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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
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Filed pursuant to Section 13 of the
Securities Exchange Act of 1934
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KIDEO PRODUCTIONS, INC.
(Exact Name of Registrant as Specified in Charter)
Delaware 0-28158 13-3729350
(State or other (Commission File (IRS Employer
jurisdiction Number) Identification No.)
of incorporation)
611 Broadway, Suite 523, New York, NY 10012
(Address of Principal Executive Offices) (Zip Code)
212-505-6605
fax 212-505-2142
(Registrant's Telephone Number)
May 13, 1997
(Date of Report -- Date of
Earliest Event Reported)
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<PAGE>
Item 5. Other Events
The Company's common stock, par value $.0001 per share (the "Common
Stock"), is registered pursuant to Section 12(g) of the Securities Exchange Act
of 1934.
On May 9, 1997, the Company's Board of Directors, acting pursuant to the
authority granted under Section 4.2.1 of the Company's Certificate of
Incorporation, authorized the creation of a series of the Company's Preferred
Stock, par value $.0001 per share. The series so authorized is designated as the
Series A 6% Convertible Participating Preferred Stock (the "Series A Preferred
Stock") and consists of 4,000 shares, each share having a liquidation value of
$1,000. There is no Preferred Stock currently authorized for issuance by the
Company other than the Series A Preferred Stock.
On May 13, 1997, the Company consummated a private placement sale of 750
shares of Series A Preferred Stock. The shares were sold at their liquidation
value, for a total purchase price of $750,000, in a transaction arranged through
Gerard Klauer Mattison & Co., Inc., as placement agent. As a result of such
sale, and in accordance with the terms of the Series A Preferred Stock and
Section 4.3.2 of the Certificate of Incorporation, holders of Common Stock will
rank junior to holders of Series A Preferred Stock in the event of any voluntary
or involuntary liquidation, distribution or sale of assets, dissolution or
winding up of the Company.
The following is a summary of certain terms and conditions relating to the
Series A Preferred Stock and the agreements pursuant to which the Company
effectuated the sale described above. The statements made in such summary (and
in the two preceding paragraphs) are qualified in their entirety by reference to
the following instruments filed as Exhibits to this Report: the Certificate of
Designations relating to the Series A Preferred Stock (the "Certificate of
Designations"); the Stock Purchase Agreement, dated as of May 13, 1997, between
the Company and Sellet Marketing Corp. ("Sellet"); the Registration Rights
Agreement, dated as of May 13, 1997, between the Company and Sellet; and the
Joint Escrow Instructions, dated as of May 13, 1997, between the Company and
Krieger & Prager, as Escrow Agent.
Subject to the satisfaction of certain closing conditions contained in the
Stock Purchase Agreement, the Company pursuant to such agreement will have the
option to sell to Sellet up to 1,250 additional shares of Series A Preferred
Stock for aggregate additional consideration of up to $1,250,000. Among those
conditions are the filing with the SEC (and the SEC's declaration of
effectiveness) of a registration statement providing for the sale under the
Securities Act of 1933 of the shares of Common Stock into which the Series A
Preferred Stock may be convertible. As contemplated by the Registration Rights
Agreement, the Company anticipates the filing of the registration statement no
later than
<PAGE>
June 12, 1997.
Pursuant to the Certificate of Designations, the Series A Preferred Stock
will be convertible at a holder's option into shares of Common Stock upon the
first to occur of (a) July 12, 1997 and (b) the date as of which the SEC
declares the registration statement to be effective (the "Effective Date"). In
addition, under the Certificate of Designations, the Company has the right to
cause a mandatory conversion of all outstanding shares of Series A Preferred
Stock at any time after the one-year anniversary of the Effective Date.
The Certificate of Designations provides that the Series A Preferred Stock
will initially be convertible (subject to customary anti-dilution adjustments)
into common shares based upon the ratio of (a) the total liquidation value (at
$1,000 per preferred share) of the preferred shares being converted, to (b) the
then-effective conversion price. The conversion price at any point in time will
be 80% of the prior three trading days' average of the closing bid price per
share of Common Stock (as reported by Nasdaq).
The Certificate of Designations provides that dividends on the Series A
Preferred Stock are payable semi-annually on each July 31st and January 31st,
commencing with July 31, 1998. The Company has the option to pay any or all of
the dividends through the issuance of additional common shares (utilizing the
same conversion ratio as described above).
On May 15, 1997, the Company issued a press release containing information
substantially to the effect of that set forth in the foregoing paragraphs under
this Item 4.
Item 7. Financial Statements and Exhibits
Item 7(c) Exhibits.
Exh. No. Description
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3.1 Certificate of Designations of Series A 6% Convertible
Participating Preferred Stock.
4.1 Form of certificate representing shares of Series A
6% Convertible Participating Preferred Stock.
10.1 Form of Stock Purchase Agreement, dated as of May
13, 1997, between the Company and Sellet Marketing
Corp. ("Sellet").
10.2 Form of Registration Rights Agreement, dated as of
May 13, 1997, between the Company and Sellet.
10.3 Form of Joint Escrow Instructions, dated as of May 13, 1997,
between the Company and Krieger & Prager, as Escrow Agent.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
KIDEO PRODUCTIONS, INC.
By /s/ Robert J. Riscica
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Robert J. Riscica
Vice President-Chief
Financial Officer
Date: May 27, 1997
EXHIBIT 3.1
KIDEO PRODUCTIONS, INC.
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RELATIVE PARTICIPATING, OPTIONAL
AND OTHER SPECIAL RIGHTS OF PREFERRED
STOCK AND QUALIFICATIONS, LIMITATIONS
AND RESTRICTIONS THEREOF
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
KIDEO PRODUCTIONS, INC. (the "Corporation"), a corporation organized
and existing under the General Corporation Law of the State of Delaware (the
"DGCL"), hereby certifies that, pursuant to the authority contained in Article
IV of its Certificate of Incorporation, and in accordance with the provisions of
Section 151 of the General Corporation Law of the State of Delaware, its Board
of Directors, by unanimous written consent dated May 9, 1997, adopted the
following resolution, which resolution remains in full force and effect as of
the date hereof:
WHEREAS, The Board of Directors of the Corporation is authorized,
within the limitations and restrictions stated in the Certificate of
Incorporation, to fix by resolution or resolutions the designation of each
series of Preferred Stock, par value $.0001 per share (the "Preferred Stock"),
and the powers, preferences and relative participating, optional or other
special rights and qualifications, limitations or restrictions thereof; and
WHEREAS, it is the desire of the Board of Directors of the Corporation,
pursuant to its authority as aforesaid, to authorize and fix the terms of a
series of Preferred Stock and the number of shares constituting such series:
ACCORDINGLY, IT IS HEREBY RESOLVED, that a series of Preferred Stock is
authorized on the terms and with the provisions herein set forth:
CERTIFICATE OF DESIGNATIONS OF
SERIES A 6% CONVERTIBLE PARTICIPATING PREFERRED STOCK
SECTION 1. General
1(a) Designation and Amount. There is hereby constituted a series of
shares of Preferred Stock designated as the Series A 6% Convertible
Participating Preferred Stock (the "Series A Preferred Stock"). The number of
shares constituting such series shall be four thousand (4,000). Each share of
this series shall be identical in all respects with each other share of this
series.
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1(b) Ranking. The shares of Series A Preferred Stock shall rank senior
to all Junior Securities as to the payment of dividends and distributions of
whatever kind, including (but not limited to) distributions payable upon the
dissolution, liquidation or winding up of the Corporation. The shares of Series
A Preferred Stock shall rank pari passu with all Parity Securities as to the
payment of all such dividends and distributions. The Series A Preferred Stock
shall be subject to the creation of Parity Securities (with or without Ordinary
Voting Power or special voting rights) and Junior Securities, but any such
creation shall in turn be subject to the provisions of this Certificate of
Designations.
1(c) Payments on Fractional Shares. Each outstanding fractional share
of Series A Preferred Stock shall be entitled to a ratably proportionate amount
of any dividend declared or paid or any distribution or liquidation payment
made, pursuant to the provisions of Section 2 or 3 below, in respect of each
outstanding full share of Series A Preferred Stock, and each such dividend or
liquidation payment shall be payable in the same manner and at the same time as
provided for in such provisions with respect to dividends or liquidation
payments (as the case may be) on each outstanding full share of Series A
Preferred Stock.
1(d) Replacement of Certificates. Upon the Corporation's receipt, from
the Holder of any certificate evidencing shares of Series A Preferred Stock, of
evidence reasonably satisfactory to the Corporation (an affidavit of such holder
will be satisfactory) of the ownership and the loss, theft, destruction or
mutilation of such certificate, and in the case of any such loss, theft or
destruction, upon receipt of indemnity reasonably satisfactory to the
Corporation, and in the case of any such mutilation, upon surrender of such
certificate, the Corporation (at its expense) shall execute and (in accordance
with Section 10 below) deliver to such Holder, in lieu of such certificate, a
new certificate which will represent the number of shares represented by, be
dated the date of, be issued in the name of the Holder of, and be substantially
identical in form to, such lost, stolen, destroyed or mutilated certificate.
1(e) Payment of Taxes. The Corporation shall pay all taxes (other than
taxes based upon income) and other governmental charges that may be imposed in
connection with the issuance or delivery of any shares of Common Stock (or other
of the Corporation's Equity Securities) which results from (i) the conversion of
shares of Series A Preferred Stock pursuant to this Certificate of Designations
or (ii) the application of Section 2(a)(iv) below. Notwithstanding the
foregoing, if the Corporation, pursuant to a notice from a Holder of any shares
of Series A Preferred Stock, effects the issuance or delivery of any shares of
Common Stock (or other of the Corporation's Equity Securities) in any name(s)
other than such Holder's name, then such Holder shall deliver to the Corporation
with the aforesaid notice (A) all transfer taxes and
<PAGE>
other governmental charges payable upon the issuance or delivery of securities
in such other name(s) or (B) evidence satisfactory to the Corporation that such
taxes and charges have been or shall be paid in full.
1(f) Definitions. Certain capitalized terms used in this Certificate of
Designation shall have the definitions given below. Each definition shall be
equally applicable to the singular and plural forms of the defined term.
"Accountant" means, at any relevant time, the independent public
accountants then engaged by the Corporation for the purpose of auditing its
books.
"Business Day" means any day other than a Saturday, a Sunday or a day
on which banking institutions in the State of New York are authorized or
obligated by law or executive order to close.
"Cash Payment" means any cash dividend, cash distribution or other
payment (whether by purchase, redemption, retirement or otherwise) made in cash
on account of the Common Stock, except for purchases of Common Stock made by the
Corporation pursuant to the exercise any of "right of first refusal", "right of
first offer", "matching right" or similar right granted to it in writing by any
stockholder of the Corporation.
"Closing Price" on any date per share (or other single unit) of a
particular security means:
(1) the last sale price of such security or, in case no such
sale takes place on such date, the closing bid price of such security; in either
case as reported in the principal consolidated transaction reporting system with
respect to securities listed or admitted to trading on the principal national
securities exchange on which such security is listed or admitted to trading; or
(2) if such security is not listed or admitted to trading on
any national securities exchange, the last quoted sale price thereof; or, if not
so quoted, the closing bid price in the over-the-counter market, as reported by
Nasdaq (or such other system then in use by the National Association of
Securities Dealers, Inc.); or if, on any such date, such security is not quoted
by any such organization, the closing bid price as furnished by a professional
market maker, selected in good faith by the Board of Directors, then making a
market in such security; or
(3) if such security is not publicly held or listed or traded
as aforesaid, the Fair Market Value per share (or other single unit) thereof.
"Common Stock" means the common stock, par value $.0001 per share, of
the Corporation.
<PAGE>
"Conversion Price" on any date means eighty percent (80%) of the
Closing Price of a share of Common Stock on the three (3) Trading Days
immediately preceding such date.
"Conversion Shares" means any shares of Common Stock issued as
contemplated under Section 2(a)(iv) or 5 below, together with all shares of
Common Stock, and all other Equity Securities of the Corporation, issued either
(i) as a dividend or distribution on such shares or (ii) in connection with the
original issuance of such shares.
"Conversion Date" means the date as of which a conversion of any
share(s) of Series A Preferred Stock shall be deemed effective pursuant to the
provisions of Section 5 below.
"Current Market Price" per share of Common Stock on any date shall be
deemed to be the Closing Price per share thereof on the Trading Day immediately
prior to such date.
"Date of Issuance" means, in respect of any share of Series A Preferred
Stock, the date on which the Corporation initially issues such share, regardless
of the number of times transfer of such share is made on the stock transfer
books maintained by or for the Corporation, and regardless of the number of
certificates which may be issued to evidence such share.
"Effective Date" means the date as of which the Securities and Exchange
Commission has issued a declaration or order of effectiveness relating to a
registration statement filed, in compliance with the Securities Act and Rule 415
thereunder, with respect to the shares of Common Stock issuable pursuant to
Section 5 below.
"Equity Security" means any stock, ownership interest or similar
security, including (but not limited to): (i) a security containing equity or
profit participation features; (ii) a security convertible or exchangeable (with
or without consideration) into or for any stock, ownership interest or similar
security or any security referenced in clause (i) immediately above; (iii) a
security carrying any warrant, option or other right to subscribe to or purchase
any stock, ownership interest or similar security or any security referenced in
clause (i) immediately above; or (d) any such warrant, option or right.
