SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
[XX] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For Fiscal Year Ended December 31, 1996 [Fee Required]
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE
SECURITIES ACT OF 1934 [No Fee Required]
For the transition period _______________ to _______________.
Commission File No. 1-11976
Unapix Entertainment, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 95-4404537
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(State or other jurisdiction of (IRS Employer
incorporation of organization) Identification No.)
200 Madison Avenue, New York, NY 10016
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 252-7600
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Common Stock American Stock Exchange
Class B Warrants American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Check whether the issuer (i) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such
reports), and (ii) has been subject to such filing requirements for the past 90
days. Yes x No
--- ---
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of the registrant's knowledge in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB (x).
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Issuer's revenues for its most recent fiscal year were $22,413,000.
The aggregate market value of the common stock held by non-affiliates of the
registrant is approximately $18,517,686 (based upon the closing sales price of
these shares on the American Stock Exchange on March 19, 1997).
On March 19, 1997, there was a total of 5,669,651 shares of the registrant's
common stock outstanding.
Documents Incorporated by Reference:
1. Proxy statement for 1997 Annual Meeting incorporated in Part III.
2. Certain exhibits to Registration Statement, as amended, File No. 33-61798.
3. Certain exhibits to Quarterly Report on Form 10-QSB for the quarterly
period ended September 30, 1993.
4. Certain exhibits to Quarterly Report on Form 10-QSB for the quarterly
period ended June 30, 1996.
5. Certain exhibits to Annual Report on Form 10-KSB for the year ended
December 31, 1993.
6. Certain exhibits to Annual Report on Form 10-KSB for the year ended
December 31, 1994.
7. Certain exhibits to Annual Report on Form 10-KSB for the year ended
December 31, 1995.
8. Certain exhibits to Current Report on Form 8-K for Event of June 21, 1995.
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Part I
Item 1. Business
Unapix Entertainment, Inc. (the "Company") is primarily a worldwide
licensor and distributor of feature films and television programs, principally
for the television market (including free and pay television, cable and
satellite) and the home video market (including video cassette and laser discs).
The Company's current "library" of films and programs includes feature films,
documentaries, children's programming, educational and special interest
programming, , musical concerts, comedy shows, adventure series and classic
films and serials (the "Properties").
Prior to 1993 the Company primarily focused on the international
distribution of older Properties. During 1993 the Company expanded its
activities to exploit the increasing worldwide demand for television programming
and home video products resulting from the fractionalization of the television
viewing audience. A shift has occurred from mass audiences dominated by a few,
free broadcast networks to niche audiences served by diverse cable, satellite
and free television services, home videocassette and other products.
In order to capitalize on this evolution, during 1993 the Company
implemented a plan to expand and diversify the Company's business into areas of
domestic and foreign licensing, and domestic home video cassettes and laser disc
distribution of newer Properties, including properties that are designed to
appeal to a specific segmented audience. The Company has continued its expansion
and diversification in each subsequent year by adding a significant number of
newer Properties to its Library.
In March 1997, the Company completed the acquisition of all of the
capital stock of Miramar Images, Inc. ("Miramar"), which produces and
distributes music videos and audio recordings primarily for the New Adult
Contemporary Market, i.e., products that are designed principally to appeal to
individuals over the age of 25. [Unless the context indicates otherwise, a
reference to the Company does not include Miramar which is separately described
herein.]
Currently, in addition to Miramar, the Company's operations consist
principally of the following: the distribution of video cassettes to domestic
home video rental stores via sales to wholesalers, which is conducted by A Pix
Entertainment ("A Pix"); the distribution of Properties from the Company's
library to foreign broadcasters and home video rental companies, which is
conducted under the name of Unapix International; the licensing of Properties to
the North American television market, which is conducted under the name Unapix
North America; and the marketing of products that are intended to be purchased
by consumers, which is
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conducted by Unapix Consumer Products. During 1996, approximately 56% of the
Company's revenues were attributable to A Pix.
The Company was incorporated in Delaware on January 7, 1993 and is the
successor to Majestic Entertainment, Inc., which was incorporated in California
on January 6, 1986 and which was merged into the Company on March 23, 1993.
ACQUISITION OF FEATURE FILMS AND TELEVISION PROGRAMMING
The Company continuously monitors the industry for available Properties
and attempts to acquire rights to Properties which it believes are saleable to
various markets. Before acquiring the rights to a specific Property, the Company
analyzes the viability of the Property for licensing or distribution in light of
its projected costs and revenues and attempts to target the Property's audience
appeal. In determining the desirability of acquiring rights to Properties, the
Company examines their content, quality, theme, participating talent (e.g.,
actors and directors), plot, format and other criteria to determine the
Properties' suitability for the commercial broadcast, cable, satellite, pay
television, and home video markets. In acquiring finished programming,
management typically views a film in its entirety to evaluate its commercial
viability; in weighing commercial viability, the Company will consider the
degree to which it is entitled to edit the film.
In order to obtain licensing or distribution rights with respect to
Properties, the Company generally enters into a licensing or distribution
arrangement with the copyright holder or another distributor (who has a license
from the copyright holder). The rights may be limited to specific media (e.g.,
broadcast television, cable or home video) or to particular geographic areas
and, in general are exclusive rights to such media and/or geographic areas. The
rights are generally limited to a specified period of time, ranging in most
instances from seven to 21 years. In acquiring rights, the Company usually pays
a non-refundable initial fee or advance and/or commits to expend a certain
amount of funds on promotion. In most cases, the producer or distributor
licensing the Property to the Company is entitled to receive the revenues from
the Company's distribution activities, after the Company has been paid a
specified distribution fee (which is a set percentage of revenues) as well as
recouped its advance and specific recoupable marketing and other expenses. In
acquiring video cassette distribution rights for the "sell-through" market (and
in many cases for the domestic home video rental market)the Company will agree
to pay the licensor a royalty equal to a specific percentage of revenues; after
the Company has recouped its advance, it will then pay the licensor its royalty
and the Company will be entitled to retain all remaining revenues. The Company
usually charges interest on its advances, which, similar to the principal of the
advances, is payable only out of royalties or participations payable to the
licensor. The Company's credit
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facility imposes limitations on the size of advances the Company may extend
without the lender's approval.
In order to obtain distribution rights to a Property, the Company may
also agree to fund all or a portion of the Property's production. In exchange
for such funding, the Company may acquire, in addition to its distribution
rights, an ownership interest in the Property entitling it to a percentage of
profits from any distribution thereof (whether or not effectuated by the
Company.) Funding productions often enables the Company to acquire distribution
rights of longer duration than it might otherwise have been able to obtain. In
consideration for its involvement in a production, the Company may also receive
a credit as Executive Producer and an Executive Producer's fee. After acquiring
rights in a Property prior to its production, the Company typically has approval
rights over key product elements and maintains a production supervisory staff to
carefully monitor production and maintain quality control. Because production
arrangements necessarily entail unfinished programs, the Company is not able to
view the program prior to acquiring its rights, and therefore, there is the risk
that the finished product may be different from that which was initially
envisioned.
Production costs include the costs of acquiring or developing a
screenplay, film studio rental, cinematography, post-production and the
compensation of creative and other production personnel. Major studios (such as
Universal Pictures, Warner Brothers, Twentieth Century Fox, Sony Pictures
Entertainment, Paramount Pictures, and The Walt Disney Company) generally fund
production costs from cash flow from their motion picture and related activities
or, in some cases, from unrelated businesses. Independent production companies
generally avoid incurring substantial overhead costs by hiring creative and
other production personnel and retaining the other elements required for
pre-production, principal photography and post-production activities on a
project-by-project basis. Independent production companies often arrange for
financing on a project by project basis.
