. Notices. Any notices required or permitted to be given under the terms of this Warrant shall be sent by certified or registered mail (return receipt requested) or delivered personally or by courier or by confirmed telecopy, and shall be effective five days after being 10 placed in the mail, if mailed, or upon receipt or refusal of receipt, if delivered personally or by courier, or by confirmed telecopy, in each case addressed to a party. The addresses for such communications shall be: If to the Company: BAM! Entertainment, Inc. 333 West Santa Clara Street, Suite 716 San Jose, CA 95113 Telephone No.: (408) 298-7500 Facsimile No.: (408) 298-9600 Attention: Raymond Musci President With a copy to: Kirkpatrick & Lockhart LLP 10100 Santa Monica Blvd, 7th Floor Los Angeles, California 90067 Telephone (310) 552-5000 Fax (310) 552-5001 Attention: Thomas Poletti, Esq. If to the holder, at such address as such holder shall have provided in writing to the Company, or at such other address as such holder furnishes by notice given in accordance with this Section 10, and, for any notice under Section 3. 10. Governing Law; Venue; Waiver Of Jury Trial. All questions concerning the construction, validity, enforcement and interpretation of this warrant shall be governed by and construed and enforced in accordance with the laws of the state of New York. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the city of New York, borough of Manhattan, for the adjudication of any dispute 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, that such suit, action or proceeding is improper. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. The Company hereby waives all rights to a trial by jury. 11 11. Miscellaneous. (a) Amendments. Except as provided in Section 8(g) hereof, this Warrant and any provision hereof may only be amended by an instrument in writing signed by the Company and the holder hereof. (b) Descriptive Headings. The descriptive headings of the several Sections of this Warrant are inserted for purposes of reference only, and shall not affect the meaning or construction of any of the provisions hereof. (c) In case any one or more of the provisions of this Warrant shall be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Warrant shall not in any way be affected or impaired thereby and the parties will attempt in good faith to agree upon a valid and enforceable provision which shall be a commercially reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision in this Warrant. (d) Subject to the restrictions on transfer set forth on the first page hereof, this Warrant may be assigned by the holder. This Warrant may not be assigned by the Company. This Warrant shall be binding on and inure to the benefit of the parties hereto and their respective successors and assigns. Subject to the preceding sentence, nothing in this Warrant shall be construed to give to any Person other than the Company and the holder any legal or equitable right, remedy or cause of action under this Warrant. (e) The Company will not, by amendment of its governing documents or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the holder hereof against impairment. Without limiting the generality of the foregoing, the Company (i) will not increase the par value of any Warrant Shares above the amount payable therefor on such exercise, (ii) will take all such action as may be reasonably necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares on the exercise of this Warrant, and (iii) will not close its stockholder books or records in any manner which interferes with the timely exercise of this Warrant. (f) In addition to any other rights available to a holder hereof, if the Company fails to deliver to the holder hereof a certificate representing Warrant Shares by the fifth Business Day after the date on which delivery of such certificate is required by this Warrant, and if after such fifth Business Day the holder hereof purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the holder hereof of the Warrant Shares that the holder hereof anticipated receiving from the Company (a "Buy-In"), then the Company shall, within three Business Days after the holder hereof requests and in the discretion of the holder hereof, either (i) pay cash to the holder hereof in an amount equal to the holder's total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased (the "Buy-In Price"), at which point the Company's obligation to deliver such certificate (and to issue such Common Stock) shall terminate, or (ii) promptly honor its obligation to deliver to the holder hereof a certificate or certificates representing such Common Stock and pay cash to the holder hereof in an amount equal to the excess (if any) of the Buy-In 12 Price over the product of (A) such number of shares of Common Stock, times (B) the Closing Price on the date of the event giving rise to the Company's obligation to deliver such certificate. Notwithstanding anything to the contrary, this Section 11(f) shall not apply if the Company has used its best efforts to deliver the certificates, but such certificates were not delivered due to the Transfer Agent's failure to deliver the certificates in accordance with timely instructions from the Company. (g) The Company's obligations to issue and deliver Warrant Shares in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by the holder hereof 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 hereof or any other Person of any obligation to the Company or any violation or alleged violation of law by the holder hereof or any other Person, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to the holder hereof in connection with the issuance of Warrant Shares. Nothing herein shall limit a right of the holder hereof to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company's failure to timely deliver certificates representing shares of Common Stock upon exercise of the Warrant as required pursuant to the terms hereof. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 13 IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its duly authorized officer. BAM! ENTERTAINMENT, INC. By: _________________________________ Name: Title: 14 FORM OF EXERCISE AGREEMENT (TO BE EXECUTED BY THE HOLDER IN ORDER TO EXERCISE THE WARRANT) To: BAM! Entertainment, Inc. 333 West Santa Clara Street, Suite 716 San Jose, CA 95113 Telephone No.: (408) 298-7500 Facsimile No.: (408) 298-9600 Attention: Raymond Musci President The undersigned hereby irrevocably exercises the right to purchase _____________ shares of the Common Stock of BAM! ENTERTAINMENT, INC., a corporation organized under the laws of the State of Delaware (the "COMPANY"), and tenders herewith payment of the Exercise Price in full, in the amount of $_____________, in cash, by certified or official bank check or by wire transfer for the account of the Company or exercises this Warrant pursuant to the "cashless exercise" provisions thereof; or The undersigned agrees not to offer, sell, transfer or otherwise dispose of any Common Stock obtained on exercise of the Warrant, except under circumstances that will not result in a violation of the Securities Act of 1933, as amended, or any state securities laws. [ ] The undersigned requests that the Company cause its transfer agent to electronically transmit the Common Stock issuable pursuant to this Exercise Agreement to the account of the undersigned or its nominee (which is _________________) with DTC through its Deposit Withdrawal Agent Commission System ("DTC TRANSFER"). [ ] In lieu of receiving the shares of Common Stock issuable pursuant to this Exercise Agreement by way of DTC Transfer, the undersigned hereby requests that the Company cause its transfer agent to issue and deliver to the undersigned physical certificates representing such shares of Common Stock. The undersigned requests that a Warrant representing any unexercised portion hereof be issued, pursuant to the Warrant, in the name of the Holder and delivered to the undersigned at the address set forth below: Dated: ________________ _____________________________________ Signature of Holder _____________________________________ Name of Holder (Print) Address: _____________________________________ _____________________________________ _____________________________________ FORM OF ASSIGNMENT FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers all the rights of the undersigned under the attached Warrant, with respect to the number of shares of Common Stock covered thereby issuable pursuant to the attached Warrant set forth hereinbelow, to:

Name of Assignee Address No of Shares - ---------------- ------- ------------

, and hereby irrevocably constitutes and appoints ______________________________ as agent and attorney-in-fact to transfer said Warrant on the books of the within-named corporation, with full power of substitution in the premises. Dated: _____________________, ____ In the presence of ___________________ Name: ____________________________ Signature: _______________________ Title of Signing Officer or Agent (if any): Address: ________________________ ________________________ ________________________ Note: The above signature should correspond exactly with the name on the face of the within Warrant. EX-23.1 4 v93938orexv23w1.txt EXHIBIT 23.1 EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in this Registration Statement of Bam! Entertainment, Inc. (the "Company") on Form S-3 of our report dated September 26, 2003 (which report expresses an unqualified opinion and includes an explanatory paragraph regarding the uncertainty of the Company's ability to continue as a going concern) appearing in and incorporated by reference in the Annual Report on Form 10-K of the Company for the year ended June 30, 2003 and to the reference to us under the heading "Experts" in the Prospectus, which is part of this Registration Statement. San Jose, California October 28, 2003 GRAPHIC 5 v93938orv9393800.gif GRAPHIC begin 644 v93938orv9393800.gif M1TE&.#=A&0$P`/<``````(````"``("`````@(``@`"`@,#`P,#/CX^KJZO'Q\?CX^/_[\*"@I("`@/\```#_ M`/__````__\`_P#______RP`````&0$P`$`(_@#_"1Q(L*#!@P@3*ES(L*'# MAQ`C2IQ(L:+%BQ@S:IRHH*/'CQ[O;1Q)LB1!>B93_@/)4I+*EP+OL?0X9&,[ M!0=,0E!P44)'?#"#'I2$4R"\"0?:Y:R)<*;3IU"C2ITZ,X+`-B`G+#R@H(W` MCCD/^AQX,^P[!>P6JBOZ#VM:@P]X#NP8;R&#CG,A".2J@!?"N%<5/#@HK^.[ M@V6_#E9X$^A*!8X-XE,`;Z#,L!"I0M4;5[-3"?_./K4:SW/'N.T4#E&0>J57 MA)/#KF/[>)Y"L(%1&KQ+\&8%QA[S[D6;<&W=M?*:6CUX]NW=Y`DG,U7P&R$O MU@.)8A;*7:'HIV^[_HL?3[Z\^901IMH^S[X]^:@BW5&34$+Y3G)8I3B0`W*MM!A#6`GW#U?A&60<@@HX:)`"RQF4 M8SN%27"/)'#&*:><.5&7T'6M_7-9?BK-YMF6?`8JZ*"$%FKHH8BR!](#^$R8 MZ*.01LK0=YM):JE\4>5YZ7]07>JI>_!]VIE35GYJZGA1K==.!3L-HII=61^PD-[%A)W44@23QS#//`?]%MM+(U$TY#R_D0G<`.SZU MP0X^X#(4%4&K[5?=5U!IQ9=3@SGL%`-GVJ=0:2+9B9"-87&-(VT*$64;5K\6 MM-I`@#6TDY=7Q"$TYICAIED0F%I&I,"[!N%I&=@- MS0-5HU"I4Y!/T=Y(*4MZ&:Z9MYT],$0$=RD@^T"%#7]0;(%-2.[I$DR`I=W^ M*9"MW@3!DQYUZJ@S@4D'R10FN0ZT@4^\W$.[=.J= M_Y/8J0U]/-7F^/?O__\`#*``!TC``EJ*8NLHF@$7R$"*+(\E$?A7`R=(P7!- MY5D5S&`!MR<5#7H0'D4JTJF>]I3^>%"#H?J45,IVP@JF\%(/9`GX$G*L%@+P MA9:"RKP,6"\;0@LJ_G)#5,44M)&^;<1:&&%'F/RWK?X,#1]N.U.G*/"4'0ID M<$ZY'4M^YA03_H.*,^'?<&82N2*R3B-(]"%"C-B0OX'&3X`SUUQF0CN0#(&% M*P&-3$`"`>@D*'`#@>-'%M>6,NTQ6O1*VDH'1(PX07T$48,(Z=D0"&V('`^["``@XP&8+B:,L_Z85_7W$BP8Y M"X&8=BUH;4DF92O8^*#WGX.D$5D=B8]!Z-&1Q#URC+V\HO`$\C%-"82*E1ME MEG*D@!H.9"U+$\P9YT:AOKP(*D.PC2!-@X\2<1`J%(//.YURDG=D4R%C_B'G M\=AR/\&T42YD.XCW'+?$@[@N70@W-2,[""7$&HEABB>.0Q6O/F/;/JS(8[4W'!@ M21"XE4DY".$*FQXVR:EA::6H*XCJ8C+.6,YR:E,1G(X*1Y7(35-Q";G?;')R M%@5R27H'P=)`[JF08^J4:G5.PP-8@(8>;?1E4N MT&AQD53US&KD2A`(.`9Z!FG<5@6REA4AA)&YH5R6F#G#XE#OK*3SW%I_&CJ) M$J=Q"FG45^CZ5KOJJ:F8<\KSCL9+8@DDGJ!<1W3_08]UK!9-J:%'>,E+W@H`Y0!#H&]Y*P`:J7F& M(.]@1QO6X:N#\.M"!]!-/!)\D'@(6`(2Z-%!X.'5F$!T(/.01!LFX*IV'.@= M>6I';MO128(D!25)R6J%"X.%L1AX4,U<6(U` G?M0?H0*H(!M94KQ0AX`>)H$5'_G)4(ZRE*=,Y2I+9+U6-E1````[ ` end -----END PRIVACY-ENHANCED MESSAGE-----

EX-4.3

                                                                     EXHIBIT 4.3
                                                  TO ADDITIONAL INVESTMENT RIGHT

         VOID AFTER 5:00 P.M., CALIFORNIA TIME,
         ON SEPTEMBER 30, 2008

         NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES
         ARE EXERCISABLE 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"), OR THE SECURITIES LAWS OF ANY STATE OF
         THE UNITED STATES. THE SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED
         OR SOLD IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE
         SECURITIES UNDER APPLICABLE SECURITIES LAWS UNLESS OFFERED, SOLD OR
         TRANSFERRED UNDER AN AVAILABLE EXEMPTION FROM THE REGISTRATION
         REQUIREMENTS OF THOSE LAWS. NOTWITHSTANDING THE FOREGOING, THESE
         SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE OF THESE
         SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT
         OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY SUCH SECURITIES.

