Document:

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                                                                   EXHIBIT 10.12

                            BAM! ENTERTAINMENT, INC.

                  CO-SALE AND RIGHT OF FIRST REFUSAL AGREEMENT

        This Co-Sale and Right of First Refusal Agreement (the "Agreement") is
made and entered into as of December 28, 2000, by and among BAM! Entertainment,
Inc., a Delaware corporation (the "Company"), Raymond C. Musci ("Musci") and
Anthony Williams ("Williams") and each purchaser listed on Exhibit A hereto
which Purchasers include Musci and Williams (the "Purchasers"),

                                    RECITALS

        A. Musci and Williams (each a "Founder") are the beneficial owners of an
aggregate of 213,506 shares of the Common Stock and upon the consummation of the
transaction described in the "Purchase Agreement" (as defined below), will own
833,625 shares of Series A Preferred Stock and 56,658 shares of Series B
Preferred Stock of the Company. (Such shares of Common Stock hereafter is
referred to as the "Common Stock" and such shares of Series A and Series B
Preferred Stock are referred to as the "Preferred Stock".

        B. Purchasers are purchasing shares of the Company's Series B Preferred
Stock (the "Series B Stock") pursuant to that certain Series B Preferred Stock
Purchase Agreement (the "Purchase Agreement") of even date herewith.

        C. Purchasers purchasing the Series B Preferred Stock were induced to do
so in part by the Company's and Founders' agreement to enter into this
Agreement.

        D. The parties desire to enter into this Agreement in order to grant
co-sale and right of first refusal rights to the Purchasers.

                                    AGREEMENT

        Now, therefore, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree hereto as follows:

        1. Definitions. Any capitalized terms not defined herein shall have the
meanings ascribed to them in the Purchase Agreement.

        2. Representations And Warranties.

           2.1 Representations and Warranties of the Founders. Each of the
Founders, individually and not jointly, hereby represents, warrants and
covenants to the Company and the Purchasers as follows: (a) such Founder has
full authority, power and capacity to enter into this Agreement and perform its
obligations hereunder; (i) does not require such founder to obtain any approval,
consent or waiver of, or to make any filing with, any Person that has not been
obtained or made; and (ii) does not and will not result in a breach of,
constitute

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a default under, accelerate any obligation under or give rise to a right of
termination of any indenture or loan or credit agreement or any other material
agreement, contract, instrument, mortgage, lien, lease, permit, authorization,
order, writ, judgment, injunction, decree, determination or arbitration award to
which such Founder is a party or by which the property of such Founder is bound
or affected, or result in the creation or imposition of any mortgage, pledge,
lien, security interest or other charge or encumbrance on any of the assets or
properties of such Founder.

           2.2 Representations and Warranties of the Company. The Company hereby
represents, warrants and covenants to the Founders and the Purchasers as
follows: (a) the Company has full corporate authority and power to enter into
this Agreement and perform its obligations hereunder; (b) this Agreement
constitutes the valid and binding obligation of the Company enforceable against
it in accordance with its terms, except: (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors' rights generally, (ii) as
limited by laws relating to the availability of specific performance, injunctive
relief, or other equitable remedies, and (iii) to the extent the indemnification
provisions may be limited by applicable federal or state securities laws; and
(c) the execution, delivery and performance by the Company of this Agreement:
(i) to the best of its knowledge, does not and will not violate any laws, rules
or regulations of the United States or any state or other jurisdiction
applicable to the Company, or require the Company to obtain any approval,
consent or waiver of, or to make any filing with, any Person that has not been
obtained or made; and (ii) does not and will not result in a breach of,
constitute a default under, accelerate any obligation under or give rise to a
right of termination of any indenture or loan or credit agreement or any other
material agreement, contract, instrument, mortgage, lien, lease, permit,
authorization, order, writ, judgment, injunction, decree, determination or
arbitration award to which the Company is a party or by which the property of
the Company is bound or affected, or result in the creation or imposition of any
mortgage, pledge, lien, security interest or other charge or encumbrance on any
of the assets or properties of the Company.

        3. Restrictions On Transfer; Co-Sale Provisions. The following
provisions of this Section 3 shall terminate immediately upon, and shall not
apply with respect to, a Qualified Public Offering (as defined in the Company's
Amended and Restated Certificate of Incorporation (the "Restated Certificate")).

           3.1 Restrictions on Transfer. Each Founder agrees that such Founder
will not, directly or indirectly transfer, donate, sell, assign, pledge,
hypothecate or grant security interest in (each a "Transfer") all or any portion
of the Common Stock now owned or hereafter acquired by such Founder, except in
connection with, and strictly in compliance with the conditions of this Section
3. "Transferred" means the accomplishment of a Transfer, and "Transferee" means
the recipient of a Transfer.

           3.2 Permitted Transfers.

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Notwithstanding anything herein to the contrary, the provisions of Section 3.3
shall not apply to either of the Transfers listed below, provided that in each
case the Transferee shall have entered into a Joinder Agreement in substantially
the form attached hereto as Exhibit B providing that all Common Stock so
Transferred shall continue to be subject to all provisions of this Agreement as
if such Shares were still held by such Founder, except that no further Transfer
shall thereafter be permitted hereunder except in compliance with Section 3.3:

               (a) Transfers by any Founder to the spouse, children or siblings
of such Founder or to a trust or family limited partnership for the benefit of
any of them; and

               (b) Transfers upon the death of any Founder to such Founder's
heirs, executors or administrators or to a trust under such Founder's will, or
Transfers between such Founder and such Founder's guardian or conservator.

Notwithstanding anything to the contrary in this Agreement or any failure by a
Transferee under this Section 3.2 to execute a Joinder Agreement, such
Transferee shall take any Common Stock so Transferred subject to all provisions
of this Agreement as if such Common Stock were still held by the Founder making
such Transfer, whether or not they so agree in writing.

           3.3 Co-Sale Option of Purchasers. In the event that any of the
Founders entertains a bona fide offer to purchase all or any portion of the
Common Stock held by such Founder (a "Transaction Offer") from any other person
(a "Buyer"), such Founder (a "Transferring Founder") may Transfer such Common
Stock only pursuant to and in accordance with the following provisions of this
Section 3.3:

               (a) Co-Sale Notice. The Transferring Founder shall cause the
Transaction Offer and all of the terms thereof to be reduced to writing and
shall promptly notify the Company and each of the Purchasers of such
Transferring Founder's desire to effect the Transaction Offer and otherwise
comply with the provisions of this Section 3.3 (the "Co-Sale Notice"). To the
extent one or more Purchasers exercise their co-sale option (the "Co-Sale
Option") in accordance with this Section 3.3, the number of Common Stock that
the Transferring Founder may Transfer in the Transaction Offer shall be
correspondingly reduced.

               (b) Purchaser Acceptance. Each of the Purchasers shall have the
right to exercise its Co-Sale Option by giving written notice of such intent to
participate (the "Co-Sale Acceptance Notice") to the Transferring Founder within
ten (10) days after receipt by such Purchaser of the Co-Sale Notice (the
"Co-Sale Election Period"). Each Co-Sale Acceptance Notice shall indicate the
maximum number of shares subject thereto which the Purchaser wishes to sell,
including the number of shares it would sell if one or more other Purchasers do
not elect to participate in the sale on the terms and conditions stated in the
Offer Notice. Any Purchaser holding Series B Series B Preferred Stock shall be
permitted to sell to the relevant Buyer in connection with any exercise of the
Co-Sale Option, at its option, (i) shares of Common Stock acquired upon
conversion of such Series B Series B Preferred Stock, (ii) an option to acquire
Common Stock when such Purchaser receives the same upon conversion of such
Series B Series B Preferred Stock, with the same effect as if Common Stock were
being conveyed, (iii) shares of

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Series B Preferred Stock and (iv) shares of Common Stock upon exercise of any
warrant held by such Purchaser (each of the foregoing, the "Purchaser Shares").