To date, the Company has sought to limit its risk with respect to the
production of both television series and film. In connection with the production
of television series or programs, the Company generally limits its initial
funding to the production of a short demo film. Additional financing of
production by the Company is then conditioned upon attaining a significant level
of pre-sales of the series or program (based upon the demo film) (usually equal
to at least approximately 70% of the series' or programs' estimated production
budget). Pre-sales consist of license fees committed to be paid to the producer
by third parties in return for the right to exhibit the program or to distribute
it in home videos, television, international or ancillary markets. The Company
currently has eight television series or programs in production or
post-production which it pre-sold prior to
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undertaking the funding of such activities. These series or programs consist of
the following: "Ushuaia: Adventures of Nicolas Hulot" (consisting of 26 one-hour
programs); "Jean-Michel Cousteau presents Stories of the Sea" (consisting of 26
half-hour programs); "Great Minds of Business," "Great Minds of Science," "Great
Minds of Medicine" and "Great Minds of American History" (consisting of 20
half-hour programs in total); "ESPU" (consisting of 13 half-hour programs);
"Wonders of the World" (consisting of five one-hour programs); "The Art of
Selling Hollywood" (consisting of one one-hour program); "Planet Video"
(consisting of 13 half-hour programs); and "History's Turning Points"
(consisting of 13 new episodes). While pre-selling a series reduces the
Company's risk, it does not entirely eliminate the risks to the Company, which
include the following: failure to complete the production and deliver the
programs in which case the Company will not be entitled to be paid by the
licensee to whom it pre-sold the programs; a delay in completing production as
to some or all of the episodes comprising a series, which would result in the
Company's not being paid according to schedule by the licensee to whom it
pre-sold the series and could result in cancellation of the sale; and actual
production costs significantly exceeding the original production budget, thereby
materially increasing the Company's cash flow requirements and decreasing the
ultimate profitability of the series. When a television program has a
well-defined television or home video audience and entails limited production
costs (to date, under $210,000 per episode) the Company has funded its entire
production without pre-selling the series. Examples of these programs are Deepak
Chopra's "The Seven Spiritual Laws of Success" and "The Way of the Wizard," and
Joseph Campbell's "Mythos."
In connection with the financing of a film, the Company generally
commits to provide an amount of funding that, when added to other financial
commitments the producer already has received, equals the production budget. In
most cases, the Company makes only limited commitments to advance funds prior to
completion of principal photography, when the bulk of production costs has
already been incurred. In 1996 the Company co-financed the production of six
films; it has committed to co-finance the production of eight films for 1997,
and expects to finance the production of ten or more films for 1998.
There is no assurance that in the future the Company will not change its
conditions for providing production financing. The Company's credit facility
imposes limitations on the Company's financing of production, without the
lender's approval.
The Company anticipates that in the future an ever greater proportion of
the distribution rights it acquires will be purchased through production
financing. The Company believes that through production financing it can acquire
distribution rights to higher quality films and programs with better production
values and more
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recognizable stars, as well as on more favorable terms, than can be obtained
after a Property is completed.
To enhance the Company's position in a dynamic marketplace, given the
financial terms and available rights, the Company seeks to acquire distribution
rights in as many media and territories with respect to Properties as is
practicable. This permits a single Property to be marketed by more than one of
the Company's divisions and subsidiaries and may permit the Company to exploit
new technological developments.
VIDEO CASSETTE DISTRIBUTION OF FEATURE FILMS TO NORTH AMERICAN HOME
VIDEO STORES
The Company, through A Pix Entertainment("A Pix"), is engaged in the
promotion and distribution of Properties for the home video rental market in
North America, consisting of video rental chains, individual video rental
stores, and supermarkets. Video cassettes distributed by the Company for this
market typically have a suggested retail price of approximately $93, which
generally is too high to result in sales to consumers.
The Company commenced distributing video cassettes to the home video
rental market in 1994, releasing a total of 22 films during that year. During
1995 and 1996 the Company released a total of 23 and 24 films, respectively. The
Company expects to release 24 films during 1997. Most of the films released by
the Company to date have been films that were released directly to the video
market without any prior exhibition in theaters or without being exhibited on
cable or broadcast television.
The Company believes that the market for home videos has become
increasingly more competitive, and that video rental outlets are becoming more
selective in their choice of product. In addition, overall growth in the
domestic home video market has slowed as growth in the number of new outlets and
new VCR homes has moderated. The growth in outlets designed to serve the rental
market has remained essentially flat for the past several years. Furthermore
technological developments which regional telephone companies and others are
developing could make competing delivery systems economically viable and could
affect the home video marketplace.
The Company is reacting to this evolving market by seeking to acquire
(i) increasingly higher quality films with more recognizable stars and better
production values that generally are targeted to niche audiences and (ii) rights
to distribute in media other than video cassettes, which may enable the
Company's other divisions to exploit new evolving technologies as well as
presently existing distribution channels such as the following: pay-per-view,
which allows cable television and satellite service subscribers to purchase
individual programs; pay television, which
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allows cable television subscribers to view premium channels such as HBO/Cinemax
and ShowTime/The Movie Channel; and broadcast and basic cable television
delivery systems, which allow viewers to receive, without charge, programming
broadcast over the air by affiliates of the major networks (ABC, CBS, NBC and
Fox), newly formed networks (UPN and WB Network), independent television
stations and cable and satellite networks and stations.
To date, notable films released or to be released by the Company for the
North American home video rental market include the following:
"Good Luck" - starring Gregory Hines (who co-starred in "The Preacher's
Wife" with Denzel Washington and Whitney Houston and won the 1992 Tony
Award for Best Actor in a Musical for his role in "Jelly's Last Jam"),
Vincent D'Onofrio (who has appeared in Stanley Kubrik's "Full Metal
Jacket," Oliver Stone's "JFK," and Robert Altman's "The Player"), Max
Gail (who had a regular role in the television series "Barney Miller")
and James Earl Jones. The film is an inspirational action adventure
about a blinded football player and a paraplegic who challenge the odds
and naysayers as they set out cross-country to realize their dream of
winning a white water rafting race. The Company has exclusive home video
distribution rights in the United States for a term of ten years. "Good
Luck" is currently scheduled to be released on home video in September
1997 after its two hundred screen theatrical release in March 1997.
"Boys Will be Boys" - starring Julie Hagerty, Randy Travis, Mickey
Rooney, Jon Voight, Dom Deluise, Mike Deluise, Catherine Oxenberg and
Ruth Buzzi, and directed by Dom Deluise, is a family film about what
happens when two brothers decide to declare war on each other while
their parents are out of town. The Company produced and was executive
producer of the film and has exclusive home video, theatrical,
non-theatrical, television and ancillary rights in the United States and
Bermuda for a term of fifteen years. The film is scheduled to be
released in December 1997.
"Changing Habits" - starring Moira Kelley (who appeared in "Little
Odessa," "Chaplin" and the "Cutting Edge"), Christopher Lloyd (who
starred in "Angels in the Outfield," "Addams Family Values," "Dennis the
Menace," and "Back to the Future, I, II and III"), Dylan Walsh (who
appeared in "Congo," and "Nobody's Fool"), Shelley Duvall (who starred
in "The Portrait of a Lady," "Roxanne" and "Popeye") and Terri Garr
(star of "Michael," "Dumb and Dumber," "After Hours" and "Tootsie"). The
film is a romantic comedy about a gifted young artist who seeks refuge
in a run down house of nuns in order to save on rent until an art supply
salesman steals her heart. The Company has exclusive distribution rights
in the
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United States in all media for a term of at least ten years. The film
is scheduled to be released to the home video market in May 1997.
"American Strays" - starring Luke Perry (star of "Beverly Hills 90210"),
Jennifer Tilly (Academy Award nominee for "Bullets Over Broadway"), Eric
Roberts (star of "It's My Party" and "The Specialist"), John Savage (who
starred in "White Squall" and the "Crossing Guard"), Carol Kane (who was
in "The Pallbearer" and "Addams Family Values") and James Russo (who
appeared in "Beverly Hills Cop" and "The Cotton Club"). The film is
about ten dangerous strangers who converge for a showdown. The Company
has exclusive home video, television, theatrical and non-theatrical
rights in North America for a term of fifteen years. "American Strays"
was initially released by A Pix to the home video market during the
fourth quarter of 1996.
INTERNATIONAL OPERATIONS
The Company, through its division Unapix International, exploits rights
to Properties in the international marketplace; marketing Properties to
broadcasters and others in more than 100 countries. Prior to 1994, this division
had been the Company's primary revenue source.
The Company's international library contains documentaries and
television series. Its library also contains films in the drama, adventure,
comedy, horror, musical, war and western genres as well as music videos from
Miramar. Many of the Company's recent acquisitions for international
distribution consist of documentaries and light entertainment programs from
independent producers; a number of which have aired on PBS, the Disney,
Discovery and A&E Channels as well as on The Learning Channel.
During 1994, the Company formed a unit to concentrate on international
television distribution of educational programming. Currently, the unit has over
350 hours of telecourse programming in diverse areas, such as science,
humanities, business, sociology, child development and art, that are distributed
via catalogue.
In addition to "Ushuaia: Adventures of Nicolas Hulot," "Great Minds of
Business," "Great Minds of Medicine," "Great Minds of Science" and "ESPU" (all
of which are described under North American Television Licensing) and Joseph
Campbell's "Mythos" (which is described under Consumer Products), notable
Properties currently distributed or scheduled to be distributed by the Company
in the international marketplace include the following:
"History's Turning Points" - currently consisting of 26 half-hour
programs co-produced by Transatlantic Films Production & Distribution
Company, broadcast television stations in
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Holland, France and Australia and The Learning Channel (where it is
currently making its United States' debut), with an additional 13
half-hour episodes being co-produced by the Company. The episodes, shot
on location around the globe by one of Britain's noted documentary film
makers, Revel Guest, bring to life momentous occurrences ranging from
the dropping of the Atomic Bomb and the Golden Age of Greece to the
marriage of Pocahontas. The Company has exclusive worldwide distribution
rights in all media (excluding the United States) to the programs for a
term of five years expiring in 2000.