"Excluded Merger" means a merger or consolidation: (i) to which the
Corporation is a party; (ii) in which it is the surviving corporation and there
is no resulting reclassification of the outstanding Common Stock; and (iii)
after giving effect to which, Persons who were, immediately before the
consummation or closing of such merger or consolidation, holders of outstanding
Common Stock will be the direct or indirect owners of Equity Securities
possessing, on a fully diluted basis, at least seventy-five percent
<PAGE>
(75%) of the voting power of all Equity Securities of the Corporation having
Ordinary Voting Power (excluding, for purposes of such computation, any such
Person who also is a party to such merger or consolidation).
"Fair Market Value" means the amount, as determined in good faith by
the Board of Directors, which a willing buyer would pay a willing seller in an
arm's-length transaction, neither being under any compulsion to purchase or
sell. Although the Board of Directors alone shall make any determination of Fair
Market Value, it shall consult in advance with the Accountant in connection with
each such determination.
"Fiscal Year" means the fiscal year of the Corporation as in effect
from time to time (which, as of the date hereof, ends on July 31st).
"Fundamental Change" means: (i) any sale, lease, exchange or other
transfer of all or substantially all of the assets of the Corporation; or (ii)
any merger or consolidation to which the Corporation is a party, other than an
Excluded Merger.
"Holder" of any Series A Preferred Stock means a holder of record as
shown on the books of the Corporation or its appropriate transfer agent.
"Junior Securities" means any of the Corporation's common equity
securities (including the Common Stock) and any other securities of the
Corporation which are expressly made to rank junior to the Series A Preferred
Stock as to dividends or distributions made upon dissolution, liquidation and
winding up of the Corporation.
"Liquidating Dividend" means, in respect of any class or series of
capital stock of the Corporation, a dividend payable upon such class or series,
in any form other than cash (e.g., securities of the Corporation), out of
earnings or earned surplus (determined in accordance with generally accepted
accounting principles, consistently applied), excluding a stock dividend payable
solely in shares of such class or series.
"Liquidation Value" of a share of Series A Preferred Stock means, at
any time in respect of which it is to be computed hereunder, the amount of one
thousand dollars ($1,000.00) plus any accrued Preferred Dividends and any
accrued Participating Dividends which remain unpaid as of such time in respect
of such share. In the event of (x) any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation or (y) a redemption of shares of
Series A Preferred Stock occurring as contemplated in Section 4 below, unpaid
dividends on such shares shall be: (i) added to the Liquidation Value on (as the
case may be) (A) the payment date in any liquidation, dissolution or winding up
or (B)
<PAGE>
the applicable redemption date; and (ii) accrued in each case up to the close of
business on such applicable date.
"Majority Holders" on any relevant date means the Persons who are then
the Holders of at least fifty percent (50%) of the then outstanding shares of
Series A Preferred Stock.
"Ordinary Voting Power" means, with respect to the Equity Securities of
any corporation or other entity, the right to vote generally at all times in
respect of the election of such entity's board of directors or comparable
governing body (as distinguished from special voting rights that may become
exercisable in connection with such an election only if there has first occurred
one or more specified events, conditions or circumstances).
"Original Issuance Date" means the first date as of which any shares of
Series A Preferred Stock are issued by the Corporation.
"Person" means any individual, joint venture, corporation, firm,
partnership, limited liability company, limited liability partnership, trust,
unincorporated organization or other entity, or a government or agency or
political subdivision thereof, and shall include any successor (by merger or
otherwise) of any of the foregoing.
"Securities Act" means the Securities Act of 1933, as amended, or any
similar successor statute, together with the rules and regulations promulgated
thereunder.
"Trading Day" means a day on which the principal national securities
exchange on which the Common Stock is listed or admitted to trading is open for
the transaction of business; or, if the Common Stock is not listed or admitted
to trading on any national securities exchange but is listed on the Nasdaq
system (or such other trading system then in use by the National Association of
Securities Dealers, Inc.), a day on which such system is open for the
transaction of business; or, if the foregoing does not apply, any Business Day.
SECTION 2. Dividends and Distributions
2(a) Preferred Dividend - Cash and/or In-Kind. When and as declared by
the Board of Directors and to the extent permitted by the DGCL, the Corporation
shall pay preferential dividends to the holders of the Series A Preferred Stock
as provided in this Section 2(a).
(i) Except as otherwise provided herein, dividends on each
share of Series A Preferred Stock shall accrue, cumulatively on a daily basis,
at the rate of six percent (6.0%) per annum of the Liquidation Value thereof in
effect at the commencement of the Fiscal Year in question, from and including
the Date of Issuance of
<PAGE>
such share to and including the date on which the Liquidation Value of such
share is paid or such share is redeemed or converted in accordance with the
provisions hereof (the "Preferred Dividend"). Such dividend will accrue whether
or not it has been declared and whether or not there are profits, surplus or
other funds of the Corporation legally available for its payment.
(ii) Commencing on July 31, 1998, the Preferred Dividend shall
be payable in cash (subject to paragraph (iv) immediately below) semi-annually,
for the actual number of days elapsed, on each July 31 and January 31, to the
Persons who were the holders of record of shares of Series A Preferred Stock as
of the tenth (10th) Business Day preceding the applicable dividend payment date.
(iii) Accrued but unpaid Preferred Dividends shall not bear
interest. Preferred Dividends paid in cash in an amount less than the total
amount of such dividends at the time accrued and payable shall be allocated on a
share-by-share basis among all shares of Series A Preferred Stock at the time
outstanding.
(iv) Notwithstanding anything to the contrary in this
Certificate of Designations, the Board of Directors shall have the option to
cause the Corporation to pay all or any portion of the Preferred Dividends in
the form of validly issued, fully paid and nonassessable shares of Common Stock,
in accordance with the succeeding provisions of this paragraph (iv). The dollar
amount of any Preferred Dividends in respect of which the Board elects such
option is herein called the "PIK Amount". The number of shares of Common Stock
to be issued on and as of a Preferred Dividends payment date in payment of the
PIK Amount shall be the number determined by dividing (A) the PIK Amount by (B)
the Conversion Price in effect on the applicable record date determined under
Section 2(a)(ii) above. The shares of Common Stock so issued (including
fractional shares thereof resulting from the application of this sentence) shall
be allocated on a share-by-share basis among all shares of Series A Preferred
Stock outstanding as of such record date. Within five (5) Business Days after
the aforesaid Preferred Dividends payment date, the Corporation shall deliver,
to each Holder of Series A Preferred Stock as of the aforesaid record date, a
certificate, dated such payment date, representing the number of shares of
Common Stock (including fractional shares) to which such Holder is entitled
under this paragraph (iv).
2(b) Common Stock Participating Dividend. If during any Fiscal Year the
Corporation makes any Cash Payment on account of the Common Stock, then the
following provisions shall apply:
(i) If the amount of all Cash Payments made during any
calendar year on account of a share of Common Stock outstanding throughout such
Fiscal Year exceeds the Preferred Dividends accrued (whether or not paid) during
such year in respect of a share of Series A Preferred Stock outstanding
throughout such year, then
<PAGE>
each holder of such a share of Series A Preferred Stock shall be entitled to
receive, in addition to such Preferred Dividends, a dividend per such share
equal to the amount of such excess (the "Participating Dividend").
(ii) Commencing on July 31, 1998, the Participating Dividend
shall be payable annually on each July 31 to the Persons who were the holders of
record of shares of Series A Preferred Stock as of the tenth (10th) Business Day
preceding such date.
(iii) If (A) the Corporation at any time declares, makes, or
sets apart any monies for the making of, any Cash Payment and (B) the making
thereof would entitle the holders of Series A Preferred Stock to a Participating
Dividend under subparagraph (i) immediately above, then the Corporation shall
not declare, make or set apart any monies for the making of such Cash Payment
unless, prior to or concurrently with such declaration, payment or setting
apart, the Corporation provides for the payment of such Participating Dividend
to such holders by (x) depositing funds sufficient therefor in escrow with a
commercial bank located in New York City and (y) irrevocably directing such bank
to make payment thereof in accordance with subparagraph (ii) immediately above.
Interest (if any) earned on Participating Dividends so deposited shall be
retained by the Corporation.
(iv) Each share of Series A Preferred Stock outstanding for
only a portion of a Fiscal Year shall be entitled to a ratably proportionate
amount of any Participating Dividend paid pursuant to the foregoing provisions
of this Section 2(b), in respect of each share of Series A Preferred Stock
outstanding throughout such year, and each such dividend shall be payable in the
same manner and at the same time as provided for in such provisions with respect
to shares of Series A Preferred Stock outstanding throughout such year.
(v) If for any reason a Participating Dividend (or any portion
thereof) shall not be paid with respect to a share of Series A Preferred Stock
on the applicable July 31 or thereafter, then the amount not paid shall be added
to such share's Liquidation Value.
2(c) Dividends on Parity and Junior Securities. Subject to the
foregoing provisions of this Section 2, the Board of Directors may declare and
the Corporation may pay or set apart for payment, or cause the accrual of,
dividends and other distributions on any of the Parity Securities or Junior
Securities, and may purchase or otherwise redeem any of the same (or any
warrants, rights, options or other securities exercisable therefor or
convertible or exchangeable thereinto), and the holders of Series A Preferred
Stock shall not be entitled to share therein. Nothing contained in this Section
2 shall be construed to require the Board of Directors to declare, or the
Corporation to pay or set apart for payment, any
<PAGE>
dividends or other distributions on any of the Parity Securities or Junior
Securities.
2(d) Dividends on Transferred Shares. If any shares of Series A
Preferred Stock shall be transferred and the Corporation shall (i) cancel the
certificate(s) representing such transferred shares and (ii) issue and deliver
to the transferee of such shares a new certificate or certificates representing
such shares, then dividends will accrue on the Series A Preferred Stock
represented by such new certificate(s) from the date to which dividends have
been fully paid on the shares represented by such cancelled certificate(s).
2(e) Dividends on Replaced Certificates. If any certificate
representing shares of Series A Preferred Stock shall, pursuant to Section 1(d)
above, be replaced by any new certificate(s) representing such shares, then
dividends will accrue on the Series A Preferred Stock represented by such new
certificate(s) from the date to which dividends have been fully paid on the
shares represented by the replaced certificate.
SECTION 3. Liquidation
3(a) Right to Receive Liquidation Value. The Corporation will mail
written notice of any voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, not less than sixty (60) days prior to the
payment date stated therein, to each Holder of Series A Preferred Stock. Upon
any such liquidation, dissolution or winding up, the holders of the then
outstanding shares of Series A Preferred Stock will be entitled to be paid out
of the assets of the Corporation available for distribution to its stockholders,
before any distribution or payment is made upon any Junior Securities, an amount
in cash equal to the aggregate Liquidation Value of all such shares, and the
holders of the Series A Preferred Stock will not be entitled to any further
payment.
3(b) Insufficient Assets. If upon any such liquidation, dissolution or
winding up, the Corporation's assets are not sufficient to pay in full the
liquidation payments payable to holders of Series A Preferred Stock and holders
of Parity Securities, then the entire assets to be distributed will be
distributed ratably among such holders based upon the aggregate Liquidation
Value of the Series A Preferred Stock and the Parity Securities held by each
such holder.
3(c) Events Not Deemed a Liquidation. Neither the merger or
consolidation of the Corporation into or with any other corporation(s), nor the
sale or transfer by the Corporation of all or any part of its assets, nor the
reduction of the capital stock of the Corporation, will be deemed to be a
liquidation, dissolution or winding up of the Corporation under this Section 3.
<PAGE>
SECTION 4. Redemption and Repurchase Rights.
4(a) No Mandatory Redemption Hereunder. Except pursuant to a written
agreement expressly providing therefor which has been executed between the
Corporation and the Majority Holders of the Series A Preferred Stock, the
Corporation shall have no right to redeem, and holders of shares of Series A
Preferred Stock shall have no right to cause the Corporation to redeem, any or
all of the outstanding shares of Series A Preferred Stock. If any such agreement
has been so executed, however, then it shall be binding upon all holders of
shares of Series A Preferred Stock.
SECTION 5. Conversion Rights and Events
5(a) General. Each share of Series A Preferred Stock that is converted
into Common Stock pursuant to the succeeding provisions of this Section 5 shall
be converted in accordance with Section 6 below.
5(b) Mandatory Conversion - Fundamental Change. (i) If any Fundamental
Change shall occur, then each share of Series A Preferred Stock outstanding as
of the date of the consummation or closing thereof shall be (and be deemed to
have been) converted automatically, without any further action by the holders
thereof, into shares of Common Stock effective as of the close of business on
the date immediately preceding such consummation or closing date. Such
conversion shall be deemed to have occurred whether or not the certificates
representing such shares are surrendered to the Corporation or its transfer
agent.
(ii) The Corporation shall give notice of a proposed or
anticipated Fundamental Change (a "Notice of Fundamental Change") to all Persons
who are the holders of record of the Series A Preferred Stock as of the fifth
(5th) Business Day preceding the date of such notice. A Notice of Fundamental
Change shall be given not later than ten (10) Business Days before the expected
closing or consummation of such Fundamental Change. The Corporation also shall
give prompt notice of the closing or consummation of such Fundamental Change to
all Persons who are the holders of record of the Series A Preferred Stock as of
the date of such closing or consummation. Each holder of Series A Preferred
Stock shall thereupon promptly surrender for conversion, to the Corporation at
its principal office or to any transfer agent for the Series A Preferred Stock
or the Common Stock, all certificates representing all shares of Series A
Preferred Stock held by such holder, accompanied by a written notice specifying
the name or names in which such holder wishes the certificate(s) for shares of
Common Stock to be issued.
5(c) Conversion at Option of Holders. (i) Each share of Series A
Preferred Stock shall be convertible, at the option of the Holder thereof, into
shares of Common Stock at any time(s) after
<PAGE>
the close of business on first to occur of these dates: (A) the sixtieth (60th)
day after the Original Issuance Date; and (B) the Effective Date.