               (c) Allocation of Shares. Each Purchaser shall have the right to
sell a portion of its Purchaser Shares pursuant to the Transaction Offer which
is equal to or less than the product obtained by multiplying the total number of
Purchaser Shares available for sale to the Buyer subject to the Transaction
Offer by a fraction, the numerator of which is the total number of Purchaser
Shares owned by such Purchaser and the denominator of which is the total number
of Purchaser Shares and Shares held by all Purchasers and the Transferring
Founder, in each case as of the date of the Offer Notice, subject to increase as
hereinafter provided.

               (d) Co-Sale Closing. Within ten (10) calendar days after the end
of the Co-Sale Election Period, the Transferring Founder shall promptly notify
each participating Purchaser of the number of Purchaser Shares held by such
Purchaser that will be included in the sale and the date on which the
Transaction Offer will be consummated, which shall be no later than the later of
(i) thirty (30) calendar days after the end of the Co-Sale Election Period and
(ii) the satisfaction of any governmental approval or filing requirements, if
any. Each participating Purchaser may effect its participation in any
Transaction Offer hereunder by delivery to the Buyer, or to the Transferring
Founder for delivery to the Buyer, of one or more instruments or certificates,
properly endorsed for transfer, representing the Purchaser Shares it elects to
sell pursuant thereto. At the time of consummation of the Transaction Offer, the
Buyer shall remit directly to each participating Purchaser that portion of the
sale proceeds to which the participating Purchaser is entitled by reason of its
participation with respect thereto. No Shares may be purchased by the Buyer from
the Transferring Founder unless the Buyer simultaneously purchases from the
participating Purchasers all of the Purchaser Shares that they have elected to
sell pursuant to this Section 3.3.

               (e) Liability of Purchasers. No Purchaser shall be required to
make any representations or warranties or to provide any indemnities in
connection therewith other than with respect to title to the Purchaser Shares
being conveyed.

               (f) Sale to Third Party. Any Shares held by a Transferring
Founder that are the subject of the Transaction Offer and that the Transferring
Founder desires to Transfer following compliance with this Section 3.3, may be
sold to the Buyer only during the period specified in Section 3.3(d) and only on
terms no more favorable to the Transferring Founder than those contained in the
Offer Notice. Promptly after such Transfer, the Transferring Founder shall
notify the Company, which in turn shall promptly notify all the Purchasers, of
the consummation thereof and shall furnish such evidence of the completion and
time of completion of the Transfer and of the terms thereof as may reasonably be
requested by a Majority Interest. In the event that the Transaction Offer is not
consummated within the period required by this Section 3.3 or the Buyer fails
timely to remit to each participating Purchaser its respective portion of the
sale proceeds, the Transaction Offer shall be deemed to lapse, and any Transfer
of Shares pursuant to such Transaction Offer shall be in violation of the
provisions of this Agreement unless the Transferring Founder sends a new Offer
Notice and once again complies with the provisions of Section 3.3 with respect
to such Transaction Offer.

               (g) Contemporaneous Transfers.

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If two or more Founders propose concurrent Transfers that are subject to this
Article III, then the relevant provisions of Section 3.3 shall apply separately
to each such proposed Transfer.

           3.4 Effect of Prohibited Transfers. If any Transfer is made or
attempted contrary to the provisions of this Agreement, such purported Transfer
shall be void ab initio; the Company and the other parties hereto shall have, in
addition to any other legal or equitable remedies which they may have, the right
to enforce the provisions of this Agreement by actions for specific performance
(to the extent permitted by law); and the Company shall have the right to refuse
to recognize any Transferee as one of its stockholders for any purpose.

        4. Restrictions on Transfer; Right of First Refusal.

           4.1 Notice of Transfer. If a Founder proposes to Transfer any
Preferred Stock owned by him, then such Founder shall promptly give written
notice (the "Notice") to each of the Purchasers (for purposes of this Section
only, "Purchasers" shall exclude the Founder attempting to sell his shares of
Preferred Stock) at least thirty-five (35) days prior to the closing of such
Transfer. The Notice shall describe in reasonable detail the proposed Transfer
including, without limitation, the number of shares of Preferred Stock to be
transferred, the nature of such Transfer, the consideration to be paid, and the
name and address of each prospective purchaser or transferee. In the event that
the Transfer is being made pursuant to the provisions of Section 5, the Notice
shall state under which section the Transfer is being made.

           4.2 Purchaser Right of First Refusal.

               (a) Each Purchaser shall have the right, exercisable upon written
notice to the Founder (the "Purchaser Notice") within fifteen (15) days after
the receipt of the Notice, to purchase its pro rata share of the Preferred Stock
subject to the Notice and on the same terms and conditions as set forth therein.
The Purchasers who so exercise their rights (the "Participating Purchasers")
shall effect the purchase of the Preferred Stock, including payment of the
purchase price, not more than ten (10) days after delivery of the Purchaser
Notice, and at such time the Founder shall deliver to the Purchasers the
certificate(s) representing the Preferred Stock to be purchased by the
Participating Purchasers, each certificate to be properly endorsed for transfer.

               (b) Each Purchaser's pro rata share shall be equal to the product
obtained by multiplying (x) the aggregate number of shares of Preferred Stock
covered by the Notice and (y) a fraction, the numerator of which is the number
of shares (on a fully diluted and converted basis) owned by the Participating
Purchaser at the time of the Transfer and the denominator of which is the total
number of shares (on a fully diluted and converted basis) owned by all of the
Purchasers at the time of the Transfer.

               (c) In the event that not all of the Purchasers elect to purchase
their pro rata share of the Founder Stock available pursuant to their rights
under Section 4.2(a) within the time period set forth therein, then the Founder
shall promptly give written notice to each of the Participating Purchasers (the
"Overallotment Notice"), which shall set forth the number of

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shares of Preferred Stock not purchased by the other Purchasers, and shall offer
such Participating Purchasers the right to acquire such unsubscribed shares. The
Participating Purchasers shall have five (5) days after receipt of the
Overallotment Notice to deliver a written notice to the Founder (the
"Participating Purchasers Overallotment Notice") of its election to purchase its
pro rata share of the unsubscribed shares on the same terms and conditions as
set forth in the Notice. For purposes of this Section 4.2(c) the denominator
described in clause (y) of subsection 4.2(b) above shall be the total number of
shares owned by all Participating Purchasers at the time of Transfer. The
Participating Purchasers shall then effect the purchase of the Preferred Stock,
including payment of the purchase price, not more than five (5) days after
delivery of the Participating Purchasers Overallotment Notice to the Founder,
and at such time, the Founder shall deliver to the Participating Purchasers the
certificates representing the Preferred Stock to be purchased by the
Participating Purchasers, each certificate to be properly endorsed for transfer.

        5. Exempt Transfers.

           5.1 Securities Act. Notwithstanding the foregoing, the provisions of
Sections 2 and 3 shall not apply to the sale of any Stock to the public pursuant
to a registration statement filed with, and declared effective by, the
Securities and Exchange Commission under the Securities Act of 1933, as amended
(the "Securities Act").