"Stories of the Sea" - The Company has co-produced 26 half-hour episodes
of a television series to be known by this name. The episodes are the
first original projects under a co-development and production
arrangement between the Company and Bill Burrud Productions, a
well-known producer of family and wildlife series. The series consists
of 26 half-hour episodes narrated by ocean explorer Jean-Michel
Cousteau, which take a historical, adventurous look at man's involvement
with the sea (including the early Aqualung and underwater cameras, as
well as underwater shots of the sea's creatures and mysteries). The
Company has exclusive worldwide distribution rights in all media
(excluding the United States) to the episodes for a term of ten years.
The series will debut on Discovery International.
"Nova's Century of Discovery" - consisting of five two-hour programs
that explore 100 years of monumental achievements in the fields of
technology, physics, astronomy, biology, chemistry, geology,
archaeology, paleontology, medicine and psychology. The Company has
exclusive worldwide television and home video distribution rights
(excluding the United States and certain other territories) for a term
of at least seven years.
"The New Explorers" - a series currently consisting of 70 episodes that
have aired on the Public Broadcasting System over the past seven seasons
and has won the prestigious George Foster Peabody Award for educational
excellence. The programs, narrated by veteran CBS Network television
journalist Bill Kurtis, profile the new pioneers of science. Bill Kurtis
travels the globe exposing the human drama behind current explorations
and expeditions to the frontiers of science, nature and the world
environment. The Company has exclusive worldwide distribution rights in
all media (excluding the United States) to the existing 70 programs
comprising the series for a term of seven years, expiring in February
2000.
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NORTH AMERICAN TELEVISION LICENSING
The Company, through its division Unapix North America, licenses the
Company's Properties to domestic and Canadian television networks, independent
television stations, satellite networks and cable system operators. The Company
also acts as a sales agent for other distributors or producers with respect to
the licensing of their programs in these markets, for which the Company receives
a sales commission.
Notable Properties that the Company has acquired for licensing in the
North American television market include the following:
"Ushuaia: Adventures of Nicolas Hulot" - a series consisting of 26
one-hour episodes of a television series that has been broadcast in
France over the last nine years. The series is currently in
post-production by the Company, whereby the Company is editing the
episodes for the United States and international markets. The episodes
are a combination of action, adventure and natural history in which
Nicolas Hulot's daredevil stunts serve as the basis for the program's
exploration of the sights and history of the locations where the stunts
are performed. The series has been pre-sold to CNBC, and a one-hour
special was broadcast on NBC in September 1996. The Company has
exclusive television and video rights in North America and certain
foreign territories for a term of at least seven years.
"ESPU" - a series consisting of 26 half-hour episodes that are currently
being co-produced by the Company. The programs will focus on the
Endangered Species Protection Unit of South Africa. Each episode will
focus on the apprehension and trial of animal poachers in South Africa
and Southern Africa. The Company has pre-sold the series to the Animal
Planet Channel owned by the Discovery Channel. The Company has exclusive
worldwide distribution rights in all media in perpetuity.
"Great Minds of Business," being co-produced by the Company, Station
WGBH (public television's flagship production station) and Forbes
Magazine; "Great Minds of Medicine," being co-produced by the Company,
WGBH and Health Magazine; "Great Minds of Science," being co-produced by
the Company, Station WGBH and Discover Magazine; and "Great Minds of
American History," being co-produced by the Company, WGBH and American
Heritage Magazine - each is a series consisting of five half-hour
episodes. Each episode focuses on a significant innovator within the
particular subject matter of the series. "Great Minds of American
History" has been pre-sold to the History Channel. The other series will
be broadcast on PBS. The Company has exclusive worldwide distribution
rights in all media to all such series. The term of the Company's rights
with respect to "Great Minds of American History," "Great
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Minds of Business" and "Great Minds of Medicine" is in perpetuity. The
term of the Company's rights with respect to "Great Minds of Science" is
five years.
CONSUMER PRODUCTS
The Company, through its division Unapix Consumer Products (which was
formed in 1995), conducts "sell-through" operations, marketing products that are
intended to be purchased by consumers. Products marketed by this division
principally consist of feature films and television series and special interest
programs on video cassettes. Typical suggested retail prices for video cassettes
to be marketed as sell-through range from $9.95 to $29.95. At such prices it is
believed that the product becomes attractive for consumer purchase.
A portion of the Company's sell-through operations is conducted under
the name "Inner Dimension." Inner Dimension currently distributes home videos
and audio books to retailers, mail-order companies, mass merchants and
distributors worldwide. In addition, during 1997, the Company intends to conduct
a direct response business under the Inner Dimension name by mailing a color
catalogue to consumers marketing the same programs distributed by Inner
Dimension's wholesale division, as well as programs distributed by others. Many
of the Properties marketed by Inner Dimension will be the same Properties that
the Company previously marketed under the name "Mystic Fire." The Company had
operated Mystic Fire's catalogue and wholesale business under exclusive license
through the end of 1996. Programs distributed by Inner Dimension include popular
PBS specials such as Deepak Chopra's "The Seven Spiritual Laws of Success" and
"The Way of the Wizard," and Joseph Campbell's "Mythos," which is an exploration
of the world's most enduring archetypes and premiered on PBS in December 1996.
In addition to the Inner Dimension operations, the Company also
distributes for consumer purchase Properties acquired by the Company for
distribution to other markets as well Properties acquired by the Company
principally for sell-through distribution. The Company currently markets to
consumers approximately two titles per month that were previously released to
the home video rental market by A Pix; marketing for sell-through typically
commences approximately twelve months after the initial rental market release.
The Company distributes a number of programs produced by PBS. In addition to
those Properties distributed by Inner Dimension, notable Properties currently
being distributed by the Company that are intended for consumer purchase include
the following:
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"The U.S. News & World Report" - a collection of three television series
and two television specials consisting of a total of 34 hours of
programming which, among other things, feature episodes on the Navy's
Blue Angels and air combat and episodes that recreate the discovering,
and dramatic stories behind, many of America's national parks and other
natural treasures. The Company has exclusive North American home video
distribution rights for a term of at least seven years for most of the
titles.
"The Chucklewood Critters" series - a collection of nine half-hour
cartoon programs starring a young bear and fox named Buttons and Rusty.
Most episodes are an adventure encountered by Buttons and Rusty
revolving around a particular holiday or season. The Company has
exclusive North American home video distribution rights to the series
for a term of at least five years.
"Smithsonian World" - consisting of thirteen one-hour programs, which
explore modern culture by exploring art, science, history, literature
and technology in order to illuminate the culture of Americans and
related people and nations. The Company has exclusive worldwide
television and home video distribution rights to the series for a term
of at least four years.
MARKETING OF FEATURE FILMS AND TELEVISION PROGRAMS
In acquiring the rights to various film and television Properties, the
Company analyzes the viability of the Properties for distribution to the various
marketplaces in an effort to target the Properties' audience appeal. After such
analysis, the Company markets the Properties to the various media in a selective
manner. The Company and its key personnel have established contact with many
broadcasters and home video companies worldwide. The Company also presents
certain of its Properties to foreign and domestic broadcasters and home video
companies who are in attendance at the various international and domestic
television programming conventions such as NATPE, MIP, MIP Asia, MIPCOM, DISCOP
East Europe, the London Screenings, and the Los Angeles Screenings.
In connection with its distribution of Properties to the international
marketplace and its licensing of Properties to the North American television
market, the Company licenses Properties for exhibition primarily via pay, basic
cable and broadcast television, and, in the case of international distribution,
also via home video publishers. The Company enters into license agreements with
ultimate exhibitors, i.e., television networks, television stations and cable
and satellite systems operators, as well as sub-distributors. The Company does
not, with some minor exceptions, directly distribute video cassettes
internationally, rather, its licenses video cassette distribution rights to
sub-distributors.
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The Company's license agreement with a customer typically grants the
customer an exclusive license to either exhibit or distribute a specific film or
television program for a specified term, territory and medium, and in the case
of a license to a pay television channel or a broadcast or cable television
operator, the right to exhibit the Property for a specified number of times.