(ii) Such Holder may exercise such right by surrendering for
conversion, to the Corporation at its principal office or to any transfer agent
for the Series A Preferred Stock or the Common Stock, a certificate or
certificates representing the shares of Series A Preferred Stock to be
converted, accompanied by a notice (a "Notice of Optional Conversion ")
specifying (A) whether such Holder elects to convert all or a specified whole
number of such shares and (B) the name or names in which such Holder wishes the
certificate or certificates for shares of Common Stock to be issued. Such
conversion shall be deemed to have been made effective as of the close of
business on the date of giving of such Notice of Optional Conversion.
Notwithstanding Section 10 below, a Holder shall have the option of giving his
Notice of Optional Conversion by facsimile transmission made on any Business Day
to the Company (Attention: Chief Financial Officer) at (212) 505-2142 (or any
other number that is then a facsimile number at the Company's principal office),
provided that he surrenders the aforesaid certificate(s) within three (3)
Business Days thereafter.
5(d) Conversion at Option of Corporation. (i) All of the shares of
Series A Preferred Stock shall be convertible, at the option of the Corporation,
into shares of Common Stock at any time after the close of business on the one
(1) year anniversary of the Effective Date.
(ii) The Corporation shall give notice of its exercise of such
conversion option (the "Notice of Mandatory Conversion") to all Persons who are
Holders of Series A Preferred Stock as of the fifth (5th) Business Day preceding
the date (the "Mandatory Conversion Date") as of the Corporation has elected to
make such conversion effective. The Corporation also shall give a copy of the
Notice of Mandatory Conversion to all Persons who are Holders of Series A
Preferred Stock as of the Mandatory Conversion Date. Each Holder of Series A
Preferred Stock as of the Mandatory Conversion Date shall, promptly after such
date, surrender for conversion, to the Corporation at its principal office or to
any transfer agent for the Series A Preferred Stock or the Common Stock, all
certificates representing all shares of Series A Preferred Stock held by such
Holder, accompanied by a written notice specifying the name or names in which
such Holder wishes the certificate(s) for shares of Common Stock to be issued.
(iii) Effective as of the close of business on the Mandatory
Conversion Date, each share of Series A Preferred Stock then outstanding shall
be (and be deemed to have been) converted automatically, without any further
action by the Holders thereof, into shares of Common Stock. Such conversion
shall be deemed to have occurred whether or not the certificates representing
such
<PAGE>
shares are surrendered to the Corporation or its transfer agent.
SECTION 6. Conversion Ratio, Adjustments and Procedures
6(a) Conversion Ratio. Subject to the adjustment provisions hereinafter
set forth, each share of Series A Preferred Stock shall be converted on its
Conversion Date into the number of validly issued, fully paid and nonassessable
share of Common Stock determined by dividing (i) the Liquidation Value as of
such date by (ii) the Conversion Price.
6(b) Adjustments. The number of shares of Common Stock into which each
share of Series A Preferred Stock is convertible shall be subject to adjustment
from time to time in accordance with the succeeding provisions of this Section
6(b).
(i) Adjustment for Certain Dividends and Distributions of
Stock. If the Corporation shall pay a dividend in shares of Common Stock or make
a distribution in shares of Common Stock, then upon such dividend or
distribution the Conversion Price in effect immediately prior thereto shall
forthwith be reduced to a price determined by dividing:
(A) an amount equal to the total number of shares of
Common Stock outstanding immediately prior to such dividend or
distribution multiplied by the Conversion Price in effect immediately
prior to such dividend or distribution, by
(B) the total number of shares of Common Stock
outstanding immediately after such dividend or distribution.
For the purposes of any computation to be made in accordance with the provisions
of this Section 6(b)(i), the following shall be applicable: Common Stock
issuable by way of dividend or other distribution on any capital stock of the
Corporation shall be deemed to have been issued immediately after the opening of
business on the date following the date fixed for the determination of
stockholders entitled to receive such dividend or other distribution.
(ii) Adjustment for Stock Splits and Combinations. If the
Corporation shall subdivide or combine the outstanding Common Stock, then the
Conversion Price shall forthwith be proportionately decreased in the case of
subdivision or increased in the case of combination to the nearest one cent. Any
such adjustment shall become effective at the time such subdivision or
combination shall become effective.
(iii) Other Provisions Relating to Stock Splits and
Combinations. In the event that the number of outstanding shares of Common Stock
is increased by a stock dividend payable in Common Stock or by a subdivision of
the outstanding Common Stock, then,
<PAGE>
from and after the time at which the adjusted Conversion Price becomes effective
pursuant to this Section 6(b) by reason of such dividend or subdivision, the
number of shares of Common Stock issuable pursuant to this Certificate of
Designations shall be increased in proportion to such increase in outstanding
shares. In the event that the number of shares of Common Stock outstanding is
decreased by a combination of the outstanding Common Stock, then, from and after
the time at which the adjusted Conversion Price becomes effective pursuant to
this Section 6(b) by reason of such combination, the number of shares of Common
Stock issuable pursuant to this Certificate of Designations shall be decreased
in proportion to such decrease in the outstanding shares of Common Stock.
(iv) Reorganizations and Fundamental Changes.
(A) In case of any reorganization or reclassification of
the outstanding Common Stock (other than a change in par value, or from
par value to no par value, or as a result of a subdivision or
combination), or in case of any Fundamental Change, a Holder of Series
A Preferred Stock shall thereafter have the right to purchase the kind
and amount of shares of Common Stock and other securities and property
receivable upon such reorganization, reclassification or Fundamental
Change by a holder of the number of shares of Common Stock which the
Holder shall then be entitled to acquire under this Certificate of
Designations.
(B) If, as a result of an adjustment made pursuant to
paragraph (A) immediately above, a Holder of Series A Preferred Stock
shall become entitled to purchase any securities other than shares of
Common Stock, then thereafter the number of such securities so
purchasable upon exercise hereof, and the Conversion Price for such
securities, shall be subject to adjustment from time to time in a
manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Common Stock contained in Sections
6(b)(i) through 6(b)(iii) above.
(v) Liquidating Dividends. Subject to the provisions of this
Section 6(b), if the Corporation at any time declares or pays a Liquidating
Dividend upon the Common Stock, then the Corporation shall simultaneously pay to
the Holders of the Series A Preferred Stock the Liquidating Dividends which
would have been paid on their Common Stock had the Series A Preferred Stock been
converted immediately prior to (A) the date on which a record is taken for such
Liquidating Dividend or (B) if no record is taken, the date as of which the
record holders of Common Stock entitled to such dividends are to be determined.
(vi) Subscriptions for Additional Stock. If the Corporation
shall offer to the holders of its Common Stock any
<PAGE>
rights to subscribe for additional shares of any class or series of capital
stock of the Corporation, then the Corporation shall (A) give written notice
thereof to all Holders of Series A Preferred Stock and (B) afford such Holders
the right to participate in such offer of subscription upon the same terms and
conditions as are applicable to the holders of its Common Stock. Such notice
shall (x) be given not less than thirty (30) days prior to the record date fixed
for the determination of the stockholders entitled to such subscription rights
and (y) specify such record date.
(vii) Miscellaneous Adjustment Provisions. Any adjustment
pursuant to the aforesaid provisions of this Section 6(b) shall be made on the
basis of the number of shares of Common Stock which a Holder of Series A
Preferred Stock would have been entitled to acquire had all of such Holder's
shares of Series A Preferred Stock been converted in Common Stock immediately
prior to the event giving rise to such adjustment.
6(c) De Minimis Adjustments. All calculations of shares of Common Stock
(and/or other securities issuable upon conversion) under this Section 6 shall be
made to the nearest one-tenth (1/10) of a share. If any adjustment required
under this Section 6 would result an increase or decrease, in the number of
shares of Common Stock (and/or other securities issuable upon conversion) into
which each share of Series A Preferred Stock is then convertible, of less than
one-tenth (1/10) of a share of Common Stock (and/or any such other security),
then (i) the amount of such adjustment shall be carried forward and (ii)
adjustment with respect thereto shall be made at the time of (and together with)
any subsequent adjustment which, together with such amount and any other amount
or amounts so carried forward, shall aggregate at least one-tenth (1/10) of a
share of Common Stock (and/or such other security).
6(d) No Fractional Shares. In connection with the conversion of any
shares of Series A Preferred Stock, no fractions of shares of Common Stock shall
be issued, but in lieu thereof the Corporation shall pay a cash adjustment in
respect of such fractional interest in an amount equal to the product of (i)
such fractional interest times (ii) the Current Market Price per share of Common
Stock as of the Conversion Date of such shares of Series A Preferred Stock.
6(e) Notice of Adjustment. Whenever any adjustment is required to be
made pursuant to this Section 6, the Corporation shall promptly give notice to
the Holders of the Series A Preferred Stock setting forth with reasonable
specificity: (i) a brief statement of the facts requiring such adjustment; (ii)
when such adjustment became effective; (iii) all elements of the computation of
such adjustment; and (iv) the facts resulting from such adjustment. Each such
notice shall be accompanied by a certificate, prepared at the Corporation's
expense by the Accountant and signed thereby, which shall verify the matters
<PAGE>
referenced in clauses (iii) and (iv) above. Such a notice accompanied by such a
signed certificate shall be conclusive and binding evidence of the correctness
of any adjustment made under this Section 6.
6(f) Procedure for Conversion. Upon receipt by the Corporation or the
appropriate transfer agent of any certificate representing shares of Series A
Preferred Stock which are being converted pursuant to Section 5 above, the
Corporation shall issue and (in accordance with Section 10 below) deliver to the
Holder of such certificate (i) a certificate or certificates for the number of
shares of Common Stock into which the shares of Series A Preferred Stock
represented by such surrendered certificate were convertible as of the
Conversion Date of such shares and (ii) (if applicable) a new certificate
representing the number of shares of Series A Preferred Stock which are not
being so converted, subject to the following provisions:
(i) The Corporation shall make such delivery within five (5)
Business Days after receipt of such surrendered certificate.
(ii) If such Holder shall, at the time of surrendering such
certificate, give notice that any of the shares of Common Stock (and/or other
securities) issuable upon conversion are to be issued in any name(s) other than
such Holder's name, then such holder shall have complied with Section 1(d)
above.
6(g) Dividends and Rights Upon Conversion. As of the Conversion Date of
any shares of Series A Preferred Stock, the person entitled to receive the
shares of Common Stock (and/or other securities) into which such shares are
convertible shall be treated for all purposes as having become the record holder
of such shares of Common Stock (and/or other securities). From and after such
Conversion Date, (i) dividends on such shares of Series A Preferred Stock shall
cease to accrue and (ii) all rights of the holders thereof, in the capacity as
holders of Series A Preferred Stock, shall cease (except the rights to receive
from the Corporation any accrued and unpaid dividends and the shares of Common
Stock (and/or other securities) into which such shares were convertible). Upon
the conversion of any shares of Series A Preferred Stock, the holder thereof
shall be entitled to receive in cash any dividends accrued and unpaid in respect
of such shares (whether or not declared) to and including the Conversion Date
thereof, subject to the following provisions:
(i) If the funds of the Corporation legally available for
payment of dividends are insufficient to pay all such unpaid dividends, then
such funds will be used to pay the maximum possible amount of such unpaid
dividends. At any time thereafter when additional funds of the Corporation are
legally available for payment of dividends, such funds will immediately be used
to pay the balance of such unpaid dividends.
<PAGE>
(ii) If pursuant to subparagraph (i) immediately above the
Corporation delays payment of dividends on converted shares of Series A
Preferred Stock, then the Corporation shall, if the Person who was the Holder of
such shares as of the Conversion Date thereof shall so request, deliver evidence
reasonably satisfactory to such holder of the Corporation's obligation to pay
such unpaid dividends.
(iii) Any Holder of shares of Series A Preferred Stock
converted pursuant to Section 5 above may, in lieu of accepting cash for accrued
and unpaid dividends on such shares, demand by notice that the Corporation pay
all or any portion of such dividends in shares of Common Stock. The Corporation
shall thereupon promptly issue and (in accordance with Section 10 below) deliver
to such Holder a certificate or certificates for the number of shares of Common
Stock determined by dividing (A) the amount of such accrued and unpaid dividends
which such Holder desires to so convert by (B) the Current Market Price per
share of Common Stock as of the Conversion Date of the aforesaid shares of
Series A Preferred Stock.
6(h) Reservation of Shares of Common Stock. The Corporation shall at
all times reserve and keep available out of its authorized and unissued Common
Stock, solely for the purpose of effecting the conversion of the Series A
Preferred Stock, such number of shares of Common Stock as shall from time to
time be sufficient to effect the conversion of all then outstanding shares of
Series A Preferred Stock. The Corporation shall from time to time, subject to
and in accordance with the laws of the State of Delaware, increase the
authorized amount of Common Stock if at any time the number of authorized shares
of Common Stock remaining unissued shall not be sufficient to permit the
conversion at such time of all then outstanding shares of Series A Preferred
Stock.
SECTION 7. Status of Redeemed or Converted Shares. Shares of Series A
Preferred Stock which are redeemed, converted or otherwise acquired by the
Corporation in any manner (including by purchase or exchange) shall be cancelled
and upon cancellation (i) shall no longer be deemed to be outstanding, (ii)
shall become authorized but unissued shares of Preferred Stock undesignated as
to series and (iii) may be reissued as part of another series of Preferred
Stock.