           5.2 Bylaws. This Agreement is subject to, and shall in no manner
limit the right which the Company may have to repurchase securities from Musci
and Williams pursuant to (i) a stock restriction agreement or other agreement
between the Company and Musci and Williams and (ii) any right of first refusal
set forth in the Bylaws of the Company.

        6. Legend.

           6.1 Certificate. Each certificate representing shares of Common Stock
now or hereafter owned by a Founder or issued to any person in connection with a
transfer pursuant to Section 2.2 hereof shall be endorsed with the following
legend:

           "THE SALE, PLEDGE, HYPOTHECATION OR TRANSFER OF THE SECURITIES
           REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO THE TERMS AND
           CONDITIONS OF A CERTAIN CO-SALE AGREEMENT BY AND BETWEEN THE
           SHAREHOLDER, THE COMPANY AND CERTAIN HOLDERS OF STOCK OF THE COMPANY.
           COPIES OF SUCH AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO THE
           SECRETARY OF THE COMPANY."

           6.2 Instruct. The Purchasers agree that the Company may instruct its
transfer agent to impose transfer restrictions on the shares represented by
certificates bearing the legend referred to in Section 5.1 above to enforce the
provisions of this Agreement and the Company agrees to promptly do so. The
legend shall be removed upon termination of this Agreement.

        7. Miscellaneous.

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           7.1 Conditions to Exercise of Rights. Exercise of the Purchasers'
rights under this Agreement shall be subject to and conditioned upon, and the
Company shall use their best efforts to assist each party in, compliance with
applicable laws.

           7.2 Governing Law. This Agreement shall be governed by and construed
under the laws of the State of California as applied to agreements among
California residents entered into and to be performed entirely within
California.

           7.3 Amendment. Any provision of this Agreement may be amended and the
observance thereof may be waived (either generally or in a particular instance
and either retroactively or prospectively), only by the written consent of (i)
the Company, (ii) each of the Founders and (iii) a majority in interest of the
Purchasers. Any amendment or waiver effected in accordance with this Section 6.3
shall be binding upon each Purchaser, the Company, Musci, Williams and their
successors and assigns.

           7.4 Assignment of Rights. This Agreement constitutes the entire
agreement between the parties relative to the specific subject matter hereof.
Any previous agreement among the parties relative to the specific subject matter
hereof is superseded by this Agreement. This Agreement and the rights and
obligations of the parties hereunder shall inure to the benefit of, and be
binding upon, their respective successors, assigns and legal representatives.

           7.5 Term. This Agreement shall continue in full force and effect from
the date hereof through the earliest of the following dates, on which date it
shall terminate in its entirety:

               (a) on the date of and immediately prior to the closing of a
firmly underwritten public offering of the Common Stock pursuant to a
registration statement filed with the Securities and Exchange Commission, and
declared effective under the Securities Act, that results in the conversion of
the Company's preferred stock.

               (b) on the date of and immediately prior to the closing of a
sale, lease, or other disposition of all or substantially all of the Company's
assets or the Company's merger into or consolidation with any other corporation
or other entity, or any other corporate reorganization, in which the holders of
the Company's outstanding voting stock immediately prior to such transaction
own, immediately after such transaction, securities representing less than a
majority of the voting power of the corporation or other entity surviving such
transaction, provided that this Section 6.5(b) shall not apply to a merger
effected exclusively for the purpose of changing the domicile of the Company.

           7.6 Notices. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (i) upon personal delivery to the
party to be notified, (ii) when sent by confirmed telex or facsimile if sent
during normal business hours of the recipient; if not, then on the next business
day, (iii) one (1) day after deposit with a nationally recognized overnight
courier, specifying next day delivery, with written verification of receipt, or
(iv) three (3) days after deposit in first class U.S. mail, return receipt
requested. All communications shall be sent to the party to be notified at the
address as set forth on the signature page hereof or at such other address as
such party may designate by ten (10) days advance written notice to the other
parties hereto.

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           7.1 Severability. In the event one or more of the provisions of this
Agreement should, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality, or unenforceability
shall not affect any other provisions of this Agreement, and this Agreement
shall be construed as if such invalid, illegal or unenforceable provision had
never been contained herein.

           7.8 Entire Agreement. This Agreement and the Exhibits hereto, along
with the Purchase Agreement and each of the Exhibits and Schedules thereto,
constitute the full and entire understanding and agreement between the parties
with regard to the subjects hereof and thereof and no party shall be liable or
bound to any other in any manner by any representations, warranties, covenants
and agreements except as specifically set forth herein and therein.

           7.9 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

                  (REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)

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        The foregoing Co-Sale Agreement is hereby executed as of the date first
above written.

                                        COMPANY:

                                        BAM! Entertainment, Inc.

                                        By: /s/ RAYMOND C. MUSCI
                                            -----------------------------------
                                            Raymond C. Musci, President

                                        Musci

                                        /s/ RAYMOND C. MUSCI
                                        ----------------------------------------
                                        Raymond C. Musci

                                        Williams

                                        /s/ ANTHONY WILLIAMS
                                        ----------------------------------------
                                        Anthony Williams

                                        SERIES B PURCHASERS:

                                        PAR CAPITAL MANAGEMENT, INC.

                                        By: /s/ DAVID E. TOBIN
                                            ------------------------------------
                                            Name:  David E. Tobin
                                            Title: Analyst

                                        MORGAN KEEGAN EARLY STAGE FUND, L.P.

                                            By:  MERCHANT BANKERS, INC.
                                            as the general partner of Morgan
                                            Keegan Early Stage Fund, L.P.

                                            By: /s/ K. JENKINS
                                                --------------------------------
                                                Name:  K. Jenkins
                                                Title: M.D.

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                                            /s/ RAYMOND C. MUSCI
                                            ------------------------------------
                                            Raymond C. Musci

                                            /s/ ANTHONY WILLIAMS
                                            ------------------------------------
                                            Anthony Williams

                                            /s/ ROBERT HOLMES
                                            ------------------------------------
                                            Robert Holmes

                                       10<PAGE>   1
                                                                   EXHIBIT 10.13

                          REGISTRATION RIGHTS AGREEMENT

        THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is entered into as
of December 28, 2000, by and among BAM! Entertainment, Inc., a Delaware
corporation (the "Company"), the entities (the "Holders") identified in the
Holder Schedule attached hereto as Schedule 1 (the ""Holder Schedule").

                                   WITNESSETH:

        WHEREAS, the Company has entered into that certain Stock Purchase
Agreement, dated as of the date hereof (the "Stock Purchase Agreement"), with
certain entities (the "Investors") pursuant to which the Company has agreed to
issue and sell to such Investors shares of the Company's Series B Preferred
Stock, par value $0.001 per share (the "Series B Preferred Stock"); and

        WHEREAS, the Company has agreed to grant certain registration rights
with respect to the shares of the Company's Common Stock (the "Primary Shares")
issuable upon conversion of the Series B Preferred Stock issued to the Investors
pursuant to the Stock Purchase Agreement and upon conversion of the Company's
Series A Convertible Preferred Stock issued and outstanding as of the date of
this Agreement (the "Series A Preferred Stock");

        WHEREAS, the Company has entered into an engagement letter agreement
(the "Placement Agreement") with the Placement Agent dated August 7, 2000
pursuant to which the Company has agreed to issue to the Placement Agent
warrants (the "Placement Warrants") to purchase an aggregate of 2% of shares
sold of Common Stock (the "Placement Warrant Shares");

        WHEREAS, pursuant to the Placement Agreement the Company has agreed to
register under the Securities Act the Placement Warrant Shares to the same
extent as the Primary Shares;

        WHEREAS, the Company has issued a warrant to purchase 30,000 Series B
Preferred Stock to Par Capital Management, Inc. (the "Par Warrant") dated
December 27, 2000;

        NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises and covenants contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto, intending to be legally bound, hereby agree as follows:

                                    ARTICLE 1
                                   DEFINITIONS

        As used herein, the following terms shall have the following respective
meanings:

        1.1 "Commission" shall mean the Securities and Exchange Commission, or
any other successor federal agency at the time administering the Securities Act.

