As filed with the Securities and Exchange Commission on September 28, 1999
Registration No. 333-_______
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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KIDEO PRODUCTIONS, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 13-3729350
(State or other jurisdiction (I.R.S. employer
of incorporation) identification number)
611 Broadway, Suite 523
New York, New York 10012
(212) 505-6605
(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive offices)
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Richard L. Bulman, President
Kideo Productions, Inc.
611 Broadway, Suite 523
New York, New York 10012
(212) 505-6605
(Address, including zip code, and telephone number, including area code,
of agent for service)
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Copies to:
Michael B. Solovay, Esq.
Solovay Edlin & Eiseman, P.C.
845 Third Avenue
New York, New York 10022
(212) 752-1000
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Approximate date of commencement of proposed sale to public: As soon as
practicable after the Registration Statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: |_|
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1993, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box: |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: |_| __________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier registration statement for the same
offering: |_| __________
If the delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box: |_|
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CALCULATION OF REGISTRATION FEE (2)
<TABLE>
<CAPTION>
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Proposed
Maximum Proposed Maximum Amount of
Amount to be Offering Price Aggregate Offering Registration
Title of Shares to be Registered Registered Per Share (1) Price (1) Fee
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<S> <C> <C> <C> <C>
Common Stock, par value
$.0001 per share................. 1,005,000 shares $1.09375 $1,099,218.75 $305.58
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(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457 promulgated under the Securities Act, based on the average of
the bid and asked prices for the shares reported on the OTC Bulletin Board
on September 24, 1999.
(2) Pursuant to Rule 416 promulgated under the Securities Act of 1933, as
amended, this Registration Statement includes an indeterminate number of
additional shares of Common Stock as may from time to time become issuable
upon the exercise of certain warrants by reason of stock splits, stock
dividends and other similar transactions.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act or until the Registration Statement shall become effective on
such date as the Commission, acting pursuant to said Section 8(a), may
determine.
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The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and is not seeking an offer to buy these securities in
any state where the offer or sale is not permitted.
PRELIMINARY PROSPECTUS--SUBJECT TO COMPLETION, DATED
SEPTEMBER 28, 1999
PROSPECTUS
Kideo Productions, Inc.
1,005,000 shares of Common Stock
o The shares of common stock offered by this prospectus are being sold
by the selling stockholders.
o We will not receive any proceeds from the sale of these shares. We
will receive proceeds from the exercise of warrants and those
proceeds will be used for our general corporate purposes.
o Our common stock is traded on the over-the-counter market under the
symbol "KIDO."
o On September 24, 1999, the closing bid price for our common stock
was $1.00.
The securities offered in this prospectus involve a high degree of risk.
You should carefully consider the factors described under the heading
"Risk Factors" beginning on page 4 of this prospectus.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon
the adequacy or accuracy of this prospectus. Any representation to the
contrary is a criminal offense.
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___________, 1999
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TABLE OF CONTENTS
PAGE
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Summary........................................................................1
Risk Factors...................................................................4
Where You Can Find More Information............................................9
Incorporation of Documents by Reference........................................9
Note Regarding Forward Looking Statements.....................................10
Use Of Proceeds...............................................................11
Selling Stockholders..........................................................11
Plan Of Distribution..........................................................13
Legal Matters.................................................................14
Experts.......................................................................14
Disclosure of Commission Position on Indemnification for Securities
Act Liabilities.............................................................15
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SUMMARY
The Company
Kideo is a low-cost manufacturer of photo-personalized home videos and
books for children. These products allow a child to be the star in a story.
Kideo uses its recently patented production process to place the child's face
and name in a videocassette or book. As a result of improved technology used by
Kideo, the child's photo-personalized character can exhibit two-dimensional full
motion animation and interact with the characters.
In 1997, Kideo obtained a five-year license to feature Barney, the
dinosaur character from the highly rated children's television series "Barney
and Friends," in one of Kideo's home videos and three of its books. In the same
year, Kideo also obtained a three-year license to feature certain characters
owned by the Walt Disney Co. in four of Kideo's English language books. In
October 1999, Kideo obtained a three-year license to feature Barney in Kideo's
calendars and posters. Kideo is currently seeking out additional licensing,
marketing and other arrangements with companies that control similar types of
characters.
Kideo currently markets nine video titles, four books and various
calendars and posters for children. Historically, Kideo relied primarily on
national catalog retailers (such as Hammacher Schlemmer and Johnson Smith) to
market and sell its products. Kideo recently has increasingly been targeting its
marketing strategies towards direct-to-consumer advertising as well as
developing relationships with established national distributors of children's
home video products and electronic retailers such as television shopping
networks.
Kideo's long-term strategy is to become a global leader in the
development, manufacturing and marketing of a wide variety of digitally
photo-personalized products for children and adults.
Kideo's principal executive offices are located at 611 Broadway, Suite
523, New York, New York 10012, and its telephone number is (212) 505-6605.
Recent Developments
In June 1999, we hired an investor relations firm and delivered to them,
as part of their compensation, three five-year warrants to purchase an aggregate
of 300,000 shares of our common stock. One warrant for 100,000 shares has an
exercise price of $2.00 per share, one warrant for 100,000 shares has an
exercise price of $3.00 per share and one warrant for 100,000 shares has an
exercise price of $4.00 per share. The exercise prices and the numbers of shares
received upon exercise may be adjusted in the event of a stock split, dividend,
recapitalization, reorganization, merger, consolidation or sale of our assets.
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On August 30, 1999, we signed a Note and Warrant Purchase Agreement for
the private sale of $300,000 principal amount of a convertible promissory note
and a warrant to purchase 300,000 additional shares of our common stock. The
promissory note is convertible into 375,000 shares of our common stock.
We issued warrants to purchase 30,000 shares of our common stock to Gerard
Klauer Mattison & Co. for acting as the placement agent in that financing.
In addition, as security for our performance under the promissory note, we
signed a Security Agreement whereby we granted the purchasers a security
interest in all of our assets.
The resale by the selling stockholders of the shares underlying each of
these warrants and the note has been registered under the Securities Act of
1933, as amended, and may be freely sold.
The following is a summary of material terms of the promissory note and
warrant issued in the financing:
Convertible Promissory Note
The principal amount of the note is due as follows:
o $45,000 on May 31, 2000,
o $45,000 on June 30, 2000,
o $45,000 on July 31, 2000, and
o $165,000 on August 31, 2000.
The note has an interest rate of 10% per annum and is payable quarterly
commencing September 30, 1999.
An "event of default" under the note will occur if, among other things, we
(1) fail to pay interest or principal when due, or (2) fail to perform in any
material respect an agreement or obligation, or materially breach any of our
representations or warranties, under the Note and Warrant Purchase Agreement.
Upon an event of default, the entire indebtedness and accrued interest may
become immediately due and payable. We may prepay any amount outstanding under
the note at any time.
All or any part of the note may be converted into shares of our common
stock at any time. If a holder of note elects to convert it, the holder will
receive the number of shares of our common stock determined by dividing the
principal amount of that portion of the note being converted (plus accrued and
unpaid interest) by $0.80. The conversion price and the number of shares
received upon conversion may be adjusted in the event of a stock split,
dividend, recapitalization, reorganization, merger, consolidation or sale of our
assets, or the issuance by us of shares of our common stock (or securities
convertible into or exercisable for shares of our common stock) at a
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price less than the then adjusted conversion price.
Warrant
At any time until August 31, 2004, the holder of the warrant is entitled
to purchase an aggregate of 300,000 shares of our common stock, at a price of
$0.80 per share. The exercise price and the number of shares received upon
exercise may be adjusted in the event of a stock split, dividend,
recapitalization, reorganization, merger, consolidation or sale of our assets,
or the issuance by us of shares of our common stock (or securities convertible
into or exercisable for shares of common stock) at a price less than the then
adjusted exercise price.
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RISK FACTORS
The shares offered hereby are speculative and involve a high degree of
risk. Each prospective investor should carefully consider the following risk
factors before making an investment decision.
We have a history of losses and if we do not achieve profitability we may
not be able to continue our business in the future.
We have incurred substantial operating losses since our inception, which
has resulted in an accumulated deficit of approximately $12,691,000 as of April
30, 1999. For our fiscal year ended July 31, 1998, we had revenues of
approximately $2,033,000 and a net loss of approximately $2,730,000, and for the
nine months ended April 30, 1999, we had revenues of approximately $4,007,000
and a net loss of approximately $792,000. We anticipate incurring additional
losses until we increase our client base and revenues. If we are unable to
achieve increased revenues, we will continue to have losses and might not be
able to continue our operations.
The "going concern" qualification on the report of our independent
accountants may hurt our ability to raise additional financing.
The accountants' report on our financial statements for the most recent
fiscal year contains a statement that the financial statements were prepared on
the assumption that we will continue as an ongoing business. However, the report
noted that our recurring losses from operations and net working capital
deficiency raise substantial doubt about our ability to continue as an ongoing
business. This "going concern" qualification may reduce our ability to obtain
necessary financing in the future to run our business.
Our common stock has been delisted from Nasdaq and is subject to "penny
stock" restrictions, which may negatively affect your ability to sell the stock.
On September 26, 1997, Nasdaq notified us that since we did not meet
certain financial requirements our common stock had been deleted from listing on
The Nasdaq Stock Market's SmallCap Market. Therefore, our common stock is now
subject to the "penny stock" rules. The penny stock rules require additional
disclosure by broker-dealers in connection with any trades involving a penny
stock. These additional burdens imposed on broker-dealers could discourage them
from effecting transactions in our common stock, which could severely limit the
market liquidity of the common stock and your ability to sell the common stock
in the secondary market.
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We could be required to cut back or stop operations if we are unable to
raise or obtain needed funding.
Our ability to continue operations will depend on our positive cash flow,
if any, from future operations or our ability to raise additional funds through
equity or debt financing. In September 1999, we consummated a financing in order
to obtain the working capital we required to continue our creative development
activities and fund our marketing plans. See "Recent Developments." Although we
anticipate that future revenues and our current cash balance will be sufficient
to fund our operations and capital requirements until approximately January 31,
2000, we cannot give you any assurance that we will not need additional funds
before such time. We have no current arrangements for additional financing and
we may not be able to obtain additional financing on commercially reasonable
terms, if at all. We could be required to cut back or stop operations if we are
unable to raise or obtain funds when needed.
Enough people to enable us to grow our business and be profitable may not
accept our products.
The market for digitally personalized media products is in its early
development stages and is rapidly evolving. We believe that rapid technological
changes and an increasing number of market entrants will characterize this
market. Because of the infancy of this market, we cannot predict the future
growth rate, if any, and size of this market. We cannot assure you that the
market for our products will develop to a point that will enable our business to
grow significantly (if at all) or become profitable. Failure of the market to
develop as expected or the saturation of the market with competitors could
significantly negatively affect our revenues.
Developing increased market acceptance for our current and future products
requires substantial marketing efforts and the expenditure of a significant
amount of funds. We believe that we do not currently have the necessary means to
create broad consumer awareness of our products. Due to our limited resources,
we have been looking into possible arrangements with companies that have
demonstrated the ability to promote and distribute children's home video
products through a broad range of distribution channels. We cannot assure you
that any marketing efforts we take will result in an increased demand for our
products or in any significant increase in revenues.
We depend highly on Richard L. Bulman and if we lost his services it could
have a material adverse effect on us.
Our success is largely dependent on the personal efforts of Richard L.
Bulman, our President and Chairman of the Board. Our business, financial
condition and operating results could be materially adversely affected if the
services of Mr. Bulman become unavailable. We have obtained "key man" life
insurance on the life of Mr. Bulman in the amount of $2,000,000. Our success
will also depend on our ability to hire and retain qualified personnel. There is
considerable
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and often intense competition for the services of such personnel. We may not be
able either to retain our existing personnel or acquire additional qualified
personnel as and when needed. We will be materially adversely affected if we are
unable to attract such personnel.
We may not be successful unless we are able to develop and implement
improved technologies.
The technologies underlying our products (such as personal computer
hardware and software) are subject to rapid changes and evolving industry
standards, which often results in product obsolescence or short product
lifecycles. Our success will likely depend considerably on our ability to
develop and implement improved technologies for the production of digitally
personalized media products that embody features (such as improved animation)
superior to those currently displayed by our products. The development and
implementation of such new technologies may require substantial time, skill and
expense. Our products are designed for a relatively new and largely untested
market. Such a new market is particularly susceptible to rapidly changing and
evolving technologies and industry standards. The introduction by competitors of
digitally personalized media products embodying superior technologies or the
emergence of new industry standards could exert adverse price pressures on our
products or could render our technologies obsolete or our products unmarketable.
Our business, financial condition and operating results may be adversely
affected by any of such occurrences.
We may have to lower our prices or spend more money to effectively compete
against companies with greater resources than we have which could result in
lower revenues and/or profits.
The success of our products depends on a number of factors, including
price and superior technology. We believe that the market for digitally
personalized video media will likely evolve into a highly competitive market.
There are numerous other companies involved in video media production that could
possibly enter the personalized market segment in which we do business. If this
were to occur, we cannot assure you that we will be able to compete
successfully. Many of our potential customers have substantially greater
financial, technical, production, marketing and other resources than we do. If
they were to offer lower prices, we could be forced to lower prices, which would
result in reduced margins and a decrease in revenues. If we do not lower prices,
we could lose sales and market share. In either case, if we were unable to
compete against companies who can afford to cut prices, we would not be able to
generate sufficient revenues to grow the company or reverse our history of
losses.
In addition, we may have to spend more money to effectively compete for
market share. If other companies want to aggressively compete against us, we may
have to spend more money on product development, advertising, trade shows,
marketing, and hiring and retaining personnel. These higher expenses would hurt
our net income and profits.
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We may not be able to adequately protect our proprietary technology, which
could result in lower revenues and/or profits.
We rely on a combination of copyright, trademark and trade secret laws to
protect our proprietary technologies, ideas, know-how and other proprietary
information. If we are unable to protect our proprietary technology, this could
result in lower revenues and/or profits. In April 1997, we received a U.S.
patent relating to our digital personalization production process (Patent No.
5,623,587). This is currently the only patent we hold in the United States and
we have no foreign patents. Notwithstanding the precautions we take, third
parties may copy or otherwise obtain and use our proprietary technologies,
ideas, know-how and other proprietary information without authorization or may
independently develop technologies similar or superior to our technologies. If
we were to become involved in litigation to enforce any of our patent rights,
the attendant costs could be substantial or even prohibitive.
We believe that our technologies have been developed independent of
others. Nevertheless, third parties may assert infringement claims against us
and our technologies may be determined to infringe on the intellectual property
rights of others. We could become liable for damages, be required to modify our
technologies or obtain a license if our technologies are determined to infringe
upon the intellectual property rights of others. We may not be able to modify
our technologies or obtain a license in a timely manner, if required, or have
the financial or other resources necessary to defend an infringement action. We
would be materially adversely affected if we fail to do any of the foregoing.
We may be unable to use or register the word "Kideo" as a trademark, which
could have a significant adverse effect on us.
We have adopted and used the word "Kideo" as our principal trademark for
our products and services. If it is determined that we may not use or register
the word "Kideo" as a trademark, this could have a significant adverse effect on
us. We have applied for registration of this trademark in the United States,
Australia, France, Germany, Japan, Spain and the United Kingdom. It is possible
that we may not be granted a registered trademark of the word "Kideo" in any
jurisdiction.