SECTION 8. Parity on Redemption or Conversion. If and so long as the
Corporation shall not fully discharge in a timely manner its obligations to pay
all accrued and unpaid dividends on converted shares of Series A Preferred Stock
as provided in Section 6(g) above, then the Corporation shall not directly or
indirectly purchase, redeem or discharge any mandatory redemption, sinking fund
or other similar obligation in respect of any of the Parity Securities or any
warrants, rights, options or other securities exercisable therefor or
convertible or exchangeable thereinto;
<PAGE>
except in connection with a redemption, sinking fund or other similar obligation
to be satisfied pro rata with the Series A Preferred Stock.
SECTION 9. Voting Rights
9(a) General Voting Rights. Except as set forth in Section 9(b) below
and as otherwise required by law, shares of Series A Preferred Stock shall have
no voting rights.
9(b) Matters Requiring Majority Vote. So long as any shares of Series A
Preferred Stock are outstanding, without the prior affirmative vote or written
consent of the Majority Holders of the Series A Preferred Stock, the Corporation
shall not take or agree to take any of the following actions:
(i) authorize, create or issue, or increase the authorized or
issued amount of, any class or series of any other Equity Security (including
any Preferred Stock) which would rank senior to the Series A Preferred Stock as
to the payment of dividends or distributions of any kind; or
(ii) amend, alter, modify, repeal or waive in any manner: (A)
any term or condition set forth in this Certificate of Designations; or (B) any
provision of the Certificate of Incorporation so as to adversely affect any
right, preference or privilege of the Series A Preferred Stock.
SECTION 10. Notices. Except as otherwise expressly provided herein, all
notices and other communications referenced or provided for in this Certificate
of Designations shall be: (i) in writing; (ii) delivered by (A) registered or
certified mail, return receipt requested, postage prepaid, (B) FedEx, Airborne
Express, UPS, DHL or a similar next-business-day delivery service or (C)
personal courier (with receipt of delivery appropriately acknowledged); (iii)
deemed to have been given on the first (1st) Business Day following the date of
any such delivery; (iv) sent to the Corporation at its principal executive
offices; and (v) sent to any Holder of Series A Preferred Stock at its address
as it appears in the stock records of the Corporation.
[END OF BOARD RESOLUTION]
IN WITNESS WHEREOF, this Certificate of Designations has been signed,
and the statements made herein affirmed as true under the penalties of perjury,
this 9th day of May 1997.
/s/ Richard L. Bulman
- ---------------------------
Richard L. Bulman
Chairman and President
EXHIBIT 4.1
================================================================================
- ---------------- ---------------
NUMBER [GRAPHIC] SHARES
0001 --750--
- ---------------- ---------------
KIDEO PRODUCTIONS, INC.
(a Delaware corporation)
SERIES A 6% CONVERTIBLE PARTICIPATING PREFERRED STOCK
par value $.0001 per share
Liquidation value $1,000.00 per share
This Certifies that Sellet Marketing Corp. __________________ is the owner of
SEVEN HUNDRED FIFTY ___________________________ fully paid and non-assessable
Shares of the above Corporation transferable only on the books of the
Corporation by the holder hereof in person or by duly authorized [ILLEGIBLE]
upon surrender of this Certificate properly endorsed.
In Witness Whereof, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and to be sealed with the Seal of the
Corporation.
Dated May , 1997
Secretary: /s/ Robert J. Riscica President: /s/ Richard L. Bulman
------------------------- --------------------------
================================================================================
<PAGE>
THESE SECURITIES (THE "SECURITIES") HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY
STATE AND MAY NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES OR AN OPINION OF COUNSEL OR OTHER
EVIDENCE ACCEPTABLE TO KIDEO PRODUCTIONS, INC. THAT SUCH REGISTRATION IS NOT
REQUIRED.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations. Additional abbreviations may also
be used though not in the list.
TEN COM -- as tenants in common UNIF GIFT MIN ACT - Custodian (Minor)
under Uniform Gifts to Minors Act (State)
TEN ENT -- as tenants by the
entireties
JT TEN -- as joint tenants with
right of survivorship
and not as tenants in
common
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFICATION NUMBER OF ASSIGNEE
For value received, the undersigned ______________________________________
hereby sells, assigns and transfers
unto
______________________________________
______________________________________________________________________________
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE
______________________________________________________________________________
______________________________________________________________________________
________________________________________________________________________Shares
represented by the within Certificate, and hereby irrevocably constitutes and
appoints ____________________ Attorney to transfer the said shares on the books
of the within-named Corporation with full power of substitution in the premises.
Dated ________________
In presence of ----------------------------------
- ---------------------------------
NOTICE: The signature to this assignment must correspond with the name as
written upon the face of the certificate in every particular without alteration
of enlargement, or any change whatever.
EXHIBIT 10.1
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT, dated as of the date of
acceptance set forth below, is entered into by and between KIDEO PRODUCTIONS,
INC., a Delaware corporation, with headquarters located at 611 Broadway, Suite
523, New York, New York 10012 (the "Company"), and the undersigned (the
"Buyer").
W I T N E S S E T H:
WHEREAS, the Company and the Buyer are executing and
delivering this Agreement in reliance upon exemptions from securities
registration afforded under Regulation D ("Regulation D") as promulgated by the
United States Securities and Exchange Commission (the "SEC") under the
Securities Act of 1933, as amended (the "1933 Act") and/or Section 4(2) of the
1933 Act; and
WHEREAS, the Buyer wishes to purchase, upon the terms and
subject to the conditions of this Agreement, Series A 6% Convertible Preferred
Stock, $.0001 par value per share (the "Preferred Stock"), of the Company which
will be convertible into shares of Common Stock, $.0001 par value per share (the
"Common Stock"), of the Company upon the terms and subject to the conditions of
such Preferred Stock (the Common Stock and Preferred Stock sometimes referred to
herein as "Securities"), and subject to acceptance of this Agreement by the
Company;
NOW THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. AGREEMENT TO PURCHASE; PURCHASE PRICE.
a. Purchase. The undersigned hereby agrees to purchase from
the Company Preferred Stock of the Company, in the amount set forth on the
signature page of this Agreement, out of a total offering of $2,000,000.00 of
Preferred Stock, and having the terms and conditions set forth in the
Certificate of Designations attached hereto as Annex I. The purchase price for
the Preferred Stock shall be as set forth on the signature page hereto and shall
be payable in United States Dollars.
b. Form of Payment. The Buyer shall pay the purchase price for
the Preferred Stock by delivering immediately available good funds in United
States Dollars to the escrow agreement by the Buyer to the Escrow Agent of the
purchase price of the Preferred Stock, the Company shall deliver a Certificate
for the Preferred
<PAGE>
Stock duly executed on behalf of the Company, to the Escrow Agent. By signing
this Agreement, the Buyer and the Company, and subject to acceptance by the
Escrow Agent, each agrees to all of the terms and conditions of, and becomes a
party to, the Joint Escrow Instructions, all of the provisions of which are
incorporated herein by this reference as if set forth in full.
c. Method of Payment. Payment into escrow of the purchase
price for the Preferred Stock shall be made by wire transfer of funds to:
Bank of New York
350 Fifth Avenue
New York, New York 10001
ABA# 021000018
For credit to the account of Krieger & Prager, Esqs.
Account No. 637-1657450
Not later than 1:00 p.m., New York time, on the date which is three (3) NASD
trading days after the Company shall have accepted this Agreement and returned a
signed counterpart of this Agreement to the Escrow Agent by facsimile, the Buyer
shall deposit with the Escrow Agent the aggregate purchase price for the
Preferred Stock, in immediately available funds. Time is of the essence with
respect to such payment, and failure by the Buyer to make such payment shall
allow the Company to cancel this Agreement.
2. BUYER REPRESENTATIONS, WARRANTIES, ETC.; ACCESS TO
INFORMATION; INDEPENDENT INVESTIGATION.
The Buyer represents and warrants to, and covenants and agrees
with, the Company as follows:
a. The Buyer is purchasing the Preferred Stock and will be
acquiring the shares of Common Stock issuable upon conversion of the Preferred
Stock for its own account for investment only and not with a view towards the
resale, public sale or distribution thereof and not with a view to or for sale
in connection with any distribution thereof;
b. The Buyer is (i) an "accredited investor" as that term is
defined in Rule 501 of the General Rules and Regulations under the 1933 Act by
reason of Rule 501(a)(3), (ii) experienced in making investments of the kind
described in this Agreement and the related documents, (iii) able, by reason of
the business and financial experience of its officers (if an entity) and
professional advisors (who are not affiliated with or compensated in any way by
the Company or any of its affiliates or selling agents), to protect its own
interests in connection with the transactions described in this Agreement, and
the related documents, and (iv) able to afford the entire loss of its
<PAGE>
investment in the Preferred Stock;
c. All subsequent offers and sales of the Preferred Stock and
the shares of Common Stock issuable upon conversion of, or issued as o the
Preferred Stock pursuant to an exemption from registration;
d. The Buyer understands that the Preferred Stock is being
offered and sold, and the Shares are being offered, to it in reliance on
specific exemptions from the registration requirements of United States federal
and state securities laws and that the Company is relying upon the truth and
accuracy of, and the Buyer's compliance with, the representations, warranties,
agreements, acknowledgments and understandings of the Buyer set forth herein in
order to determine the availability of such exemptions and the eligibility of
the Buyer to acquire the Preferred Stock and to receive an offer of the Shares;
e. The Buyer and its advisors, if any, have been furnished
with all materials relating to the business, finances and operations of the
Company and materials relating to the offer and sale of the Preferred Stock and
the offer of the Shares which have been requested by the Buyer, including Annex
V hereto. The Buyer and its advisors, if any, have been afforded the opportunity
to ask questions of the Company and have received complete and satisfactory
answers to any such inquiries. Without limiting the generality of the foregoing,
the Buyer has also had the opportunity to obtain and to review the Company's (1)
Annual Report on Form 10-KSB for the fiscal year ended July 31, 1996, (2)
Quarterly Report on Form 10-QSB for the fiscal quarters ended October 31, 1996
and January 31, 1997; and (3) Form 8-K dated September 6, 1996 (the "Company's
SEC Documents").
f. The Buyer understands that its investment in the Securities
involves a high degree of risk;
g. The Buyer understands that no United States federal or
state agency or any other government or governmental agency has passed on or
made any recommendation or endorsement of the Securities;
h. This Agreement has been duly and validly authorized,
executed and delivered on behalf of the Buyer and is a valid and binding
agreement of the Buyer enforceable in accordance with its terms, subject as to
enforceability to general principles of equity and to bankruptcy, insolvency,
moratorium and other similar laws affecting the enforcement of creditors' rights
generally.
i. Neither Buyer, nor any affiliate of Buyer, has any
intention of entering into, or will enter into any put option, short position,
or other similar position with respect to the Preferred Stock or the Shares.
<PAGE>
j. Notwithstanding the provisions hereof, in no event (except
with respect to an Event of Mandatory Conversion) shall the holder be entitled
to convert any Preferred Stock in excess of that number of shares upon
conversion of which the sum of (1) the number of shares of Common Stock
beneficially owned by the Buyer and its affiliates (other than shares of Common
Stock which may be deemed beneficially owned through the ownership of the
unconverted portion of the Preferred Stock), and (2) the number of shares of
Common Stock issuable upon the conversion of the Preferred Stock with respect to
which the determination of this proviso is being made, would result in
beneficial ownership by the Buyer and its affiliates of more than 4.9% of the
outstanding shares of Common Stock. For purposes of the proviso to 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 13 D-G thereunder, except as otherwise provided in
clause (1) of such proviso.
3. COMPANY REPRESENTATIONS, ETC.
Except as disclosed in Annex V, delivered in writing to the
Buyer, the Company represents and warrants to the Buyer that:
a. Concerning the Shares. The Common Shares have been duly
authorized and, when issued upon conversion of, or as dividends on, the
Preferred Stock, will be duly and validly issued, fully paid and non-assessable
and will not subject the holder thereof to personal liability by reason of being
such holder. There are no preemptive rights of any stockholder of the Company,
as such, to acquire the Common Shares.
b. Reporting Company Status. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and is duly qualified as a foreign corporation in all jurisdictions in
which the failure to so qualify would have a material adverse effect on the
Company and its subsidiaries taken as a whole. The Company has registered its
Common Stock pursuant to Section 12 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and the Common Stock is listed and traded on the
NASDAQ\Small Cap Market. The Company has timely filed all material required to
be filed pursuant to all reporting obligations under either Section 13(a) or
15(d) of the Exchange Act for a period of at least twelve (12) months
immediately preceding the offer or sale of the Preferred Stock, and has received
no notice, either oral or written, with respect to the continued eligibility of
the Common Stock for such listing.
c. Authorized Shares. The Company has sufficient authorized
and unissued Shares as may be reasonably necessary to effect the conversion of
the Preferred Stock. The Common Shares have been duly authorized and, when
issued upon conversion of, or as interest on, the Preferred Stock, will be duly
and validly
<PAGE>
issued, fully paid and non-assessable and will not subject the holder thereof to
personal liability by reason of being such holder.
d. Stock Purchase Agreement; Registration Rights Agreement and
Stock. This Agreement and the Registration Rights Agreement, the form of which
is attached hereto as Annex IV (the "Registration Rights Agreement"), have been
duly and validly authorized by the Company, this Agreement has been duly
executed and delivered by the Company and this Agreement is, and the
Registration Rights Agreement, when executed and delivered by the Company, will
be, valid and binding agreements of the Company enforceable in accordance with
their respective terms, subject as to enforceability to general principles of
equity, the indemnification provisions of the Registration Rights Agreement, and
to bankruptcy, insolvency, moratorium, and other similar laws affecting the
enforcement of creditors' rights generally; and the Preferred Stock will be duly
and validly issued, fully paid and non-assessable when delivered on behalf of
the Company upon payment therefor in accordance with this Agreement, subject to
general principles of equity and to bankruptcy, insolvency, moratorium, or other
similar laws affecting the enforcement of creditors' rights generally.