Upon the execution of the license agreement, the Company typically delivers a
copy of the master of the film or television program in a format appropriate to
the customer's needs. The Company believes that it has an excellent reputation
for offering its customers high quality reformatted Properties from the
Company's library. In consideration for the granting of the license to a
specific film or television program, the Company receives a licensing fee,
which, in the case of a license granted to a distributor or a pay-per-view
television exhibitor, is a percentage of revenues from the licensee's
distribution or exhibition of the Property and may include an advance of the fee
which is then recoupable from what otherwise would have been payable to the
Company. In the case of a license granted directly by the Company to a broadcast
network or cable television operator, the Company usually receives a set license
fee that is not dependent upon the amount of revenue achieved by the channel,
network or operator from the exhibition of the licensed Property.
The Company distributes video cassettes of feature films to the domestic
home video rental market primarily by selling them to ten wholesale
distributors, who then sell the video cassettes to rental outlets, such as video
rental chains, individual video rental stores, and supermarkets. During 1996,
approximately 25% of the Company's total revenues on a consolidated basis arose
from sales to two (2) video cassette distributors, Ingram Entertainment, Inc.
and East Texas Distributors. The Company distributes video cassettes to the
Canadian home video rental market by sub-licensing the Canadian home video
rights to a Canadian distributor, who then distributes the Properties to
Canadian rental outlets. In addition, the Company sub-licenses laser disc rights
to other domestic and Canadian distributors, who directly or indirectly, sell
the laser discs to retail outlets.
The Company selects an average of two feature films for release each
month to the North American home video rental market. Approximately sixteen
weeks prior to a video's retail release, the Company embarks on a marketing
campaign that includes advertising in distributor mailers and trade publications
and direct mailing of marketing literature and screening copies of the video.
The Company sells video cassettes to the North American home video rental market
primarily on a"pre-order" basis. Distributors who meet certain sales and
performance objectives may earn rebates, return credits and cooperative
advertising allowances.
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The Company believes that the packaging and art work for the video
boxes, posters, advertisements and other selling materials relating to the films
it distributes to the North American home video rental market are key factors in
determining the amount of sales. The Company designs the promotional campaign
for each such Property it releases. While some of the art works for packaging,
advertisements, trade show displays and posters are created entirely in-house,
the Company usually commissions outside parties to assist in the art work for
these materials. The Company then arranges for the printing, production and
distribution of all promotional materials. During January 1995 the Company
established a separate wholly-owned subsidiary, Green Leaf Advertising Company,
Inc., to conduct advertising and promotional activities for the Company's
operations.
Most of the feature films the Company distributes to the home video
marketplace are released directly to such markets. However, five films
distributed by A Pix for the home video market during 1996 were first released
theatrically. During 1994, 1995 and 1996 the Company did not directly distribute
any films for theatrical exhibition. Theatrical distribution of a motion picture
involves the manufacture of release prints, the promotion of the film through
advertising and promotional campaigns and the licensing of the motion picture to
theatrical exhibitors. The Company does not currently have any plans to directly
theatrically release films in the future. When the Company acquires theatrical
distribution rights, which is often the case when it provides production
financing, it licenses those rights to another distributor. If the Company has
the right to distribute films to domestic pay television stations, it exercises
those rights through Unapix North America. Films that are first released
theatrically or exhibited on pay television are generally released to the home
video rental market four to six months after such theatrical release or
exhibition. It is expected that in the future a greater percentage of the films
the Company releases for the home video rental market will first be released
theatrically or premiere on cable television. The Company believes that
theatrical releases and pay cable premiers should complement the home video
release by generating greater interest and awareness of a film before it is
marketed for home videos.
The Company markets films and television programs that are intended to
be purchased by consumers principally by the following means: (i) selling to
distributors and "rack-jobbers" who then sell the products to large retail
outlets (such as "Best Buy," "Music Land" and "Tower Records"), convenience
stores (such as "Seven Eleven") or mass merchants (such as "Sears"), or
otherwise market the products via shelf space they occupy at these locations,
for resale to the ultimate consumer; (ii) mail order (primarily by the inclusion
of the Company's Properties in catalogues operated by third parties and by, in
the past, the Company's mailing of the Mystic Fire catalogue and, in the future,
by the expected mailing
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<PAGE>
of the Inner Dimension and other catalogues); and (iii) direct response
advertisements appearing on the Company's video cassettes and at the end of
broadcasts of some of the Company's programs. In addition, through Miramar, the
Company markets its Properties for purchase by consumers in specialty retail
outlets (such as governmental agencies, gift stores, libraries and museums).
ACQUISITION OF MIRAMAR IMAGES, INC.
On March 17, 1997 the Company acquired all of the capital stock of Miramar
Images, Inc. ("Miramar") for an aggregate purchase price of approximately
291,000 shares of the Company's common stock. The Company's shares had an
aggregate fair market value of approximately $1,300,000 as of the closing date
and were issued and delivered to certain creditors and shareholders of Miramar
in exchange for Miramar Capital Stock and Miramar debt owed to them. The
Company has committed to file a registration statement registering such shares
within six months of the closing. It is expected that almost all of such shares
will be liquidated periodically during the six-month period immediately
following such registration statement's being declared effective under the
Securities Act of 1933 primarily to enable the shareholders and certain other
creditors to repay debt they have incurred to institutional lenders. To the
extent the proceeds from the sale of approximately 243,000 such shares, within
one year following the closing of the acquisition, are not at least equal to
$1,100,000 the Company has agreed to pay in cash the amount of such shortfall.
Additionally, Miramar's shareholders received approximately 22,500 shares of
Common Stock of the Company having an aggregate fair market value of
approximately $100,000 as of the closing date. In connection with the
acquisition, the Company also advanced approximately $200,000, and has committed
to advance another $550,000, to Miramar to settle certain claims by trade
creditors and others.
Based upon Miramar's unaudited financial statements as of and for the
eleven month period ended November 30, 1996, Miramar had a negative net worth of
approximately $300,000 (on a pro forma basis after giving effect to the
settlement of debt pursuant to the Company's acquisition) and a loss of
$254,000. The Company plans to file audited financial statements for Miramar for
1996 with the Securities and Exchange Commission (the "SEC") within 60 days of
the date of the filing of this Report with the SEC.
In connection with the acquisition, the Company entered into a four-year
employment agreement with the current president of Miramar providing for, among
other things, an annual salary of $125,000 per year, a performance bonus equal
to 5% of Miramar's pre-tax profit (as defined), and one-half of one percent of
the increase of the gross revenues of Miramar over its revenues for the
immediately preceding year. In addition, for each fiscal year commencing on or
after January 1, 1998, if such increase in revenues is equal to or greater than
20% of such preceding year's
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gross revenues, then Mr. Sullivan also will receive one-half of one percent of
the excess of such previous year's gross revenues over the gross revenues
realized by Miramar during the second immediately preceding fiscal year. The
Company also issued an aggregate of 210,000 stock options to Miramar employees
and consultants (including the current president). Each option entitles the
holder to purchase one share of the Company's Common Stock at a purchase price
of $4.375 (i.e. $.125 above the market price of the Company's Common Stock on
the closing date of the acquisition), subject to the holder's continuing to be
employed by the Company. The options have a term of ten years, but, subject to
certain exceptions, will not be exercisable for a period of 9.5 years unless
Miramar's operations attain certain earnings thresholds.
Miramar produces and distributes music videos and audio recordings
primarily for the New Adult Contemporary market, i.e., products that are
designed principally to appeal to individuals over the age of 25. Miramar's
videos are primarily long form music videos that match visual images with music
rather than attempting to tell a story. Miramar commenced operations in 1985 and
was known primarily as a "New Age" label. Early Miramar productions included
"Natural States," "Desert Vision," and "Canyon Dreams." During the 1990s Miramar
progressed from merely being a "New Age" label and began producing videos that
utilize a computer animated medium rather than traditional cinematography, such
as "The Mind's Eye," "Beyond the Mind's Eye" and "The Gate to the Mind's Eye."
Miramar markets the soundtracks to most of its videos separately as audio
products. In addition, Miramar's record division produces and markets audio
albums independent of videos. Artists who have recorded on the Miramar label
include the following: Tangerine Dream; Pete Bardens; Jan Hammer; and Thomas
Dolby. Audio only albums that have been released by Miramar include: "Drive";
"220 Volt Live"; and "Tyranny of Beauty." While most of Miramar's products are
marketed to adults, Miramar has a children's line of videos, examples of which
are "Gift of the Whales," "Imaginaria," and "Elroy's Toy." Currently Miramar has
distribution rights with respect to 35 video titles and 90 audio titles.
Most of Miramar's long form music videos and all of its children's line
of home videos are conceived of entirely by in-house personnel. After a concept
has been agreed upon, Miramar will license existing film footage from film
libraries or retain cinematographers on a "work for hire" basis to create the
visual images for the video. Licenses for film footage typically will require a
small royalty advance as well as payment of a small royalty in exchange for the
right to use the film footage for a specified term and territory. Miramar
sometimes licenses completed home videos, which in Miramar management's opinion
have the look and feel of Miramar's own productions, from independent producers.