Date: ________, 20___

                            BAM! ENTERTAINMENT, INC.
               ADDITIONAL INVESTMENT RIGHT STOCK PURCHASE WARRANT

         THIS CERTIFIES THAT, for value received, ________________, or its
registered assigns, is entitled to purchase from BAM! ENTERTAINMENT, INC., a
corporation organized under the laws of the State of Delaware (the "COMPANY"),
at any time or from time to time during the period specified in Section 2
hereof, ________ fully paid and nonassessable shares of the Company's common
stock, $0.001 par value (the "COMMON STOCK"), at an exercise price per share
(the "EXERCISE PRICE") equal to the greater of (i) $1.87 and (ii) the lesser of
(x) the closing bid price of the Company's Common Stock on the Nasdaq Stock
Market on the Business Day immediately preceding the exercise date of the
Additional Investment Right, and (y) the average of the closing bid price of the
Company's Common Stock on the Nasdaq Stock Market for the five (5) Business Days
immediately preceding the exercise date of the Additional Investment Right. The
number of shares of Common Stock purchasable hereunder (the "WARRANT SHARES")
and the Exercise Price are subject to adjustment as provided in Section 4
hereof. The term "WARRANTS" means this Warrant and the other Warrants of the
Company issued further to the exercise of Additional Investment Rights issued
pursuant to that certain Securities Purchase Agreement, dated as of September
30, 2003, by and among the Company and the other signatories thereto (the
"SECURITIES PURCHASE AGREEMENT"). Capitalized terms used herein but not defined
shall have the meaning ascribed to them in the Securities Purchase Agreement.



         This Warrant is subject to the following terms, provisions and
conditions:

         1.       (a) Manner of Exercise; Issuance of Certificates. Subject to
the provisions hereof, including, without limitation, the limitations contained
in Section 7 hereof, this Warrant may be exercised at any time during the
Exercise Period (as defined below) by the holder hereof, in whole or in part, by
delivery of a completed exercise agreement in the form attached hereto (the
"EXERCISE AGREEMENT"), to the Company by 5 p.m. California time on any Business
Day at the Company's principal executive offices (or such other office or agency
of the Company as it may designate by notice to the holder hereof) and upon
payment to the Company as provided in Section 1(b) below of the applicable
Exercise Price for the Warrant Shares specified in the Exercise Agreement. The
Warrant Shares so purchased shall be deemed to be issued to the holder hereof or
such holder's designee, as the record owner of such shares, as of the close of
business on the date on which this Warrant shall have been surrendered and the
completed Exercise Agreement shall have been delivered and payment shall have
been made for such shares as set forth above or, if such day is not a Business
Day, on the next succeeding Business Day. The Warrant Shares so purchased,
representing the aggregate number of shares specified in the Exercise Agreement,
shall be delivered to the holder hereof within a reasonable time, not exceeding
five (5) Business Days, after this Warrant shall have been so exercised (the
"DELIVERY PERIOD"). If the Company's transfer agent is participating in the
Depository Trust Company ("DTC") Fast Automated Securities Transfer program, and
so long as the certificates therefor do not require a legend and the holder is
not obligated to return such certificate for the placement of a legend thereon,
the Company shall cause its transfer agent to electronically transmit the
Warrant Shares so purchased to the holder by crediting the account of the holder
or its nominee with DTC through its Deposit Withdrawal Agent Commission system
("DTC TRANSFER"). If the aforementioned conditions to a DTC Transfer are not
satisfied, the Company shall deliver to the holder physical certificates
representing the Warrant Shares so purchased. Further, the holder may instruct
the Company to deliver to the holder physical certificates representing the
Warrant Shares so purchased in lieu of delivering such shares by way of DTC
Transfer. Any certificates so delivered shall be in such denominations as may be
requested by the holder hereof, shall be registered in the name of such holder
or such other name as shall be designated by such holder and, following the date
on which the Warrant Shares may be sold by the holder pursuant to Rule 144(k)
promulgated under the Securities Act (or a successor rule), shall not bear any
restrictive legend. If this Warrant shall have been exercised only in part,
then, unless this Warrant has expired, the Company shall, at its expense, at the
time of delivery of such certificates, deliver to the holder a new Warrant
representing the number of shares with respect to which this Warrant shall not
then have been exercised.

                  (b)      Payment of Exercise Price. The holder shall pay the
Exercise Price in immediately available funds; provided, however, if the
Registration Statement did not become effective on or before the Registration
Deadline (as defined in that certain Common Stock Registration Rights Agreement
of even date herewith between the Company and the Initial Investors set forth
therein) and is not effective at the time holder exercises this Warrant, the
holder hereof may satisfy its obligation to pay the Exercise Price through a
"cashless exercise," in which event the Company shall issue to the holder hereof
the number of Warrant Shares determined as follows:

                                       2



                                       X = Y [(A-B)/A]

                           where:
                                       X = the number of Warrant Shares to be
                                   issued to the holder.

                                       Y = the number of Warrant Shares with
                                   respect to which this Warrant is being
                                   exercised.

                                       A = the average of the Closing Prices for
                                   the five Trading Days immediately prior to
                                   (but not including) the Exercise Date.

                                       B = the Exercise Price.

         For purposes of Rule 144 promulgated under the Securities Act, it is
intended, understood and acknowledged that the Warrant Shares issued in a
cashless exercise transaction shall be deemed to have been acquired by the
holder hereof, and the holding period for the Warrant Shares shall be deemed to
have commenced, on the date this Warrant was originally issued pursuant to the
Purchase Agreement.