e. Non-contravention. The execution and delivery of this
Agreement and the Registration Rights Agreement by the Company, the issuance of
the Securities, and the consummation by the Company of the other transactions
contemplated by this Agreement, the Registration Rights Agreement, and the
Preferred Stock do not and will not conflict with or result in a breach by the
Company of any of the terms or provisions of, or constitute a default under, the
(i) certificate of incorporation or by-laws of the Company, (ii) any indenture,
mortgage, deed of trust, or other material agreement or instrument to which the
Company is a party or by which it or any of its properties or assets are bound,
(iii) any material existing applicable law, rule, or regulation or any
applicable decree, judgment, or (iv) order of any court, United States federal
or state regulatory body, administrative agency, or other governmental body
having jurisdiction over the Company or any of its properties or assets, except
such conflict, breach or default which would not have a material adverse effect
on the transactions contemplated herein.
f. Approvals. No authorization, approval or consent of any
court, governmental body, regulatory agency, self-regulatory organization, or
stock exchange or market or the Stockholders of the Company is required to be
obtained by the Company for the issuance and sale of the Securities to the Buyer
as contemplated by this Agreement, except such authorizations, approvals and
consents that have been obtained.
g. SEC Filings. None of the SEC Filings with the
<PAGE>
Securities and Exchange Commission since the filing of the 10-KSB on November
13, 1996, at the time they were filed, contained any untrue statement of a
material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements made therein, in light of the
circumstances under which they were made, not misleading. Except as set forth on
Annex V hereto, the Company has since June 24, 1996 timely filed all requisite
forms, reports and exhibits thereto with the Securities and Exchange Commission.
h. Absence of Certain Changes. Since January 1, 1997, there
has been no material adverse change and no material adverse development in the
business, properties, operations, financial condition, or results of operations
of the Company, except as disclosed in Annex V or in the Company's SEC
Documents.
i. Full Disclosure. There is no fact known to the Company
(other than general economic conditions known to the public generally), and
other than facts disclosed in the Company's SEC Documents, that has not been
disclosed in writing to the Buyer that (i) could reasonably be expected to have
a material adverse effect on the condition (financial or otherwise), earnings,
business affairs, properties or assets of the Company or (ii) could reasonably
be expected to materially and adversely affect the ability of the Company to
perform its obligations pursuant to this Agreement.
j. Absence of Litigation. Except as set forth in Annex V
hereto, and in the Company's SEC Documents, which the Buyer has reviewed, there
is no action, suit, proceeding, inquiry or investigation before or by any court,
public board or body pending or, to the knowledge of the Company or any of its
subsidiaries, threatened against or affecting the Company or any of its
subsidiaries, wherein an unfavorable decision, ruling or finding would have a
material adverse effect on the properties, business, condition (financial or
otherwise), results of operations or prospects of the Company and its
subsidiaries taken as a whole or the transactions contemplated by this Agreement
or any of the documents contemplated hereby or which would adversely affect the
validity or enforceability of, or the authority or ability of the Company to
perform its obligations under, this Agreement or any of such other documents.
k. Absence of Events of Default. Except as set forth in Annex
V hereto and Section 3(e), no Event of Default, as defined in the respective
agreement to which the Company is a party, and no event which, with the giving
of notice or the passage of time or both, would become an Event of Default (as
so defined), has occurred and is continuing, which would have a material adverse
effect on the Company's financial condition or results of operations.
<PAGE>
l. No Default. The Company is not in default in the
performance or observance of any material obligation, agreement, covenant or
condition contained in any indenture, mortgage, deed of trust or other material
instrument or agreement to which it is a party or by which it or its property is
bound, and neither the execution of, nor the delivery by the Company of, nor the
performance by the Company of its obligations under, this Agreement or the
Preferred Stock, other than the conversion provision thereof, will conflict with
or result in the breach or violation of any of the terms or provisions of, or
constitute a default or result in the creation or imposition of any lien or
charge on any assets or properties of the Company under, (i) any material
indenture, mortgage, deed of trust or other material agreement applicable to the
Company or instrument to which the Company is a party or by which it is bound,
(ii) any statute applicable to the Company or its property, (iii) the
Certificate of Incorporation or By-Laws of the Company, (iv) any decree,
judgment, order, rule or regulation of any court or governmental agency or body
having jurisdiction over the Company or its properties, or (v) the Company's
listing agreement for its Common Stock.
m. Prior Issues. During the twelve (12) months preceding the
date hereof, the Company has not issued any securities other than (i) as
reflected in the Company's SEC Documents, and (ii) options and warrants to
purchase shares of Common Stock which have been granted to employees and
consultants of the Company.
n. Offshore Transaction. The Company has not offered or sold
the Preferred Stock to any person in the United States, or, to the best
knowledge of the Company, any identifiable groups of U.S. citizens abroad, or
any U.S. person as that term is defined in Regulation S. At the time the buy
order for the Preferred Stock was originated, the Company and/or its agents
reasonably believed Buyer was outside the United States and was not a U.S.
Person.
o. No Directed Selling Efforts. In regard to this transaction,
the Company has not conducted any "direct selling efforts" as that term is
defined in Rule 902 of Regulation S, nor has the Company conducted any general
solicitation relating to the offer and sale of the within securities to persons
resident within the United States or elsewhere.
4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
a. Transfer Restrictions. The Buyer acknowledges that (1) the
Preferred Stock has not been and is not being registered under the provisions of
the 1933 Act and, except as provided in the Registration Rights Agreement, the
Shares have not been and are not being registered under the 1933 Act, and may
not be transferred unless (A) subsequently registered thereunder or (B) the
Buyer shall have delivered to the Company an opinion of counsel,
<PAGE>
reasonably satisfactory in form, scope and substance to the Company, to the
effect that the Securities to be sold or transferred may be sold or transferred
pursuant to an exemption from such registration; (2) any sale of the Securities
made in reliance on Rule 144 promulgated under the 1933 Act may be made only in
accordance with the terms of said Rule and further, if said Rule is not
applicable, any resale of such Securities under circumstances in which the
seller, or the person through whom the sale is made, may be deemed to be an
underwriter, as that term is used in the 1933 Act, may require compliance with
some other exemption under the 1933 Act or the rules and regulations of the SEC
thereunder; and (3) neither the Company nor any other person is under any
obligation to register the Securities (other than pursuant to the Registration
Rights Agreement) under the 1933 Act or to comply with the terms and conditions
of any exemption thereunder.
b. Restrictive Legend. The Buyer acknowledges and agrees that
the Preferred Stocks, and, until such time as the Common Stock has been
registered under the 1933 Act as contemplated by the Registration Rights
Agreement and sold in accordance with such Registration Statement, the shares of
Common Stock issued to the Buyer upon conversion of the Preferred Stock shall
bear a restrictive legend in substantially the following form (and a
stop-transfer order may be placed against transfer of the Preferred Stock and
such shares of Common Stock):
THESE SECURITIES (THE "SECURITIES") HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD
OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES OR AN OPINION OF
COUNSEL OR OTHER EVIDENCE ACCEPTABLE TO THE CORPORATION THAT
SUCH REGISTRATION IS NOT REQUIRED.
c. Registration Rights Agreement. The parties hereto agree to
enter into the Registration Rights Agreement, in substantially the form attached
hereto as Annex IV, on or before the Closing Date (as defined in Section 7).
d. Filings. The Company undertakes and agrees to make all
necessary filings in connection with the sale of the Preferred Stock to the
Buyer under any United States laws and regulations, or by any domestic
securities exchange or trading market, and to provide a copy thereof to the
Buyer promptly after such filing.
e. Reporting Status. So long as the Buyer beneficially owns
any of the Preferred Stock, the Company shall file all reports required to be
filed with the SEC pursuant to Section 13 or 15(d)
<PAGE>
of the Exchange Act, and the Company shall not terminate its status as an issuer
required to file reports under the Exchange Act even if the Exchange Act or the
rules and regulations thereunder would permit such termination.
f. Use of Proceeds. The Company will use the proceeds from the
sale of the Preferred Stock (excluding amounts paid by the Company for legal
fees and finder's fees in connection with the sale of the Preferred Stock) for
internal working capital purposes , and shall not, directly or indirectly, use
such proceeds for any loan to or investment in any other corporation,
partnership enterprise or other person.
g. Certain Agreements. The Company covenants and agrees that
it will not, without the prior written consent of the Buyer, enter into any
subsequent or further offer or sale of Common Stock or securities convertible in
to Common Stock with any third party until the expiration of one hundred fifty
(150) days after the effective date of the Registration Statement (the
"Effective Date"). However, the preceding sentence will not apply to (x) the
issuance of securities (other than for cash) in connection with a merger,
consolidation, sale of assets, disposition or acquisition of a business, product
or license by the Company, strategic alliance, bank loan or other credit
facility agreement, public offering, securities issued at the then current
market price (as determined in good faith by the Board of Directors), or the
exercise of options, (y) the exchange of the capital stock for assets, stock or
other joint venture interests, or (z) the sale of Common Stock, at a sales price
in excess of the then current market price of the Common Stock (as determined in
good faith by the Board of Directors), and further provided, that any
registration rights in connection therewith, shall not require the filing of a
Registration Statement in respect of such stock prior to the effective date of
the Registration Statement under the Registration Rights Agreement between the
Buyer and Seller. However, nothing contained herein shall be deemed to preclude
the Company from taking such action as may be reasonably required to cure any
alleged default under agreements to which the Company is or may become a party.
h. Future Purchases. Notwithstanding Section 4(g), the Buyer
unconditionally and irrevocably agrees to purchase up to an additional
$1,250,000 principal amount of Preferred Stock (the "Additional Preferred
Stock") in three tranches of $500,000, $500,000 and $250,000 respectively,
commencing thirty days after the Effective Date, upon the same terms and
conditions as those applicable to the Preferred Stock issued pursuant to this
Agreement, (the "Additional Closing Date"). Buyer's obligation to purchase the
Additional Preferred Stock on each Additional Closing Date (which shall occur
not less than thirty (30) days apart) shall be contingent only upon the
satisfaction of the following conditions: On each Additional Closing Date (i)
the Registration
<PAGE>
Statement required to be filed under the Registration Rights Agreement is
effective, and (ii) the representations and warranties of the Company contained
in Section 3 are true and correct in all material respects, and (iii) the Market
Price of the Stock (as defined in Annex I) exceed $2.00 per share.
i. Available Shares. The Company shall have at all times
authorized and reserved for issuance, free from preemptive rights, shares of
Common Stock sufficient to yield the number of Common Stock issuable at
conversion as may be required to satisfy the conversion rights of the Buyer
pursuant to the terms and conditions of the Preferred Stock.
5. TRANSFER AGENT INSTRUCTIONS.
a. Promptly following the delivery by the Buyer of the
aggregate purchase price for the Preferred Stock in accordance with Section 1(c)
hereof, the Company will irrevocably instruct its transfer agent to issue Common
Stock from time to time upon conversion of the Preferred Stock in such amounts
as specified from time to time by the Company to the transfer agent, bearing the
restrictive legend specified in Section 4(b) of this Agreement prior to
registration of the Shares under the 1933 Act, registered in the name of the
Buyer or its nominee and in such denominations to be specified by the Buyer in
connection with each conversion of the Preferred Stock. The Company warrants
that no instruction other than such instructions referred to in this Section 5,
the Registration Rights Agreement, and stop transfer instructions to give effect
to Section 4(a) hereof prior to registration and sale of the Shares under the
1933 Act will be given by the Company to the transfer agent and that the Shares
shall otherwise be freely transferable on the books and records of the Company
as and to the extent provided in this Agreement, the Registration Rights
Agreement, and applicable law. Nothing in this Section shall affect in any way
the Buyer's obligations and agreement to comply with all applicable securities
laws upon resale of the Securities. If the Buyer provides the Company with an
opinion of counsel reasonably satisfactory to the Company that registration of a
resale by the Buyer of any of the Securities in accordance with clause (1)(B) of
Section 4(a) of this Agreement is not required under the 1933 Act, the Company
shall (except as provided in clause (2) of Section 4(a) of this Agreement)
permit the transfer of the Securities and, in the case of the Shares, promptly
instruct the Company's transfer agent to issue one or more certificates for
Common Stock in such name and in such denominations as specified by the Buyer.
b. The Company will permit the Buyer to exercise its right to
convert the Preferred Stock by telecopying an executed and completed Notice of
Conversion to the Company and delivering within three business days thereafter,
the original Notice of Conversion and the certificate for the Preferred Stock
representing the Shares to the Company by express courier. Each date on which a
Notice of Conversion is telecopied to and received by the Company (and confirmed
via telephonic notice) in accordance with the provisions hereof shall be deemed
a Conversion Date. The Company will
<PAGE>
transmit the certificates representing the Shares of Common Stock issuable upon
conversion of any Preferred Stock (together with the Preferred Stock
representing the Shares not so converted) to the Buyer via express courier,
within five business days after receipt by the Company of the original Notice of
Conversion and the certificate for the Preferred Stock representing the Shares
to be converted (the "Delivery Date").
c. The Company understands that a delay in the issuance of the
Shares of Common Stock beyond the Delivery Date could result in economic loss to
the Buyer. As compensation to the Buyer for such loss, the Company agrees to pay
late payments, not exceeding $500,000 in the aggregate, to the Buyer for late
issuance of Shares upon Conversion in accordance with the following schedule
(where "No. Business Days Late" is defined as the number of business days beyond
three (3) business days from Delivery Date:
Late Payment For Each
$10,000 of Preferred Stock
No. Business Days Late Principal Amount Being Converted
- ---------------------- --------------------------------
1 $100
2 $200
3 $300
4 $400
5 $500
6 $600
7 $700
8 $800
9 $900
10 $1,000
>10 $1,000+$200 for each
Business Day Late beyond
10 days
The Company shall pay any payments incurred under this Section in immediately
available funds upon demand. Nothing herein shall limit a Buyer's right to
pursue actual damages for the Company's failure to issue and delivery Common
Stock to the Buyer. Furthermore, in addition to any other remedies which may be
available to the Buyer, in the event that the Company fails for any reason to
effect delivery of such shares of Common Stock within five business days after
the Delivery Date, the Buyer will be entitled to revoke the relevant Notice of
Conversion by delivering a notice to such effect to the Company whereupon the
Company and the Buyer shall each be restored to their respective positions
immediately prior to delivery of such Notice of Conversion (and in such event,
the late payments described above shall not be due and payable).
