-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UM2Ue3dFicOHFO8yi25ohYCo7y5KQ+Jy59jiigeE1sYo6HzJI49XUdn33cWLCUip NvEasgam/tnWPcfXHCKKwg== 0001005477-99-004512.txt : 19991227 0001005477-99-004512.hdr.sgml : 19991227 ACCESSION NUMBER: 0001005477-99-004512 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 19990928 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KIDEO PRODUCTIONS INC CENTRAL INDEX KEY: 0000946073 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MOTION PICTURE & VIDEO TAPE PRODUCTION [7812] IRS NUMBER: 133729350 STATE OF INCORPORATION: DE FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: S-3 SEC ACT: SEC FILE NUMBER: 333-87951 FILM NUMBER: 99718640 BUSINESS ADDRESS: STREET 1: 611 BROADWAY STE 523 CITY: NEW YORK STATE: NY ZIP: 10012 MAIL ADDRESS: STREET 1: 611 BROADWAY STREET 2: STE 523 CITY: NEW YORK STATE: NY ZIP: 10012 S-3 1 FORM S-3 As filed with the Securities and Exchange Commission on September 28, 1999 Registration No. 333-_______ ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------------- FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ----------------- 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) ----------------- 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) ----------------- Copies to: Michael B. Solovay, Esq. Solovay Edlin & Eiseman, P.C. 845 Third Avenue New York, New York 10022 (212) 752-1000 ----------------- 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: |_| ================================================================================ CALCULATION OF REGISTRATION FEE (2)
========================================================================================================== 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 - ---------------------------------------------------------------------------------------------------------- Common Stock, par value $.0001 per share................. 1,005,000 shares $1.09375 $1,099,218.75 $305.58 ==========================================================================================================
(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. 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. ------------------------------- 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. ------------------------------- ___________, 1999 TABLE OF CONTENTS PAGE ---- 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 - -------------------------------------------------------------------------------- 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. - -------------------------------------------------------------------------------- 1 - -------------------------------------------------------------------------------- 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 - -------------------------------------------------------------------------------- 2 - -------------------------------------------------------------------------------- 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. - -------------------------------------------------------------------------------- 3 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. 4 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 5 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. 6 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 7 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 8 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: 9 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 10 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 11 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.
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) - ---------------- -------------- ------- -------------- ----------- 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%
- ---------- (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 (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 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 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 Kideo Productions, Inc. 1,005,000 Shares of Common Stock ----------------- PROSPECTUS ----------------- ________, 1999 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 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 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 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 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 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 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 EX-4.2 2 WARRANT CERTIFICATE 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. 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 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 (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 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. 5 (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 6 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 7 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 8 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. 9 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 EX-4.3 3 WARRANT CERTIFICATE 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. 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 2 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 3 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 4 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 5 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 6 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 7 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 EX-10.1 4 NOTE AND WARRANT PURCHASE AGREEMENT ================================================================================ NOTE AND WARRANT PURCHASE AGREEMENT AMONG KIDEO PRODUCTIONS, INC. AND WHITE RIDGE INVESTMENTS, LTD. Dated as of August 30, 1999 ================================================================================ 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: 1 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 2 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. 3 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, 4 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 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 6 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. 7 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 8 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 9 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 10 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 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 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 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 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 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 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 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 EX-10.3 5 SECURITY AGREEMENT AMENDMENT 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 (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 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 EX-10.4 6 CONVERTIBLE SECURED PROMISSORY NOTE 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 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 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 -----END PRIVACY-ENHANCED MESSAGE-----