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        1.2 "Common Stock" shall mean the Company's common stock, par value
$0.001 per share.

        1.3 "Exchange Act" shall mean the Securities and Exchange Act of 1934,
as amended, or any similar federal statute and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.

        1.4 "Holders" shall mean the entities listed on Schedule 1 and any
transferee thereof who holds Registrable Securities, and any other person or
entity that shall have executed this Agreement in accordance with Article 10
hereof and whose name appears on the Holder Schedule attached hereto as Schedule
1.

        1.5 "Initial Public Offering" means the closing of a firm commitment
underwritten initial public offering, pursuant to an effective registration
statement under the Securities Act, covering the offer and sale by the Company
of Common Stock to the public.

        1.6 "Preferred Stock Initiating Holders" shall mean either (a) the
Holders of Series B Preferred Stock representing greater than 50% of the shares
of the Series B Registrable Securities underlying such Series B Preferred Stock
who comply with the applicable requirements of Article 2 or Article 4 ("Series B
Initiating Holders") or (b) the Holders of Series A Preferred Stock representing
greater than 50% of the Shares of the Series A Preferred Stock who comply with
the applicable requirements of Article 2 or Article 4 ("Series A Initiating
Holders").

        1.7 The terms "register," "registered" and "registration" refer to a
registration effected by preparing and filing with the Commission a registration
statement in compliance with the Securities Act, and the declaration or ordering
by the Commission of the effectiveness of such registration statement.

        1.8 "Registrable Securities" means any and all shares of Common Stock:
(i) issued or issuable upon conversion of the Series B Preferred Stock or of the
Series A Preferred Stock; (ii) issued or issuable with respect to the Series B
Preferred Stock or the Series A Preferred Stock upon any stock split, stock
dividend, recapitalization, reclassification, merger, consolidation or other
similar event; (iii) issued or issuable upon exercise of the Placement Warrants
and PAR Warrants; and (iv) otherwise held or acquired by any of the Holders,
excluding in all cases, however, Registrable Securities sold by a Holder to the
public pursuant to a registered offering or pursuant to Rule 144 promulgated
under the Securities Act.

        1.9 "Registration Expenses" shall mean all expenses incurred by the
Company in complying with Articles 2, 3 and 4 hereof, including, without
limitation, all registration, qualification and filing fees, printing expenses,
escrow fees, fees and disbursements of legal counsel for the Company, fees and
disbursements of one special legal counsel for the selling Holders, exchange
listing fees, NASD fees, blue sky fees and expenses, and the expense of any
special audits incident to or required by any such registration (but excluding
the compensation of regular employees of the Company, which shall be paid in any
event by the Company).

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        1.10 "Securities Act" shall mean the Securities Act of 1933, as amended,
or any similar federal statute and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.

        1.11 "Selling Expenses" shall mean all underwriting fees, discounts,
selling commissions and stock transfer taxes applicable to the Registrable
Securities registered by the Holders.

        1.12 "Series A Preferred Stockholder" shall mean any Holder or Holders
of the Company's Series A Convertible Preferred Stock, par value $0.001 per
share.

        1.13 "Series A Registrable Securities" means any and all shares of
Common Stock: (i) issued or issuable upon conversion of the Series A Preferred
Stock; or (ii) issued or issuable with respect to the Series A Preferred Stock
upon any stock split, stock dividend, recapitalization, reclassification,
merger, consolidation or other similar event.

        1.14 "Series B Preferred Stockholder" shall mean any Holder or Holders
of the Company's Series B Preferred Stock, par value $0.001 per share.

        1.15 "Series B Registrable Securities" means any and all shares of
Common Stock: (i) issued or issuable upon conversion of the Series B Preferred
Stock; or (ii) issued or issuable with respect to the Series B Preferred Stock
upon any stock split, stock dividend, recapitalization, reclassification,
merger, consolidation or other similar event.

                                    ARTICLE 2
                             REQUESTED REGISTRATION

        2.1 Request for Registration. Beginning on the date which is 180 days
following the consummation of an Initial Public Offering Preferred Stock
Initiating Holders may, subject to Sections 2.1(b) and 2.2, request registration
in accordance with this Article 2. In the event the Company shall receive from
the Preferred Stock Initiating Holders a written request that the Company effect
any registration, qualification or compliance with respect to Registrable
Securities, the Company will:

            (a) promptly give written notice of the proposed registration,
qualification or compliance to all other Holders; and

            (b) use its best efforts to effect such registration, qualification
or compliance as soon as practicable (including, without limitation, undertaking
to file post-effective amendments, appropriate qualifications under applicable
blue sky or other state securities laws, and appropriate compliance with
applicable regulations issued under the Securities Act, and any other
governmental requirements or regulations) as may be so requested and as would
permit or facilitate the sale and distribution of all or such portion of such
Registrable Securities as are specified in such request, together with all or
such portion of the Registrable Securities of any Holder or Holders joining in
such request as are specified in a written request received by the

                                       3
<PAGE>   4

Company within 15 days after the receipt of the written notice from the Company
described in Section 2.1(a).

            (c) The Company shall file a registration statement covering the
Registrable Securities so requested to be registered as soon as practicable
after receipt of the request of the Preferred Stock Initiating Holders;
provided, however, that if the Company shall furnish to such Holders a
certificate signed by the President or Chief Executive Officer of the Company
stating that in the good faith judgment of the Board of Directors of the
Company, it would be detrimental to the Company and its stockholders for such
registration statement to be filed, the Company shall have the right to defer
such filing for a period of not more than 120 days after receipt of the request
of the Initiating Holders; provided, further, that the Company shall not be
permitted to exercise such deferral right under this Section 2.1(c) or Section
4.1(b) hereof more than twice in any 365 -day period.

        2.2 Maximum Number of Demand Registrations. The Company is obligated to
effect two (2) demand registrations initiated by the Series B Initiating Holders
and one (1) demand registration initiated by the Series A Initiating Holders
pursuant to Section 2.

        2.3 Underwriting.

            (a) The distribution of the Registrable Securities covered by the
request of the Preferred Initiating Holders shall be effected by means of the
method of distribution selected by the Holders holding a majority of the
Registrable Securities covered by such registration. If such distribution is
effected by means of an underwriting, the right of any Holder to registration
pursuant to this Article 2 shall be conditioned upon such Holder's participation
in such underwriting and the inclusion of such Holder's Registrable Securities
in the underwriting (unless otherwise agreed by the Preferred Stock Initiating
Holders) to the extent provided herein.