6. DELIVERY INSTRUCTIONS.
The Preferred Stock shall be delivered by the Company to the
Escrow Agent pursuant to Section 1(b) hereof on a delivery against payment basis
at the closing.
<PAGE>
7. CLOSING DATE.
The date and time of the issuance and sale of the Preferred Stock (the
"Closing Date") and the date and time of the issuance and sale of the Additional
Preferred Stock (an "Additional Closing Date") shall occur no later than 12:00
Noon, New York time on the second NYSE trading day after the fulfillment or
waiver of all Closing conditions pursuant to Sections 8 and 9, or such other
mutually agreed to time. The closing shall occur on such date at the offices of
the Escrow Agent. Notwithstanding anything to the contrary contained herein, the
Escrow Agent will be authorized to release the funds representing the Purchase
Price for the Preferred Stock or Additional Preferred Stock (as the case may
be), and to release the Preferred Stock or Additional Preferred Stock (as the
case may be) only upon satisfaction of the conditions set forth in Section 8
hereof.
8. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The Buyer understands that the Company's obligation to sell
the Preferred Stock on the Closing Date and any Additional Preferred Stock on an
Additional Closing Date pursuant to this Agreement is conditioned upon:
a. The receipt and acceptance by the Company of Buyer's
agreement, as evidenced by its execution of this Agreement, to purchase at least
Two Million ($2,000,000.00) Dollars in liquidation value Preferred Stock and
Additional Preferred Stock (or such lesser amount as the Company, in its sole
discretion, shall determine);
b. Delivery by the Buyer to the Escrow Agent of good funds as
payment in full of an amount equal to the purchase price for the Preferred Stock
or Additional Preferred Stock (as the case may be) in accordance with Section
1(c) hereof;
c. The accuracy on the Closing Date or Additional Closing Date
(as the case may be) of the representations and warranties of the Buyer
contained in this Agreement as if made on such date, and the performance by the
Buyer on or before such date of all covenants and agreements of the Buyer
required to be performed on or before such date;
d. There shall not be in effect any law, rule or regulation
prohibiting or restricting the transactions contemplated hereby, or requiring
any consent or approval which shall not have been obtained.
9. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
The Company understands that the Buyer's obligation to
purchase the Preferred Stock on the Closing Date and any Additional Preferred
Stock on an Additional Closing Date is conditioned upon:
a. Acceptance by Buyer of an Agreement for the sale of
Preferred Stock, as indicated by execution of this Agreement, and Buyer's and
Company's execution of the Registration Rights Agreement;
<PAGE>
b. Delivery by the Company to the Escrow Agent of the
Preferred Stock or Additional Preferred Stock (as the case may be) in accordance
with this Agreement;
c. The accuracy in all material respects on the Closing Date
or Additional Closing Date (as the case may be) of the representations and
warranties of the Company contained in this Agreement as if made on such date,
and the performance by the Company on or before such date (as the case may be)
of all covenants and agreements of the Company required to be performed on or
before such date; and
d. On the Closing Date or Additional Closing Date, the Buyer
having received an opinion of counsel for the Company, dated such date, in form,
scope and substance reasonably satisfactory to the Buyer, to the effect set
forth in Annex III attached hereto.
10. GOVERNING LAW; MISCELLANEOUS.
This Agreement shall be governed by and interpreted in
accordance with the laws of the State of Delaware. Each of the parties consents
to the jurisdiction of the federal courts whose districts encompass any part of
the City of New York or the state courts of the State of New York sitting in the
City of New York in connection with any dispute arising under this Agreement and
hereby waives, to the maximum extent permitted by law, any objection, including
any objection based on forum non conveniens, to the bringing of any such
proceeding in such jurisdictions. A facsimile transmission of this signed
Agreement shall be legal and binding on all parties hereto. This Agreement may
be signed in one or more counterparts, each of which shall be deemed an
original. The headings of this Ag any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement or the validity or enforceability of this Agreement
in any other jurisdiction. This Agreement may be amended only by an instrument
in writing signed by the party to be charged with enforcement. This Agreement
supersedes all prior agreements and understandings among the parties hereto with
respect to the subject matter hereof.
11. NOTICES. Any notice required or permitted hereunder shall
be given in writing (unless otherwise specified herein) and shall be deemed
effectively given upon, (a) personal delivery, or (b) if advance copy is given
by fax, upon (i) seven business days after deposit in the United States Postal
Service by regular or certified mail, or (ii) three business days mailing by
international express courier, with postage and fees prepaid, addressed to each
of the other parties thereunto entitled at the following addresses, or at such
other addresses as a party may designate by ten days advance written notice to
each of the other parties hereto.
COMPANY: Kideo Productions, Inc.
611 Broadway, Suite 523
New York, New York 10022
Telecopier No. (212) 505-2142
<PAGE>
with a copy to:
Solovay Marshall & Edlin, Esqs.
845 Third Avenue
New York, New York 10022
Telecopier No. (212) 355-4608
PURCHASER: At the address set forth on the signature page of this
Agreement.
ESCROW AGENT: Krieger & Prager, Esqs.
319 Fifth Avenue
New York, New York 10016
12. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Purchaser's
representations and warranties shall survive the execution and delivery hereof
of this Agreement and the delivery of the Preferred Stock.
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed by
the Buyer or one of its officers thereunto duly authorized as of the date set
forth below.
NUMBER OF SHARES OF PREFERRED STOCK TO BE PURCHASED: 750
AGGREGATE PURCHASE PRICE OF SUCH PREFERRED STOCK: $750,000
SIGNATURE(S) FOR INDIVIDUAL SUBSCRIBER(S)
IN WITNESS WHEREOF, the undersigned represents that the foregoing
statements are true and correct and that he, she or they have executed this
Stock Purchase Agreement this _____ day of May, 1997.
- ----------------------------------
Signature
__________________________________
Printed Name
__________________________________
Address
Telecopier No. ___________________
SIGNATURES FOR ENTITIES
IN WITNESS WHEREOF, the undersigned represents that the foregoing
statements are true and correct and that it has caused this Stock Purchase
Agreement to be duly executed on its behalf this 13th day of May, 1997.
__________________________________ SELLET MARKETING CORP.
Address -------------------------------------
__________________________________ Printed Name of Subscriber
By:
----------------------------------
Telecopier No. ___________________ (Signature of Authorized Person)
_____________________________________
British Virgin Islands Printed Name and Title
- ----------------------------------
Jurisdiction of Incorporation
or Organization
This Agreement has been accepted as of the date set forth below.
KIDEO PRODUCTIONS, INC.
By:
-------------------------------
Robert J. Riscica
Title: ____________________________
Date: _____________________________
EXHIBIT 10.2
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of May 13, 1997
(this "Agreement"), is made by and between KIDEO PRODUCTIONS, INC., a Delaware
corporation (the "Company"), and the person named on the signature page hereto
(the "Initial Investor").
W I T N E S S E T H:
WHEREAS, upon the terms and subject to the conditions of the
Securities Purchase Agreement, dated as of May 13, 1997, between the Initial
Investor and the Company (the "Securities Purchase Agreement"), the Company has
agreed to issue and sell to the Initial Investor 750 shares of Series A
Preferred Stock, $.0001 par value (the "Preferred Stock") of the Company, at a
purchase price of $750,000, and the Initial Investor has made a commitment to
acquire an additional 1,250 shares of Preferred Stock at a purchase price of
$1,250,000 (said 2,000 shares of Preferred Stock, collectively the "Preferred
Shares"), which Preferred Shares will be convertible into shares of the common
stock, $.0001 par value (the "Common Stock"), of the Company (the "Conversion
Shares") upon the terms and subject to the conditions of the Certificate of
Designations relating to the Preferred Stock; and
WHEREAS, to induce the Initial Investor to execute and deliver
the Securities Purchase Agreement, the Company has agreed to provide certain
registration rights under the Securities Act of 1933, as amended, and the rules
and regulations thereunder, or any similar successor statute (collectively, the
"Securities Act"), and applicable state securities laws with respect to the
Conversion Shares;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Initial Investor hereby agree as follows:
1. Definitions.
(a) As used in this Agreement, the following terms shall have
the following meanings:
(i) "Investor" means the Initial Investor and any transferee
or assignee who agrees to become bound by the provisions of this Agreement in
accordance with Section 9 hereof.
(ii) "Register," "Registered," and "Registration" refer to a
registration effected by preparing and filing a Registration Statement or
Statements in compliance with the Securities Act and pursuant to Rule 415 under
the Securities Act or any successor rule providing for offering securities on a
continuous basis ("Rule 415"), and the declaration or ordering of effectiveness
of such
<PAGE>
Registration Statement by the United States Securities and Exchange
Commission (the "SEC").
(iii) "Registrable Securities" means the Conversion Shares.
(iv) "Registration Statement" means a registration statement
of the Company under the Securities Act.
(b) Capitalized terms used herein and not otherwise defined
herein shall have the respective meanings set forth in the Securities Purchase
Agreement.
2. Registration.
(a) Mandatory Registration. The Company shall prepare and file
with the SEC, no later than thirty (30) days after the Closing Date, either a
Registration Statement on Form SB-2 covering a sufficient number of shares of
Common Stock for the Initial Investors (or such lesser number as may be required
by the SEC, but in no event less than 1,500,000 of shares), or an amendment to
any pending Company Registration Statement on Form SB-2, and such Registration
Statement or amended Registration Statement shall state that, in accordance with
Rule 416 and 457 under the Securities Act, it also covers such indeterminate
number of additional shares of Common Stock as may become issuable upon
conversion of the Preferred Shares resulting from adjustment in the Conversion
Price, or to prevent dilution resulting from stock splits, or stock dividends.
If at any time the number of shares of Common Stock into which the Preferred
Shares may be converted exceeds the aggregate number of shares of Common Stock
then registered, the Company shall, within ten (10) business days after receipt
of a written notice from any Investor, either (i) amend the Registration
Statement filed by the Company pursuant to the preceding sentence, if such
Registration Statement has not been declared effective by the SEC at that time,
to register all shares of Common Stock into which the Preferred Shares may be
converted, or (ii) if such Registration Statement has been declared effective by
the SEC at that time, file with the SEC an additional Registration Statement on
Form SB-2 to register the shares of Common Stock into which the Preferred Shares
may be converted that exceed the aggregate number of shares of Common Stock
already registered.
(b) Underwritten Offering. If any offering pursuant to a
Registration Statement pursuant to Section 2(a) hereof involves an underwritten
offering, the Investors acting by majority in interest of the Registrable
Securities subject to such underwritten offering shall have the right to select
one legal counsel to represent their interests, and an investment banker or
bankers and manager or managers to administer the offering, which investment
banker or bankers or manager or managers shall be reasonably satisfactory to the
Company. The Investors who hold the Registrable Securities to be included in
such underwriting shall pay all underwriting discounts and commissions and other
fees and expenses of such investment
<PAGE>
banker or bankers and manager or managers so selected in accordance with this
Section 2(b) (other than fees and expenses relating to registration of
Registrable Securities under federal or state securities laws which are payable
by the Company pursuant to Section 5 hereof) with respect to their Registrable
Securities and the fees and expenses of such legal counsel so selected by the
Investors.
(c) Payments by the Company. If the Registration Statement
covering the Registrable Securities required to be filed by the Company pursuant
to Section 2(a) hereof is not effective within one hundred (100) days after the
Closing Date, then the Company will make payments to the Initial Investor in
such amounts and at such times as shall be determined pursuant to this Section
2(c). The amount to be paid by the Company to the Initial Investor shall be
determined as of each Computation Date, and such amount shall be equal to two
(2%) percent of the purchase price paid by the Initial Investor for the
Preferred Shares pursuant to the Securities Purchase Agreement for any period
from the Closing Date to the first Computation Date, and two (2%) percent of the
purchase price for any period to each Computation Date thereafter, to the date
the Registration Statement is declared effective by the SEC (the "Periodic
Amount"). The full Periodic Amount shall be paid by the Company in immediately
available funds within three business days after each Computation Date.
Notwithstanding the foregoing, the amounts payable by the Company pursuant to
this provision shall not be payable to the extent any delay in the effectiveness
of the Registration Statement occurs because of an act of, or a failure to act
or to act timely by, the Initial Investor or its counsel, or in the event all of
the Registrable Securities may be sold pursuant to Rule 144 or another available
exemption under the Act.
As used in this Section 2(c), the following term shall have
the following meaning:
"Computation Date" means the date which is the earlier of (a)
5 days after the Company is notified by the SEC that the Registration Statement
may be declared effective or (b) one hundred (100) days after the Closing Date
and, if the Registration Statement required to be filed by the Company pursuant
to Section 2(a) has not theretofore been declared effective by the SEC, each
date which is thirty (30) dation Statement is so declared effective.