In the United States, a third party had previously registered two
allegedly similar trademarks but had ceased using them and had filed for
bankruptcy. We have been negotiating with the successor to those trademarks and
are in the process of executing an agreement in which the successor entity
agrees to withdraw its registration and pending application to register the mark
"Kideo" and to cease using this mark in the United States. If for any reason the
settlement agreement is not executed and delivered by the successor entity
(which we currently considers unlikely), then we would recommence the proceeding
we have pending against them. A proceeding of this nature is a lengthy and
potentially expensive, and we ultimately may not obtain a registered
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trademark for the word "Kideo" or the right to use this mark in connection with
our products and services. Another third party also has been using the trademark
"Kideo" locally in the State of Illinois and has obtained an Illinois State
registration of this mark. This may prevent us from using this mark in the state
of Illinois. However, we have not yet received a communication from any party
objecting to or otherwise challenging our right to conduct business in Illinois
under the name "Kideo."
The significant number of privately held shares, options and warrants
outstanding may adversely affect the market price for our common stock.
As of the date of this prospectus, there are outstanding (1) 971,417
shares of our outstanding common stock are "restricted securities," as defined
in Rule 144 under the Securities Act, (2) options and warrants to purchase an
aggregate of 4,620,062 shares of our common stock at exercise prices ranging
from $.80 to $4.00 and (3) convertible debt in the principal amount of
$1,700,001, which can be converted into 2,125,002 shares of our common stock. To
the extent that outstanding options, warrants or convertible debt are exercised
or converted, your percentage ownership will be diluted and any sales in the
public market of the common stock underlying such options, warrants or
convertible debt may adversely affect prevailing market prices for our common
stock.
Substantially all of the "restricted securities" are either eligible for
sale in the public market pursuant to Rule 144 or subject to the exercise of
certain registration rights we have granted. The mere possibility that a
substantial number of shares may be sold in the public market may adversely
affect prevailing market prices and could impair our ability to raise capital
through the sale of its equity securities. We cannot predict the effect, if any,
that sales of such securities or the availability of such securities for sale
will have on the market prices prevailing from time to time.
We would lose revenues and incur significant costs if our systems or
material third-party systems are not Year 2000 compliant. We have not devised a
Year 2000 contingency plan.
The failure of our internal systems, or any material third-party systems,
to be Year 2000 compliant could have a material and adverse effect on our
business, results of operations and financial condition. We reviewed Year 2000
readiness disclosure statements prepared by the United States Postal Service,
our mail carrier, and Pitney Bowes, which maintains our postage equipment, and
we believe that they will be Year 2000 compliant by September 1999.
To date, we have not incurred any material costs in identifying or
evaluating Year 2000 compliance issues. However, we may fail to discover Year
2000 compliance problems in our systems that will require substantial revisions
or replacements. In the event that the fulfillment and operational facilities
that support our business are not Year 2000 compliant, we would be
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unable to deliver products or services to our customers. In addition, we cannot
assure you that third-party software, hardware or services incorporated into our
material systems will not need to be revised or replaced, which would be
time-consuming and expensive. If we are unable on a timely basis to fix or
replace third-party software, hardware or services that could result in lost
revenues, increased operating costs and other business interruptions, this could
have a material and adverse effect on our business, results of operations and
financial condition. Moreover, the failure to adequately address Year 2000
compliance issues in our software, hardware or systems could result in claims of
mismanagement, misrepresentation or breach of contract and related litigation,
which could be costly and time-consuming to defend.
In addition, there can be no assurance that governmental agencies, utility
companies, third-party service providers and others outside our control will be
Year 2000 compliant. The failure by these entities to be Year 2000 compliant
could result in a systematic failure beyond our control, such as a prolonged
telecommunications or electrical failure, which could also prevent us from
delivering our product or providing services to our customers.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other
information with the SEC. You may read and copy any document we file at the
SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549.
The SEC has prescribed rates for copying. You may obtain information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Our
SEC filings are also available to you on the SEC's Internet site at
http://www.sec.gov.
This prospectus is part of a Registration Statement on Form S-3 (the
"Registration Statement") filed by us with the SEC under the Securities Act and
therefore omits certain information in the Registration Statement. We have also
filed exhibits with the Registration Statement that are not included in this
prospectus, and you should refer to the applicable exhibit for a complete
description of any statement referring to any document. You can inspect a copy
of the Registration Statement and its exhibits, without charge, at the SEC's
Public Reference Room, and can copy such material upon paying the SEC's
prescribed rates.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to incorporate by reference the information we file with
them, which means that we can disclose important information to you by referring
you to those documents. The information we incorporate by reference is
considered to be part of this prospectus, and information that we file later
with the SEC will automatically update and supersede the information in this
prospectus. Accordingly, we incorporate by reference the documents listed below
and any future filings we make with the SEC under Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act:
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1. our Annual Report on Form 10-KSB for the year ended July 31, 1998
(filed October 29, 1998);
2. our Quarterly Report on Form 10-QSB for the quarter ended October
31, 1998 (filed December 14, 1998);
3. our Quarterly Report on Form 10-QSB for the quarter ended January
31, 1999 (filed March 17, 1999);
4. our Quarterly Report on Form 10-QSB for the quarter ended April 30,
1999 (filed June 11, 1999);
5. our Current Report on Form 8-K (filed May 25, 1999); and
6. the description of our common stock incorporated by reference in our
Registration Statement on Form 8-A (filed April 9, 1996).
We will provide at no cost to each person to whom this prospectus is
delivered, upon written or oral request, a copy of any of these filings. You
should direct such requests to us at 611 Broadway, Suite 523, New York, New York
10012, Attention: Vice President-Finance, telephone number (212) 505-6605.
You should rely only on the information and representations provided in
this prospectus or on the information incorporated by reference in this
prospectus. Neither we nor the selling stockholders have authorized anyone to
provide you with different information. Neither we nor the selling stockholders
are making an offer of these securities in any state where the offer is not
permitted. You should not assume that the information in this prospectus is
accurate as of any date other than the date on the front of this document.
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act. Forward-looking statements are statements that include information based
upon beliefs of our management, as well as assumptions made by and information
available to our management. Statements containing terms such as "believes,"
"expects," "anticipates," "intends" or similar words are intended to identify
forward-looking statements.
Our management, based upon assumptions they consider reasonable, has
compiled these forward-looking statements. Such statements reflect our current
views with respect to future events. These statements involve known and unknown
risks and uncertainties that may cause our actual results in future periods to
differ materially from what is currently anticipated. We make cautionary
statements in certain sections of this prospectus, including under "Risk
Factors." You should read these cautionary statements as being applicable to all
related forward-looking
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statements wherever they appear in this prospectus, the materials referred to in
this prospectus or the materials incorporated by reference into this prospectus.
You are cautioned that no forward-looking statement is a guarantee of
future performance and you should not place undue reliance on any
forward-looking statement. Such statements speak only as of the date of this
prospectus and we are not undertaking any obligation to publicly release any
revisions to these forward-looking statements to reflect events or circumstances
after the date of this prospectus or to reflect the occurrence of unanticipated
events.
USE OF PROCEEDS
We will not receive any proceeds from the sale of the shares of our common
stock by the selling stockholders. All proceeds from the sale of such shares
will be for the accounts of the selling stockholders. We will receive
approximately $1,164,000 in proceeds equal to the exercise price of the
warrants, if the holders of the warrants convert such securities into shares of
common stock. Any proceeds that we may receive upon an exercise of the warrants
will be used for working capital purposes.
SELLING STOCKHOLDERS
The following table sets forth information, as of September 24, 1999, with
respect to the common stock beneficially owned by each selling stockholder. The
selling stockholders are not obligated to sell any of the shares offered by this
prospectus. The number of shares sold by each selling stockholder may depend on
a number of factors, such as the market price of our common stock.
We are registering 1,005,000 shares of our common stock for resale by the
selling stockholders in accordance with registration rights previously granted
to them. We agreed to file a registration statement under the Securities Act
with the SEC, of which this prospectus is a part, with respect to the resale of:
o 300,000 shares that we may issue to White Ridge Investments Ltd.
upon the exercise of a warrant we issued in September 1999;
o 375,000 shares that we may issue to White Ridge Investments Ltd.
upon conversion of a promissory note we issued in September 1999;
o 30,000 shares that we may issue to Gerard Klauer Mattison & Co. upon
the exercise of warrants we issued for services they provided
relating to the September 1999 financing; and
o an aggregate of 300,000 shares that we may issue to Vision Corporate
Consulting, LLC upon the exercise of the warrants we issued for its
services.
The number of shares shown in the following table as being offered by the
selling
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stockholders do not include such presently indeterminate number of additional
shares of our common stock that may be issuable as a result of stock splits,
stock dividends and similar transactions. Pursuant to Rule 416 under the
Securities Act, however, such shares are included in the Registration Statement
of which this prospectus is a part.
The selling stockholders may sell any or all of their shares listed below
from time to time. Accordingly, we cannot estimate how many shares the selling
stockholders will own upon consummation of any such sales. Also, the selling
stockholders may have sold, transferred or otherwise disposed of all or a
portion of their shares since the date on which the information was provided, in
transactions exempt from the registration requirements of the Securities Act.
Except as indicated in this prospectus, none of the selling stockholders
has had a material relationship with us within the past three years other than
as a result of the ownership of our securities.
<TABLE>
<CAPTION>
Number of Number of Percentage of
Shares Shares Outstanding
Beneficially Number of Beneficially Common Stock
Owned Prior Shares Being Owned After After
Name and Address to Offering(1) Offered Offering(1)(2) Offering(1)
- ---------------- -------------- ------- -------------- -----------
<S> <C> <C> <C> <C>
White Ridge Investments Ltd.(3) 675,000 675,000 0 0
Vision Corporate Consulting, LLC(4) 300,000 300,000 0 0
Gerard Klauer Mattison & Co.(5) 100,000 30,000 70,000 1.4%
</TABLE>
- ----------
(1) Percentage of beneficial ownership is calculated assuming 4,032,553 shares
of common stock were outstanding. Ownership after this offering assumes
that the selling stockholder sold all of the shares it is offering in this
prospectus. Beneficial ownership is determined in accordance with the
rules of the SEC and the footnotes to this table, and generally includes
voting or investment power with respect to securities. Shares of common
stock that are subject to options or warrants that are exercisable within
60 days are deemed outstanding for computing the percentage of the person
holding such option or warrant but are not deemed outstanding for
computing the percentage of any other person.
(2) Beneficial ownership of shares held by the selling stockholder after this
offering will depend on the number of securities sold by the selling
stockholder in this offering.
(3) Includes (i) 300,000 shares of common stock issuable upon exercise of an
outstanding warrant that is currently exercisable and (ii) 375,000 shares
of common stock issuable upon conversion of a certain promissory note
outstanding.
12
<PAGE>
(4) Includes 300,000 shares of common stock issuable upon exercise of
outstanding warrants that are currently exercisable.
(5) Includes 100,000 shares of common stock issuable upon exercise of
outstanding warrants that are currently exercisable. Of these shares,
70,000 are being offered for sale pursuant to a separate offering.
PLAN OF DISTRIBUTION
This prospectus relates to the offer and sale by the selling stockholders
of:
o 300,000 shares of our common stock issuable upon exercise of an
outstanding promissory note;
o 375,000 shares of our common stock issuable upon the exercise of an
outstanding warrant issued by us in a private placement; and
o 330,000 shares of our common stock issuable upon the exercise of
outstanding warrants issued for certain services.
The selling stockholders may sell the shares in transactions in the
over-the-counter market, in negotiated transactions, or a combination of such
methods of sale. The selling stockholders may sell the shares through public or
private transactions at prevailing market prices, at prices related to such
prevailing market prices or at privately negotiated prices. The selling
stockholders may also sell shares pursuant to Rule 144 of the Securities Act, if
applicable.
The selling stockholders may use underwriters or broker-dealers to sell
the shares. Such underwriters and broker-dealers may receive compensation in the
form of discounts or commissions from the selling stockholders, or they may
receive commissions from the purchasers of shares for whom they acted as agents,
or both (which compensation as to a particular broker-dealer might be in excess
of customary commissions). The selling stockholders and any underwriter or
broker-dealer who participates in the distribution of the shares may be deemed
to be "underwriters" within the meaning of the Securities Act, and any
commissions received by them and any profit on the resale of the shares
purchased by them may be deemed to be underwriting discounts or commissions
under the Securities Act.
Under applicable rules and regulations under the Exchange Act, any person
engaged in a distribution of the shares may not simultaneously engage in
market-making activities with respect to our common stock for a certain period
of time, except under certain limited circumstances. Also, without limiting the
foregoing, each selling stockholder and any other person participating in such
distribution will be subject to applicable provisions of the Exchange Act and
rules and regulations thereunder (including Regulation M), which provisions may
limit the timing of purchases and sales of shares of our common stock by such
selling stockholder.
13
<PAGE>
At the time a selling stockholder makes an offer to sell shares, to the
extent required by the Securities Act, a prospectus will be delivered. If a
supplemental prospectus is required, one will be delivered setting forth the
number of shares being offered and the terms of the offering, including the
names of any underwriters, dealers or agents, the purchase price paid by any
underwriter for the shares, and any discounts or commissions.
In order to comply with the securities laws of certain states, if
applicable, the shares will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states the
shares may not be sold unless they have been registered or qualified for sale in
the applicable state or an exemption from the registration or qualification
requirement is available and complied with. In connection with our initial
public offering, we consented to the denial of secondary trading in its
securities in the State of New Jersey. As a result, stockholders cannot sell our
securities through a broker-dealer whose office is located in New Jersey or to
any New Jersey resident, whether through a broker-dealer or otherwise, unless
such denial is removed, of which there can be no assurance.
We have agreed to pay substantially all of the expenses incident to the
registration, offering and sale of the shares to the public, excluding the
commissions or discounts of underwriters, broker-dealers or agents.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for us
by Solovay Edlin & Eiseman, P.C., New York, New York. Michael B. Solovay, a
member of that firm, is one of our directors. As of the date of this prospectus,
members of such firm beneficially own less than 1% of our outstanding common
stock.
EXPERTS
The financial statements on Form 10-KSB for the year ended July 31, 1998
incorporated by reference in this registration statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing in giving said
report. Reference is made to said report, which includes an explanatory
paragraph with respect to the uncertainty regarding the Company's ability to
continue as a going concern as discussed in Note 1 to the financial statements.
14
<PAGE>
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to our directors, officers or persons controlling us, we
have been advised that it is the SEC's opinion that such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
15
<PAGE>
Kideo Productions, Inc.
1,005,000 Shares
of
Common Stock
-----------------
PROSPECTUS
-----------------
________, 1999
<PAGE>
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth the expenses in connection with the
offering described in the Registration Statement, all of which will be borne by
the Company.
SEC registration fee...................................... $ 305.58
Legal fees and expenses*.................................. ________
Accounting fees and expenses*............................. ________
Miscellaneous expenses*................................... ________
TOTAL............................................. $
========
* Estimated.