            (b) If such distribution is effected by means of an underwriting,
the Company (together with all Holders proposing to distribute their securities
through such underwriting) shall enter into an underwriting agreement in
customary form with a managing underwriter of nationally recognized standing
selected for such underwriting by the Holders holding a majority of the
Registrable Securities covered by such registration and approved by the Company,
which approval shall not be unreasonably withheld. Notwithstanding any other
provision of this Article 2, if the managing underwriter advises the Preferred
Stock Initiating Holders in writing that marketing factors require a limitation
of the number of shares to be underwritten, then the underwriters may exclude
shares requested to be included in such registration. The number of shares of
Registrable Securities to be included in the registration and underwriting shall
be allocated first amongst (i) the Holders who have requested registration of
Registrable Securities plus (ii) those joining the request pursuant to Section
2.1(b) in proportion, as nearly as practicable, to the respective amounts of
Registrable Securities held by such Holders at the time of filing the
registration statement and then amongst any Holders exercising their rights
under Article 3 hereof with respect thereto in proportion, as nearly as
practicable, to the respective amount of Registrable Securities held by such
holders at the time of the filing of the registration statement. No Registrable
Securities excluded from the underwriting by reason of the managing
underwriter's marketing limitation shall be included in such registration.

                                       4
<PAGE>   5

            (c) If any Holder disapproves of the terms of the underwriting, such
person may elect to withdraw therefrom by written notice to the Company, the
managing underwriter and the Preferred Stock Initiating Holders. The Registrable
Securities and/or other securities so withdrawn shall also be withdrawn from
registration; provided, however, that if by the withdrawal of such Registrable
Securities a greater number of Registrable Securities held by other Holders may
be included in such registration (up to the maximum of any limitation imposed by
the underwriters), then the Company shall offer to all Holders who have included
Registrable Securities in the registration the right to include additional
Registrable Securities in the same proportion used in determining the
underwriter limitation in this Section 2.3.

        2.4 Inclusion of Shares by Company. If the distribution of Registrable
Securities is being effected by means of an underwriting and if the managing
underwriter has not limited the number of Registrable Securities to be
underwritten, the Company may include securities for its own account or for the
account of others in such registration if the managing underwriter so agrees.
The inclusion of such shares shall be on the same terms as the registration of
shares held by the Preferred Stock Initiating Holders. In the event that the
underwriters exclude some of the securities to be registered, the securities to
be sold for the account of the Company and any other holders shall be excluded
in their entirety prior to the exclusion of any Registrable Securities.

                                    ARTICLE 3
                              COMPANY REGISTRATION

        3.1 Notice of Registration to Holders. If at any time or from time to
time the Company shall determine to register any of its securities, either for
its own account or the account of a security holder or holders, including,
without limitation, pursuant to Article 2 or Article 4 hereof, other than (i) a
registration relating solely to employee benefit plans on Form S-8 (or any
successor form) or (ii) a registration relating solely to a Commission Rule 145
transaction on Form S-4 (or any successor form), the Company will:

            (a) promptly give to each Holder written notice thereof, and

            (b) include in such registration (and any related qualification
under blue sky laws or other compliance), and in any underwriting involved
therein, all the Registrable Securities specified in a written request or
requests, made within 30 days after receipt of such written notice from the
Company described in Section 3.1(a), by any Holder or Holders.

        3.2 Underwriting.

            (a) If the registration of which the Company gives notice is for a
registered public offering involving an underwriting, the Company shall so
advise the Holders as a part of the written notice given pursuant to Section
3.1(a). In such event, the right of any Holder to registration pursuant to this
Article 3 shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting to the extent provided herein. All Holders proposing to distribute
their securities through such

                                       5
<PAGE>   6

underwriting shall (together with the Company) enter into an underwriting
agreement in customary form with the managing underwriter selected for such
underwriting by the Company.

            (b) Notwithstanding any other provision of this Article 3, if the
managing underwriter determines that marketing factors require a limitation of
the number of shares to be underwritten, the underwriter may exclude some or all
Registrable Securities from such registration and underwriting. The Company
shall so advise all Holders of Registrable Securities, and the number of shares
of Common Stock to be included in such registration shall be allocated as
follows: first, for the account of the Company, all shares of Common Stock
proposed to be sold by the Company; second, for the account of the Holders
participating in such registration, in proportion, as nearly as practicable, to
the respective amounts of Registrable Securities held be all such Holders of
Registrable Securities; third, for the account of any other stockholders of the
Company not holding Registrable Securities participating in such registration,
the number of shares of Common Stock requested to be included in the
registration. No Registrable Securities excluded from the underwriting by reason
of the underwriters' marketing limitation shall be included in such
registration.

            (c) The Company shall so advise all Holders and the other holders
distributing their securities through such underwriting of any such limitation,
and the number of shares of Registrable Securities held by Holders that may be
included in the registration. If any Holder disapproves of the terms of any such
underwriting, such Holder may elect to withdraw therefrom by written notice to
the Company and the managing underwriter. Any securities excluded or withdrawn
from such underwriting shall be withdrawn from such registration.

            (d) The Company shall have the right to terminate or withdraw any
registration initiated by it under this Article 3 prior to the effectiveness of
such registration, whether or not a Holder has elected to include Registrable
Securities in such registration.

                                    ARTICLE 4
                            REGISTRATION ON FORM S-3

        4.1 Request for Registration.

            (a) In addition to the rights set forth in Articles 2 and 3 hereof,
if Preferred Stock Initiating Holders request that the Company file a
registration statement on Form S-3 (or any successor to Form S-3) for a public
offering of shares of Registrable Securities having an aggregate offering price
of at least $3,000,000 (based on the then current market price) and the Company
is a registrant entitled to use Form S-3 (or any successor form to Form S-3) to
register such shares for such an offering, the Company shall use its best
efforts to cause such shares to be registered for the offering as soon as
practicable on Form S-3 (or any such successor form to Form S-3).

            (b) The Company shall file a registration statement on Form S-3
covering the Registrable Securities so requested to be registered as soon as
practicable after receipt of the request of the Holders; provided, however, that
if the Company shall furnish to such Holders a

                                       6
<PAGE>   7

certificate signed by the President or Chief Executive Officer of the Company
stating that in the good faith judgment of the Board of Directors of the
Company, it would be detrimental to the Company and its stockholders for such
registration statement to be filed on or before the date filing would be
required, and it is therefore essential to defer the filing of such registration
statement, the Company shall have the right to defer such filing for a period of
not more than 120 days after receipt of the request of the Holders; provided,
further, that the Company shall not be permitted to exercise such deferral right
under this Section 4.1(b) or Section 2.1(c) hereof more than twice in any 365
day period.

            (c) The Company is obligated to effect one (1) registration
initiated by the Series B Initiating Holders and one (1) registration initiated
by the Series A Initiating Holders during any twelve-month period pursuant to
this Section 4.1.

        4.2 Underwriting.

            (a) The distribution of the Registrable Securities covered by the
registration on Form S-3 shall be effected by means of the method of
distribution selected by the Holders holding a majority of the Registrable
Securities covered by such registration. If such distribution is effected by
means of an underwriting, the right of any Holder to registration pursuant to
this Article 4 shall be conditioned upon such Holder's participation in such
underwriting, if any, and the inclusion of such Holder's Registrable Securities
in such underwriting.