         2.       Period of Exercise. Except as set forth in Section 7(g) and
(h) below, this Warrant may be exercised at any time or from time to time (an
"EXERCISE DATE") during the period (the "EXERCISE PERIOD") beginning on (a) the
date hereof and ending (b) at 5:00 p.m., California time, on September 29, 2008.
Notwithstanding anything to the contrary herein, the Exercise Period shall be
extended for each day following the effective date that the that the holder
hereof may not sell shares under the Registration Statement (as defined in the
in that certain Warrant Share Registration Rights Agreement of even date
herewith between the Company and the Initial Investors set forth therein) or
pursuant to Rule 144(k) under the Securities Act if the holder effected a
"cashless exercise of this Warrant pursuant to Section.

         3.       Certain Agreements of the Company. The Company hereby
covenants and agrees as follows:

                  (a)      Shares to be Fully Paid. All Warrant Shares will,
upon issuance in accordance with the terms of this Warrant, be validly issued,
fully paid and nonassessable and free from all taxes, liens, claims and
encumbrances.

                  (b)      Reservation of Shares. During the Exercise Period,
the Company shall at all times have authorized, and reserved for the purpose of
issuance upon exercise of this Warrant,

                                       3



a sufficient number of shares of Common Stock to provide for the exercise in
full of this Warrant (without giving effect to the limitations on exercise set
forth in Section 7(g) or 7(h) hereof).

                  (c)      Listing. The Company has secured the listing of the
shares of Common Stock issuable upon exercise of or otherwise pursuant to this
Warrant upon each national securities exchange or automated quotation system, if
any, upon which shares of Common Stock are then listed or become listed (subject
to official notice of issuance upon exercise of this Warrant) and shall
maintain, so long as any other shares of Common Stock shall be so listed, such
listing of all shares of Common Stock from time to time issuable upon the
exercise of or otherwise pursuant to this Warrant; and the Company shall so list
on each national securities exchange or automated quotation system, as the case
may be, and shall maintain such listing of, any other shares of capital stock of
the Company issuable upon the exercise of or otherwise pursuant to this Warrant
if and so long as any shares of the same class shall be listed on such national
securities exchange or automated quotation system.

                  (d)      Certain Actions Prohibited. The Company will not, by
amendment of its charter or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issuance or sale of securities, or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed by it hereunder, but will at all times in
good faith assist in the carrying out of all the provisions of this Warrant.
Without limiting the generality of the foregoing, the Company (i) will not
increase the par value of any shares of Common Stock receivable upon the
exercise of this Warrant above the Exercise Price then in effect, and (ii) will
take all such actions as may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and nonassessable shares of
Common Stock upon the exercise of this Warrant.

                  (e)      Successors and Assigns. This Warrant will be binding
upon any entity succeeding to the Company by merger, consolidation, or
acquisition of all or substantially all of the Company's assets.

                  (f)      Blue Sky Laws. The Company shall, on or before the
date of issuance of any Warrant Shares, take such actions as the Company shall
reasonably determine are necessary to qualify the Warrant Shares for, or obtain
exemption for the Warrant Shares for, sale to the holder of this Warrant upon
the exercise hereof under applicable securities or "blue sky" laws of the states
of the United States, and shall provide evidence of any such action so taken to
the holder of this Warrant prior to such date; provided, however, that the
Company shall not be required to qualify as a foreign corporation or file a
general consent to service of process in any such jurisdiction.

         4.       Antidilution Provisions. During the Exercise Period, the
Exercise Price and the number of Warrant Shares issuable upon the exercise of
the Warrants, shall be subject to adjustment from time to time as provided in
this Section 4.

         In the event that any adjustment of the Exercise Price as required
herein results in a fraction of a cent, such Exercise Price shall be rounded up
or down to the nearest cent; provided that, in no event shall the Exercise Price
per share be reduced below $0.01.

                                       4



                  (a)      Subdivision or Combination of Common Stock. If the
Company, at any time during the Exercise Period, subdivides (by any stock split,
stock dividend, recapitalization, reorganization, reclassification or otherwise)
its shares of Common Stock into a greater number of shares, then, after the date
of record for effecting such subdivision, the Exercise Price in effect
immediately prior to such subdivision will be proportionately reduced. If the
Company, at any time during the Exercise Period, combines (by reverse stock
split, recapitalization, reorganization, reclassification or otherwise) its
shares of Common Stock into a smaller number of shares, then, after the date of
record for effecting such combination, the Exercise Price in effect immediately
prior to such combination will be proportionately increased.

                  (b)      Adjustment in Number of Shares. Upon each adjustment
of the Exercise Price pursuant to the provisions of this Section 4 other than a
Company Reduction as defined in Section 4(k), the number of shares of Common
Stock issuable upon exercise of this Warrant shall be increased or decreased to
equal the quotient obtained by dividing (i) the product of (A) the Exercise
Price in effect immediately prior to such adjustment, multiplied by (B) the
number of shares of Common Stock issuable upon exercise of this Warrant
immediately prior to such adjustment, by (ii) the adjusted Exercise Price.

                  (c)      Consolidation, Merger or Sale. In case of any
consolidation of the Company with, or merger of the Company into, any other
entity, or in case of any sale or conveyance of all or substantially all of the
assets of the Company other than in connection with a plan of complete
liquidation of the Company at any time during the Exercise Period, then as a
condition of such consolidation, merger or sale or conveyance, adequate
provision will be made whereby the holder of this Warrant will have the right to
acquire and receive upon exercise of this Warrant in lieu of the shares of
Common Stock immediately theretofore acquirable upon the exercise of this
Warrant, such shares of stock, securities, cash or assets as may be issued or
payable with respect to or in exchange for the number of shares of Common Stock
immediately theretofore acquirable and receivable upon exercise of this Warrant
had such consolidation, merger or sale or conveyance not taken place. In any
such case, the Company will make appropriate provision to insure that the
provisions of this Section 4 will thereafter be applicable as nearly as may be
in relation to any shares of stock or securities thereafter deliverable upon the
exercise of this Warrant. The Company will not effect any consolidation, merger
or sale or conveyance unless prior to the consummation thereof, the successor
entity (if other than the Company) assumes by written instrument the obligations
under this Warrant and the obligations to deliver to the holder of this Warrant
such shares of stock, securities or assets as, in accordance with the foregoing
provisions, the holder may be entitled to acquire. If a transaction constitutes
or results in a Change of Control, then at the request of the holder hereof
delivered before the 90th day after such transaction, the Company (or any such
successor or surviving entity) will purchase the Warrant from the holder of this
Warrant for a purchase price, payable in cash within five Business Days after
such request (or, if later, on the effective date of such transaction), equal to
the Black-Scholes value of the remaining unexercised portion of this Warrant on
the date of such request. For the purposes of this Section, "CHANGE OF CONTROL"
means the consummation of a "Rule 13e-3 transaction" as defined in Rule 13e-3
under the Exchange Act with respect to the Company that is initiated or agreed
to by a member of the Company's management.