In most cases Miramar has been approached by such producers who are seeking a
distribution vehicle for their videos.
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<PAGE>
Soundtracks for videos as well as recordings that are released only as
audio compact discs and tapes are primarily obtained from artists and their
agents who approach Miramar seeking a distribution label. In almost all cases,
the music has been recorded on a relatively high quality master when it is
presented to Miramar. Miramar may re-sequence and remix the master, however,
rarely will it arrange for a record to be produced by an artist in a recording
studio.
Most recordings are acquired by Miramar's purchasing the master. Such
master purchase arrangements usually enable Miramar to have distribution rights
in all media and territories in perpetuity to the recordings thereon. The artist
is usually prohibited from rerecording the music on the master for a period of
three to seven years. To a lesser extent, Miramar may acquire recordings by
obtaining the exclusive right to distribute the recordings on audio tapes and
compact discs, and where applicable, use the recordings in conjunction with
videos. The license will usually be limited to a certain time period and
territory. In acquiring distribution rights to recordings under either master
purchase arrangements or license agreements, Miramar usually pays a small
royalty advance as well as royalties based upon net sales. In some instances
Miramar may sign an exclusive recording agreement with a particular musician or
musical group, whereby Miramar agrees to acquire the recording that has already
been presented to Miramar by the musician or musical group and has the option to
acquire the next subsequent recordings at an agreed upon fee structure.
Miramar distributes its products to both the traditional retail
marketplace, such as retail record and video stores and chain bookstores, as
well as specialty retail outlets (alternative markets), such as governmental
agencies, gift stores, libraries and museums. It has a distribution agreement
with Bertelsmann Music Group ("BMG") for distributing its video cassettes and
audio compact discs and tapes in the United States, which is the principal
market in which Miramar's products are sold. BMG is responsible for
manufacturing, flooring, distributing, billing and collecting and is entitled to
a distribution fee based upon the amount of units sold. The distribution
agreement with BMG expires in September 1997. However, Miramar expects that BMG
will extend the term of the distribution agreement for at least another year;
although, there can be no assurance that this will, in fact, be the case.
Miramar maintains an in-house sales department that promotes and markets its
products particularly targeting the alternative market; it also utilizes radio
air play, television exposure, retail promotion, and publicity and advertising
to create demand within both the traditional and alternative markets. Miramar
from time to time has licensed its videos for exhibition on PBS and the Disney
Channel. It also markets its products through direct response television
advertisements and direct mail.
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<PAGE>
FOREIGN SALES
Revenues derived by the Company from foreign markets were $4,805,000 and
$4,239,000, in the years ended December 31, 1996 and 1995, respectively. The
Company is subject to various risks inherent in foreign trade which could have a
significant impact on the Company's ability to market its Properties
competitively. These risks include economic or political instability and
artificial ceilings placed on the demand for the Company's Properties in foreign
markets by foreign government's implementation of local content and quota
requirements prohibiting or limiting the quantity of foreign-made feature films
and television programs which may be exhibited or broadcast in one or more
foreign countries. Miramar did not have any material revenues during 1995 and
1996 that were generated from foreign markets.
GOVERNMENT AND OTHER REGULATION
United States television stations and networks as well as foreign
governments impose restrictions on the content of motion pictures which may
restrict in whole or in part exhibition on television or in a particular
territory. There can be no assurance, therefore, that current or future
restrictions on the content of the Company's films, may not limit or affect the
Company's ability to exhibit certain of such motion pictures in such media or
markets.
EMPLOYEES
Currently the Company and its subsidiaries, including Miramar, have 63
employees, four of which are part-time.
COMPETITION
Success in the distribution of entertainment programming and audio
compact discs and tapes is largely dependent upon a company's ability to acquire
distribution rights to products at attractive prices and upon the subsequent
performance of these products in the marketplace. The Company and Miramar face
significant competition both in obtaining distribution rights and in selling
products.
Competition for distribution rights to films, television programs and
recordings is based primarily on the amount of royalty advances which companies
are willing to offer to producers and recording artists and the producer's and
artists perception of the Company's marketing capabilities and its commitment to
marketing the property. The Company's principal competitors for acquisitions of
films and television programs are companies such as New Line, Live
Entertainment, Trimark Entertainment, Hallmark Entertainment, BMG Entertainment,
Republic Pictures, All American Television and Tapestry International. Miramar's
principal competitors for recordings are Windam Hill, Private Music, and Narada
Media;
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however, these companies do not produce or distribute long form music videos to
any significant extent. Many of the Company's and Miramar's competitors have
significantly greater financial resources and longer operating histories than
the Company or Miramar. In general, the Company and Miramar acquire films,
television programming, videos and recordings that are designed to appeal to a
specific and limited audience, and which can be promoted with a limited
advertising budget. Many of the film and television programs the Company
acquires may appeal to such a targeted audience that competitors that are
financially stronger than the Company may not actively pursue them, and the
competitors that do seek to acquire distribution rights in them may be
financially weaker than the Company or do not have as good a marketing
reputation. Most of recordings that Miramar seeks to acquire are not pursued by
major record labels because of their limited appeal. Miramar believes it can
compete against other smaller record labels for acquisitions of recordings
because of its reputation in the industry and the fact that it produces videos
that it believes attract artists to its label as such videos provide another
outlet for their music.
In marketing films, television programs, recordings and music videos,
the Company competes against the same competitors with whom it competes for the
acquisition of such products, as well as major studios and record companies,
such as Time/Warner, The Walt Disney Company, MCA, Paramount, Fox,
Sony/Columbia, and Geffen Records. Since the Company expends significantly less
on product acquisitions than many of these competitors it believes it can
produce profits from even modest sales volumes.
SERVICEMARKS AND TRADEMARKS
The Company has registered the servicemark "UNAPIX" with the United
States Patent and Trademark Office. The Company has applied for federal
registration of the servicemarks "A PIX," "GREAT MINDS," and "THE HORROR SHOP."
The Company has also applied for federal registration of "INNER DIMENSION" as a
servicemark and a trademark. Miramar has registered the trademark "MIRAMAR
PRODUCTIONS" with the United States Patent and Trademark Office.
FACTORS WHICH MAY AFFECT RESULTS
In connection with the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, the Company wishes to caution readers
that the following important factors, among others, in some cases have affected
and in the future could affect the Company's actual results and could cause such
results to differ materially from those expressed in forward-looking statements
made by or on behalf of the Company.
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<PAGE>
Nature of the Entertainment Industry - The entertainment programming and audio
compact disc and tape distribution business involves a substantial degree of
risk. The success of a product depends upon unpredictable and changing factors
such as competition and audience acceptance, which may bear little or no
correlation to the Company's production and other costs. Audience acceptance of
the Company's products represents a response not only to the artistic components
of the products, but also to the level of advertising and promotion by the
distributor and availability of alternative forms of entertainment and leisure
time activities, general economic conditions and public taste, and other
intangible factors, all of which change rapidly and cannot be predicted with
certainty. In addition, as a result of the Company increasing its resources to
film and television product earlier in its production and acquisition stages,
the possibility always exists that the finished product may be different from
that which was initially envisioned. Therefore, there is a substantial risk that
some or all of the Company's products may not be commercially successful,
resulting in costs not being recouped or anticipated profits not being realized.
Capital Intensive Industry; Additional Financing Requirements - The
entertainment programming and audio compact disc and tape distribution and
licensing industry is capital intensive and requires significant expenditures of
funds to establish a library of Properties from which revenues may be generated.
The Company could be dependent upon future financing in order to compete more
effectively in the marketplace. The Company's cash requirements have been and
will continue to be significant. If additional funding is unavailable to the
Company when needed, the Company could be required to curtail significantly one
or more aspects of its operations and the Company's business and financial
condition could be materially adversely affected.
Dependence upon Key Personnel - The Company is highly dependent on the services
of Herbert M. Pearlman, its Chairman of the Board, David M. Fox, its President,
David S. Lawi, its Treasurer and Chairman of the Executive Committee, Scott
Hanock, its Managing Director of International Sales and Marketing, and Robert
Baruc, its Executive Vice President (and President of A Pix Entertainment). The
loss of the services of one or more of Messrs. Pearlman, Fox, Lawi, Hanock, or
Baruc would have a material adverse effect upon the Company's business.
Presently, the Company has key man life insurance only on the lives of Messrs.
Fox and Baruc, in the amounts of $1,000,000 and $750,000, respectively.