Item 15. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporations Law (the "DGCL") contains
provisions entitling the Company's directors and officers to indemnification
from judgments, fines, amounts paid in settlement, and reasonable expenses
(including attorneys' fees) as the result of an action or proceeding in which
they may be involved by reason of having been a director or officer of the
Company. In its Certificate of Incorporation, the Company has included a
provision that limits, to the fullest extent now or hereafter permitted by the
DGCL, the personal liability of its directors to the Company or its stockholders
for monetary damages arising from a breach of their fiduciary duties as
directors. Under the DGCL as currently in effect, this provision limits a
director's liability except where such director (i) breaches his duty of loyalty
to the Company or its stockholders, (ii) fails to act in good faith or engages
in intentional misconduct or a knowing violation of law, (iii) authorizes
payment of an unlawful dividend or stock purchase or redemption as provided in
Section 174 of the DGCL, or (iv) obtains an improper personal benefit. This
provision does not prevent the Company or its stockholders from seeking
equitable remedies, such as injunctive relief or rescission. If equitable
remedies are found not to be available to stockholders in any particular case,
stockholders may not have any effective remedy against actions taken by
directors that constitute negligence or gross negligence.
The Certificate of Incorporation also includes provisions to the effect
that (subject to certain exceptions) the Company shall, to the maximum extent
permitted from time to time under the law of the State of Delaware, indemnify,
and upon request shall advance expenses to, any director or officer to the
extent that such indemnification and advancement of expenses is permitted under
<PAGE>
such law, as it may from time to time be in effect. In addition, the By-Laws
require the Company to indemnify, to the full extent permitted by law, any
director, office, employee or agent of the Company for acts which such person
reasonably believes are not in violation of the Company's corporate purposes as
set forth in the Certificate of Incorporation. At present, the DGCL provides
that, in order to be entitled to indemnification, an individual must have acted
in good faith and in a manner he or she reasonably believed to be in or not
opposed to the Company's best interests.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to any charter, provision, by-law, contract, arrangement,
statute or otherwise, the Company has been advised that in the opinion of the
SEC such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable.
Item 16. Exhibits
No. Description
- --- -----------
3.1 Certificate of Incorporation. Previously filed as Exhibit 3.1 to the
Company's Registration Statement on Form SB-2 (Registration No.
333-2294), declared effective by the SEC in June 1996 (the "1996
Registration Statement"), and incorporated herein by reference.
3.2 By-laws, as amended and restated as of May 24, 1996. Previously filed as
Exhibit 3.3 to the 1996 Registration Statement and incorporated herein
by reference.
3.3 Certificate of Amendment to the Company's Certificate of Incorporation,
as filed with the Delaware Secretary of State on May 24, 1996.
Previously filed as Exhibit 3.4 to the 1996 Registration Statement and
incorporated herein by reference.
3.4 Certificate of Designations of Series A 6% Convertible Participating
Preferred Stock. Previously filed as Exhibit 3.1 to the Company's Report
on Form 8-K, dated May 27, 1997, and incorporated herein by reference.
4.1 Form of Common Stock certificate. Previously filed as Exhibit 4.1 to the
1996 Registration Statement and incorporated herein by reference.
4.2* Warrant issued as of August 30, 1999 to White Ridge Investments Ltd.
4.3* Form of Warrant issued as of July 1, 1999 to Vision Corporate
Consulting, LLC.
5.1** Opinion of Solovay Edlin & Eiseman, P.C. regarding legality of
securities being registered.
10.1* Note and Warrant Purchase Agreement, dated as of August 30, 1999,
between the Company and White Ridge Investments, Ltd.
II-2
<PAGE>
10.2 Security Agreement, dated as of May 11, 1999, made by the Company in
favor of Felton Investments Ltd., Greatview Investments Ltd. and Mermaid
Investments Ltd. Previously filed as Exhibit 10.2 to the Company's
Report on Form 8-K, filed May 25, 1999, and incorporated herein by
reference.
10.3* Security Agreement Amendment, dated as of August 30, 1999, by and among
the Company, Felton Investments, Ltd., Greatview Investments, Ltd.,
Mermaid Investments, Ltd. and White Ridge Investments, Ltd.
10.4* Convertible Promissory Note, dated August 30, 1999, made by the Company
in favor of White Ridge Investments Ltd.
21.1 List of the Company's subsidiaries. Previously filed as Exhibit 21.1 to
the 1996 Registration Statement and incorporated herein by reference.
23.1** Consent of Arthur Andersen LLP, independent certified public
accountants.
24.1 No person has signed this Registration Statement under a power of
attorney. A power of attorney relating to the signing of amendments
hereto is incorporated in the signature pages hereof.
- ----------
* Filed herewith
** To be filed by amendment
II-3
<PAGE>
Item 17. Undertakings
(1) The undersigned Registrant hereby undertakes that it will:
(a) File, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement to include any
additional or changed material information on the plan of distribution.
(b) For determining liability under the Act, treat each
post-effective amendment as a new Registration Statement of the securities
offered, and the offering of securities at that time to be the initial bona fide
offering.
(c) File a post-effective amendment to remove from registration any
of the securities that remain unsold at the end of this offering.
(2) Insofar as indemnification for liabilities arising under the Act may
be permitted to directors, officers and controlling persons of the Registrant,
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
(3) The undersigned Registrant hereby undertakes that it will:
(a) For determining any liability under the Securities Act, treat
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4), or 497(h)
under the Securities Act as part of this registration statement as of the time
the Commission declared it effective.
(b) For determining any liability under the Securities Act, treat
each post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and the offering of such securities at that time as the initial bona fide
offering of those securities.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York.
Dated: September 28, 1999
KIDEO PRODUCTIONS, INC.
By: /s/ Richard L. Bulman
-------------------------
Richard L. Bulman
President
KNOW ALL MEN BY THESE PRESENTS, that each director and officer whose
signature appears below constitutes and appoints Richard L. Bulman and Richard
D. Bulman, or any of them, his true and lawful attorney-in-fact and agent, with
full power and substitution and re-substitution, to sign in any and all
capacities any and all amendments or post-effective amendments to this
Registration Statement on Form S-3 and to file the same with all exhibits
thereto and other documents in connection therewith with the Securities and
Exchange Commission, granting to such attorneys-in-fact and agents, and each of
them, full power and authority to do all such other acts and execute all such
other documents as they, or any of them, may deem necessary or desirable in
connection with the foregoing, as fully as the undersigned might or could do in
person, hereby ratifying and confirming all that such attorneys-in-fact and
agents, or any of them, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
Signature Title Date
- --------- ----- ----
/s/ Richard L. Bulman President and Chairman September 28, 1999
- ------------------------- of the Board (principal
Richard L. Bulman executive officer)
/s/ Marvin H. Goldstein Vice President-Controller September 28, 1999
- ------------------------- (principal accounting officer)
Marvin H. Goldstein
/s/ Richard D. Bulman Secretary and Director September 28, 1999
- -------------------------
Richard D. Bulman
/s/ Michael B. Solovay Director September 28, 1999
- -------------------------
Michael B. Solovay
/s/ Thomas Griffin Director September 28, 1999
- -------------------------
Thomas Griffin
II-5
<PAGE>
INDEX TO EXHIBITS
No. Description
- --- -----------
3.1 Certificate of Incorporation. Previously filed as Exhibit 3.1 to the
Company's Registration Statement on Form SB-2 (Registration No.
333-2294), declared effective by the SEC in June 1996 (the "1996
Registration Statement"), and incorporated herein by reference.
3.2 By-laws, as amended and restated as of May 24, 1996. Previously filed as
Exhibit 3.3 to the 1996 Registration Statement and incorporated herein
by reference.
3.3 Certificate of Amendment to the Company's Certificate of Incorporation,
as filed with the Delaware Secretary of State on May 24, 1996.
Previously filed as Exhibit 3.4 to the 1996 Registration Statement and
incorporated herein by reference.
3.4 Certificate of Designations of Series A 6% Convertible Participating
Preferred Stock. Previously filed as Exhibit 3.1 to the Company's Report
on Form 8-K, dated May 27, 1997, and incorporated herein by reference.
4.1 Form of Common Stock certificate. Previously filed as Exhibit 4.1 to the
1996 Registration Statement and incorporated herein by reference.
4.2* Warrant issued as of August 30, 1999 to White Ridge Investments Ltd.
4.3* Form of Warrant issued as of July 1, 1999 to Vision Corporate
Consulting, LLC.
5.1** Opinion of Solovay Edlin & Eiseman, P.C. regarding legality of
securities being registered.
10.1* Note and Warrant Purchase Agreement, dated as of August 30, 1999,
between the Company and White Ridge Investments, Ltd.
10.2 Security Agreement, dated as of May 11, 1999, made by the Company in
favor of Felton Investments Ltd., Greatview Investments Ltd. and Mermaid
Investments Ltd. Previously filed as Exhibit 10.2 to the Company's
Report on Form 8-K, filed May 25, 1999, and incorporated herein by
reference.
10.3* Security Agreement Amendment, dated as of August 30, 1999, by and among
the Company, Felton Investments, Ltd., Greatview Investments, Ltd.,
Mermaid Investments, Ltd. and White Ridge Investments, Ltd.
10.4* Convertible Promissory Note, dated August 30, 1999, made by the Company
in favor of White Ridge Investments Ltd.
II-6
<PAGE>
21.1 List of the Company's subsidiaries. Previously filed as Exhibit 21.1 to
the 1996 Registration Statement and incorporated herein by reference.
23.1** Consent of Arthur Andersen LLP, independent certified public
accountants.
24.1 No person has signed this Registration Statement under a power of
attorney. A power of attorney relating to the signing of amendments
hereto is incorporated in the signature pages hereof.
- ----------
* Filed herewith
** To be filed by amendment
II-7
THIS WARRANT CERTIFICATE, AND THE SHARES TO BE ISSUED UPON ITS
EXERCISE, HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED
FOR SALE, SOLD OR TRANSFERRED UNLESS REGISTERED
UNDER THE ACT, OR UNLESS AN EXEMPTION FROM
SUCH REGISTRATION IS AVAILABLE.
WARRANT CERTIFICATE
Dated: August 30, 1999
Warrant to Purchase up to 300,000 shares of Common Stock,
par value $.0001 per share,
of
KIDEO PRODUCTIONS, INC.
VOID AFTER MIDNIGHT, NEW YORK, NEW YORK LOCAL TIME
ON
AUGUST 31, 2004
KIDEO PRODUCTIONS, INC., a Delaware corporation (the "Company"), hereby
certifies that WHITE RIDGE INVESTMENTS, LTD., its successors and assigns (the
"Holder"), is entitled to purchase from the Company at any time after the date
hereof and before Midnight, New York, New York local time on August 31, 2004, up
to 300,000 shares of common stock, par value $.0001 per share, of the Company
(the "Common Stock"), at the price of $.80 per share (the "Exercise Price",
subject to adjustment as provided herein).
1. Exercise of Warrants. In order to exercise the rights to purchase
Common Stock evidenced by this Warrant Certificate, the Holder must, subject to
Section 7 below, present and surrender this Warrant Certificate with the
attached Purchase Form duly executed at the principal office of the Company.
This Warrant Certificate may be exercised with respect to all of the Common
Stock subject hereto or any portion thereof.
2. Exchange and Transfer. This Warrant Certificate at any time prior to
the exercise hereof, upon presentation and surrender to the Company, may be
exchanged, alone or with other Warrant Certificates, if any, of like tenor
registered in the name of the same Holder, for another Warrant Certificate(s) of
like tenor in the name of such Holder or any permissible transferee exercisable
for the same aggregate number of shares of Common Stock as the Warrant
Certificate(s) surrendered.
<PAGE>
3. Rights and Obligations of the Holder of the Warrant Certificate. The
Holder shall not, by virtue hereof, be entitled to any rights of a stockholder
in the Company, either at law or in equity; provided, however, in the event that
any certificate representing shares of the Common Stock is issued to the Holder
upon exercise of this Warrant Certificate, such Holder shall, for all purposes,
be deemed to have become the holder of record of such Common Stock on the date
on which this Warrant Certificate, together with a duly executed Purchase Form,
was surrendered and payment of the Exercise Price was made, irrespective of the
date of delivery of such share certificate. The rights of the Holder of this
Warrant Certificate are limited to those expressed herein and the Holder, by
acceptance hereof, consents to and agrees to be bound by and comply with all the
provisions of this Warrant Certificate and the agreement, dated August 30, 1999,
between the Holder and the Company, providing for, among other things, the
issuance of this Warrant Certificate (the "Purchase Agreement"). In addition,
the Holder agrees that the Company may deem and treat the person in whose name
this Warrant Certificate is registered as the absolute, true and lawful owner
for all purposes whatsoever, unless and until such time as the Company has
received written notice to the contrary.
4. Common Stock.
(a) The Company covenants and agrees that this Warrant Certificate
is duly and validly authorized and issued, and free from all stamp-taxes, liens,
and charges with respect to the delivery or purchase thereof. In addition, the
Company agrees at all times to reserve and keep available an authorized number
of shares of Common Stock sufficient to permit the exercise in full of this
Warrant Certificate.
(b) The Company covenants and agrees that all shares of Common Stock
delivered upon exercise of this Warrant Certificate, will, upon delivery, be
duly and validly authorized and issued, fully-paid and non-assessable, and free
from all stamp-taxes, liens, and charges with respect to the purchase thereof.
5. Disposition of the Warrant and Common Stock. The Holder hereby agrees
and represents that (a) this Warrant Certificate and the Common Stock issuable
upon exercise are being acquired for the Holder's account, and not with a view
to or in connection with any offering or distribution; and (b) no public
distribution of this Warrant Certificate of the Common Stock will be made in
violation of the provisions of the Securities Act of 1933, as amended (the
"Act"), or in violation of the provisions of applicable sate laws. The Holder
further agrees that if any distribution of Warrant Certificate or any of such
Common Stock issued hereunder is proposed to be made, such action shall be taken
only after submission to the Company of an opinion of counsel reasonably
satisfactory to the Company, to the effect that the proposed distribution will
not be in violation of the Act or any applicable sate law. Furthermore, it shall
be a condition to the transfer of any rights set forth in this Warrant
Certificate that any transferee thereof deliver to the Company his or its
written agreement to accept and be bound by all of the terms and conditions of
this Warrant Certificate and the Purchase Agreement. The Holder is responsible
for any transfer taxes due as a result of any transfer of this Warrant
Certificate.
2
<PAGE>
6. Registration Rights. The Holder shall have those registration rights
with respect to the Common Stock issued or issuable upon exercise of this
Warrant Certificate set forth in the Purchase Agreement.
7. Exercise of This Warrant Certificate. On or prior to Midnight, New
York, New York local time, on August 31, 2004, the Holder shall have the right
to acquire up to 300,000 shares of Common Stock on the following terms and
conditions:
(a) Exercise Price: Fractional Shares. The Exercise Price shall be a
price per share of Common Stock equal to Eighty Cents ($.80), subject to
adjustment as set forth below. All calculations of shares of Common Stock to be
issued in connection with any exercise hereunder shall be rounded to the nearest
one-hundredth of a whole share.
(b) Exercise Procedure.
(1) Payment for Shares. The Holder shall deliver to the
Company this Warrant Certificate and a duly completed Purchase Form at the
Company's principal executive office along with a certified or bank cashier's
check payable to the Company in the amount of the Exercise Price then in effect
times the number of shares of Common Stock being purchased.
(2) Effective Date of Exercise. Each exercise will be deemed
to have been effected as of the close of business on the date that the Purchase
Form and full payment is received by the Company at the principal office of the
Company at 611 Broadway, Suite 515, New York, New York 10012. At such time as
such exercise has been effected, the person (or entity) or persons (or entities)
in whose name or names any certificate(s) for shares of Common Stock are to be
issued upon such exercise will be deemed to have become the holder or holders of
record of the shares of Common Stock represented.
