EXHIBIT 10.38
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 PROMISSORY NOTE
$250,000 January 30, 1998
For value received, the undersigned, KIDEO PRODUCTIONS, INC., a
Delaware corporation ("Maker"), promises to pay to MICHAEL BOLLAG ("Holder"), on
demand of Holder at any time on or after April 15, 1999, 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 sum of TWO HUNDRED FIFTY THOUSAND DOLLARS ($250,000),
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 (360) day year and actual days elapsed. Interest on the principal
amount outstanding under this Note shall be due and payable, in arrears, at the
rate set forth herein, commencing on April 30, 1998 and continuing on the last
day of each and every July, October, January and April thereafter until this
Note is paid in full.
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 receipt by Maker of written
notice from Holder requesting such payment; (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 January 30, 1998, between Maker and, among
others, Holder (the "Purchase Agreement") or the Security Agreement, dated
January 30, 1998, between Maker and, among others, Holder (the "Security
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 subject to the following limitations
and the limitations contained in the second paragraph of the Section titled
"Conversion" below:
Prepayment of principal may be made only if (a) all interest accrued through the
date of prepayment is paid at the time of prepayment and (b) the amount of such
prepayment does net exceed net operating income (excluding any non-cash
expenses) generated by the Maker from the date of this Note up to the date that
any such prepayment may be made. In addition, Maker shall forfeit the right to
prepay prior to April 15, 1999 that portion of the following principal amounts
that is not prepaid on or before the following dates:
Amount Date by which must be Prepaid
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$83,333 October 15, 1998
$83,333 January 15, 1999
That portion of the $83,333 principal amount that is not prepaid on or before
October 15, 1998 is referred to herein as the "October Tranche" and that portion
of the $83,333 of principal amount that is not prepaid on or before January 15,
1999 is referred to herein as the "January Tranche." That portion of the
remaining $83,334 principal amount that is not paid on or before the date due
shall be referred to herein as the "Final Tranche."
If all or any part of this Note is outstanding on or after April 15, 1999, Maker
may, at any time on or after such date, repay all or a portion of such amount
unless Holder has exercised its right of conversion described below. Nothing
contained herein shall be deemed to relieve Maker of its obligations to pay this
Note when due.
If all or any part of this Note is outstanding on or after April 15, 1999, Maker
may, at any time on or after such date, give Holder written notice (the
"Repayment Notice") of Maker's intention pay such amount on a date specified in
the Repayment Notice, which date shall be no less than 30 days after the date of
the Repayment Notice. During the period between the date of the Repayment Notice
and the date set forth therein for repayment, Holder may exercise its right of
conversion described below.
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
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share, of Maker (the "Common Stock") at any time and from time to time after the
following dates: (a) October 15, 1998 with respect to the October Tranche, (b)
January 15, 1999 with respect to the January Tranche and (c) April 15, 1999 with
respect to the Final Tranche. 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 by (ii) $1.00 (the
"Conversion Price"), subject to the adjustments described below under
"Adjustments" and in Section 4.1.1 of the Purchase Agreement .
Notwithstanding anything to the contrary contained in this Note, at any time
that this Note is outstanding, if Maker sells any shares of the Common Stock or
securities convertible into or exercisable for Common Stock (which shall not
include the issuance of shares of the Common Stock upon the exercise of warrants
or options outstanding on the date hereof or options issued to employees in
connection with an employee option plan), all but $50,000 of the entire
principal amount outstanding under this Note shall become immediately
convertible in accordance with the terms hereof and shall not be prepayable. The
remaining $50,000 shall be deemed included in the Final Tranche.
At any time that any portion of this Note becomes convertible by Holder, Maker
shall promptly send notice to Holder advising Holder of such fact and the
principal amount of this Note which may be converted.
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 Agreement. This Note is one of the Notes referred to in,
and is entitled to the benefits of, the Security Agreement, dated January 30,
1998, between the Company and the holders of such notes.
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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 (but not its 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:
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RICHARD BULMAN, President
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