                  (d)      Distribution of Assets. In case the Company shall
declare or make any distribution of its assets (other than cash) (or rights to
acquire its assets (other than cash)) to all holders of Common Stock as a
partial liquidating dividend, stock repurchase, by way of return of

                                       5



capital or otherwise (including any dividend or distribution to the Company's
stockholders of shares (or rights to acquire shares) of capital stock of a
subsidiary) (a "DISTRIBUTION"), at any time during the Exercise Period, then,
upon exercise of this Warrant for the purchase of any or all of the shares of
Common Stock subject hereto, the holder of this Warrant shall be entitled to
receive its pro-rata amount of such assets (or such rights) as would have been
payable to the holder had such holder been the holder of such shares of Common
Stock on the record date for the determination of stockholders entitled to such
Distribution.

                  (e)      Notice of Adjustment. Upon the occurrence of any
event which requires any adjustment of the Exercise Price other than a Company
Reduction as defined in Section 4(k), then, and in each such case, the Company
shall give notice thereof to the holder of this Warrant, which notice shall
state the Exercise Price resulting from such adjustment and the increase or
decrease in the number of Warrant Shares issuable upon exercise of this Warrant,
setting forth in reasonable detail the method of calculation and the facts upon
which such calculation is based. Such calculation shall be certified by the
chief financial officer of the Company.

                  (f)      Minimum Adjustment of the Exercise Price. No
adjustment of the Exercise Price shall be made in an amount of less than 1% of
the Exercise Price in effect at the time such adjustment is otherwise required
to be made, but any such lesser adjustment shall be carried forward and shall be
made at the time and together with the next subsequent adjustment which,
together with any adjustments so carried forward, shall amount to not less than
1% of such Exercise Price.

                  (g)      No Fractional Shares. No fractional shares of Common
Stock are to be issued upon the exercise of this Warrant, but the Company shall
pay a cash adjustment in respect of any fractional share which would otherwise
be issuable in an amount equal to the same fraction of the closing bid price of
a share of Common Stock on the Principal Market on the date of such exercise.

                  (h)      Other Notices. In case at any time:

                           (i)      the Company shall declare any dividend upon
the Common Stock payable in shares of stock of any class or make any other
distribution (other than dividends or distributions payable in cash out of
retained earnings consistent with the Company's past practices with respect to
declaring dividends and making distributions) to the holders of the Common
Stock;

                           (ii)     the Company shall offer for subscription pro
rata to the holders of the Common Stock any additional shares of stock of any
class or other rights;

                           (iii)    there shall be any capital reorganization of
the Company, or reclassification of the Common Stock, or consolidation or merger
of the Company with or into, or sale of all or substantially all of its assets
to, another corporation or entity; or

                           (iv)     there shall be a voluntary or involuntary
dissolution, liquidation or winding-up of the Company;

then, in each such case, the Company shall give to the holder of this Warrant
(a) notice of the date or estimated date on which the books of the Company shall
close or a record shall be taken

                                       6



for determining the holders of Common Stock entitled to receive any such
dividend, distribution, or subscription rights or for determining the holders of
Common Stock entitled to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up and (b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding-up, notice of
the date (or, if not then known, a reasonable estimate thereof by the Company)
when the same shall take place. Such notice shall also specify the date on which
the holders of Common Stock shall be entitled to receive such dividend,
distribution, or subscription rights or to exchange their Common Stock for stock
or other securities or property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding-up, as the case may be. Such notice shall be given at least fifteen (15)
days prior to the record date or the date on which the Company's books are
closed in respect thereto. Failure to give any such notice or any defect therein
shall not affect the validity of the proceedings referred to in clauses (i),
(ii), (iii) and (iv) above. Notwithstanding the foregoing, the Company may
publicly disclose the substance of any notice delivered hereunder prior to
delivery of such notice to the holder of this Warrant.

                  (i)      Certain Events. If, at any time during the Exercise
Period, any event occurs of the type contemplated by the adjustment provisions
of this Section 4 but not expressly provided for by such provisions, the Company
will give notice of such event as provided in Section 4(e) hereof, and the
Company's Board of Directors will make an appropriate adjustment in the Exercise
Price and the number of shares of Common Stock acquirable upon exercise of this
Warrant so that the rights of the holder shall be neither enhanced nor
diminished by such event.

                  (j)      Certain Definitions.

                           (i)      "BUSINESS DAY" means any day, other than a
Saturday or Sunday or a day on which banking institutions in the State of New
York are authorized or obligated by law, regulation or executive order to close.

                           (ii)     "COMMON STOCK," for purposes of this Section
4, includes the Common Stock and any additional class of stock of the Company
having no preference as to dividends or distributions on liquidation, provided
that the shares purchasable pursuant to this Warrant shall include only Common
Stock in respect of which this Warrant is exercisable, or shares resulting from
any subdivision or combination of such Common Stock, or in the case of any
reorganization, reclassification, consolidation, merger, or sale of the
character referred to in Section 4(c) hereof, the stock or other securities or
property provided for in such Section.

                           (iii)    "PRINCIPAL MARKET" means the Nasdaq Stock
Market or, if the Common Stock is not traded on the Nasdaq Stock Market, then
the principal securities exchange or trading market for the Common Stock.

                  (k)      Adjustment of Exercise Price by the Company. To the
extent permitted by applicable law, the Company at any time shall have the right
to reduce the Exercise Price (a "COMPANY REDUCTION") by any amount for any
period of time; provided that the conditions of this Section 4(k) are satisfied.
The Company may exercise its right to Company Reduction by delivering to each
holder of the Warrants written notice (a "COMPANY REDUCTION NOTICE") at least 15
Business Days prior to the first day of the Company Reduction Period (as defined

                                       7



below). The Company Reduction Notice shall state the reduced Exercise Price (the
"Alternative Exercise Price") and the period (the "Company Reduction Period")
during which the Alternative Exercise Price will be in effect, which Company
Reduction Period must be at least 15 Business Days in duration. A Company
Reduction Notice shall be irrevocable. The Exercise Price shall be adjusted upon
the expiration of the Company Reduction Period to the Exercise Price that
otherwise would then be in effect if the Company Reduction had not occurred.
Notwithstanding anything to the contrary in this Section 4(k), the Alternative
Exercise Price shall at no time be greater than the Exercise Price that
otherwise would be in effect during such Company Reduction Period if such
Company Reduction had not occurred.