(c) Delivery of Certificates. As soon as practicable after an
exercise has been effected (but in any event within five (5) business days), the
Company will deliver to the Holder:
(1) a certificate or certificates representing the number of
shares of Common Stock issuable by reason of such exercise in such name(s) and
such denomination(s) as the Holder has specified;
(2) a new Warrant Certificate entitling the Holder to purchase
the number of shares of Common Stock as to which the original Warrant
Certificate was not exercised and reflecting any changes to the Exercise Price
which have theretofore been effectuated and which Warrant Certificate shall
otherwise be in form and substance identical to that delivered by the Holder to
the Company for said exercise.
3
<PAGE>
(d) Closure of Issuer Books. The Company will not close its books
against the transfer of Warrant Certificates or of Common Stock issued or
issuable upon exercise of Warrant Certificates in any manner which interferes
with the timely exercise of Warrant Certificates.
(e) Payment of Taxes. The Company will pay all taxes and other
governmental charges (other than taxes measured by the revenue or income of the
Holder) that may be imposed in respect of the issue or delivery of shares of
Common Stock upon exercise of this Warrant Certificate; provided, however, that
the Holder shall pay any such tax which is due because shares of Common Stock
are issued in a name other than such Holder's.
(f) Notices of Record Date. In the event of (i) any taking by the
Company of a record of the holders of any class or series of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend or other distribution or (ii) any reclassification or recapitalization
of the capital stock of the Company, any merger or consolidation of the Company,
or any transfer of all or substantially all the assets of the Company to any
other corporation, entity or person, or any voluntary or involuntary
dissolution, liquidation or winding up of the affairs of the Company, the
Company shall mail to the Holder at least twenty (20) days prior to the record
date specified therein (the "Notice Period"), a notice specifying (A) the date
on which any such record is to be taken for the purpose of such dividend or
distribution and a description of such dividend or distribution, (B) the date on
which any such reorganization, reclassification, transfer, consolidation,
merger, dissolution, liquidation or winding up is expected to become effective,
and (C) the time, if any is to be fixed, as to when the holders of record of
Common Stock (or other securities) shall be entitled to exchange their shares of
Common Stock (or other securities) for securities or other property deliverable
upon such reorganization, reclassification, transfer, consolidation, merger,
dissolution, liquidation or winding up. During the Notice Period, the Holder
shall have the exercise rights provided elsewhere in this Warrant Certificate.
In addition, the Company shall mail to the Holder advance notice of any
determination by the Company to register any shares of Common Stock (not
including the shares of Common Stock purchasable upon the exercise of this
Warrant or the other warrants, if any, issued on the date hereof) promptly upon
the making of such determination by the Company.
8. Exercise Price Adjustments. The Exercise Price and the number of shares
of Common Stock issuable upon exercise of this Warrant shall be subject to
adjustment from time to time as set forth below; however, no adjustment in the
Exercise Price need be made unless the adjustment would require an increase or
decrease of at least 1% in the Exercise Price. Any adjustments that are not made
shall be carried forward and taken into account in any subsequent adjustment.
(a) Adjustment for Common Stock Splits and Combinations. If the
Company shall at any time or from time to time after the date hereof effect a
subdivision of the outstanding Common Stock, the Exercise Price then in effect
immediately before that subdivision shall be proportionately decreased;
conversely, if the Company shall at any time or from time to time after the date
hereof reduce the outstanding shares of Common Stock by combination or
otherwise, the
4
<PAGE>
Exercise Price then in effect immediately before the combination shall be
proportionately increased. Any adjustment under this Section 8(a) shall become
effective at the close of business on the date the subdivision or combination
becomes effective.
(b) Adjustment for Certain Dividends and Distributions of Common
Stock. In the event the Company at any time or from time to time after the date
hereof shall make or issue, or fix a record date for the determination of
holders of Common Stock entitled to receive, a dividend or other distribution
payable in additional shares of Common Stock, then and in each such event the
Exercise Price then in effect shall be decreased as of the time of such issuance
or, in the event such a record date shall have been fixed, as of the close of
business on such record date, by multiplying the Exercise Price then in effect
by a fraction:
(1) the numerator of which shall be the total number of shares
of Common Stock issued and outstanding immediately prior to the time of such
issuance or the close of business on such record date, and
(2) the denominator of which shall be the total number of
shares of Common Stock issued and outstanding immediately prior to the time of
such issuance or the close of business on such record date, plus the number of
shares of Common Stock issuable in payment of such dividend or distribution;
provided, however, if such record date shall have been fixed and such dividend
is not fully paid or if such distribution is not fully made on the date fixed
therefor, the Exercise Price shall be recomputed accordingly as of the close of
business on such record date and thereafter the Exercise Price shall be adjusted
pursuant to this Section 8(b) as of the time of actual payment of such dividends
or distributions.
(3) Whenever the Exercise Price payable upon exercise of this
Warrant is adjusted pursuant to this paragraph 8(b), the number of shares of
Common Stock purchasable upon exercise of this Warrant shall simultaneously be
adjusted by multiplying the number of shares initially issuable upon the
exercise of this Warrant by the Exercise Price in effect on the date hereof and
dividing the product so obtained by the Exercise Price, as adjusted.
(c) Adjustment for Other Dividends and Distributions. In the event
the Company at any time or from time to time after the date hereof shall make or
issue, or fix a record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution payable in securities of
the Company other than shares of Common Stock, then and in each such event
provision shall be made so that Holder shall receive upon exercise of this
Warrant Certificate in addition to the number of shares of Common Stock
receivable thereupon, the amount of securities of the Company that it would have
received had this Warrant Certificate been exercised on the date of such event
and had thereafter, during the period from the date of such event to and
including the exercise date, retained such securities receivable by it as
aforesaid during such period giving application to all adjustments called for
during such period under this Warrant Certificate with respect to the rights of
the Holder.
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(d) Adjustment for Reclassification, Exchange or Substitution. If
the Common Stock issuable upon the exercise of this Warrant Certificate shall be
changed into the same or a different number of shares of any class or classes of
stock, whether by reclassification, exchange, substitution or other change
(other than a reorganization, merger, consolidation or sale of assets provided
for in Section 8(e) below), then and in each such event, the Holder shall have
the right thereafter to exercise this Warrant Certificate into the kind and
amounts of shares of stock and other securities and property receivable upon
such reclassification, exchange, substitution or other change, by holders of the
number of shares of Common Stock into which this Warrant Certificate might have
been exercised immediately prior to such reclassification, exchange,
substitution, or other change, all subject to further adjustment as provided
herein.
(e) Reorganization, Mergers, Consolidations or Sales of Assets. If
at any time or from time to time there shall be a reorganization of the Common
Stock (other than a reclassification, exchange or substitution of shares
provided for in Section 8(d) above) or a merger or consolidation of the Company
with or into another corporation, or the sale of all or substantially all the
Company's properties and assets to any other person, then, as a part of such
reorganization, merger, consolidation or sale, provision shall be made so that
the Holder shall thereafter be entitled to receive upon exercise of this Warrant
Certificate, the number of shares of stock or other securities or property of
the Company or of the successor corporation resulting from such reorganization,
merger, consolidation or sale, to which a holder of that number of shares of
Common Stock deliverable upon exercise of this Warrant Certificate would have
been entitled on such reorganization, merger, consolidation or sale. In any such
case, appropriate adjustment shall be made in the application of the provisions
of this Warrant Certificate with respect to the rights of the Holder after the
reorganization, merger, consolidation or sale to the end that the provisions of
this Warrant Certificate (including adjustment of the number of shares issuable
upon exercise of this Warrant Certificate) shall be applicable after that event
as nearly equivalent as may be practicable; or
(f) Sales of Shares Below Exercise Price.
(1) Adjustment of Exercise Price. Subject to Subsection
8(f)(5) below, if at any time or from time to time after the date hereof, the
Company shall issue or sell Additional Shares of Common Stock (as hereinafter
defined), other than as a dividend as provided in Section 8(b) above, and other
than upon a subdivision or combination of shares of Common Stock as provided in
Section 8(a) above, for a consideration per share less than the Minimum Value
(as hereinafter defined), then and in each case the Exercise Price shall be
reduced, as of the opening of business on the date of such issuance or sale, to
a price (calculated to the nearest cent) determined by multiplying such prior
Exercise Price by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to such issuance or sale
plus the number of shares of Common Stock which the aggregate consideration
received by the Company for the total number of Additional Shares of Common
Stock so issued or sold would purchase at such prior Exercise Price, and the
denominator of which shall be the number of shares of Common Stock outstanding
immediately prior to such issuance or sale plus the total number of Additional
Shares
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of Common Stock so issued or sold.
(2) Determination of Consideration. For the purpose of making
any adjustment in the Exercise Price or number of shares of Common Stock
purchasable on exercise of this Warrant certificate as provided above, the
consideration received by the Company for any issue or sale of securities shall,
i. to the extent it consists of cash, be computed at the
gross amount of cash received by the Company in connection with such issue or
sale,
ii. to the extent it consists of services or property
other than cash, be computed at the fair value of such services or property as
determined in good faith by the Company's Board of Directors (the "Board"), and
iii. if Additional Shares of Common Stock, Convertible
Securities (as hereinafter defined), or rights or options to purchase either
Additional Shares of Common Stock or Convertible Securities are issued or sold
together with other stock or securities or other assets of the Company for a
consideration that covers both, be computed as the portion of the consideration
so received that may be reasonably determined in good faith by the Board to be
allocable to such Additional Shares of Common Stock, Convertible Securities or
rights or options.
(3) Convertible Securities. For the purpose of the adjustment
provided in Subsection 8(f)(1) hereof, if at any time or from time to time after
the date hereof the Company shall issue any rights or options for the purchase
of, or stock or other securities convertible into, Additional Shares of Common
Stock (such convertible stock or securities being hereinafter referred to as
"Convertible Securities"), then, in each case, if the Effective Price (as
hereinafter defined) of such rights, options or Convertible Securities shall be
less than the then existing Exercise Price, the Company shall be deemed to have
issued at the time of the issuance of such rights or options or Convertible
Securities the maximum number of Additional Shares of Common Stock issuable upon
exercise or conversion thereof and to have received as consideration for the
issuance of such shares an amount equal to the total amount of the
consideration, if any, received by the Company for the issuance of such rights
or options or Convertible Securities, plus, in the case of such options or
rights, the minimum amounts of consideration, if any, payable to the Company
upon exercise or conversion of such options or rights. For purposes of the
foregoing, "Effective Price" shall mean the quotient determined by dividing the
total of all such consideration by such maximum number of Additional Shares of
Common Stock. No further adjustment of the Exercise Price adjusted upon the
issuance of such rights, options or Convertible Securities shall be made as a
result of the actual issuance of Additional Shares of Common Stock on the
exercise of any such rights or options or the conversion of any such Convertible
Securities. If any such rights or options or the conversion privilege
represented by any such Convertible Securities shall expire without having been
exercised, the Exercise Price adjusted upon the issuance of such rights, options
or Convertible Securities shall be readjusted to the Exercise Price that would
have been in effect had an adjustment been made on the basis that the only
Additional Shares of Common Stock so issued were the
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Additional Shares of Common Stock, if any, actually issued or sold on the
exercise of such rights or options or rights of conversion of such Convertible
Securities, and such Additional Shares of Common Stock, if any, were issued or
sold for the consideration actually received by the Company upon such exercise,
plus the consideration, if any, actually received by the Company for the
granting of all such rights or options, whether or not exercised, plus the
consideration received for issuing or selling the Convertible Securities
actually converted plus the consideration, if any, actually received by the
Company on the conversion of such Convertible Securities.
(4) Rights or Options for Convertible Securities. For the
purpose of the adjustment provided for in Subsection 8(f)(1) hereof, if at any
time or from time to time after the date hereof, the Company shall issue any
rights or options for the purchase of Convertible Securities, then, in each such
case, if the Effective Price thereof is less than the current Exercise Price,
the Company shall be deemed to have issued at the time of the issuance of such
rights or options the maximum number of Additional Shares of Common Stock
issuable upon conversion of the total amount of Convertible Securities covered
by such rights or options and to have received as consideration for the issuance
of such Additional Shares of Common Stock an amount equal to the amount of
consideration, if any, received by the Company for the issuance of such rights
or options, plus the minimum amounts of consideration, if any, payable to the
Company upon the conversion of such Convertible Securities. For purposes of the
foregoing, "Effective Price" shall mean the quotient determined by dividing the
total amount of such consideration by such maximum number of Additional Shares
of Common Stock. No further adjustment of such Exercise Price adjusted upon the
issuance of such rights or options shall be made as a result of the actual
issuance of the Convertible Securities upon the exercise of such rights or
options or upon the actual issuance of Additional Shares of Common Stock upon
the conversion of such Convertible Securities. The provisions of Subsection
8(f)(3) above for the readjustment of such Exercise Price upon the expiration of
rights or options or the rights of conversion of Convertible Securities shall
apply mutatis mutandis to the rights, options and Convertible Securities
referred to in this Subsection 8(f)(4).
(5) Certain Exceptions. Notwithstanding the provisions of
Subsection 8(f)(1) above, no adjustment shall be made to the Exercise Price with
respect to the issuance of Additional Shares of Common Stock in connection with
the conversion, exercise or exchange of warrants or notes issued by the Company
and outstanding on the date hereof or for the issuance or sale of Additional
Shares of Common Stock for a consideration per share equal to or greater than
the Minimum Value. For the purposes of this Section 8(f), the issuance of not
more than 10% of the then outstanding shares of Common Stock (on a then
fully-diluted basis, assuming the conversion or exercise of all then outstanding
Convertible Securities) to employees or consultants or the Company pursuant to
stock option or stock purchase plans approved by the Board (including the
reissuance of shares purchased by the Company from employee or consultants of
the Company) shall not be considered the issuance or sale of Additional Shares
of Common Stock.
(6) Definition. The term "Additional Shares of Common Stock"
as used herein shall mean all shares of Common Stock issued or deemed issued by
the Company after the
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date hereof, whether or not subsequently reacquired or retired by the Company.
Notwithstanding anything to the contrary contained herein, Common Stock issued
in connection with the conversion, exercise or exchange of warrants or notes
issued by the Company and outstanding on the date hereof and other warrant
certificates, if any, issued pursuant to the terms of the Purchase Agreement
shall not be deemed to be Additional Shares of Common Stock or Convertible
Securities for purposes of causing an adjustment to the Exercise Price. The term
"Minimum Value" as used herein shall mean the lesser of (a) the Exercise Price
as the same may be adjusted from time to time and (b) the Closing Bid Price (as
hereafter defined). The term "Closing Bid Price" means the closing bid price of
the Common Stock on the trading day immediately preceding the date of issuance
of Additional Shares of Common Stock.