3. Obligations of the Company. In connection with the
registration of the Registrable Securities, the Company shall do each of the
following.
(a) Prepare promptly, and file with the SEC within thirty (30)
days of the Closing Date, a Registration Statement with respect to not less than
the number of Registrable Securities provided in Section 2(a) above, and
thereafter use its reasonable best efforts to cause each Registration Statement
relating to Registrable Securities to become effective on the earlier of (i)
five days after notice from the Securities and Exchange Commission
<PAGE>
that the Registration Statement may be declared effective, or (b) one hundred
(100) days after the Closing Date, and keep the Registration Statement effective
at all times until the earliest (the "Registration Period") of (i) the date that
is two years after the Closing Date, (ii) the date when the Investors may sell
all Registrable Securities under Rule 144 or (iii) the date the Investors no
longer own any of the Registrable Securities, which Registration Statement
(including any amendments or supplements thereto and final prospectuses
contained therein) shall not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances in which they were made,
not misleading;
(b) Prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to the Registration Statement and the
final prospectus used in connection with the Registration Statement as may be
necessary to keep the Registration effective at all times during the
Registration Period, and, during the Registration Period, comply with the
provisions of the Securities Act with respect to the disposition of all
Registrable Securities of the Company covered by the Registration Statement
until such time as all of such Registrable Securities have been disposed of in
accordance with the intended methods of disposition by the seller or sellers
thereof as set forth in the Registration Statement;
(c) The Company shall permit a single firm of counsel
designated by the Initial Investors to review the Registration Statement and all
amendments and supplements thereto a reasonable period of time prior to their
filing with the SEC, and not file any document in a form to which such counsel
reasonably objects.
(d) Furnish to each Investor whose Registrable Securities are
included in the Registration Statement and its legal counsel identified to the
Company, (i) promptly after the same is prepared and publicly distributed, filed
with the SEC, or received by the Company, the Notice of Effectiveness and one
(1) copy of the Registration Statement, each preliminary prospectus and final
prospectus, and each amendment or supplement thereto, and (ii) such number of
copies of a final prospectus, including a preliminary prospectus, and all
amendments and supplements thereto and such other documents, as such Investor
may reasonably request in order to facilitate the disposition of the Registrable
Securities owned by such Investor;
(e) Use reasonable efforts to (i) register and qualify the
Registrable Securities covered by the Registration Statement under such other
securities or blue sky laws of such jurisdictions as the Investors who hold a
majority in interest of the Registrable Securities being offered reasonably
request and in which significant volumes of shares of Common Stock are traded,
(ii) prepare and file in those jurisdictions such amendments (including
post-effective amendments) and supplements to such registrations and
qualifications as may be necessary to maintain the effectiveness thereof at all
times during the Registration Period,
<PAGE>
(iii) take such other actions as may be necessary to maintain such registrations
and qualifications in effect at all times during the Registration Period, and
(iv) take all other actions reasonably necessary or advisable to qualify the
Registrable Securities for sale in such jurisdictions; provided, however, that
the Company shall not be required in connection therewith or as a condition
thereto to (A) qualify to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3(d), (B) subject itself
to general taxation in any such jurisdiction, (C) file a general consent to
service of process in any such jurisdiction, (D) provide any undertakings that
cause more than nominal expense or burden to the Company or (E) make any change
in its articles of incorporation or by-laws, which in each case the Board of
Directors of the Company determines to be contrary to the best interests of the
Company and its stockholders;
(f) As promptly as practicable after becoming aware of such
event, (i) notify each Investor of the happening of any event of which the
Company has knowledge, as a result of which the final prospectus included in the
Registration Statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, and (ii) use its best efforts promptly to
prepare a supplement or amendment to the Registration Statement or other
appropriate filing with the SEC to correct such untrue statement or omission,
and deliver a number of copies of such supplement or amendment to each Investor
as such Investor may reasonably request;
(g) As promptly as practicable after becoming aware of such
event, notify each Investor who holds Registrable Securities being sold (or, in
the event of an underwritten offering, the managing underwriters) of the
issuance by the SEC of any stop order or other suspension of the effectiveness
of the Registration Statement;
(h) Use its commercially reasonable efforts, if eligible,
either: (i) to secure designation of all the Registrable Securities covered by
the Registration Statement as a National Association of Securities Dealers
Automated Quotations System ("NASDAQ") "Small Capitalization" within the meaning
of Rule 11Aa2-1 of the SEC under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and the quotation of the Registrable Securities on the
NASDAQ Small Cap Market; or (ii) if, despite the Company's commercially
reasonable efforts to satisfy the foregoing obligation, the Company is
unsuccessful in doing so, to secure NASDAQ authorization and quotation for such
Registrable Securities and, without limiting the generality of the foregoing, to
arrange for at least two market makers to register with the National Association
of Securities Dealers, Inc. ("NASD") as such with respect to such Registrable
Securities;
(i) Provide a transfer agent and registrar, which may be a
single entity, for the Registrable Securities not later than the effective date
of the Registration Statement;
<PAGE>
(j) Cooperate with the Investors who hold Registrable
Securities being offered to facilitate the timely preparation and delivery of
certificates for the Registrable Securities to be offered pursuant to the
Registration Statement and enable such certificates for the Registrable
Securities to be in such denominations or amounts as the case may be, as the
Investors may reasonably request and registered in such names as the Investors
may request; and, within three (3) business days after a Registration Statement
which includes Registrable Securities is ordered effective by the SEC, the
Company shall deliver, and shall cause legal counsel selected by the Company to
deliver, to the transfer agent for the Registrable Securities (with copies to
the Investors whose Registrable Securities are included in such Registration
Statement) an appropriate instruction and opinion of such counsel; and
(k) Take all other reasonable actions necessary to expedite
and facilitate disposition by the Investor of the Registrable Securities
pursuant to the Registration Statement.
4. Obligations of the Investors. In connection with the
registration of the Registrable Securities, the Investors shall have the
following obligations:
(a) It shall be a condition precedent to the obligations of
the Company to complete the registration pursuant to this Agreement with respect
to the Registrable Securities of a particular Investor that such Investor (i)
shall furnish to the Company such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of the Registrable
Securities held by it, as shall be reasonably required to effect the
registration of such Registrable Securities, and (ii) shall execute such
documents in connection with such registration as the Company may reasonably
request. At least five (5) days prior to the first anticipated filing date of
the Registration Statement, the Company shall notify each Investor of the
information the Company requires from each such Investor (the "Requested
Information") if such Investor elects to have any of such Investor's Registrable
Securities included in the Registration Statement. If at least two (2) business
days prior to the filing date the Company has not received the Requested
Information from an Investor (a "Non-Responsive Investor"), then the Company may
file the Registration Statement without including Registrable Securities of such
Non-Responsive Investor;
(b) Each Investor by such Investor's acceptance of the
Registrable Securities agrees to cooperate with the Company as reasonably
requested by the Company in connection with the preparation and filing of the
Registration Statement hereunder, unless such Investor has notified the Company
in writing of such Investor's election to exclude all of such Investor's
Registrable Securities from the Registration Statement; and
(c) Each Investor agrees that, upon receipt of any notice from
the Company of the happening of any event of the kind described in Section 3(e)
or 3(f), above, such Investor will
<PAGE>
immediately discontinue disposition of Registrable Securities pursuant to the
Registration Statement covering such Registrable Securities until such
Investor's receipt of the copies of the supplemented or amended prospectus
contemplated by Section 3(e) or 3(f) and, if so directed by the Company, such
Investor shall deliver to the Company (at the expense of the Company) or destroy
(and deliver to the Company a certificate of destruction) all copies in such
Investor's possession of the prospectus covering such Registrable Securities
current at the time of receipt of such notice.
5. Expenses of Registration. All reasonable expenses, other
than underwriting discounts and commissions, incurred in connection with
registrations, filings or qualifications pursuant to Section 3, but including,
without limitation, all registration, listing, and qualifications fees, printers
and accounting fees, the fees and disbursements of counsel for the Company and a
fee for a single counsel for the Investor not exceeding $2,000, shall be borne
by the Company.
6. Indemnification. In the event any Registrable Securities
are included in a Registration Statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Investor who holds such Registrable Securities, the
directors, if any, of such Investor, the officers, if any, of such Investor,
each person, if any, who controls such Investor within the meaning of the
Securities Act or the Exchange Act (each, an "Indemnified Person"), against any
losses, claims, damages, liabilities or expenses (joint or several) incurred
(collectively, "Claims") to which any of them may become subject under the
Securities Act, the Exchange Act or otherwise, insofar as such Claims (or
actions or proceedings, whether commenced or threatened, in respect thereof)
arise out of or are based upon any of the following statements, omissions or
violations in the Registration Statement, or any post-effective amendment
thereof, or any final prospectus included therein: (i) any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement or any post-effective amendment thereof or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, (ii) any untrue
statement or alleged untrue statement of a material fact contained in the final
prospectus (as amended or supplemented, if the Company files any amendment
thereof or supplement thereto with the SEC) or the omission or alleged omission
to state therein any material fact necessary to make the statements made
therein, in light of the circumstances under which the statements therein were
made, not misleading or (iii) any violation or alleged violation by the Company
of the Securities Act, the Exchange Act, any state securities law or any rule or
regulation under the Securities Act, the Exchange Act or any state securities
law (the matters in the foregoing clauses (i) through (iii) being, collectively,
"Violations"). The Company shall reimburse the Investors, promptly as such
expenses are incurred and are due and payable, for any
<PAGE>
legal fees or other reasonable expenses incurred by them in connection with
investigating or defending any such Claim. Notwithstanding anything to the
contrary contained herein, the indemnification agreement contained in this
Section 6(a) shall not (I) apply to a Claim arising out of or based upon a
Violation which occurs in reliance upon and in conformity with information
furnished in writing to the Company by or on behalf of any Indemnified Person
expressly for use in connection with the preparation of the Registration
Statement or any such amendment thereof or supplement thereto; (II) with respect
to any preliminary prospectus, inure to the benefit of any such person from whom
the person asserting any such Claim purchased the Registrable Securities that
are the subject thereof (or to the benefit of any person controlling such
person) if the untrue statement or omission of material fact contained in the
preliminary prospectus was corrected in the final prospectus, as then amended,
if such final prospectus was timely made available by the Company pursuant to
Section 3(c) hereof; (III) be available to the extent such Claim is based on a
failure of the Investor to deliver or cause to be delivered the final prospectus
made available by the Company; or (IV) apply to amounts paid in settlement of
any Claim if such settlement is effected without the prior written consent of
the Company, which consent shall not be unreasonably withheld. Each Investor
will indemnify the Company and its officers, directors, controlling persons and
agents (each an "Indemnified Party"), against any Claims arising out of or based
upon a Violation which occurs in reliance upon and in conformity with
information furnished in writing to the Company, by or on behalf of such
Investor, expressly for use in connection with the preparation of the
Registration Statement, subject to such limitations and conditions as are
applicable to the Indemnification provided by the Company pursuant to this
Section 6. Such indemnity shall remain in full force and effect regardless of
any investigation made by or on behalf of the Indemnified Person and shall
survive the transfer of the Registrable Securities by the Investors pursuant to
Section 9.
(b) Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 6 of notice of the commencement of any
action (including any governmental action), such Indemnified Person or
Indemnified Party shall, if a Claim in respect thereof is to be made against any
indemnifying party under this Section 6, deliver to the indemnifying party a
written notice of the commencement thereof. The indemnifying party shall have
the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
control of the defense thereof with counsel mutually satisfactory to the
indemnifying party and the Indemnified Person or the Indemnified Party, as the
case may be; provided, however, that an Indemnified Person or Indemnified Party
shall have the right to retain its own counsel with the reasonable fees and
expenses to be paid by the indemnifying party, if, in the reasonable opinion of
counsel retained by the indemnifying party, the representation by such counsel
of the Indemnified Person or Indemnified Party and the indemnifying party would
be inappropriate due to actual or potential differing interests between such
Indemnified Person or Indemnified Party and any other party
<PAGE>
represented by such counsel in such proceeding. In such event, the indemnifying
party shall pay for only one separate legal counsel for the Indemnified Person
or Indemnified Party; and, where the Company is the indemnifying party; such
legal counsel shall be selected by the Investors holding a majority in interest
of the Registrable Securities included in the Registration Statement to which
the Claim relates. The failure to deliver written notice to the indemnifying
party within a reasonable time of the commencement of any such action shall not
relieve such indemnifying party of any liability to the Indemnified Person or
Indemnified Party under this Section 6, except to the extent that the
indemnifying party is prejudiced in i. The indemnification required by this
Section 6 shall be made by periodic payments of the amount thereof during the
course of the investigation or defense, as such expense, loss, damage or
liability is incurred and is due and payable.
7. Contribution. To the extent any indemnification by an
indemnifying party is prohibited or limited by law, the indemnifying party
agrees to make the maximum contribution with respect to any amounts for which it
would otherwise be liable under Section 6 to the fullest extent permitted by
law; provided, however, that (a) no contribution shall be made under
circumstances where the maker would not have been liable for indemnification
under the fault standards set forth in Section 6; (b) no seller of Registrable
Securities guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any seller
of Registrable Securities who was not guilty of such fraudulent
misrepresentation; and (c) contribution by any seller of Registrable Securities
shall be limited in amount to the net amount of proceeds received by such seller
from the sale of such Registrable Securities.