         5.       Issue Tax. The issuance of certificates for Warrant Shares
upon the exercise of this Warrant shall be made without charge to the holder of
this Warrant or such shares for any issuance tax or other costs in respect
thereof, provided that the Company shall not be required to pay any tax which
may be payable in respect of any transfer involved in the issuance and delivery
of any certificate in a name other than the holder of this Warrant.

         6.       No Rights or Liabilities as a Stockholder. This Warrant shall
not entitle the holder hereof to any voting rights or other rights as a
stockholder of the Company. No provision of this Warrant, in the absence of
affirmative action by the holder hereof to purchase Warrant Shares, and no mere
enumeration herein of the rights or privileges of the holder hereof, shall give
rise to any liability of such holder for the Exercise Price or as a stockholder
of the Company, whether such liability is asserted by the Company or by
creditors of the Company.

         7.       Transfer, Exchange, Redemption and Replacement of Warrant.

                  (a)      Restriction on Transfer. This Warrant and the rights
granted to the holder hereof are transferable in whole or in part, at any one
time, upon surrender of this Warrant, together with a properly executed
assignment in the form attached hereto, at the office or agency of the Company
referred to in Section 7(e) below, provided, however, that any transfer or
assignment shall be subject to the conditions set forth in Sections 7(f), 7(g)
7(h) and 8 hereof and to the provisions of Sections 3(e) and 3(f) of the
Securities Purchase Agreement. Until due presentment for registration of
transfer on the books of the Company, the Company may treat the registered
holder hereof as the owner and holder hereof for all purposes, and the Company
shall not be affected by any notice to the contrary. Notwithstanding anything to
the contrary contained herein, the registration rights described in Section 8
hereof are assignable only in accordance with the provisions of the Warrant
Shares Registration Rights Agreement.

                  (b)      Warrant Exchangeable for Different Denominations.
This Warrant is exchangeable, upon the surrender hereof by the holder hereof at
the office or agency of the Company referred to in Section 7(e) below, for new
Warrants of like tenor of different denominations representing in the aggregate
the right to purchase the number of shares of Common Stock which may be
purchased hereunder, each of such new Warrant to represent the right to purchase
such number of shares as shall be designated by the holder hereof at the time of
such surrender.

                  (c)      Replacement of Warrant. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction, or
mutilation of this Warrant and, in the case of any such loss, theft, or
destruction, upon delivery of an indemnity agreement reason-

                                       8



ably satisfactory in form and amount to the Company, or, in the case of any such
mutilation, upon surrender and cancellation of this Warrant, the Company, at its
expense, will execute and deliver, in lieu thereof, a new Warrant of like tenor.

                  (d)      Cancellation; Payment of Expenses. Upon the surrender
of this Warrant in connection with any transfer, exchange, or replacement as
provided in this Section 7, this Warrant shall be promptly canceled by the
Company. The Company shall pay all taxes (other than securities transfer taxes)
and all other expenses (other than legal expenses, if any, incurred by the
holder or transferees) and charges payable in connection with the preparation,
execution, and delivery of Warrants pursuant to this Section 7.

                  (e)      Warrant Register. The Company shall maintain, at its
principal executive offices (or such other office or agency of the Company as it
may designate by notice to the holder hereof), a register for this Warrant, in
which the Company shall record the name and address of the person in whose name
this Warrant has been issued, as well as the name and address of each transferee
and each prior owner of this Warrant.

                  (f)      Exercise or Transfer Without Registration. If, at the
time of the surrender of this Warrant in connection with any exercise, transfer,
or exchange of this Warrant, this Warrant (or, in the case of any exercise, the
Warrant Shares issuable hereunder), shall not be registered under the Securities
Act and under applicable state securities or blue sky laws, the Company may
require, as a condition of allowing such exercise, transfer, or exchange, (i)
that the holder or transferee of this Warrant, as the case may be, furnish to
the Company a written opinion of counsel (which opinion shall be reasonably
acceptable to the Company and shall be in form, substance and scope customary
for opinions of counsel in comparable transactions) to the effect that such
exercise, transfer, or exchange may be made without registration under the
Securities Act and under applicable state securities or blue sky laws, (ii) that
the holder or transferee execute and deliver to the Company an investment letter
in form and substance reasonably acceptable to the Company and (iii) that the
transferee be an "ACCREDITED INVESTOR" as defined in Rule 501(a) promulgated
under the Securities Act; provided that no such opinion, letter, or status as an
"accredited investor" shall be required in connection with a transfer pursuant
to Rule 144 under the Securities Act.

                  (g)      Additional Restrictions on Exercise or Transfer.
Notwithstanding anything in Section 1 or Section 3 hereof to the contrary, this
Warrant shall not be exercisable to the extent (but only to the extent) that (a)
the number of shares of Common Stock beneficially owned by the holder of this
Warrant and its affiliates (other than shares of Common Stock which may be
deemed beneficially owned through the ownership of the unexercised portion of
the Warrants or the unexercised or unconverted portion of any other securities
of the Company subject to a limitation on exercise or exercise analogous to the
limitation contained herein) and (b) the number of shares of Common Stock
issuable upon exercise of the Warrants (or portion thereof) with respect to
which the determination described herein is being made, would result in
beneficial ownership by such holder and its affiliates of more than 4.99% (the
"MAXIMUM PERCENTAGE") of the outstanding shares of Common Stock. To the extent
the above limitation applies, the determination of whether and to what extent
this Warrant shall be exercisable with respect to other securities owned by such
holder shall be in the sole discretion of the holder and submission of this
Warrant for full or partial exercise shall be deemed to be the holder's
determination of whether and the extent to which this Warrant is exercisable, in
each case subject

                                       9



to such aggregate percentage limitation. No prior inability to exercise the
Warrants pursuant to this Section shall have any effect on the applicability of
the provisions of this Section with respect to any subsequent determination of
exercisability. For purposes of the immediately preceding sentence, beneficial
ownership shall be determined in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended, and Regulation 13D-G thereunder, except as
otherwise provided in clause (a) hereof. By written notice to the Company, the
holder may waive the provisions of this Section or increase or decrease the
Maximum Percentage to any other percentage specified in such notice, but (i) any
such waiver or increase will not be effective until the 61st day after such
notice is delivered to the Company, and (ii) any such waiver or increase or
decrease will apply only to the holder and not to any other holder of Warrants.