Competition - The Company currently competes with other television licensing and
distribution companies as well, as in the case of Miramar, other recording
companies, including many of which have longer-standing relationships in the
industry, significantly greater financial resources and more extensive libraries
than the Company
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<PAGE>
and Miramar. There can be no assurance that the Company and Miramar will be able
to compete successfully against these other companies.
Shift in Strategy - Although members of management of the Company have prior
experience in film production, the Company's decision to increase its
involvement in film and television production will lead the Company into a
business segment where it has a limited track record. This shift in strategy
toward an increased emphasis on motion picture production and acquisition may
increase the rewards available to the Company, but may increase the risks as
well.
ITEM 2. PROPERTIES
The Company's principal executive offices, consisting of approximately
11,254 square feet, are located at 200 Madison Avenue, 24th Floor, New York, New
York 10016. The Company occupies these offices pursuant to an eleven-year lease
that commenced in May 1996 and provides for annual rent of $281,350 during the
first three years, annual rent of $298,231 during the next three and on-half
years, and annual rent of $320,739 during the remainder of the lease term.
The Company also leases approximately 3,400 square feet of office space
located at 4515 Van Nuys Boulevard, Sherman Oaks, California 91403. The current
lease is for a term of three years, commencing April 1996, at a base annual rent
of $44,400 for the first year, $45,600 for the second year and $46,200 for the
third year. This space is used for the offices of Unapix International.
The Company also shares occupancy, with three other affiliated
corporations, of 4,500 square feet of office space located at 537 Steamboat
Road, Greenwich, CT. All four corporations are tenants under a lease which is
for a term of three years commencing May 1995 with an annual base rent of
$99,000 for the first year, $103,500 for the second year and $108,000 for the
third year. The Company currently pays approximately 25% of the rent.
Miramar's offices, consisting of approximately 7,000 square feet of
office space, are located at 200 Second Avenue West, Seattle, Washington 98119.
Miramar occupies these offices pursuant to a lease expiring in January 1999,
which provides for a current base annual rent of $99,000, with annual increases
based upon the increase in the consumer price index for the Seattle-Everett
Metropolitan area.
The Company believes that its office space is adequate for its current
needs.
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ITEM 3. LEGAL PROCEEDINGS
The Company is involved in legal proceedings which have arisen in the
normal course of business. The Company believes that any liability which may
arise as a result of any such proceeding will not have a material adverse effect
on its financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable. No matters were submitted to a vote by the Company's
security holders during the fourth quarter of its fiscal year.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
(a) Market Information
The Company's Common Stock and Class B Warrants are primarily traded on
the American Stock Exchange (the "AMEX") under the symbols UPX and UPX.WS.B,
respectively. Until October 11, 1995, the Company's Class A Warrants also traded
on the AMEX under the symbol UPX.WS.A. Trading of the Class A Warrants, was
discontinued as a result of the Company's redemption of such warrants. The
Company's Common Stock, Class A Warrants, Class B Warrants and Units (each
consisting of one share of Common Stock, one Class A Warrant and one Class B
Warrant) principally traded on the NASDAQ (under the symbols UPIX, UPIXW, UPIXZ
and UPIXU, respectively) until August 15, 1995, when trading was discontinued on
the NASDAQ and trading commenced on the AMEX. The Common Stock, Class A
Warrants, Class B Warrants and Units also traded on the Boston Stock Exchange
(under the symbols UPX, UPXW, UPXZ, and UPXU respectively) until October 18,
1995 when the Company's application to voluntarily delist from such exchange, in
order to avoid the dual expense of two exchange listings, was approved.
The following tables set forth the range of high and low sales prices of
the Company's securities as reported by the AMEX, and high and low bid prices as
reported by NASDAQ and the Boston Stock Exchange, for the periods indicated. The
quotations reported by NASDAQ represent interdealer quotations which do not
include retail mark up, mark down or commissions and do not necessarily
represent actual transactions.
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Boston
NASDAQ Stock Exchange
------ ----------------
Low High Low High
--- ---- --- ----
1995
- ----
First Quarter
Units 4 3/4 6 1/2 4 6
Common Stock 3 1/4 4 9/16 3 4 1/4
Class A Warrants 13/16 1 3/8 1/2 1 1/16
Class B Warrants 9/16 1 1/4 9/16
Second Quarter
Units 5 1/2 6 3/4 5 1/4 6 1/8
Common Stock 3 15/16 4 5/8 3 3/4 4 3/8
Class A Warrants 31/32 1 5/16 7/8 1
Class B Warrants 25/32 31/32 9/16 3/4
Third Quarter*
Units 6 1/4 6 3/4 6 1/8 6 1/4
Common Stock 4 3/8 4 5/8 4 1/16 4 3/8
Class A Warrants 1 1/16 1 7/16 1 1 1/8
Class B Warrants 3/4 7/8 3/4 13/16
- --------------
* Commencing on August 15, 1995 the Company's securities were no longer traded
on NASDAQ. Commencing on such date, the Boston Stock Exchange discontinued
reporting bid and asked prices for the Company's securities, as the AMEX became,
on such day, the principal stock exchange on which the Company's securities
trade.
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American
Stock Exchange
--------------
Low High
--- ----
1995
- -----
Third Quarter Common Stock 4 3/4 5 13/16
Class A Warrants 1 1/2 2 7/16
Class B Warrants 13/16 1 1/2
Fourth Quarter Common Stock 4 3/16 6
Class A Warrants** 1 1/8 1 13/16
Class B Warrants 7/8 1 3/4
1996
- -----
First Quarter Common Stock 4 3/8 5 1/2
Class B Warrants 7/8 1 3/8
Second Quarter Common Stock 3 5/8 4 11/16
Class B Warrants 1/2 1 3/16
Third Quarter Common Stock 3 1/2 4 7/8
Class B Warrants 9/16 7/8
Fourth Quarter Common Stock 3 1/4 4 7/16
Class B Warrants 7/16 3/4
- ---------------------------
** Trading of the Class A Warrants was discontinued by the AMEX as the close of
business on October 11, 1995.
(b) Holders
As of March 19, 1997, there were, to the best of the Company's knowledge,
approximately 208 and 32 holders of record (not beneficial holders) of the
Company's Common Stock and Class B Warrants, respectively.
(c) Dividends
The Company has not paid any cash dividends. The Company does not anticipate
paying any cash dividends in the foreseeable future, and is prohibited from
paying any cash dividends on its common stock under its working capital credit
facility. In April 1996 the Company declared a 5% stock dividend on its
outstanding shares of Common Stock. The record date for the dividend was Monday,
April 22, 1996, and the payment date was Monday, May 6, 1996.
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<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OPERATION.
Year Ended December 31, 1996 Compared with Year Ended December 31,1995
Revenues for the year ended December 31, 1996 increased by 23%, to $22,413,000
from $18,289,000 in 1995. This increase in revenues is primarily a result of the
increase in home video revenues by 25%, to $15,740,000 as compared to
$12,545,000 in 1995 due to the distribution of higher quality films to the
rental marketplace as well as increase revenues relating to the video
sell-through operation which began in 1995. The Company released 24 films to the
rental marketplace in 1996. It is expected that the Company will release a
similar number of films in 1997, however, these releases will be of higher
quality films which should increase revenue. Sell-through revenues are also
expected to increase in 1997, due to the continued growth in the Company's
library of programming. Licensing and distribution revenues increased by 16%, to
$6,673,000 from $5,744,000 in 1995. This increase is due to the acquisition of
new product and aggressive marketing in the domestic and foreign marketplaces.
It is expected that improvement in licensing revenues will be realized in 1997.
At December 31, 1996, the Company has licensing sales agreements which have not
been recognized as revenue, totaling approximately $2,800,000. An additional
$1,200,000 of sales contacts relating to productions is expected to be signed by
a major cable company upon the finalization of delivery schedule. Of such
$4,000,000, approximately $500,000 will be recognized upon the commencement of
their license periods and approximately $3,500,000 of sales contracts will be
recognized upon completion of production and delivery to the customer. The
Company is expecting to recognize this revenue during 1997. At December 31,
1995, the Company had unrecognized sales agreements of approximately $600,000,
most of which were recognized over the subsequent two quarters.
Licensing and distribution cost for the year ended December 31, 1996 increased
by 42%, to $4,704,000 as compared to $3,306,000 in 1995. This increase generally
reflects increased royalty and amortization expense associated with the higher
levels of revenues described above. The 1995 period was favorable impacted by
approximately $560,000 of agency sales, on which the Company does not incur any
significant expenses. Management expects future changes in costs to increase at
a lower rate than sales reflecting the anticipated sales of higher margin
products. The increase in home video operating costs of 15% or $1,385,000
primarily represents the amortization of film costs and royalty expense related
to the increase in home video revenues, described above. The Company expects
this increased margin to continue in the future.