            (b) If the distribution of the Registrable Securities pursuant to
this Section 4.2 is effected by means of an underwriting, the Company (together
with all Holders proposing to distribute their securities through such
underwriting) shall enter into an underwriting agreement in customary form with
a managing underwriter of nationally recognized standing selected for such
underwriting by a majority in interest of the Holders requesting registration on
Form S-3 and approved by the Company, which approval shall not be unreasonably
withheld. Notwithstanding any other provision of this Article 4, if the managing
underwriter advises the Holders in writing that marketing factors require a
limitation of the number of shares to be underwritten, then the underwriters may
exclude some or all of the shares requested to be included in such registration,
and the number of shares of Registrable Securities that may be included in the
registration and underwriting shall be allocated among all Holders thereof in
proportion, as nearly as practicable, to the respective amounts of Registrable
Securities held by such Holders at the time of filing the registration
statement. No Registrable Securities excluded from the underwriting by reason of
the managing underwriter's marketing limitation shall be included in such
registration.

            (c) If the distribution of the Registrable Securities pursuant to
this Section 4.2 is effected by means of an underwriting and if any Holder of
Registrable Securities disapproves of the terms of the underwriting, such person
may elect to withdraw therefrom by written notice to the Company, the managing
underwriter and the Holders. The Registrable Securities and/or other securities
so withdrawn shall also be withdrawn from registration; provided, however, that
if by the withdrawal of such Registrable Securities a greater number of
Registrable Securities held by other Holders may be included in such
registration (up to the maximum of any limitation imposed by the underwriters),
then the Company shall offer to all Holders who have included

                                       7
<PAGE>   8

Registrable Securities in the registration the right to include additional
Registrable Securities in the same proportion used in determining the
underwriter limitation in this Section 4.2.

        4.3 Inclusion of Shares by Company. If the distribution of the
Registrable Securities pursuant to this Article 4 is effected by means of an
underwriting and if the managing underwriter has not limited the number of
Registrable Securities to be underwritten, the Company may include securities
for its own account or for the account of others in such registration if the
managing underwriter so agrees and if the number of Registrable Securities held
by Holders requesting registration on Form S-3 which would otherwise have been
included in such registration and underwriting will not thereby be limited. The
inclusion of such shares shall be on the same terms as the registration of
shares held by the Holders requesting such registration. In the event that the
underwriters exclude some of the securities to be registered on Form S-3, the
securities to be sold for the account of the Company and any other holders shall
be excluded in their entirety prior to the exclusion of any Registrable
Securities.

                                    ARTICLE 5
                            EXPENSES OF REGISTRATION

        All Registration Expenses incurred in connection with any registration,
qualification or compliance pursuant to Article 2, Article 3 and Article 4
hereof shall be borne by the Company. All Selling Expenses relating to
Registrable Securities registered pursuant to Article 2, Article 3 and Article 4
hereof shall be borne by the Holders of such Registrable Securities pro rata on
the basis of the number of shares so registered.

                                    ARTICLE 6
                             REGISTRATION PROCEDURE

        6.1 Registration Procedures. If and whenever the Company is required by
the provisions of this Agreement to use its best efforts to promptly effect the
registration of any of its securities under the Securities Act, the Company
will:

            (a) use its best efforts diligently to prepare and file with the
Commission a registration statement on the appropriate form under the Securities
Act with respect to such securities, which form shall comply as to form in all
material respects with the requirements of the applicable form and include all
financial statements required by the Commission to be filed therewith, and use
its best efforts to cause such registration statement to become and remain
effective until completion of the proposed offering;

            (b) use its best efforts to diligently prepare and file with the
Commission such amendments and supplements to such registration statement and
the prospectus used in connection therewith as may be necessary to keep such
registration statement effective until the Holder or Holders have completed the
distribution described in such registration statement and to comply with the
provisions of the Securities Act with respect to the sale or other disposition
of all securities covered by such registration statement whenever the seller or
sellers of such securities shall desire to sell or otherwise dispose of the
same, but only to the extent provided in

                                       8
<PAGE>   9

this Agreement;

            (c) furnish to each selling holder and the underwriters, if any,
such number of copies of such registration statement, any amendments thereto,
any documents incorporated by reference therein, the prospectus, including a
preliminary prospectus, in conformity with the requirements of the Securities
Act, and such other documents as such selling holder may reasonably request in
order to facilitate the public sale or other disposition of the securities owned
by such selling holder;

            (d) use its best efforts to register or qualify the securities
covered by such registration statement under such other securities or state blue
sky laws of such jurisdictions as each selling holder shall request, and do any
and all other acts and things which may be necessary under such securities or
blue sky laws to enable such selling holder to consummate the public sale or
other disposition in such jurisdictions of the securities owned by such selling
holder, except that the Company shall not for any such purpose be required to
qualify to do business as a foreign corporation in any jurisdiction wherein it
is not so qualified;

            (e) within a reasonable time before each filing of the registration
statement or prospectus or amendments or supplements thereto with the
Commission, furnish to counsel selected by the holders of Registrable Securities
copies of such documents proposed to be filed, which documents shall be subject
to the approval of such counsel;

            (f) immediately notify each selling holder of Registrable
Securities, such selling holder's counsel and any underwriter and (if requested
by any such Person) confirm such notice in writing, of the happening of any
event which makes any statement made in the registration statement or related
prospectus untrue or which requires the making of any changes in such
registration statement or prospectus so that they will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein in the light of the
circumstances under which they were made not misleading; and, as promptly as
practicable thereafter, prepare and file with the Commission and furnish a
supplement or amendment to such prospectus so that, as thereafter deliverable to
the purchasers of such Registrable Securities, such prospectus will not contain
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading;

            (g) use its best efforts to prevent the issuance of any order
suspending the effectiveness of a registration statement, and if one is issued
use its best efforts to obtain the withdrawal of any order suspending the
effectiveness of a registration statement at the earliest possible moment;

            (h) if requested by the managing underwriter or underwriters (if
any), any selling holder, or such selling holder's counsel, promptly incorporate
in a prospectus supplement or post-effective amendment such information as such
Person requests to be included therein, including, without limitation, with
respect to the securities being sold by such selling holder to such underwriter
or underwriters, the purchase price being paid therefor by such underwriter or
underwriters and with respect to any other terms of an underwritten offering of
the securities to

                                       9
<PAGE>   10

be sold in such offering, and promptly make all required filings of such
prospectus supplement or post-effective amendment;

            (i) make available to each selling holder, any underwriter
participating in any disposition pursuant to a registration statement, and any
attorney, accountant or other agent or representative retained by any such
selling holder or underwriter (collectively, the "Inspectors"), all financial
and other records, pertinent corporate documents and properties of the Company
(collectively, the "Records"), as shall be reasonably necessary to enable them
to exercise their due diligence responsibility, and cause the Company's
officers, directors and employees to supply all information requested by any
such Inspector in connection with such registration statement;

            (j) enter into any reasonable underwriting agreement required by the
proposed underwriter(s) for the selling holders, if any, and use its best
efforts to facilitate the public offering of the securities;

            (k) furnish to each prospective selling holder a signed counterpart,
addressed to the prospective selling holder, of (A) an opinion of counsel for
the Company, dated the effective date of the registration statement, and (B) a
"comfort" letter signed by the independent public accountants who have certified
the Company's financial statements included in the registration statement,
covering substantially the same matters with respect to the registration
statement (and the prospectus included therein) and (in the case of the
accountants' letter) with respect to events subsequent to the date of the
financial statements, as are customarily covered (at the time of such
registration) in opinions of the Company's counsel and in accountants' letters
delivered to the underwriters in underwritten public offerings of securities;

            (l) cause the securities covered by such registration statement to
be listed on the securities exchange or quoted on the quotation system on which
the Common Stock of the Company is then listed or quoted (or if the Common Stock
is not yet listed or quoted, then on such exchange or quotation system as the
selling holders of Registrable Securities and the Company shall determine);

            (m) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission and make generally available to its
security holders, in each case as soon as practicable, but not later than 30
days after the close of the period covered thereby, an earnings statement of the
Company which will satisfy the provisions of Section 11(a) of the Securities Act
and Rule 158 thereunder (or any comparable successor provisions);

            (n) otherwise cooperate with the underwriter(s), the Commission and
other regulatory agencies and take all actions and execute and deliver or cause
to be executed and delivered all documents necessary to effect the registration
of any securities under this Agreement; and

                                       10
<PAGE>   11

            (o) during the period when the prospectus is required to be
delivered under the Securities Act, promptly file all documents required to be
filed with the Commission pursuant to Sections 13(a), 13(c), 14, or 15(d) of the
Exchange Act.