(g) Certificate of Adjustment. In each case of an adjustment or
readjustment of the Exercise Price, the Company, at its expense, shall prepare a
certificate showing such adjustment or readjustment signed by the duly elected
Treasurer or Chief Financial Officer of the Company (the "Adjustment
Certificate) and shall mail the Adjustment Certificate, by first class mail,
postage prepaid, to the Holder at the Holder's address as shown in the Company's
books. The Adjustment Certificate shall set forth such adjustment or
readjustment, showing in detail the facts upon which such adjustment or
readjustment is based including a statement of the Exercise Price and the number
of shares of Common Stock or other securities issuable upon exercise of this
Warrant Certificate immediately before and after giving effect to the applicable
adjustment or readjustment. If the holders of a majority of the shares of Common
Stock represented by all outstanding Warrant Certificates being issued
concurrently herewith do not in good faith believe that such adjustment or
readjustment was calculated in accordance with the terms of this Warrant
Certificate, such holders shall have the right to challenge such adjustment or
readjustment, or method of calculating the same, by delivering written notice to
the Company at 611 Broadway, Suite 515, New York, New York 10012, Attention:
Richard L. Bulman, within thirty (30) days after the Holder's receipt of the
Adjustment Certificate. In the event such holders deliver such written notice to
the Company, the Company, at its expense, shall cause independent certified
public accountants of recognized standing selected by the Company (who may be
the independent certified public accountants then auditing the books of the
Company) to recompute such adjustment or readjustment in accordance herewith and
prepare a certificate signed by such accountants (the "Accountant's Adjustment
Certificate") showing such adjustment or readjustment. The Company shall then
mail the Accountant's Adjustment Certificate, by first class mail, postage
prepaid, to the Holder at the Holder's address as shown in the Company's books.
In the event of any conflict between the Adjustment Certificate and the
Accountant's Adjustment Certificate, the Accountant's Adjustment Certificate
shall control.
9. Survival. The various rights and obligations of the Holder hereof and
of this Company as set forth in Sections 5, 6, and 7 hereof, as may be
applicable, shall survive the exercise of this Warrant Certificate or the
surrender of this Warrant Certificate, and upon the surrender of this Warrant
Certificate and the exercise of all the rights represented hereby, each party
shall, if requested, deliver to the other hereof its written acknowledgement of
its continuing obligations under said Sections.
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<PAGE>
10. Mutilated or Missing Warrant Certificates. In case this Warrant
Certificate shall be mutilated, lost, stolen or destroyed, the Company will,
upon request, issue and deliver in exchange and substitution for and upon
cancellation of the mutilated Warrant Certificate, or in lieu of and
substitution of the Warrant Certificate lost, stolen or destroyed, a new Warrant
Certificate of like tenor and representing an equivalent right or interest, but
only upon receipt of evidence satisfactory to the Company of such loss, theft,
or destruction of such Warrant Certificate and, in the case of a lost, stolen or
destroyed Warrant Certificate, indemnity, if requested, also satisfactory to the
Company. Applicants for such substitute Warrant Certificate shall also comply
with such other reasonable regulations and pay such reasonable charges as the
Company may prescribe.
11. Notices. All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been made when
delivered or mailed first class registered or certified mail, postage prepaid,
return receipt requested, as follows: if the Holder, at the address of the
Holder as shown on the Company's registry books, and, if to the Company, at 611
Broadway, Suite 515, New York, New York 10012, Attention: Richard L. Bulman.
12. Governing Law. This Warrant Certificate shall be governed by and
construed in accordance with the laws of the State of New York, without
reference to principles of conflicts of law.
13. Binding Effect. This Warrant Certificate shall be binding upon and
inure to the benefit of the Company and the Holder. Nothing in this Warrant
Certificate is intended or shall be construed to confer upon any other person
any right, remedy or claim, in equity or at law, or to impose upon any other
person any duty, liability or obligation.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed as of the date first above written.
KIDEO PRODUCTIONS, INC.
By: ________________________________
Richard L. Bulman, President
10
THIS WARRANT CERTIFICATE, AND THE SHARES TO BE ISSUED UPON ITS
EXERCISE, HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED
FOR SALE, SOLD OR TRANSFERRED UNLESS REGISTERED
UNDER THE ACT, OR UNLESS AN EXEMPTION FROM
SUCH REGISTRATION IS AVAILABLE.
WARRANT CERTIFICATE
Dated: July 1, 1999
Warrant to Purchase up to 200,000 shares of Common Stock,
par value $.0001 per share,
of
KIDEO PRODUCTIONS, INC.
VOID AFTER MIDNIGHT, NEW YORK, NEW YORK LOCAL TIME
ON
JUNE 30, 2004
KIDEO PRODUCTIONS, INC., a Delaware corporation (the "Company"), hereby
certifies that VISION CORPORATE CONSULTING, LLC, its successors and assigns (the
"Holder"), is entitled to purchase from the Company at any time after June 30,
1999 and before Midnight, New York, New York local time on June 30, 2004, up to
100,000 shares of common stock, par value $.0001 per share, of the Company (the
"Common Stock"), at the price of $2.00 per share (the "Exercise Price", subject
to adjustment as provided herein).
1. Exercise of Warrants. In order to exercise the rights to purchase
Common Stock evidenced by this Warrant Certificate, the Holder must, subject to
Section 8 below, present and surrender this Warrant Certificate with the
attached Purchase Form duly executed at the principal office of the Company.
This Warrant Certificate may be exercised with respect to all of the Common
Stock subject hereto or any portion thereof.
2. Exchange and Transfer. This Warrant Certificate at any time prior to
the exercise hereof, upon presentation and surrender to the Company, may be
exchanged, alone or with other Warrant Certificates, if any, of like tenor
registered in the name of the same Holder, for another Warrant Certificate(s) of
like tenor in the name of such Holder or any permissible transferee exercisable
for the same aggregate number of shares of Common Stock as the Warrant
Certificate(s) surrendered.
<PAGE>
3. Rights and Obligations of the Holder of the Warrant Certificate. The
Holder shall not, by virtue hereof, be entitled to any rights of a stockholder
in the Company, either at law or in equity; provided, however, in the event that
any certificate representing shares of the Common Stock is issued to the Holder
upon exercise of this Warrant Certificate, such Holder shall, for all purposes,
be deemed to have become the holder of record of such Common Stock on the date
on which this Warrant Certificate, together with a duly executed Purchase Form,
was surrendered and payment of the Exercise Price was made, irrespective of the
date of delivery of such share certificate. The rights of the Holder of this
Warrant Certificate are limited to those expressed herein and the Holder, by
acceptance hereof, consents to and agrees to be bound by and comply with all the
provisions of this Warrant Certificate. In addition, the Holder agrees that the
Company may deem and treat the person in whose name this Warrant Certificate is
registered as the absolute, true and lawful owner for all purposes whatsoever,
unless and until such time as the Company has received written notice to the
contrary.
4. Common Stock.
(a) The Company covenants and agrees that this Warrant Certificate
is duly and validly authorized and issued, and free from all stamp-taxes, liens,
and charges with respect to the delivery or purchase thereof. In addition, the
Company agrees at all times to reserve and keep available an authorized number
of shares of Common Stock sufficient to permit the exercise in full of this
Warrant Certificate.
(b) The Company covenants and agrees that all shares of Common Stock
delivered upon exercise of this Warrant Certificate, will, upon delivery, be
duly and validly authorized and issued, fully-paid and non-assessable, and free
from all stamp-taxes, liens, and charges with respect to the purchase thereof.
5. Disposition of the Warrant and Common Stock. The Holder hereby agrees
and represents that (a) this Warrant Certificate and the Common Stock issuable
upon exercise are being acquired for the Holder's account, and not with a view
to or in connection with any offering or distribution; and (b) no public
distribution of this Warrant Certificate of the Common Stock will be made in
violation of the provisions of the Securities Act of 1933, as amended (the
"Act"), or in violation of the provisions of applicable sate laws. The Holder
further agrees that if any distribution of Warrant Certificate or any of such
Common Stock issued hereunder is proposed to be made, such action shall be taken
only after submission to the Company of an opinion of counsel reasonably
satisfactory to the Company, to the effect that the proposed distribution will
not be in violation of the Act or any applicable sate law. Furthermore, it shall
be a condition to the transfer of any rights set forth in this Warrant
Certificate that any transferee thereof deliver to the Company his or its
written agreement to accept and be bound by all of the terms and conditions of
this Warrant Certificate and the Purchase Agreement. The Holder is responsible
for any transfer taxes due as a result of any transfer of this Warrant
Certificate.
6. Registration Rights. Whenever the Company proposes to register any of
its
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<PAGE>
securities under the Securities Act and the registration form to be used may be
used for the registration of shares of Common Stock (the "Registrable
Securities") for which this Warrant may be exercised (a "Piggyback
Registration"), the Company will give prompt written notice to the Holder of its
intention to effect such a registration and will use its reasonable best efforts
to include in such registration all Registrable Securities requested to be
included within ten (10) days after the giving of the Company's notice, all to
the extent and under the conditions that such registration is permitted under
the Act. In the event that the Piggyback Registration is underwritten and the
managing underwriter (the "Piggyback Underwriter") reasonably believes that the
sale of the number of shares proposed to be sold by the Holder and other holders
of Common Stock requesting piggyback registration (the "Other Holders") would
have a material adverse effect on the market for the Company's stock, the Holder
hereby agree that the number of shares of Registrable Securities which are sold
by the Piggyback Underwriter in the underwritten offering shall be reduced, pro
rata with the shares to be sold by the Other Holders, to such number as the
Piggyback Underwriter reasonably recommends may be sold in the offering without
having a material adverse effect on the market for the Company's stock. Any
reduction shall be pro rata on the basis of the number of shares requested to be
registered by the Holder as well as the Other Holders. Notwithstanding the
foregoing provisions, the Company may withdraw any registration statement
referred to in this Section 6 without incurring any liability to the Holder.
7. Exercise of This Warrant Certificate. After June 30, 1999 and on or
prior to Midnight, New York, New York local time, on June 30, 2004, the Holder
shall have the right to acquire up to 100,000 shares of Common Stock on the
following terms and conditions:
(a) Exercise Price: Fractional Shares. The Exercise Price shall be a
price per share of Common Stock equal to Two Dollars ($2.00), subject to
adjustment as set forth below. All calculations of shares of Common Stock to be
issued in connection with any exercise hereunder shall be rounded to the nearest
one-hundredth of a whole share.
(b) Exercise Procedure.
(1) Payment for Shares. (x) The Holder shall deliver to the
Company this Warrant Certificate and a duly completed Purchase Form at the
Company's principal executive office along with a certified or bank cashier's
check payable to the Company in the amount Exercise Price then in effect times
the number of shares of Common Stock being purchased (the "Aggregate Stock
Purchase Price").
(y) In lieu of paying the Aggregate Stock Purchase Price
upon exercise of this Warrant, for so long as the Common Stock is publicly
traded, the Holder may elect a "cashless exercise" in which event the Holder
will receive upon exercise of this Warrant a reduced number of shares of Common
Stock equal to (i) the number of shares of Common Stock that would be issuable
pursuant to this Warrant upon payment of the Aggregate Stock Purchase Price
minus (ii) the number of shares of Common Stock that have an aggregate fair
market value equal to the Aggregate Stock Purchase Price. For purposes of the
preceding sentence, the fair market value of a
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<PAGE>
share of Common Stock shall mean the average of the last reported sale prices of
the Common Stock on the ten trading days preceding the date of exercise.
(2) Effective Date of Exercise. Each exercise will be deemed
to have been effected as of the close of business on the date that the Purchase
Form and full payment is received by the Company at the principal office of the
Company at 611 Broadway, Suite 515, New York, New York 10012. At such time as
such exercise has been effected, the person (or entity) or persons (or entities)
in whose name or names any certificate(s) for shares of Common Stock are to be
issued upon such exercise will be deemed to have become the holder or holders of
record of the shares of Common Stock represented.
(c) Delivery of Certificates. As soon as practicable after an
exercise has been effected (but in any event within five (5) business days), the
Company will deliver to the Holder:
(1) a certificate or certificates representing the number of
shares of Common Stock issuable by reason of such exercise in such name(s) and
such denomination(s) as the Holder has specified;
(2) a new Warrant Certificate entitling the Holder to purchase
the number of shares of Common Stock as to which the original Warrant
Certificate was not exercised and reflecting any changes to the Exercise Price
which have theretofore been effectuated and which Warrant Certificate shall
otherwise be in form and substance identical to that delivered by the Holder to
the Company for said exercise.
(d) Closure of Issuer Books. The Company will not close its books
against the transfer of Warrant Certificates or of Common Stock issued or
issuable upon exercise of Warrant Certificates in any manner which interferes
with the timely exercise of Warrant Certificates.
(e) Payment of Taxes. The Company will pay all taxes and other
governmental charges (other than taxes measured by the revenue or income of the
Holder) that may be imposed in respect of the issue or delivery of shares of
Common Stock upon exercise of this Warrant Certificate; provided, however, that
the Holder shall pay any such tax which is due because shares of Common Stock
are issued in a name other than such Holder's.
(f) Notices of Record Date. In the event of (i) any taking by the
Company of a record of the holders of any class or series of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend or other distribution or (ii) any reclassification or recapitalization
of the capital stock of the Company, any merger or consolidation of the Company,
or any transfer of all or substantially all the assets of the Company to any
other corporation, entity or person, or any voluntary or involuntary
dissolution, liquidation or winding up of the affairs of the Company, the
Company shall mail to the Holder at least twenty (20) days prior to the record
date specified therein (the "Notice Period"), a notice specifying (A) the date
on which any such record is to be taken for the purpose of such dividend or
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<PAGE>
distribution and a description of such dividend or distribution, (B) the date on
which any such reorganization, reclassification, transfer, consolidation,
merger, dissolution, liquidation or winding up is expected to become effective,
and (C) the time, if any is to be fixed, as to when the holders of record of
Common Stock (or other securities) shall be entitled to exchange their shares of
Common Stock (or other securities) for securities or other property deliverable
upon such reorganization, reclassification, transfer, consolidation, merger,
dissolution, liquidation or winding up. During the Notice Period, the Holder
shall have the exercise rights provided elsewhere in this Warrant Certificate.
In addition, the Company shall mail to the Holder advance notice of any
determination by the Company to register any shares of Common Stock (not
including the shares of Common Stock purchasable upon the exercise of this
Warrant or the other warrants, if any, issued on the date hereof) promptly upon
the making of such determination by the Company.
8. Exercise Price Adjustments. The Exercise Price and the number of shares
of Common Stock issuable upon exercise of this Warrant shall be subject to
adjustment from time to time as set forth below; however, no adjustment in the
Exercise Price need be made unless the adjustment would require an increase or
decrease of at least 1% in the Exercise Price. Any adjustments that are not made
shall be carried forward and taken into account in any subsequent adjustment.
(a) Adjustment for Common Stock Splits and Combinations. If the
Company shall at any time or from time to time after the date hereof effect a
subdivision of the outstanding Common Stock, the Exercise Price then in effect
immediately before that subdivision shall be proportionately decreased;
conversely, if the Company shall at any time or from time to time after the date
hereof reduce the outstanding shares of Common Stock by combination or
otherwise, the Exercise Price then in effect immediately before the combination
shall be proportionately increased. Any adjustment under this Section 8(a) shall
become effective at the close of business on the date the subdivision or
combination becomes effective.