General and administrative costs increased by 26%, to $6,224,000 for the year
ended December 31, 1996, as compared to $4,934,000 in the same period in 1995.
This increase is chiefly attributable to costs related to the infrastructure
required to support the Company's
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<PAGE>
Year Ended December 31, 1996 Compared with Year Ended December 31,1995
(continued)
expansion and diversification. These costs mainly consisted of increased
staffing and office costs to support the increased sales activity described
above.
Interest and debt expense increased to $541,000 in 1996 from $404,000 in 1995.
The increase reflects the interest and related expenses on the 10% Convertible
Notes issued in 1996. Interest income increased to $418,000 in 1996 from
$293,000 in 1995. This increase relates to a full year of interest income on
employee receivables relating to the Employee Stock Purchase Plan and an
increase in productions and acquisitions where the Company charges interest on
the advances it makes.
The Company had income before taxes of $989,000 for the year ended December 31,
1996 compared to $950,000 for the year ended 1995. As noted above, 1995 was
favorably impacted by agency sales. Management anticipates that as the number of
higher quality and higher margin releases to the video and the licensing and
distribution markets increase in 1997, the impact on operating results should be
favorable.
The tax expense of $400,000 in 1996, reflects full provision on pre-tax income
for the year. The tax expense of $15,000, in 1995, reflects a $362,000 reduction
of the valuation allowance on the deferred income tax asset, which had
previously been fully reserved (See footnote 7 for further details), offset by
income tax expense recognized during the year.
Liquidity and Capital Resources
For the year ended December 31, 1996, the Company had operating cash inflows of
$10,385,000, before accounting for film cost expenditures of $17,635,000
incurred in acquiring and promoting new properties for the home video rental and
licensing and distribution markets. Net operating cash requirements of
$7,240,000 in 1996, including film cost expenditures, were primarily met by cash
inflows from operations, cash on hand, the proceeds of the private offering of
10% convertible subordinated notes, described below, and the utilization of the
Company's credit facility.
In March 1997, the Company acquired all of the capital stock of Miramar Images,
Inc. ("Miramar") for an aggregate purchase price of 290,996 shares of the
Company's common stock. The Company's shares had an aggregate fair market value
of approximately $1,300,000 as of the closing date and were issued and delivered
to certain creditors and shareholders of Miramar in exchange for Miramar Capital
Stock and Miramar debt owed to them.
27
<PAGE>
Liquidity and Capital Resources (continued)
The Company has committed to file a registration statement registering such
shares within six months of closing, primarily to enable the shareholders and
certain creditors to liquidate the shares to repay debt they have incurred to
institutional lenders. To the extent that the proceeds of the liquidation of
approximately 243,000 of such shares are not at least equal to approximately
$1,100,000, the Company has agreed to pay in cash the amount of such shortfall.
It is expected that this share liquidation will occur within one year of the
acquisition. In connection with the acquisition, the Company also advanced at
the closing approximately $200,000, and has committed to advance an additional
$550,000 to settle certain liabilities to trade creditors and others.
In the normal course of business the company makes certain guarantees to
producers and other third parties as to the minimum amount such parties will
receive from the Company's distribution of their products. The Company has
committed to pay film acquisition advances and guarantees of approximately
$1,478,000 as of December 31, 1996, which amounts are payable upon delivery of
the films. The Company also expects to incur significant additional costs
relating to its continued expansion. In order to meet its future funding needs
the Company will utilize cash on-hand, operating cash flows, its line of credit
and other financing, including the financing described below.
In the second quarter of 1996, the Company commenced a private offering of
Units, each consisting of: (i) a $250,000 principal amount 10% convertible
subordinated note due June 30, 2003 convertible into the Company's common stock
at a price of $4.50 per share; and (ii) Warrants to purchase 25,000 shares of
the Common Stock, at an exercise price of $6.00 per share ("Warrant"), expiring
June 30, 2003. The offering generated proceeds in 1996 of approximately
$5,947,000 (for further detail concerning this private placement see footnote
4). In 1997, the Company received additional proceeds of $250,000 under this
offering.
In the first quarter of 1997, the Company commenced a private offering of Units,
each consisting of: (i) a $250,000 principal amount 10% convertible subordinated
note due June 30, 2003 convertible into the Company's common stock at a price of
$5.00 per share; and (ii) Warrants to purchase 25,000 shares of the Common
Stock, at an exercise price of $6.00 per share ("Warrant"), expiring June 30,
2003. As of March 21, the offering generated proceeds in 1997 of approximately
$250,000 (for further details concerning this private placement see footnote
12.)
The Company's's credit facility with Atlantic Bank of New York (the "Bank")
provides for borrowing of up to $2,500,000. Loans are extended and required to
be repaid based upon the Company's outstanding accounts receivable and other
contractual rights to
28
<PAGE>
Liquidity and Capital Resources (continued)
payment. Interest on the outstanding loan balance accrues at a rate of 1.5% per
annum in excess of the Bank's publicly announced benchmark rate. The term of the
facility expires on May 31, 1997, and may be terminated by either party upon
60 days notice after such date. The Bank may also terminate the facility upon 60
days notice at any time throughout the term. Outstanding amounts under the
facility are secured by substantially all of the Company's assets. The facility
contains restrictive covenants that require minimum (i) tangible net worth, (ii)
liquidity and (iii) earnings to interest expense ratios. The covenants prohibit
the payment of cash dividends on common stock or a change in control of the
Company. The covenants also, among other things, limit the Company's ratio for
debt to net worth and the amount of loan proceeds which can be utilized to
acquire film rights or finance film productions. As of December 31, 1996 the
Company had borrowed $309,000, had an outstanding letter of credit of $300,000
and had remaining availability of $1,891,000. The Company anticipates, replacing
this facility with a new credit facility which would provide for borrowing of up
to $7,000,000 depending on available collateral.
The Company will need additional funding sources to meet some of these cash
requirements for the upcoming year as well as for future acquisitions. The
feature film and television licensing and distribution industries require
significant expenditures of funds to establish and expand a library of films and
programs from which revenues may be generated. The company could be dependent
upon future financing to continue its long term plans of expansion and growth.
The Company anticipates that as its asset base grows it will secure increasing
working capital lines of credit as well as explore other film acquisition
financing arrangements. It is also possible that the Company may have additional
debt or equity financing.
Except for the historical information contained herein, the matters discussed
are forward-looking statements that involve risks and uncertainties, including
those factors discussed in "FACTORS WHICH MAY AFFECT RESULTS."
ITEM 7. FINANCIAL STATEMENTS.
See financial statements set forth in Item 13 of this annual report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
29
<PAGE>
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
The information required by Item 9 is incorporated herein by reference
to the information set forth under the sections entitled "Election of Directors
and "Executive Officers" in the Company's definitive Proxy Statement for the
Annual Meeting of Stockholders for 1996 to be filed with the Securities and
Exchange Commission not later than 120 days after December 31, 1996 (the "Proxy
Statement").
ITEM 10. EXECUTIVE COMPENSATION.
The information required by Item 10 is incorporated herein by reference
to the material under this heading in the Proxy Statement.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by Item 11 is incorporated herein by reference
to the information under this heading in the Proxy Statement.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by Item 12 is incorporated herein by reference
to the information under this heading in the Proxy Statement.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) (1) Financial Statements
Page
----
Independent Auditor's Report............... F-1
Consolidated Balance Sheet as of
December 31, 1996....................... F-2
Consolidated Statements of Operations
for the years ended December 31, 1996
and 1995................................ F-3
Consolidated Statements of Changes in
Stockholders' Equity for the years
ended December 31, 1996 and 1995........ F-4
Consolidated Statements of Cash Flows
for the years ended December 31, 1996
and 1995................................ F-5
Notes to Consolidated Financial Statements. F-7
30
<PAGE>
(b) Reports on Form 8-K
The Company did not file any current Reports on Form 8-K during the
fourth quarter of 1996.