                                    ARTICLE 7
                                 INDEMNIFICATION

        7.1 The Company will indemnify each Holder, each of its officers and
directors and partners, and each person controlling any such persons within the
meaning of Section 15 of the Securities Act, with respect to which registration,
qualification or compliance has been effected pursuant to this Agreement, and
each underwriter, if any, and each person who controls any underwriter within
the meaning of Section 15 of the Securities Act, against all expenses, claims,
losses, damages and liabilities (or actions in respect thereof), including any
of the foregoing incurred in settlement of any litigation, commenced or
threatened, arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any registration statement,
prospectus, or any amendment or supplement thereof, incident to any such
registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein, a material fact required to be stated therein or
necessary to make the statements therein, not misleading, or any violation by
the Company of any rule or regulation promulgated under the Securities Act or
any state securities laws applicable to the Company and relating to action or
inaction by the Company in connection with any such registration, qualification
or compliance, and will reimburse each such Holder, each of its officers and
directors and partners and each person controlling any such persons, each such
underwriter and each person who controls any such underwriter, for any legal and
any other expenses reasonably incurred in connection with investigating,
preparing or defending any such claim, loss, damage, liability or action;
provided, however, that the Company will not be liable in any such case to the
extent that any such claim, loss, damage, liability or expense arises out of or
is based on any untrue statement or omission or alleged untrue statement or
omission, made in reliance upon and in conformity with written information
furnished to the Company by such Holder or underwriter and expressly intended
for use in such registration statement, prospectus, or any amendment or
supplement thereof.

        7.2 Each Holder will, if Registrable Securities held by such Holder are
included in the securities as to which such registration, qualification or
compliance is being effected, indemnify the Company, each of its directors and
officers, each underwriter, if any, of the Company's securities covered by such
a registration statement, each person who controls the Company or such
underwriter within the meaning of Section 15 of the Securities Act, and each
other such Holder, each of its officers, directors, partners, and each person
controlling such Holder within the meaning of Section 15 of the Securities Act,
against all expenses, claims, losses, damages and liabilities (or actions in
respect thereof), including any of the foregoing incurred in settlement of any
litigation, commenced or threatened, arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in any such
registration statement, prospectus, or any amendment or supplement thereto,
incident to any such registration, qualification or compliance or based on any
omission (or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
will reimburse the Company, such Holders, such directors, officers, partners,

                                       11
<PAGE>   12

underwriters or control persons for any legal or any other expenses reasonably
incurred in connection with investigating, preparing or defending any such
claim, loss, damage, liability or action, in each case to the extent, but only
to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such registration statement,
prospectus, or amendment or supplement in reliance upon and in conformity with
written information furnished to the Company by such Holder and expressly
intended for use in such registration statement, prospectus, or any amendment or
supplement thereof; provided, however, that the obligations of each Holder
hereunder shall be limited to an amount equal to the proceeds to such Holder of
Registrable Securities sold as contemplated herein.

        7.3 Each party entitled to indemnification under this Section 7 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not unreasonably be
withheld). The Indemnified Party may participate in such defense at such party's
expense; provided, however, that the Indemnifying Party shall bear the expense
of such defense of the Indemnified Party if representation of both parties by
the same counsel would be inappropriate due to actual or potential conflicts of
interest. The failure of any Indemnified Party to give notice as provided herein
shall not relieve the Indemnifying Party of its obligations under this
Agreement, unless such failure is prejudicial to the ability of the Indemnifying
Party to defend the action. No Indemnifying Party, in the defense of any such
claim or litigation, shall, except with the consent of each Indemnified Party,
consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party of a release from all liability in respect of such
claim or litigation, and no Indemnified Party shall, except with the consent of
each Indemnifying Party, consent to any judgement or enter into any settlement
with respect to any claim for which it is seeking indemnification hereunder.

        7.4 THE INDEMNIFICATION PROVISIONS PROVIDED FOR IN THIS AGREEMENT HAVE
BEEN EXPRESSLY NEGOTIATED IN EVERY DETAIL, ARE INTENDED TO BE GIVEN FULL AND
LITERAL EFFECT, AND SHALL BE APPLICABLE WHETHER OR NOT THE LIABILITIES,
OBLIGATIONS, CLAIMS, JUDGMENTS, LOSSES, COSTS, EXPENSES OR DAMAGES IN QUESTION
ARISE OR AROSE SOLELY OR IN PART FROM THE ACTIVE, PASSIVE OR CONCURRENT
NEGLIGENCE, STRICT LIABILITY, OR OTHER FAULT OF ANY INDEMNIFIED PARTY. THE
PARTIES HERETO ACKNOWLEDGE THAT THIS STATEMENT COMPLIES WITH THE "EXPRESS
NEGLIGENCE RULE" AND CONSTITUTES CONSPICUOUS NOTICE. NOTHING IN THIS CONSPICUOUS
NOTICE IS INTENDED TO PROVIDE OR ALTER THE RIGHTS AND OBLIGATIONS OF THE
PARTIES, ALL OF WHICH ARE SPECIFIED ELSEWHERE IN THIS AGREEMENT.

                                       12
<PAGE>   13

                                    ARTICLE 8
                               RULE 144 REPORTING

        With a view to making available the benefits of certain rules and
regulations of the Commission which may at any time permit the sale of
securities of the Company to the public without registration, after such time as
a public market exists for the Common Stock of the Company, the Company agrees
to:

        8.1 Make and keep public information available as those terms are
understood and defined in Rule 144 under the Securities Act, at all times after
the effective date of the first registration under the Securities Act filed by
the Company for an offering of its securities to the general public; and

        8.2 Use commercially reasonable efforts to then file with the Commission
in a timely manner all reports and other documents required of the Company under
the Securities Act and the Exchange Act (at any time after it has become subject
to such reporting requirements); and

        8.3 So long as a Holder owns any Registrable Securities, furnish to the
Holder forthwith upon request a written statement by the Company as to its
compliance with the reporting requirements of said Rule 144 (at any time after
ninety (90) days following the effective date of the first registration
statement filed by the Company for an offering of its securities to the general
public), and of the Securities Act and the Exchange Act (at any time after it
has become subject to such reporting requirements), a copy of the most recent
annual or quarterly report of the Company, and such other reports and documents
of the Company as a Holder may reasonably request in availing itself of any rule
or regulation of the Commission allowing a Holder to sell any such securities
without registration.