                  (h)      Limitation on Number of Warrant Shares.
Notwithstanding any provision hereof to the contrary, the Company shall not be
obligated to issue any Warrant Shares upon exercise of the Warrants if the
issuance of such shares would exceed that number of shares which the Company may
issue upon exercise of the Warrants (the "Exchange Cap") without breaching the
Company's obligations under the rules and regulations of the Principal Market,
except that such limitation shall not apply in the event that the Company
obtains the approval of its stockholders as required by the applicable rules of
the Principal Market (or any successor rule or regulation) for issuances of
Shares in excess of such amount. Until such approval is obtained, no purchaser
of the Warrants pursuant to the Securities Purchase Agreement (the "Purchasers")
shall be issued, upon exercise of the Warrants, Shares in an amount greater than
the product of (i) the Exchange Cap amount then in effect multiplied by (ii) a
fraction, the numerator of which is the number of shares of Common Stock issued
to such Purchaser pursuant to the Securities Purchase Agreement and the
denominator of which is the aggregate number of shares of Common Stock issued to
all Purchases pursuant to the Securities Purchase Agreement (the "Cap Allocation
Amount"). In the event that any Purchaser shall sell or otherwise transfer any
of such Purchaser's Warrants, the transferee shall be allocated a pro rata
portion of such Purchaser's Cap Allocation Amount. In the event that any holder
of the Warrants shall convert and exercise, as the case may be, all of such
holder's Warrants into a number of Shares which, in the aggregate, is less than
such holder's Cap Allocation Amount, then the difference between such holder's
Cap Allocation Amount and the number of Shares actually issued to such holder
shall be allocated to the respective Cap Allocation Amounts of the remaining
holders of Warrants on a pro rata basis in proportion to the number of Shares
then issuable under the Warrants then held by each such holder. The restrictions
contained in this Section 7(h) may not be amended without the consent of the
holder of this Warrant and the holders of a majority of the Company's
outstanding Common Stock (excluding the holder of this Warrant to the extent
(and only to the extent) at the record date for determining stockholders
entitled to vote thereon, such holder holds any of the Company's Common Stock
purchased pursuant to the Securities Purchase Agreement or upon exercise of the
any Warrants sold thereunder).

         8.       Registration Rights. The initial holder of this Warrant (and
certain assignees thereof) are entitled to the benefit of such registration
rights in respect of the Warrant Shares as are set forth in the Warrant Shares
Registration Rights Agreement, including the right to assign such rights to
certain assignees, as set forth therein.

         9.       Notices. Any notices required or permitted to be given under
the terms of this Warrant shall be sent by certified or registered mail (return
receipt requested) or delivered personally or by courier or by confirmed
telecopy, and shall be effective five days after being

                                       10



placed in the mail, if mailed, or upon receipt or refusal of receipt, if
delivered personally or by courier, or by confirmed telecopy, in each case
addressed to a party. The addresses for such communications shall be:

                           If to the Company:

                           BAM! Entertainment, Inc.
                           333 West Santa Clara Street, Suite 716
                           San Jose, CA 95113
                           Telephone No.: (408) 298-7500
                           Facsimile No.: (408) 298-9600
                           Attention: Raymond Musci
                                      President

                           With a copy to:

                           Kirkpatrick & Lockhart LLP
                           10100 Santa Monica Blvd, 7th Floor
                           Los Angeles, California 90067
                           Telephone (310) 552-5000
                           Fax (310) 552-5001
                           Attention: Thomas Poletti, Esq.

         If to the holder, at such address as such holder shall have provided in
writing to the Company, or at such other address as such holder furnishes by
notice given in accordance with this Section 10, and, for any notice under
Section 3.

         10.      Governing Law; Venue; Waiver Of Jury Trial. All questions
concerning the construction, validity, enforcement and interpretation of this
warrant shall be governed by and construed and enforced in accordance with the
laws of the state of New York. Each party hereby irrevocably submits to the
exclusive jurisdiction of the state and federal courts sitting in the city of
New York, borough of Manhattan, for the adjudication of any dispute 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, that such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof via registered or certified mail or overnight delivery
(with evidence of delivery) to such party at the address in effect for notices
to it under this agreement and agrees that such service shall constitute good
and sufficient service of process and notice thereof. Nothing contained herein
shall be deemed to limit in any way any right to serve process in any manner
permitted by law. The Company hereby waives all rights to a trial by jury.

                                       11



         11.      Miscellaneous.

                  (a)       Amendments. Except as provided in Section 8(g)
hereof, this Warrant and any provision hereof may only be amended by an
instrument in writing signed by the Company and the holder hereof.

                  (b)       Descriptive Headings. The descriptive headings of
the several Sections of this Warrant are inserted for purposes of reference
only, and shall not affect the meaning or construction of any of the provisions
hereof.

                  (c)       In case any one or more of the provisions of this
Warrant shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Warrant shall not
in any way be affected or impaired thereby and the parties will attempt in good
faith to agree upon a valid and enforceable provision which shall be a
commercially reasonable substitute therefor, and upon so agreeing, shall
incorporate such substitute provision in this Warrant.

                  (d)       Subject to the restrictions on transfer set forth on
the first page hereof, this Warrant may be assigned by the holder. This Warrant
may not be assigned by the Company. This Warrant shall be binding on and inure
to the benefit of the parties hereto and their respective successors and
assigns. Subject to the preceding sentence, nothing in this Warrant shall be
construed to give to any Person other than the Company and the holder any legal
or equitable right, remedy or cause of action under this Warrant.