(b) Adjustment for Certain Dividends and Distributions of Common
Stock. In the event the Company at any time or from time to time after the date
hereof shall make or issue, or fix a record date for the determination of
holders of Common Stock entitled to receive, a dividend or other distribution
payable in additional shares of Common Stock, then and in each such event the
Exercise Price then in effect shall be decreased as of the time of such issuance
or, in the event such a record date shall have been fixed, as of the close of
business on such record date, by multiplying the Exercise Price then in effect
by a fraction:
(1) the numerator of which shall be the total number of shares
of Common Stock issued and outstanding immediately prior to the time of such
issuance or the close of business on such record date, and
(2) the denominator of which shall be the total number of
shares of Common Stock issued and outstanding immediately prior to the time of
such issuance or the close of business on such record date, plus the number of
shares of Common Stock issuable in payment
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<PAGE>
of such dividend or distribution; provided, however, if such record date shall
have been fixed and such dividend is not fully paid or if such distribution is
not fully made on the date fixed therefor, the Exercise Price shall be
recomputed accordingly as of the close of business on such record date and
thereafter the Exercise Price shall be adjusted pursuant to this Section 8(b) as
of the time of actual payment of such dividends or distributions.
(3) Whenever the Exercise Price payable upon exercise of this
Warrant is adjusted pursuant to this paragraph 8(b), the number of shares of
Common Stock purchasable upon exercise of this Warrant shall simultaneously be
adjusted by multiplying the number of shares initially issuable upon the
exercise of this Warrant by the Exercise Price in effect on the date hereof and
dividing the product so obtained by the Exercise Price, as adjusted.
(c) Adjustment for Other Dividends and Distributions. In the event
the Company at any time or from time to time after the date hereof shall make or
issue, or fix a record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution payable in securities of
the Company other than shares of Common Stock, then and in each such event
provision shall be made so that Holder shall receive upon exercise of this
Warrant Certificate in addition to the number of shares of Common Stock
receivable thereupon, the amount of securities of the Company that it would have
received had this Warrant Certificate been exercised on the date of such event
and had thereafter, during the period from the date of such event to and
including the exercise date, retained such securities receivable by it as
aforesaid during such period giving application to all adjustments called for
during such period under this Warrant Certificate with respect to the rights of
the Holder.
(d) Adjustment for Reclassification, Exchange or Substitution. If
the Common Stock issuable upon the exercise of this Warrant Certificate shall be
changed into the same or a different number of shares of any class or classes of
stock, whether by reclassification, exchange, substitution or other change
(other than a reorganization, merger, consolidation or sale of assets provided
for in Section 8(e) below), then and in each such event, the Holder shall have
the right thereafter to exercise this Warrant Certificate into the kind and
amounts of shares of stock and other securities and property receivable upon
such reclassification, exchange, substitution or other change, by holders of the
number of shares of Common Stock into which this Warrant Certificate might have
been exercised immediately prior to such reclassification, exchange,
substitution, or other change, all subject to further adjustment as provided
herein.
(e) Reorganization, Mergers, Consolidations or Sales of Assets. If
at any time or from time to time there shall be a reorganization of the Common
Stock (other than a reclassification, exchange or substitution of shares
provided for in Section 8(d) above) or a merger or consolidation of the Company
with or into another corporation, or the sale of all or substantially all the
Company's properties and assets to any other person, then, as a part of such
reorganization, merger, consolidation or sale, provision shall be made so that
the Holder shall thereafter be entitled to receive upon exercise of this Warrant
Certificate, the number of shares of stock or other securities or property of
the Company or of the successor corporation resulting from such
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reorganization, merger, consolidation or sale, to which a holder of that number
of shares of Common Stock deliverable upon exercise of this Warrant Certificate
would have been entitled on such reorganization, merger, consolidation or sale.
In any such case, appropriate adjustment shall be made in the application of the
provisions of this Warrant Certificate with respect to the rights of the Holder
after the reorganization, merger, consolidation or sale to the end that the
provisions of this Warrant Certificate (including adjustment of the number of
shares issuable upon exercise of this Warrant Certificate) shall be applicable
after that event as nearly equivalent as may be practicable; or
(f) Certificate of Adjustment. In each case of an adjustment or
readjustment of the Exercise Price, the Company, at its expense, shall prepare a
certificate showing such adjustment or readjustment signed by the duly elected
Treasurer or Chief Financial Officer of the Company (the "Adjustment
Certificate) and shall mail the Adjustment Certificate, by first class mail,
postage prepaid, to the Holder at the Holder's address as shown in the Company's
books. The Adjustment Certificate shall set forth such adjustment or
readjustment, showing in detail the facts upon which such adjustment or
readjustment is based including a statement of the Exercise Price and the number
of shares of Common Stock or other securities issuable upon exercise of this
Warrant Certificate immediately before and after giving effect to the applicable
adjustment or readjustment. If the holders of a majority of the shares of Common
Stock represented by all outstanding Warrant Certificates being issued
concurrently herewith do not in good faith believe that such adjustment or
readjustment was calculated in accordance with the terms of this Warrant
Certificate, such holders shall have the right to challenge such adjustment or
readjustment, or method of calculating the same, by delivering written notice to
the Company at 611 Broadway, Suite 515, New York, New York 10012, Attention:
Richard L. Bulman, within thirty (30) days after the Holder's receipt of the
Adjustment Certificate. In the event such holders deliver such written notice to
the Company, the Company, at its expense, shall cause independent certified
public accountants of recognized standing selected by the Company (who may be
the independent certified public accountants then auditing the books of the
Company) to recompute such adjustment or readjustment in accordance herewith and
prepare a certificate signed by such accountants (the "Accountant's Adjustment
Certificate") showing such adjustment or readjustment. The Company shall then
mail the Accountant's Adjustment Certificate, by first class mail, postage
prepaid, to the Holder at the Holder's address as shown in the Company's books.
In the event of any conflict between the Adjustment Certificate and the
Accountant's Adjustment Certificate, the Accountant's Adjustment Certificate
shall control.
9. Survival. The various rights and obligations of the Holder hereof and
of this Company as set forth in Sections 5, 6 and 7 hereof, as may be
applicable, shall survive the exercise of this Warrant Certificate or the
surrender of this Warrant Certificate, and upon the surrender of this Warrant
Certificate and the exercise of all the rights represented hereby, each party
shall, if requested, deliver to the other hereof its written acknowledgement of
its continuing obligations under said Sections.
10. Mutilated or Missing Warrant Certificates. In case this Warrant
Certificate shall be
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mutilated, lost, stolen or destroyed, the Company will, upon request, issue and
deliver in exchange and substitution for and upon cancellation of the mutilated
Warrant Certificate, or in lieu of and substitution of the Warrant Certificate
lost, stolen or destroyed, a new Warrant Certificate of like tenor and
representing an equivalent right or interest, but only upon receipt of evidence
satisfactory to the Company of such loss, theft, or destruction of such Warrant
Certificate and, in the case of a lost, stolen or destroyed Warrant Certificate,
indemnity, if requested, also satisfactory to the Company. Applicants for such
substitute Warrant Certificate shall also comply with such other reasonable
regulations and pay such reasonable charges as the Company may prescribe.
11. Notices. All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been made when
delivered or mailed first class registered or certified mail, postage prepaid,
return receipt requested, as follows: if the Holders, at the address of the
Holder as shown on the Company's registry books, and, if to the Company, at 611
Broadway, Suite 515, New York, New York 10012, Attention: Richard L. Bulman.
12. Governing Law. This Warrant Certificate shall be governed by and
construed in accordance with the laws of the State of New York, without
reference to principles of conflicts of law.
13. Binding Effect. This Warrant Certificate shall be binding upon and
inure to the benefit of the Company and the Holder. Nothing in this Warrant
Certificate is intended or shall be construed to confer upon any other person
any right, remedy or claim, in equity or at law, or to impose upon any other
person any duty, liability or obligation.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed as of the date first above written.
KIDEO PRODUCTIONS, INC.
By: ________________________________
Richard L. Bulman, President
8
================================================================================
NOTE AND WARRANT PURCHASE AGREEMENT
AMONG
KIDEO PRODUCTIONS, INC.
AND
WHITE RIDGE INVESTMENTS, LTD.
Dated as of August 30, 1999
================================================================================
<PAGE>
NOTE AND WARRANT PURCHASE AGREEMENT
NOTE AND WARRANT PURCHASE AGREEMENT, dated as of August 30, 1999
(the "Agreement"), among Kideo Productions, Inc., a Delaware corporation (the
"Company"), and White Ridge Investments, Ltd., a corporation organized under the
laws of the Turk & Caicos Islands (the "Buyer").
WHEREAS, the Buyer wishes to acquire from the Company (a) a
convertible note in the principal amount of $300,000 bearing interest at the
rate of 10% per annum, due August 31, 2000, in the form attached hereto as
Exhibit A (the "Note") and (b) a warrant to purchase 300,000 shares of its
common stock, par value $.0001 per share (the "Common Stock"), in the form
attached hereto as Exhibit B (the "Warrant"); and
WHEREAS, the Company is willing to sell to the Buyer the Note and
the Warrant in consideration of the aggregate payment to the Company by the
Buyer of $300,000.
NOW, THEREFORE, in consideration of the foregoing premises and the
respective representations, warranties, covenants, agreements and conditions
hereinafter set forth, and intending to be legally bound hereby, the parties
hereto agree as follows:
1. THE CLOSING.
1.1 Time and Place of Closing. Subject to the terms and conditions hereof,
the consummation of the transactions contemplated by this Agreement (the
"Closing") will take place by exchange of all documents and instruments required
hereby at the offices of Solovay Edlin & Eiseman, P.C., 845 Third Avenue, New
York, New York, at 3:00 P.M. (local time) on the August 26, 1999 or at such
other place or time or both as the parties may agree
1.2 Purchase and Sale of the Note and the Warrant. At the Closing, the
Company will issue and sell to the Buyer the Note and the Warrant and the Buyer
will acquire, accept and pay for, as hereinafter provided, the Note and the
Warrant.
1.3 Consideration for the Note and the Warrant. Except as provided in the
Note, the aggregate consideration for the Note and the Warrant shall consist of
immediately available funds in the aggregate amount of $300,000 (the
"Consideration").
1.4 Deliveries by the Company. At the Closing, the Company shall deliver
the following to the Buyer:
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1.4.1 A duly executed copy of this Agreement.
1.4.2 A duly executed Note.
1.4.3 A duly executed certificate representing the Warrant in the
name of the Buyer.
1.4.4 A duly executed security agreement in the form attached hereto
as Exhibit C (the "Security Agreement").
1.4.5 Any other documents and instruments incident to the
transactions contemplated hereby as the Buyer may reasonably
request.
1.5 Deliveries by the Buyer. At the Closing, the Buyer shall deliver the
following to the Company:
1.5.1 A duly executed copy of this Agreement.
1.5.2 Except as provided in the Note, cash in immediately available
funds in the aggregate amount of $300,000 by wire transfer to
the account listed on Schedule 1 hereto.
1.5.3 Any other documents and instruments incident to the
transactions contemplated hereby as the Company may reasonably
request.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to the Buyer as follows:
2.1 Organization. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
all requisite corporate power and authority to own and operate its properties,
to carry on its business as now conducted and as proposed to be conducted, to
enter into this Agreement, to issue and sell the Note and the Warrant and to
carry out the terms of this Agreement, the Note, the Warrant and the Security
Agreement (collectively, the "Operative Agreements").
2.2 Authority Relative to this Agreement. The Company has full corporate
power and authority to execute and deliver the Operative Agreements and to
consummate the transactions contemplated thereby. The execution and delivery of
the Operative Agreements and the consummation of the transactions contemplated
thereby have been duly and validly authorized by the Board of Directors of the
Company and no other corporate proceedings on the
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part of the Company are necessary to authorize the Operative Agreements or to
consummate the transactions contemplated thereby. The Operative Agreements have
been duly and validly executed and delivered by the Company and constitute valid
and binding agreements or obligations of the Company, enforceable against the
Company in accordance with their respective terms.
2.3 Reports. The Company has filed all forms, reports, statements and
other documents required to be filed with (i) the Securities and Exchange
Commission (the "SEC") including, without limitation, (A) all Annual Reports on
Form 10-KSB, (B) all Quarterly Reports on Form 10-QSB, (C) all Reports on Form
8-K, (D) all other reports or registration statements and (E) all amendments and
supplements to all such reports and registration statements (collectively
referred to as the "SEC Reports") and (ii) any other applicable state securities
authorities (all such forms, reports, statements and other documents in (i) and
(ii) of this Section 2.3 being referred to herein, collectively, as the
"Reports"). The Reports (i) were prepared in all material respects in accordance
with the requirements of applicable law (including, with respect to the SEC
Reports, the Securities Act of 1933 (the "Securities Act") and the Securities
Exchange Act of 1934 (the "Exchange Act"), as the case may be, and the rules and
regulations of the SEC thereunder applicable to such SEC Reports) and (ii) did
not at the time they were filed contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.
2.4 Concerning the Shares. The authorized capital stock of the Company
consists of (a) 15,000,000 shares of Common Stock, $.0001 par value per share,
of which 3,775,886 shares are issued and outstanding on the date hereof, and (b)
5,000,000 shares of preferred stock, par value $.01 per share, none of which are
outstanding on the date hereof. All of the outstanding shares of Common Stock of
the Company have been duly and validly authorized and issued and are fully paid
and nonassessable. No shares of Common Stock are subject to preemptive or
similar rights. Except as specifically disclosed on Schedule 2.4 hereto, there
are no outstanding options, warrants, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or, except as a result of
the purchase and sale of the Note and the Warrant, securities, rights or
obligations convertible into or exchangeable for, or giving any person any right
to subscribe for or acquire, any shares of Common Stock, or contracts,
commitments, understandings, or arrangements by which the Company or any
subsidiary is or may become bound to issue additional shares of Common Stock or
securities or rights convertible or exchangeable into shares of Common Stock.
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2.5 Reporting Company Status. The Company has registered its Common Stock
pursuant to Section 12 of the Exchange Act and the Common Stock is traded on the
bulletin board. The Company is in compliance, to the extent applicable, with all
reporting obligations under either Section 12(b), 12(g) or 15(d) of the Exchange
Act. The Company has complied in all material respects and to the extent
applicable with 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 and sale of the Securities.
2.6 Authorized Shares. The Company has sufficient authorized and unissued
Shares as may be reasonably necessary to effect the conversion of the Note and
the exercise of the Warrant. The Shares have been duly authorized and, when
issued upon conversion of the Note and upon exercise of the Warrant, 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.
2.7 Non-contravention. The execution and delivery of this Agreement, the
Security Agreement and the Note by the Company, the issuance of the Note and the
Warrant, and the consummation by the Company of the other transactions
contemplated by this Agreement, the Security Agreement, the Note, and the
Warrant 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 (i) the
articles of incorporation or by-laws of the Company, each as currently in
effect, (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, including any "lock-up" or similar provision of
any underwriting or similar agreements except as herein set forth, (iii) to its
knowledge, any existing applicable law, rule, or regulation or any applicable
decree, judgment, or (iv) to its knowledge, 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.
2.8 Compliance with Law. The business of the Company is not being
conducted in violation of any law, ordinance or regulation of any governmental
entity, except for possible violations that either singly or in the aggregate
would not be expected to have a material adverse effect on the business or
financial condition of the Company, or materially and adversely affect the
ability of the Company to perform its obligations pursuant to this Agreement.