                                    ARTICLE 9
                         TRANSFER OF REGISTRATION RIGHTS

        The rights to cause the Company to register Registrable Securities
granted Holders under Articles 2, 3 and 4 hereof may be assigned in connection
with any transfer or assignment of at least 50,000 shares of the Holder's
Registrable Securities. All transferees and assignees of the rights to cause the
Company to register Registrable Securities granted Holders under Articles 2, 3
and 4 hereof, as a condition to the transfer of such rights, shall agree in
writing to be bound by the agreements set forth herein.

                                   ARTICLE 10
                       LIMITATIONS ON REGISTRATION RIGHTS
                           GRANTED TO OTHER SECURITIES

        The parties hereto agree that additional holders may, with the consent
of the Company, the holders of a majority of the Registrable Securities then
outstanding, the holders of a majority of the Series B Preferred Stock then
outstanding and the holders of a majority of the Series A Preferred Stock then
outstanding, be added as parties to this Agreement with respect to any or all

                                       13
<PAGE>   14

securities of the Company held by them; provided, however, that from and after
the date of this Agreement, the Company shall not without the prior written
consent of the holders of a majority of the Registrable Securities then
outstanding and the holders of a majority of the Series B Preferred Stock then
outstanding, enter into any agreement with any holder or prospective holder of
any securities of the Company providing for the grant to such holder of
registration rights superior to, or pari passu with, those granted herein. Any
additional parties shall execute a counterpart of this Agreement, and upon
execution by such additional parties and by the Company, shall be considered
Holders for purposes of this Agreement, and shall be added to the Schedule of
Registration Rights Holders.

                                   ARTICLE 11
                                 PRIOR AGREEMENT

        The Investor Rights Agreement entered into among the Company and the
entities listed therein dated May 17, 2000 is hereby terminated.

                                   ARTICLE 12
                                  MISCELLANEOUS

        12.1 GOVERNING LAW. THE LAWS OF THE STATE OF CALIFORNIA SHALL GOVERN THE
INTERPRETATION, VALIDITY AND PERFORMANCE OF THE TERMS OF THIS AGREEMENT,
REGARDLESS OF THE LAW THAT MIGHT BE APPLIED UNDER PRINCIPLES OF CONFLICTS OF
LAW.

        12.2 Successors and Assigns. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto.

        12.3 Entire Agreement. This Agreement constitutes the full and entire
understanding and agreement between the parties with regard to the subject
matter hereof.

        12.4 Termination. In addition, the right of any Holder to request
registration or inclusion in any registration shall not be exercisable by a
Holder during any period in which after the closing of the Initial Public
Offering of Common Stock of the Company, all shares of Registrable Securities
held or entitled to be held upon conversion by such Holder may be sold under
Rule 144 under the Securities Act within any 90-day period.

        12.5 Notices. All notices, requests, consents, and other communications
hereunder shall be in writing and shall be deemed effectively given and received
when delivered in person or by national overnight courier service or by
certified or registered mail, return receipt requested, or by telecopier,
addressed as follows:

                                       14
<PAGE>   15

            (a) if to the Company, at

                BAM Entertainment, Inc.
                333 West Santa Clara Ave.
                Suite 95113
                San Jose, CA
                Attention: Ray Musci
                Facsimile: (408) 298-9600

                with a copy to:

                Doty Sundheim and Gilmore
                Attention: George M. Sundheim, III
                Facsimile:  (650) 327-0100

            (b) To any Holder: The address reflected in Schedule 1 hereto, as
applicable, or such other address or addresses as shall have been furnished in
writing by such party to the Company and to the other parties to this Agreement.

        12.6 Severability. The invalidity, illegality or unenforceability of one
or more of the provisions of this Agreement in any jurisdiction shall not affect
the validity, legality or enforceability of the remainder of this Agreement in
such jurisdiction or the validity, legality or enforceability of this Agreement,
including any such provision, in any other jurisdiction, it being intended that
all rights and obligations of the parties hereunder shall be enforceable to the
fullest extent permitted by law.

        12.7 Titles and Subtitles. The titles of the sections and subsections of
this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.

        12.8 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
constitute one instrument.

        12.9 "Market Stand-Off" Agreement. Each Holder agrees, if requested by
the Company and underwriter of Common Stock of the Company in connection with
the Company's Initial Public Offering not to sell or otherwise transfer or
dispose of any Common Stock of the Company held by such Holder (other than to
donees, partners or affiliates of the Holder who agree to be similarly bound)
during the one hundred eighty (180) day period following the effective date of a
registration statement of the Company filed under the Securities Act without the
prior consent of such underwriter; provided, however, that this Section 11.9
shall only apply to the Holders if all executive officers and directors of the
Company then holding Common Stock of the Company (or options to acquire Common
Stock) and all persons owning more than one percent (1%) of Common Stock of the
Company shall also have agreed to enter into similar agreements. Such agreement
shall be in writing in a form reasonably satisfactory to the Company and such
underwriter. The Company may impose stop-transfer instructions with respect to
the shares (or securities) subject to the foregoing restriction until the end of
such one hundred eighty (180) day period.

                                       15
<PAGE>   16
        IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their respective duly authorized officers or
representatives as of the date first written above.

                                    BAM! ENTERTAINMENT, INC.

                                    By:  /s/ RAYMOND C. MUSCI
                                         ---------------------------------------
                                         Raymond C. Musci, President

                                    By:  /s/ GEORGE M. SUNDHEIM, III
                                         ---------------------------------------
                                         George M. Sundheim, III, Secretary

                                    PAR CAPITAL MANAGEMENT, INC.

                                    By:  /s/ DAVID E. TOBIN
                                         ---------------------------------------
                                         Name:  David E. Tobin
                                         Title: Analyst

                                    MORGAN KEEGAN EARLY STAGE FUND, L.P.

                                    By:  MERCHANT BANKERS, INC. as the general
                                         partner of Morgan Keegan Early Stage
                                         Fund, L.P.

                                         By:  /s/ K. JENKINS
                                              ----------------------------------
                                              Name:  K. Jenkins
                                              Title: M.D.

                                    /s/ RAYMOND C. MUSCI
                                    --------------------------------------------
                                    Raymond C. Musci

                                    /s/ ANTHONY WILLIAMS
                                    --------------------------------------------
                                    Anthony Williams

                                    /s/ ROBERT HOLMES
                                    --------------------------------------------
                                    Robert Holmes

                                       16

<PAGE>   17

                                   Schedule 1

Series A Preferred Stockholders:
-------------------------------

<TABLE>
<CAPTION>
                      Name                                Number of Shares
                      ----                                ----------------
               <S>                                        <C>
               Raymond C. Musci                                 482,625
               Anthony Williams                                 351,000
               Robert Holmes                                     87,750
               Kevin Bermeister                                  10,969
               Mark Dyne                                         10,969
               Elie Samaha                                       21,938
               FIMAS, L.P., a Partnership                        10,969
</TABLE>

Series B Preferred Stockholders:
-------------------------------

<TABLE>
<CAPTION>
                      Name                                Number of Shares
                      ----                                ----------------
               <S>                                        <C>
               PAR Capital Management, Inc.                     198,301
               Raymond C. Musci                                  28,329
               Anthony Williams                                  28,329
               Morgan Keegan Early Stage Fund, L.P.              28,329
               Robert Holmes                                     11,332
</TABLE>

                                       i

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