8. Reports under Exchange Act. With a view to making available
to the Investors the benefits of Rule 144 promulgated under the Securities Act
or any other similar rule or regulation of the SEC that may at any time permit
the Investors to sell securities of the Company to the public without
registration ("Rule 144"), the Company agrees to:
(a) make and keep public information available, as those terms
are understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act;
and
(c) furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, the
Securities Act and the Exchange Act, (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed by
the Company and (iii) such other information as may be reasonably requested to
permit the Investors to sell such securities pursuant to Rule 144 without
registration.
<PAGE>
9. Assignment of the Registration Rights. The rights to have
the Company register Registrable Securities pursuant to this Agreement shall be
automatically assigned by the Investors to any transferee of the Registrable
Securities (or any shares of Preferred Stock which are convertible into such
securities) only if: (a) the Investor agrees in writing with the transferee or
assignee to assign such rights, and a copy of such agreement is furnished to the
Company within a reasonable time after such assignment, (b) the Company is,
within a reasonable time after such transfer or assignment, furnished with
written notice of (i) the name and address of such transferee or assignee and
(ii) the securities with respect to which such registration rights are being
transferred or assigned, (c) immediately following such transfer or assignment,
the further disposition of such securities by the transferee or assignee is
restricted under the Securities Act and applicable state securities laws, and
(d) at or before the time the Company received the written notice contemplated
by clause (b) of this sentence, the transferee or assignee agrees in writing
with the Company to be bound by all of the provisions contained herein. In the
event of any delay in filing or effectiveness of the Registration Statement as a
result of such assignment, the Company shall not be liable for any damages
arising from such delay, or the payments set forth in Section 2(c) hereof.
10. Amendment of Registration Rights. 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 with the written consent of the Company and Investors who
hold a majority in interest of the Registrable Securities. Any amendment or
waiver effected in accordance with this Section 10 shall be binding upon each
Investor and the Company.
11. Miscellaneous.
(a) A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
(b) Notices required or permitted to be given hereunder shall
be in writing and shall be deemed to be sufficiently given when personally
delivered (by hand, by courier, by telephone line facsimile transmission,
receipt confirmed, or other means) or sent by certified mail, return receipt
requested, properly addressed and with proper postage pre-paid (i) if to the
Company, at 611 Broadway, Suite 523, New York, New York 10022; with a copy to
Lawrence J. Studnicky, Esq., Solovay Marshall & Edlin, P.C., 845 Third Avenue,
New York, New York 10022; (ii) if to the Initial Investor, at the address set
forth under its name in the Securities Purchase Agreement, with a copy to Samuel
Krieger, Esq., Krieger & Prager, 319 Fifth Avenue, Third Floor, New York, NY
10016; and
<PAGE>
(iii) if to any other Investor, at such address as such Investor shall have
provided in writing to the Company, or at such other address as each such party
furnishes by notice given in accordance with this Section 11(b), and shall be
effective, when personally delivered, upon receipt and, when so sent by
certified mail, four (4) calendar days after deposit with the United states
Postal Service.
(c) Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.
(d) This Agreement shall be governed by and interpreted in
accordance with the laws of the State of New York. Each of the parties consents
to the jurisdiction of the federal courts whose districts encompass any part of
the City of New York or the state courts of the State of New York sitting in the
City of New York in connection with any dispute arising under this Agreement and
hereby waives, to the maximum extent permitted by law, any objection, including
any objection based on forum non conveniens, to the bringing of any such
proceeding in such jurisdictions. A facsimile transmission of this signed
Agreement shall be legal and binding on all parties hereto. This Agreement may
be signed in one or more counterparts, each of which shall be deemed an
original. The headings of this Agreement are for convenience of reference and
shall not form part of, or affect the interpretation of, this Agreement. If any
provision of this Agreement shall be invalid or unenforceable in any
jurisdiction, such invalidity or unenforceability shall not affect the validity
or enforceability of the remainder of this Agreement or the validity or
enforceability of this Agreement in any other jurisdiction. This Agreement
supersedes all prior agreements and understandings among the parties hereto with
respect to the subject matter hereof.
(e) This Agreement constitutes the entire agreement among the
parties hereto with respect to the subject matter hereof. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein.
(f) Subject to the requirements of Section 9 hereof, this
Agreement shall inure to the benefit of and be binding upon the successors and
assigns of each of the parties hereto.
(g) All pronouns and any variations thereof refer to the
masculine, feminine or neuter, singular or plural, as the context may require.
(h) This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same agreement. This Agreement, once executed by a party,
may be delivered to the other party hereto by telephone line facsimile
transmission of a copy of this Agreement bearing the signature of the party so
delivering this Agreement.
<PAGE>
(i) The Company acknowledges that any failure by the Company
to perform its obligations under Section 3(a), or any delay in such performance,
could result in direct damages to the Investors and the Company agrees that, in
addition to any other liability that the Company may have by reason of any such
failure or delay, the Company shall be liable for all direct damages caused by
any such failure or delay, unless same is the result of force majeure. Neither
party shall be liable for consequential damages.
IN WITNESS WHEREOF, the parties have caused this Agreement to
be duly executed by their respective officers thereunto duly authorized as of
the day and year first above written.
KIDEO PRODUCTIONS, INC.
By:
----------------------------
Name: ROBERT J. RISCICA
Title:
SELLET MARKETING CORP.
By:
----------------------------
Name:
Title:
EXHIBIT 10.3
JOINT ESCROW INSTRUCTIONS
Dated as of the date of the Securities
Purchase Agreement to
Which These Joint Escrow
Instructions Are Attached
Krieger & Prager, Esqs.
319 Fifth Avenue
New York, New York 10016
Attention: Samuel M. Krieger, Esq.
Dear Mr. Krieger:
As escrow agent for both Kideo Productions, Inc., a Delaware
corporation (the "Company"), and the Purchaser (the "Purchaser") of Series A 6%
Convertible Participating Preferred Stock of the Company (the "Series A
Preferred Stock"), who is named in the Securities Purchase Agreement between the
Company and the Purchaser to which a copy of these Joint Escrow Instructions is
attached as Annex II (the "Agreement"), you (hereafter, the "Escrow Agent") are
hereby authorized and directed to hold the documents and funds (together with
any interest thereon, the "Escrow Funds") delivered to the Escrow Agent pursuant
to the terms of the Agreement in accordance with the following instructions:
1. The Escrow Agent shall, as promptly as feasible, notify the Company
of receipt of the purchase price from the Purchaser, and notify the Purchaser
(or such agent as the Purchaser may designate in writing) of receipt of the
Series A Preferred Stock being purchased for such purchase price. Within not
more than two (2) days of receipt of written notice from the Company and the
Purchaser that the respective conditions precedent to the purchase and sale have
been satisfied (which notice shall not be unreasonably withheld), the Escrow
Agent shall, after reduction by the amounts referred to in the next succeeding
sentence of this paragraph, release the Escrow Funds to or upon the order of the
Company, and shall release the Series A Preferred Stock to the Purchaser. After
receipt of such notice, a portion of the Escrow Funds shall be released by the
Escrow Agent as follows: an amount equal to 5% of the purchase price of the
Series A Preferred Stock shall be released to Gerard Klauer Mattison & Co, Inc.,
and $7,500 for tranche I and $3,000 for each additional tranche of the Escrow
Funds to the Escrow Agent. If a certificate representing such Series A Preferred
Stock is not deposited with the Escrow Agent within ten (10) days after receipt
by the Company of notice of receipt by the Escrow Agent of the funds from the
Purchaser, Escrow Agent shall notify the Purchaser and Purchaser shall be
entitled to cancel the
<PAGE>
subscription and demand repayment of the funds. If such funds are not deposited
with the Escrow Agent within ten (10) days after receipt by the Purchaser of
notice of receipt by the Escrow Agent of such stock certificate from the
Company, Escrow Agent shall notify the Company and the Company shall be entitled
to cancel the subscription and demand return of such stock certificate. If the
Company or the Purchaser notifies the Escrow Agent that on the Closing Date (as
defined in the Agreement) the conditions precedent to the obligations of the
Company or the Purchaser, as the case may be, under the Agreement were not
satisfied or waived, then the Escrow Agent shall return the Escrow Funds to the
Purchaser and shall return the such stock certificate to the Company. Prior to
return of the Escrow Funds to the Purchaser, the Purchaser shall furnish such
tax reporting or other information as shall be appropriate for the Escrow Agent
to comply with applicable United States laws. The Escrow Agent shall deposit all
funds received hereunder in the Escrow Agent's attorney escrow account at The
Bank of New York.
2. The Escrow Agent's duties hereunder may be altered, amended,
modified or revoked only by a writing signed by the Company, the Purchaser and
the Escrow Agent.
3. The Escrow Agent shall be obligated only for the performance of such
duties as are specifically set forth herein and may rely and shall be protected
in relying or refraining from acting on any instrument reasonably believed by
the Escrow Agent to be genuine and to have been signed or presented by the
proper party or parties. The Escrow Agent shall not be personally liable for any
act the Escrow Agent may do or omit to do hereunder as Escrow Agent while acting
in good faith, except for fraud, willful misconduct, or gross negligence, and
any act done or omitted by the Escrow Agent pursuant to the advice of the Escrow
Agent's attorneys-at-law shall be evidence of such good faith.
4. The Escrow Agent is hereby expressly authorized to disregard any and
all warnings given by any of the parties hereto or by any other person or
corporation, excepting only orders or process of courts of law and is hereby
expressly authorized to comply with and obey orders, judgments or decrees of any
court. In case the Escrow Agent obeys or complies with any such order, judgment
or decree, the Escrow Agent shall not be liable to any of the parties hereto or
to any other person, firm or corporation by reason of such decree being
subsequently reversed, modified, annulled, set aside, vacated or found to have
been entered without jurisdiction.
5. The Escrow Agent shall not be liable in any respect on account of
the identity, authorities or rights of the parties executing or delivering or
purporting to execute or deliver the Agreement or any documents or papers
deposited or called for hereunder.
6. The Escrow Agent shall be entitled to employ such legal counsel and
other experts as the Escrow Agent may deem necessary properly to advise the
Escrow Agent in connection with the Escrow Agent's duties hereunder, may rely
upon the advice of such counsel, and may pay such counsel reasonable
compensation therefor. The Escrow Agent has acted as legal counsel for Purchaser
(as that term is defined in the Agreement) in connection with the Agreement and
may continue to act as legal counsel for Purchaser, from time to time,
notwithstanding its duties as Escrow Agent hereunder.
7. The Escrow Agent's responsibilities as Escrow Agent hereunder shall
terminate if the Escrow Agent shall resign by written notice to the Company and
the Purchaser. In the event of any such resignation, the Purchaser and the
Company shall appoint a successor Escrow Agent.
<PAGE>
8. If the Escrow Agent reasonably requires other or further instruments
in connection with these Joint Escrow Instructions or obligations in respect
hereto, the necessary parties hereto shall join in furnishing such instruments.
9. It is understood and agreed that should any dispute arise with
respect to the delivery and/or ownership or right of possession of the documents
or Escrow Funds held by the Escrow Agent hereunder, the Escrow Agent is
authorized and directed in the Escrow Agent's sole discretion (1) to retain in
the Escrow Agent's possession without liability to anyone all or any part of
said documents or Escrow Funds until such disputes shall have been settled
either by mutual written agreement of the parties concerned or by a final order,
decree or judgment of a court of competent jurisdiction after the time for
appeal has expired and no appeal has been perfected, but the Escrow Agent shall
be under no duty whatsoever to institute or defend any such proceedings or (2)
to deliver the Escrow Funds and any other property and documents held by the
Escrow Agent hereunder to a state or federal court having competent subject
matter jurisdiction and located in the State and City of New York in accordance
with the applicable procedure therefor.
10. The Company and the Purchaser agree jointly and severally to
indemnify and hold harmless the Escrow Agent from any and all claims,
liabilities, costs or expenses in any way arising from or relating to the duties
or performance of the Escrow Agent hereunder other than any such claim,
liability, cost or expense to the extent the same shall have been determined by
final, unappealable judgment of a court of competent jurisdiction to have
resulted from fraud, gross negligence or willful misconduct of the Escrow Agent.
11. Any notice required or permitted hereunder shall be given in
writing (unless otherwise specified herein) and shall be deemed effectively
given upon personal delivery or three business days after deposit in the United
States Postal Service, by registered or certified mail with postage and fees
prepaid, addressed to each of the other parties thereunto entitled at the
following addresses, or at such other addresses as a party may designate by ten
days advance written notice to each of the other parties hereto.
COMPANY: Kideo Productions, Inc.
611 Broadway, Suite 523
New York, New York 10012
Telecopier No. (212) 505-2142
with a copy to:
Solovay Marshall & Edlin, P.C.
845 Third Avenue
New York, New York 10022
Telecopier No. (212) 355-4608
PURCHASER: At the address set forth on the signature page of the Agreement.
ESCROW AGENT: Krieger & Prager, Esqs.
319 Fifth Avenue
New York, New York 10016
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Telecopier No. (212) 213-2077
12. By signing these Joint Escrow Instructions, the Escrow Agent
becomes a party hereto only for the purpose of these Joint Escrow Instructions;
the Escrow Agent does not become a party to the Agreement. The Company and the
Purchaser have become parties hereto by their execution and delivery of the
Agreement, as provided therein.
13. This instrument shall be binding upon and inure to the benefit of
the parties hereto, and their respective successors and permitted assigns and
shall be governed by the laws of the State of New York without giving effect to
principles governing the conflicts of laws. A facsimile transmission of these
instructions signed by the Escrow Agent shall be legal and binding on all
parties hereto.
14. Capitalized terms used herein and not otherwise defined herein
shall have the respective meanings provided in the Agreement.
ACCEPTED BY ESCROW AGENT: KIDEO PRODUCTIONS, INC.
KRIEGER & PRAGER
By: By:
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ROBERT J. RISCICA