The Company is not required under federal, state or local law, rule or
regulation to obtain any consent,
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<PAGE>
authorization or order of, or make any filing or registration with, any court or
governmental agency in order for it to execute, deliver or perform any of its
obligations under this Agreement or issue and sell the Common Stock, the Note,
or the Warrant, in accordance with the terms hereof
2.9 Approvals. No authorization, approval or consent of any court,
governmental body, regulatory agency, self-regulatory organization, or market or
the stockholders of the Company is required to be obtained by the Company for
the issuance and sale of the Note and the Warrant to the Buyer as contemplated
by this Agreement, except such authorizations, approvals and consents that have
been obtained.
2.10 Use of Proceeds and Modification of Prior Agreement. The proceeds
from the sale of the Note and the Warrant shall be used by the Company to, among
other things, retire all outstanding indebtedness owed to the purchasers (the
"1998 Buyers") of certain notes and warrants of the Company under an agreement,
dated as of January 30, 1998, between the Company and the 1998 Buyers. In
addition, the 1998 Buyers have agreed that the exercise price of all warrants to
be issued to the 1998 Buyers in accordance with a certain letter agreement,
dated May 3, 1999, between the Company and the 1998 Buyers shall be increased to
eighty cents ($.80) per share of Common Stock.
2.11 Full Disclosure. There is no fact known to the Company (other than
general economic conditions known to the public generally) or as disclosed to
the Buyer in writing that (i) would reasonably be expected to have a material
adverse effect on the business or financial condition of the Company or (ii)
would reasonably be expected to materially and adversely affect the ability of
the Company to perform its obligations pursuant to this Agreement.
2.12 Security Interest. The Security Agreement creates and grants to the
Buyer a legal and valid security interest in the Collateral identified therein.
Such Collateral is not subject to any liens whatsoever, except for the Prior
Interest (as defined in the Security Agreement).
3. REPRESENTATIONS AND WARRANTIES OF THE BUYER.
The Buyer represents and warrants to the Company as follows:
3.1 The Buyer is sufficiently experienced in financial and business
matters to be capable of evaluating the merits and risks of this investment and
to make an informed decision relating thereto. The Buyer has the financial
capability for making the investment, can afford a complete loss of the
investment, and the
5
<PAGE>
investment is a suitable one for the Buyer.
3.2 Prior to the execution of this Agreement, the Buyer has had the
opportunity to ask questions of and receive answers from representatives of the
Company concerning the finances, operations, business and prospects of the
Company.
3.3 The Buyer understands that the Company shall not be deemed to have
made to the Buyer any representation or warranty other than as expressly made in
this Agreement.
3.4 The Buyer understands that the Note and Warrant (and the Common Stock
into which the Warrant may be exercised and into which the Note may be
converted) purchased by the Buyer are not registered under the Securities Act,
and are not registered under any state "blue sky" laws, and the Note and Warrant
(and such Common Stock) may not be transferred except in compliance with such
laws.
3.5 The Buyer understands that the Note and Warrant (and such Common
Stock) purchased by the Buyer are "restricted securities" as that term is
defined in Rule 144 under the Securities Act and that the Note and Warrant (and
such Common Stock) purchased by the Buyer must be held indefinitely unless they
are subsequently registered under the Securities Act or an exemption from such
registration is available. The Buyer understands that in the case of sales in
which Rule 144 is not available, compliance with Regulation A under the
Securities Act or some other exemption under the Securities Act will be
required.
3.6 The Buyer represents that the Buyer is purchasing the Note and Warrant
for its own account for investment and not with a view to the distribution
thereof or with any present intention of distributing or selling any of the Note
and Warrant. The Buyer further represents that it is an "accredited investor"
within the meaning of Rule 501 under the Securities Act.
4. CERTAIN AGREEMENTS.
4.1 Registration and Limitations on Sale.
4.1.1 The Company agrees to include the 675,000 (as appropriately
adjusted for any stock splits, stock dividends or similar events) shares of
Common Stock for which the Warrant may be exercised and into which the Note may
be converted (the "Registrable Securities") in a registration statement (the
"Registration Statement") which shall be filed as promptly as practicable
following the Closing but in no event later than thirty (30) days after the
receipt of the entire amount of the Consideration (such date in referred to as
the "Start Date"). The Company will use its reasonable best efforts to have the
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<PAGE>
Registration Statement declared effective as promptly as practicable thereafter
but in no event later than ninety (90) days after the Start Date and shall keep
the Registration Statement effective in order to permit a public offering and
sale of the Registrable Securities thereunder. If the Registration Statement
covering the Registrable Securities required to be filed by the Company pursuant
to this Section 4.1.1 hereof has not been filed within thirty (30) days from the
Start Date and/or has not been declared effective by the earlier of (i) five (5)
business days after the Company receives a notice from the SEC that the
Registration Statement may be declared effective and (ii) ninety (90) days
following the Start Date, then the Company will make payments to the Buyer as
liquidated damages for such failure and not as a penalty, which payment shall be
equal to one percent (1%) of the Consideration paid for the Note purchased
hereunder for the initial thirty (30) day period until the Registration
Statement has been filed and/or declared effective, which shall be pro rated for
such periods less than thirty (30) days and two percent (2%) for each thirty
(30) day period thereafter until the Registration Statement has been filed
and/or declared effective (which shall be also pro rated, as aforesaid). The
liquidated damages shall be paid by the Company in cash upon demand. The Company
shall also use its best efforts to register or qualify all of the Registrable
Securities under such other securities or blue sky laws of such States of the
United States of America where an exemption is not available and as the Buyer
shall reasonably request.
4.1.2 The Company will pay all Registration Expenses (as defined
below) in connection with the Registration Statement. "Registration Expenses"
means all costs, fees and expenses incident to the Company's performance of or
compliance with its obligation to register the Registrable Securities,
including, without limitation, all registration, filing and NASD fees, all fees
and expenses of complying with securities or blue sky laws, all printing
expenses, and delivery expenses, the fees and disbursements of counsel for the
Company and of its independent public accountants, the fees and disbursements of
counsel to the Buyer for the review of the Registration Statement prior to
filing with the SEC, and any fees and disbursements customarily paid by issuers
or sellers of securities (excluding any underwriting discounts or commissions or
transfer taxes with respect to the Registrable Securities and the fees and
disbursements of more than one counsel for the Buyer).
4.1.3 The Company may require, and the Buyer hereby agrees, to
furnish the Company such information regarding the Buyer and the distribution of
the Registrable Securities as the Company may from time to time reasonably
request in writing.
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4.1.4 The Company will use its reasonable best efforts to keep the
Registration Statement effective in order to permit a public offering and sale
of any Registrable Securities registered thereunder until the earlier of (i) the
date that all of the Registrable Securities have been sold pursuant to the
Registration Statement, (ii) the date the Buyer may sell such securities under
the provisions of Rule 144(k) and (iii) the third anniversary of the effective
date of the Registration Statement.
4.1.5 If Company shall inform the Buyer in writing that in the good
faith judgement of the Company's counsel, the sale or transfer of shares of
Registrable Securities by the Buyer would, at such time, require the disclosure
of material information that the Company has a bona fide business purpose for
preserving as confidential or the Company would be required to provide
information required by the SEC or the Securities Act (or the rules and
regulations promulgated thereunder), such as pro forma financial information,
that at such time the Company would be unable to provide, the Company may
postpone or suspend effectiveness of the Registration Statement and the Buyer
will not sell Registrable Securities; provided, that in no event shall the
Company prohibit any sales pursuant to the foregoing for more than 20
consecutive days or more than 45 days in any 12 month period.
4.1.6 The Company shall (a) promptly notify the Buyer upon discovery
that, or upon the happening of any event as a result of which, the prospectus
included in the Registration Statement, as then in effect, includes an untrue
statement of a material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, in
the light of the circumstances under which they were made, and (b) at the
request of the Buyer, promptly prepare and furnish to the Buyer a reasonable
number of copies of a supplement to or an amendment of such prospectus as may be
necessary so that, as thereafter delivered to the purchasers of such securities,
such prospectus shall not include an 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 not misleading in the light of the circumstances under which
they were made. The Buyer agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in this Section
4.1.6, the Buyer will forthwith discontinue disposition of Registrable
Securities pursuant to the Registration Statement until the receipt by the Buyer
of the copies of the supplemented or amended prospectus and, if so directed by
the Company, will promptly deliver to the Company (at the Company's expense) all
copies, other than permanent file copies, then in the Buyer's possession of the
prospectus relating to such Registrable Securities current at the time of
receipt of such notice; provided, that in no event shall the Company prohibit
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the Buyer's disposition of Registrable Securities for more than 20 consecutive
days or more than 45 days in any 12 month period.
4.2 Expenses. Except as provided in Section 4.1.2 and except for
reasonable legal fees and expenses of the Buyer not to exceed $2,500 in
aggregate, which will be paid by the Company, all costs and expenses incurred in
connection with this Agreement and the transactions contemplated hereby will be
paid by the party incurring such costs and expenses.
4.3 Best Efforts. Subject to the terms and conditions of this Agreement,
each of the parties hereto will use its best efforts to take, or cause to be
taken, all action, and to do, or cause to be done, all things necessary, proper
or advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated by this Agreement.
4.4 Restrictions on Transfer of Note and Warrant. The Note and the Warrant
issued under this Agreement, including any Notes or Warrants issued upon the
transfer of the Note or the Warrant, shall be stamped or otherwise imprinted
with a legend in substantially the following form:
"This [security] has not been registered under the Securities Act of
1933, as amended, or applicable State securities laws, if any, and
may not be transferred in the absence of such registration or
receipt by the Company of an opinion of counsel reasonably
satisfactory to the Company that the transfer may be properly made
under an exemption from registration under such Act and such laws."
4.5 Information. From and after the date hereof and through August 31,
2000, the Company shall provide the Buyer with such information related to the
Company as may be reasonably requested by the Buyer, subject to the Buyer's
agreement, which is hereby made, to (i) maintain the confidentiality of any such
information which is confidential and (ii) to refrain from trading the Common
Stock while in possession of material confidential information.
4.6 Indemnification in Connection with the Registration Statement.
4.6.1 Indemnification by the Company. The Company will, and hereby
does, indemnify and hold harmless, the Buyer and its directors, officers,
affiliates, agents, successors and assigns from and against any losses, claims,
damages or liabilities to which the Buyer may become subject under the
Securities Act or otherwise, including, without limitation, the
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fees and expenses of legal counsel, insofar as such losses, claims, damages or
liabilities (or actions or proceedings, whether commenced or threatened, in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Registration Statement,
any preliminary prospectus, final prospectus or summary prospectus contained
therein, or any amendment or supplement thereto, or any omission or alleged
omission to state therein 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, or any violation by the Company of the Securities
Act or any rule or regulation thereunder applicable to the Company and the
Company will promptly reimburse the Buyer for any legal or any other expenses
reasonably incurred by the Buyer in connection with investigating or defending
any such loss, claim, liability, action or proceeding; provided, that the
Company shall not be liable in any such case to the extent that any such loss,
claim, damage, liability (or action or proceeding in respect thereof) or expense
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in the Registration Statement, any such
preliminary prospectus, final prospectus, summary prospectus, amendment or
supplement in reliance upon and in conformity with written information furnished
to the Company through an instrument duly executed by or on behalf of the Buyer
specifically stating that it is for use in the preparation thereof. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of the Buyer and shall survive the transfer of the
Registrable Securities by the Buyer.
4.6.2 Indemnification by the Buyer. The Buyer hereby agrees to
indemnify and hold harmless (in the same manner and to the same extent as set
forth in Section 4.6.1) the Company, and each director, officer and employee of
the Company, with respect to any untrue statement or alleged untrue statement of
a material fact contained in or any omission or alleged omission to state
therein a material fact in the Registration Statement, any preliminary
prospectus, final prospectus or summary prospectus contained therein, or any
amendment or supplement thereto, if such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company through an
instrument duly executed by or on behalf of the Buyer specifically stating that
it is for use in the preparation of the Registration Statement, preliminary
prospectus, final prospectus, summary prospectus, amendment or supplement;
provided, however, that the liability of the Buyer under this Section 4.6.2
shall be limited to the amount of proceeds received by the Buyer in the offering
giving rise to such liability. Such indemnity shall remain in full force and
effect, regardless of any investigation made by or on behalf of the Company or
any such director, officer or employee
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and shall survive the transfer of such securities by such seller.
4.6.3 Notices of Claims. Promptly after receipt by an indemnified
party of notice of the commencement of any action or proceeding involving a
claim referred to in this Section 4.6, such indemnified party will, if a claim
in respect thereof is to be made against an indemnifying party, give written
notice to the latter of the commencement of such action; provided, however, that
the failure of any indemnified party to give notice as provided herein shall not
relieve the indemnifying party of its obligations under this Section 4.6, except
to the extent that the indemnifying party is actually prejudiced by such failure
to give notice. In case any such action is brought against an indemnified party,
the indemnifying party shall be entitled to participate in and to assume the
defense thereof, jointly with any other indemnifying party similarly notified to
the extent that it may wish, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party for any legal
or other expenses subsequently incurred by the latter in connection with the
defense thereof other than reasonable costs of investigation; provided, however,
that if the indemnified party reasonably believes it is advisable for it to be
represented by separate counsel because there exists a conflict of interest
between its interests and those of the indemnifying party with respect to such
claim, or there exist defenses available to such indemnified party which may not
be available to the indemnifying party, or if the indemnifying party shall fail
to assume responsibility for such defense, the indemnified party may retain
counsel satisfactory to it and the indemnifying party shall pay all fees and
expenses of such counsel. No indemnifying party shall be liable for any
settlement of any action or proceeding effected without its written consent,
which consent shall not be unreasonably withheld or delayed. No indemnifying
party shall, without the consent of the indemnified party, consent to entry of
any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect to such claim or
litigation or which requires action other than the payment of money by the
indemnifying party. Each indemnified party shall furnish such information
regarding itself or the claim in question as an indemnifying party may
reasonably request in writing and as shall be reasonably requested in connection
with the defense of such claim and litigation resulting therefrom.
4.6.4 Contribution. If the indemnification provided for in this
Section 4.6 shall for any reason be held by a court of competent jurisdiction to
be unavailable to an indemnified party in respect of any loss, claim, damage or
11
<PAGE>
liability, or any action in respect thereof, then, in lieu of the amount paid or
payable under Section 4.6.1 or 4.6.2 hereof, the indemnified party and the
indemnifying party shall contribute to the aggregate losses, claims, damages and
liabilities (including legal or other expenses reasonably incurred in connection
with investigating the same), (a) in such proportion as is appropriate to
reflect the relative fault of the Company and the Buyer in connection with the
statement or omissions which resulted in such loss, claim, damage or liability,
or action in respect thereof, as well as any other relevant equitable
consideration (the relative fault of the Company and such prospective sellers to
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company or the Buyer and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission) or (b) if the allocation
provided by clause (a) above is not permitted by applicable law, in such
proportion as shall be appropriate to reflect the relative benefits received by
the Company and the Buyer from the offering of the securities covered by the
Registration Statement. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. In addition, no person shall be obligated to contribute
hereunder any amounts in payment of any settlement of any action or claim
effected without such person's consent, which consent shall not be unreasonably
withheld or delayed.
4.6.5 Other Indemnification. Indemnification and contribution
similar to that specified in the preceding sections of this Section 4.6 (with
appropriate modifications) shall be given by the Company and the Buyer with
respect to any required registration or other qualification of securities under
any federal or state law, rule or regulation of any governmental authority other
than the Securities Act.