                  (e)       The Company will not, by amendment of its governing
documents or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms of this
Warrant, but will at all times in good faith assist in the carrying out of all
such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the holder hereof against
impairment. Without limiting the generality of the foregoing, the Company (i)
will not increase the par value of any Warrant Shares above the amount payable
therefor on such exercise, (ii) will take all such action as may be reasonably
necessary or appropriate in order that the Company may validly and legally issue
fully paid and nonassessable Warrant Shares on the exercise of this Warrant, and
(iii) will not close its stockholder books or records in any manner which
interferes with the timely exercise of this Warrant.

                  (f)       In addition to any other rights available to a
holder hereof, if the Company fails to deliver to the holder hereof a
certificate representing Warrant Shares by the fifth Business Day after the date
on which delivery of such certificate is required by this Warrant, and if after
such fifth Business Day the holder hereof purchases (in an open market
transaction or otherwise) shares of Common Stock to deliver in satisfaction of a
sale by the holder hereof of the Warrant Shares that the holder hereof
anticipated receiving from the Company (a "Buy-In"), then the Company shall,
within three Business Days after the holder hereof requests and in the
discretion of the holder hereof, either (i) pay cash to the holder hereof in an
amount equal to the holder's total purchase price (including brokerage
commissions, if any) for the shares of Common Stock so purchased (the "Buy-In
Price"), at which point the Company's obligation to deliver such certificate
(and to issue such Common Stock) shall terminate, or (ii) promptly honor its
obligation to deliver to the holder hereof a certificate or certificates
representing such Common Stock and pay cash to the holder hereof in an amount
equal to the excess (if any) of the Buy-In

                                       12



Price over the product of (A) such number of shares of Common Stock, times (B)
the Closing Price on the date of the event giving rise to the Company's
obligation to deliver such certificate. Notwithstanding anything to the
contrary, this Section 11(f) shall not apply if the Company has used its best
efforts to deliver the certificates, but such certificates were not delivered
due to the Transfer Agent's failure to deliver the certificates in accordance
with timely instructions from the Company.

                  (g)       The Company's obligations to issue and deliver
Warrant Shares in accordance with the terms hereof are absolute and
unconditional, irrespective of any action or inaction by the holder hereof 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 hereof or any other Person of any
obligation to the Company or any violation or alleged violation of law by the
holder hereof or any other Person, and irrespective of any other circumstance
which might otherwise limit such obligation of the Company to the holder hereof
in connection with the issuance of Warrant Shares. Nothing herein shall limit a
right of the holder hereof to pursue any other remedies available to it
hereunder, at law or in equity including, without limitation, a decree of
specific performance and/or injunctive relief with respect to the Company's
failure to timely deliver certificates representing shares of Common Stock upon
exercise of the Warrant as required pursuant to the terms hereof.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                       13



         IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer.

                                           BAM! ENTERTAINMENT, INC.

                                           By: _________________________________
                                           Name:
                                           Title:

                                       14



FORM OF EXERCISE AGREEMENT

(TO BE EXECUTED BY THE HOLDER IN ORDER TO EXERCISE THE WARRANT)

         To:       BAM! Entertainment, Inc.
                   333 West Santa Clara Street, Suite 716
                   San Jose, CA 95113
                   Telephone No.: (408) 298-7500
                   Facsimile No.: (408) 298-9600
                   Attention: Raymond Musci
                              President

The undersigned hereby irrevocably exercises the right to purchase _____________
shares of the Common Stock of BAM! ENTERTAINMENT, INC., a corporation organized
under the laws of the State of Delaware (the "COMPANY"), and tenders herewith
payment of the Exercise Price in full, in the amount of $_____________, in cash,
by certified or official bank check or by wire transfer for the account of the
Company or exercises this Warrant pursuant to the "cashless exercise" provisions
thereof; or

         The undersigned agrees not to offer, sell, transfer or otherwise
dispose of any Common Stock obtained on exercise of the Warrant, except under
circumstances that will not result in a violation of the Securities Act of 1933,
as amended, or any state securities laws.

[ ]      The undersigned requests that the Company cause its transfer agent to
         electronically transmit the Common Stock issuable pursuant to this
         Exercise Agreement to the account of the undersigned or its nominee
         (which is _________________) with DTC through its Deposit Withdrawal
         Agent Commission System ("DTC TRANSFER").

[ ]      In lieu of receiving the shares of Common Stock issuable pursuant to
         this Exercise Agreement by way of DTC Transfer, the undersigned hereby
         requests that the Company cause its transfer agent to issue and deliver
         to the undersigned physical certificates representing such shares of
         Common Stock.

         The undersigned requests that a Warrant representing any unexercised
portion hereof be issued, pursuant to the Warrant, in the name of the Holder and
delivered to the undersigned at the address set forth below:

Dated: ________________             _____________________________________
                                    Signature of Holder

                                    _____________________________________
                                    Name of Holder (Print)
                                    Address:
                                    _____________________________________
                                    _____________________________________
                                    _____________________________________



FORM OF ASSIGNMENT

         FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and
transfers all the rights of the undersigned under the attached Warrant, with
respect to the number of shares of Common Stock covered thereby issuable
pursuant to the attached Warrant set forth hereinbelow, to:



Name of Assignee           Address                 No of Shares
- ----------------           -------                 ------------
                                             


, and hereby irrevocably constitutes and appoints ______________________________
as agent and attorney-in-fact to transfer said Warrant on the books of the
within-named corporation, with full power of substitution in the premises.

Dated: _____________________, ____

In the presence of

___________________

                           Name: ____________________________

                                    Signature: _______________________
                                    Title of Signing Officer or Agent (if any):

                                    Address: ________________________
                                             ________________________
                                             ________________________

                                    Note: The above signature should correspond
                                          exactly with the name on the face of
                                          the within Warrant.

EX-23.1

                                                                    EXHIBIT 23.1


                          INDEPENDENT AUDITORS' CONSENT

We consent to the incorporation by reference in this Registration Statement of
Bam! Entertainment, Inc. (the "Company") on Form S-3 of our report dated
September 26, 2003 (which report expresses an unqualified opinion and includes
an explanatory paragraph regarding the uncertainty of the Company's ability to
continue as a going concern) appearing in and incorporated by reference in the
Annual Report on Form 10-K of the Company for the year ended June 30, 2003 and
to the reference to us under the heading "Experts" in the Prospectus, which is
part of this Registration Statement.


San Jose, California
October 28, 2003