4.6.6 Indemnification Payments. The indemnification and contribution
required by this Section 4.6 shall be made by prompt periodic payments of the
amount thereof during the course of the investigation or defense, as and when
bills are received or expense, loss, damage or liability is incurred.
4.7 Existing and Future Warrants. The Company will not, without the prior
written consent of the Buyer, reduce the exercise price of any warrants that are
outstanding as of the date hereof. The Company will not, without the prior
written consent of the Buyer, which consent will not be unreasonably withheld or
delayed, issue additional warrants to purchase Common Stock other than as set
forth on Schedule 2.4 hereof.
12
<PAGE>
4.8 Perfection of Security Interest. Promptly after the Closing, the
Company will file, or cause to be filed, UCC financing statements (whether Form
UCC-1 naming the Buyer as the Secured Party or Form UCC-3 assigning the
financing statements currently on file to the Buyer) with the Secretary of State
of New York and the County Clerk of New York county.
5. MISCELLANEOUS PROVISIONS.
5.1 Survival of Representations. All representations and warranties made
by either party pursuant to this Agreement shall survive the Closing.
5.2 Indemnification. In addition to the indemnification provided for in
Section 4.6, each of the parties hereto (the "Indemnifying Party") shall, to the
fullest extent permitted under applicable law, indemnify and hold the other (the
"Indemnified Party") harmless against any losses, claims, damages, liabilities,
actions, judgments, causes of action, costs or expenses including without
limitation, interest, penalties and attorneys' fees and expenses (the
"Liabilities") asserted against, resulting from, imposed upon or incurred or
suffered by an Indemnified Party as a result of, arising out of or relating to
any breach of a representation, warranty, covenant or agreement contained in the
Operative Agreements. All procedural and operating terms of such indemnification
shall be as set forth in Section 4.6.
5.3 Amendment and Modification. This Agreement may be amended, modified or
supplemented only by written agreement of the Company and the Buyer.
5.4 Waiver of Compliance; Consents. Except as otherwise provided in this
Agreement, any failure of any of the parties to comply with any obligation,
covenant, agreement or condition herein may be waived by the party or parties
entitled to the benefits thereof only by a written instrument signed by the
party granting such waiver, but such waiver or failure to insist upon strict
compliance with such obligation, covenant, agreement or condition shall not
operate as a waiver of, or estoppel with respect to, any subsequent or other
failure. Whenever this Agreement requires or permits consent by or on behalf of
any party hereto, such consent shall be given in writing in a manner consistent
with the requirements for a waiver of compliance as set forth in this Section
5.4.
5.5 Investigations. The respective representations and warranties of the
Company and the Buyer contained herein shall not be deemed waived or otherwise
affected by any investigation made by any party hereto.
13
<PAGE>
5.6 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered faxed to the numbers set forth
below with a record of receipt, personally or mailed by registered or certified
mail (return receipt requested), postage prepaid, to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice, provided that notices of a change of address shall be effective
only upon receipt thereof):
(a) if to the Company, to
Kideo Productions, Inc.
611 Broadway
Suite 523
New York, New York 10012
Attention: President
Fax: 212-505-6605
with a copy to
Solovay Edlin & Eiseman, P.C.
845 Third Avenue
New York, New York 10022
Attention: Michael B. Solovay, Esq.
Fax: 212-355-4608
(b) if to the Buyer, to
White Ridge Investments, Ltd.
c/o Gretton House
P.O. Box 65
Duke Street
Turks & Caicos Islands
With a copy to
Parker Chapin Flattau & Klimpl, LLP
1211 Avenue of the Americas
New York, New York 10036
Attention: Christopher S. Auguste, Esq.
Fax: 212-704-6288
5.7 Assignment. This Agreement and all of the provisions hereof shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns, but neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any of the
parties hereto without the prior written consent of the other parties, nor is
this Agreement intended to confer upon any other person except the parties
hereto any rights or remedies hereunder.
14
<PAGE>
5.8 Governing Law. This Agreement shall be governed by the laws of the
State of Delaware (regardless of the laws that might otherwise govern under
applicable Delaware principles of conflicts of law) as to all matters, including
but not limited to matters of validity, construction, effect, performance and
remedies.
5.9 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
5.10 Interpretation. The article and section headings contained in this
Agreement are solely for the purpose of reference, are not part of the agreement
of the parties and shall not in any way affect the meaning or interpretation of
this Agreement.
5.11 Entire Agreement. This Agreement, including the exhibits hereto and
the documents and instruments referred to herein, embodies the entire agreement
and understanding of the parties hereto in respect of the transactions
contemplated by this Agreement. There are no restrictions, promises,
representations, warranties, covenants or undertakings, other than those
expressly set forth or referred to herein. This Agreement supersedes all prior
agreements and understandings between the parties with respect to such
transactions.
5.12 Survival of Certain Agreements. All agreements contained in this
Agreement which by their terms shall survive the Closing hereunder, including,
without limitation, the agreements contained in Sections 4.1 through 4.6 and 5.2
hereof and this Section 5.12, shall survive the Closing for an indefinite period
of time.
(Signature Page Follows)
15
<PAGE>
IN WITNESS WHEREOF, the Company and the Buyer have caused this
Agreement to be signed by their respective duly authorized officers as of the
date first above written.
KIDEO PRODUCTIONS, INC.
By: __________________________
Richard Bulman, President
WHITE RIDGE INVESTMENTS, LTD.
By: __________________________
Name:
Title:
16
<PAGE>
SCHEDULE 1
WIRE TRANSFER INSTRUCTIONS
Citibank
120 Broadway
New York, New York 10043
Attention: Jeanne Kraemer
Solovay Edlin & Eiseman, P.C. Attorney Trust
Acct. No. 37254709
Bank ABA# 021000089
17
<PAGE>
SCHEDULE 2.4
Warrants
Exercise Price Number of Shares of Common Stock
-------------- --------------------------------
$4.00 1,611,540
$3.60 83,975
$0.80 2,168,187
$0.80 70,000 (GKM fee)
$1.25 200,000 (Picturevision)
$2.00 100,000 (consultant)
$3.00 100,000 (consultant)
$4.00 100,000 (consultant)
Options
Exercise Price Number of Shares of Common Stock
-------------- --------------------------------
$2.50 251,000
$1.00 99,000
Under the terms of a negotiated but unexecuted extension of his employment
contract, Richard Bulman is to receive options to purchase 150,000 shares
of common stock at a price of $1.00. The Company does not have such number
of options available under its option plan but will propose a new plan at
its next meeting of stockholders.
18
SECURITY AGREEMENT AMENDMENT
Security Agreement Amendment (the "Amendment"), dated as of August
30, 1999, by and among Kideo Productions, Inc. (the "Company"), Felton
Investments, Ltd., Greatview Investments, Ltd. and Mermaid Investments, Ltd.
(collectively, the "Original Secured Parties") and White Ridge Investments, Ltd.
(the "Additional Secured Party").
WHEREAS, on May 11, 1999 the Company and the Original Secured
Parties entered into a Note and Warrant Purchase Agreement (the "Original
Purchase Agreement"), whereby the Original Secured Parties loaned an aggregate
of $1,400,001 to the Company (the "Original Loan") and in return the Company
issued to the Original Secured Parties certain promissory notes (the "Original
Notes") and warrants to purchase shares of the Company's common stock (the
"Original Warrants");
WHEREAS, in connection with the Original Loan, the Company and the
Original Secured Parties entered into a security agreement (the "Security
Agreement"), pursuant to which the Company granted to the Original Secured
Parties a security interest in certain Collateral (as defined in the Security
Agreement);
WHEREAS, the Company desires to borrow from the Additional Secured
Party, and the Additional Secured Party agrees to lend to the Company, an amount
equal to $300,000 (the "Additional Loan");
WHEREAS, in return for the Additional Loan, pursuant to a Note and
Warrant Purchase Agreement (the "New Purchase Agreement"), the Company is
issuing a promissory note (the "Additional Note") and a warrant to purchase
shares of the Company's common stock (the "Additional Warrant");
WHEREAS, in order to effect the Additional Loan, the Company and the
Original Secured Parties desire to amend the Security Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter set forth, the parties hereto hereby agree as follows:
1. Amendments. The Security Agreement is hereby amended as follows:
(a) all references to the Loan shall mean the Original Loan and
the Additional Loan;
(b) all references to the Notes shall mean the Original Notes and
the Additional Notes;
(c) all references to the Warrants shall mean the Original
Warrants and the Additional Warrants;
(d) all references to the Purchase Agreement shall mean the
Original Purchase Agreement and the New Purchase Agreement;
and
<PAGE>
(e) all references to the Secured Parties shall mean the Original
Secured Parties and the Additional Secured Party.
Except for the specific changes provided for in this section, all terms and
conditions of the Security Agreement shall remain and are in full force and
effect.
2. Governing Law. This Amendment shall be governed by and construed in
accordance with the laws of the State of New York, without regard to principles
of conflicts of laws.
3. Miscellaneous. This Amendment shall be binding upon and inure to the
benefit of and be enforceable by the respective successors and assigns of the
parties hereto. The headings in this Agreement are for purposes of reference
only and shall not limit or otherwise affect the meaning hereof. This Agreement
may be executed in any number of counterparts, each of which shall be an
original, but all of which together shall constitute one instrument.
[SIGNATURE PAGE FOLLOWS]
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Amendment as of the date first above written.
KIDEO PRODUCTIONS, INC.
By: _______________________________
Name:
Title:
FELTON INVESTMENTS LTD.
By: _______________________________
Name:
Title:
GREATVIEW INVESTMENTS, LTD.
By: _______________________________
Name:
Title:
MERMAID INVESTMENTS, LTD.
By: _______________________________
Name:
Title:
WHITE RIDGE INVESTMENTS, LTD.
By: _______________________________
Name:
Title:
3
This Note has not been registered under the Securities Act of 1933, as amended,
or applicable State securities laws, if any, and may not be transferred in the
absence of such registration or receipt by the Company of an opinion of counsel
reasonably satisfactory to the Company that the transfer may be properly made
under an exemption from registration under such Act and such laws.
CONVERTIBLE SECURED PROMISSORY NOTE
$300,000 August 30, 1999
For value received, the undersigned, KIDEO PRODUCTIONS, INC., a
Delaware corporation ("Maker"), promises to pay to WHITE RIDGE INVESTMENTS, LTD.
("Holder"), at the office of Maker at 611 Broadway, Suite 515, New York, New
York 10012, or at such other place as Holder may designate, the principal sum of
THREE HUNDRED THOUSAND DOLLARS ($300,000), together with interest on the unpaid
balance of this Note, beginning as of the date hereof, before or after maturity
or judgment, at the rate of ten percent (10%) per annum, which rate shall be
computed monthly on the basis of a Three Hundred Sixty Five (365) day year and
actual days elapsed, according to the following schedule:
Date Amount
---- ------
May 31, 2000 $45,000
June 30, 2000 $45,000
July 31, 2000 $45,000
August 31, 2000 $165,000
Interest on the principal amount outstanding under this Note shall be due and
payable, in arrears, at the rate set forth herein, commencing on September 30,
1999 and continuing on the last day of each and every December, March and June
thereafter until this Note is paid in full.
If Maker shall fail to pay any amount owing to Holder under this Note when due
(whether at stated due date, upon acceleration or otherwise), then to the extent
permitted by law Maker will pay interest to Holder, payable on demand, on the
amount in default from the date such payment became due until payment in full at
the rate of 15% per annum.
Events of Default. The occurrence at any time of any one or more of
the following events shall constitute an "Event of Default" under this Note: (a)
Maker's failure to pay any interest when due under this Note which failure
continues for more than three (3) days following the date such payment is due;
(b) Maker's failure to pay principal or other amount (other than interest) when
due under this Note; (c) failure of Maker to perform in any material respect its
agreements and obligations, or a material breach of any of Maker's
representations and warranties, under the Note and Warrant Purchase Agreement,
dated as of the date hereof, between Maker and Holder (the "Purchase
Agreement"); (d) the dissolution, liquidation or termination of legal existence
of Maker; (e) the appointment of a receiver, trustee or similar judicial officer
or agent to take charge of or liquidate any property of assets of Maker, or
action by any court to take jurisdiction of all or substantially all of the
property or assets of Maker; (f) the sale of all or substantially all of Maker's
<PAGE>
property or assets; (g) the commencement of any proceeding under any provision
of the Bankruptcy Code of the United States, as now in existence or hereafter
amended, or of any other proceeding under any federal or state law, now existing
or hereafter in effect, relating to bankruptcy, reorganization, insolvency,
liquidation or otherwise, for the relief of debtors or readjustment of
indebtedness, by or against Maker.
Effect of Default. Maker agrees that upon the occurrence of an Event
of Default, the entire indebtedness with accrued interest thereon due under this
Note shall, at the option of the Holder, be immediately due and payable without
notice. Failure to exercise such option shall not constitute a waiver of the
right to exercise the same in the event of any subsequent Event of Default.
Prepayment. Any amount, outstanding under this Note may be prepaid,
in whole or in part, by Maker at any time.
Conversion. All or any part of the principal amount due and owing
under this Note may be converted by Holder into shares of the common stock, par
value $.0001 per share, of Maker (the "Common Stock") at any time and from time
to time after the date hereof. The number of shares of the Common Stock to be
received upon conversion shall be determined by dividing (i) the principal
amount of the portion of this Note which is being converted, plus accrued and
unpaid interest, by (ii) $.80 (the "Conversion Price"), subject to the
adjustments described below under "Adjustments."
To exercise the right of conversion, Holder must give written notice to Maker.
Such notice shall specify the principal amount of this Note Holder desires to
convert. Holder hereby agrees to take all steps reasonably requested by Maker to
assist Maker in complying with any such conversion request, including, without
limitation, delivering this Note to Maker so that a replacement Note reflecting
a reduced principal amount may be issued to Holder following any conversion.
At all times during which Holder has the right to convert this Note or any
portion hereof, the Company agrees to reserve and keep available an authorized
number of shares of the Common Stock sufficient to permit the conversion in full
of this Note and the Company represents and warrants that all of the shares of
Common Stock issued upon conversion of this Note shall be duly and validly
issued, fully paid and nonassessable.
Adjustments. The number of shares of Common Stock into which this
Note may be converted and the effective conversion price shall be adjusted for
the same events and in the same manner as the number of shares of Common Stock
underlying, and the exercise price of, the Warrant issued to Holder concurrently
herewith.
Security. This Note and the obligations of Maker under this Note are
secured by all of the properties and assets of Maker as granted and set forth in
the Security Agreement dated as of the date hereof.
2
<PAGE>
Notice. Any notice required to be given under this Note shall be
given in the same manner and subject to the same terms and conditions as set
forth in Section 5.6 of the Purchase Agreement.
Failure by the Holder to insist upon the strict performance by Maker
of any terms and provisions herein shall not be deemed to be a waiver of any
terms and provisions herein, and the Holder shall retain the right thereafter to
insist upon strict performance by the Maker of any and all terms and provisions
of this Note or any document securing the repayment of this Note.
Maker waives diligence, demand, presentment for payment, notice of
nonpayment, protest and notice of protest, and notice of any renewals or
extensions of this Note.
This Note shall be governed by and construed in accordance with the
laws of the State of New York (without regard to principles of conflicts of law
provisions). Maker hereby consents to the exclusive jurisdiction of any State or
Federal court located in New York County.
KIDEO PRODUCTIONS, INC.
By: _________________________
RICHARD BULMAN, President