(c) Exhibits
Exhibit
Number Description
- ------- -----------
3.1 Company's Certificate of Incorporation, dated January 7, 1993
[incorporated herein by reference to Exhibit 3.1 to the Company's
Form SB-2 Registration Statement, File No. 33-61798 (the
"Registration Statement")]
3.1.1 Amendment No. 1 to Company's Certificate of Incorporation, dated
March 15, 1993 [incorporated herein by reference to Exhibit 3.1.1 to
the Registration Statement]
3.1.2 Certificate of Ownership and Merger, dated March 23, 1993
[incorporated herein by reference to Exhibit 3.1.2 to the
Registration Statement]
3.1.3 Amendment No. 2 to Company's Certificate of Incorporation, dated
April 21, 1993 [incorporated herein by reference to Exhibit 3.1.3 to
the Registration Statement]
3.1.4 Amendment No. 3 to Company's Certificate of Incorporation, dated June
10, 1993 [incorporated herein by reference to Exhibit 3.1.4 to the
Registration Statement]
3.1.5 Certificate of Designations, Preferences and Rights of Series A 8%
Cumulative Convertible Preferred Stock [incorporated herein by
reference to Exhibit 3.1.5 to the Company's Annual Report on Form
10-KSB for 1993 (the "1993 Form 10-KSB")]
3.1.6 Certificate of Increase to the Certificate of Designations,
Preferences and Rights of Series A 8% Cumulative Convertible
Preferred Stock [incorporated herein by reference to Exhibit 3.1.6 to
the Company's Annual Report on Form 10-KSB for 1994 (the "1994 Form
10-KSB")]
31
<PAGE>
Exhibit
Number Description
- ------- -----------
3.1.7 Certificate of Ownership and Merger, dated August 8, 1996, merging A
Pix Entertainment, Inc. into the Company (1)
3.2 By-Laws of the Company [incorporated herein by reference to 3.2 to
the Registration Statement]
4.1 Form of Common Stock Certificate [incorporated herein by reference to
Exhibit 4.1 to the Registration Statement]
4.2 Form of Class A Warrant Certificate [incorporated herein by reference
to Exhibit 4.2 to the Registration Statement]
4.3 Form of Class B Warrant Certificate [incorporated herein by reference
to Exhibit 4.3 to the Registration Statement]
4.4 Form of Class A Warrant Agreement between American Stock Transfer &
Trust Company ("AST") and the Company [incorporated herein by
reference to Exhibit 4.4 to the Registration Statement]
4.5 Form of Class B Warrant Agreement between AST and the Company
[incorporated herein by reference to Exhibit 4.5 to the Registration
Statement]
4.6 Form of Underwriter's Unit Purchase Option [incorporated herein by
reference to Exhibit 4.6 to the Registration Statement]
4.7 Common Stock Purchase Warrant Certificate to Purchase 150,000 shares
of Common Stock [incorporated herein by reference to Exhibit 4.1 of
the Company's Quarterly Report on Form 10-Q for the Quarterly Period
ended September 30, 1993]
4.8 Form of Variable Rate Senior Subordinated Note due December 31, 2001
[incorporated herein by reference to Exhibit 4.8 of the 1994 Form
10-KSB]
4.9 Form of Common Stock Purchase Warrant Certificate for Warrants issued
together with Variable Rate Senior Subordinated Notes due December
31, 2001 [incorporated herein by reference to Exhibit 4.9 of the 1994
Form 10-KSB]
4.10 Common Stock Purchase Warrant Certificate issued to Atlantic Bank of
New York entitling it to purchase 20,000 shares of Common Stock
[incorporated herein by reference to Exhibit 10.3 of the Company's
Current Report on Form 8-K for event of June 21, 1995 (the "June
8-K")]
32
<PAGE>
Exhibit Number Description
4.11 Common Stock Purchase Warrant Certificate entitling the holder to
purchase 15,000 shares of common stock at an exercise price of $4.25
per share and expiring on June 30, 2000 [incorporated herein by
reference to Exhibit 4.11 of the Company's Annual Report on Form
10-KSB for 1995 (the "1995 Form 10-KSB")]
4.12 Common Stock Purchase Warrant Certificate entitling the holder to
purchase 10,000 shares of common stock at an exercise price of $4.50
per share and expiring on December 31, 2000 [incorporated herein by
reference to Exhibit 4.12 of the 1995 Form 10-KSB]
4.13 Form of 10% Convertible Subordinated Note due June 30, 2003
[incorporated herein by reference to Exhibit 4.1 to the Company's
Quarterly Report on Form 10-QSB for the Quarterly Period ended June
30, 1996 (the "June 1996 Form 10-QSB")]
4.14 Form of Common Stock Purchase Warrant Certificate, entitling the
holder to purchase shares of Common Stock at $6.00 per share and
expiring on June 30, 2003 [incorporated herein by reference to
Exhibit 4.2 to the June 1996 Form 10-QSB]
4.15 Form of Common Stock Purchase Warrant Certificate, entitling the
holder to purchase shares of Common Stock at $4.50 per share and
expiring on December 31, 2001 (1)
4.16 Form of 10% Convertible Subordinated Note due December 31, 2003(1)
*10.1 Employment Agreement between the Company and David Fox [incorporated
herein by reference to Exhibit 10.1 to the Registration Statement]
*10.1.1 Form of Amendment No. 1 to Employment Agreement between the Company
and David Fox [incorporated herein by reference to Exhibit 10.1.1 to
the Registration Statement]
*10.2 Employment Agreement between the Company and Scott Hanock
[incorporated herein by reference to Exhibit 10.2 to the Registration
Statement]
*10.2.1 Form of Amendment No. 1 to Employment Agreement between the Company
and Scott Hanock [incorporated herein by reference to Exhibit 10.2.1
to the Registration Statement]
33
<PAGE>
Exhibit
Number Description
- ------- -----------
*10.2.2 Form of Amendment No. 2 to Employment Agreement between the Company
and Scott Hanock [incorporated herein by reference to Exhibit 10.2.2
to the Registration Statement]
*10.3 Form of Employment Agreement between the Company and Herbert M.
Pearlman [incorporated herein by reference to Exhibit 10.4 to the
Registration Statement]
*10.4 Form of Employment Agreement between the Company and David S. Lawi
[incorporated herein by reference to Exhibit 10.5 to the Registration
Statement]
*10.5 1993 Stock Option Plan, as amended (1)
10.6 Lease Agreement for Sherman Oaks, California offices [incorporated
herein by reference to Exhibit 10.8 to the Registration Statement]
10.7 Lease Extension Agreement, dated April 22, 1996, relating to Sherman
Oaks, California offices (1)
10.8 Lease Extension Agreement, dated March 12, 1997, relating to Sherman
Oaks, California offices (1)
10.9 Form of Lease Agreement for 537 Steamboat Road, Greenwich, CT offices
[incorporated herein by reference to Exhibit 10.9 to the 1994 Form
10-KSB]
10.10 Lease Agreement for 200 Madison Avenue Location [incorporated herein
by reference to Exhibit 10.9 to the 1995 Form 10-KSB]
10.11 Account Financing Agreement, dated June 21, 1995, among Atlantic Bank
of New York, the Company and A Pix [incorporated herein by reference
to Exhibit 10.1 to the June 8-K]
10.12 Covenant Supplement to Accounts Financing Agreement, dated June 21,
1995, among Atlantic Bank of New York, the Company and A Pix
[incorporated herein by reference to Exhibit 10.2 to the June 8-K]
*10.13 Stock Option Agreement between the Company and David Fox (embodied in
Exhibit 10.1) [incorporated herein by reference to Exhibit 10.1 to
the Registration Statement]
34
<PAGE>
Exhibit
Number Description
- ------- ------------
*10.14 Form of Earnings Performance Stock Option Agreement between the
Company and Herbert M. Pearlman, dated April 23, 1993 [incorporated
herein by reference to Exhibit 10.18 to the Registration Statement]
10.14.1 Schedule of omitted documents in the form of Exhibit 10.14, including
material detail in which such documents differ from Exhibit 10.14
[incorporated herein by reference to Exhibit 10.18.1 to the
Registration Statement]
*10.15 Employment Agreement between the Company and Robert Baruc
[incorporated herein by reference to Exhibit 10.1 of the Company's
Quarterly Report on Form 10-Q for the Quarterly Period ended June 30,
1993]
*10.16 Amendment No. 1 to Employment Agreement of Robert Baruc (1)
*10.17 Employment Agreement between the Company and Robert Miller (1)
*10.18 Employment Agreement between the Company and Timothy Smith (1)
10.19 Investment Agreement between the Company and Herbert M. Pearlman
[incorporated herein by reference to Exhibit 10.24 to the 1993 Form
10-KSB]
10.20 Investment Agreement between the Company and David S. Lawi
[incorporated herein by reference to Exhibit 10.25 to the 1993 Form
10-KSB]
10.21 Investment Agreement between the Company and Lawrence Bishop
[incorporated herein by reference to Exhibit 10.26 to the 1993 Form
10-KSB]
*10.22 Stock Option Agreement between the Company and Scott Hanock, dated
May 17, 1991 [incorporated herein by reference to Exhibit 10.17 to
the Registration Statement]
*10.22.1 Schedule of omitted documents in the Form of Exhibit 10.22
[incorporated herein by reference to Exhibit 10.21.1 to the 1994
10-KSB]
10.23 Agreement under which Strategic Growth International serves as
Investor Relations Consultant to the Company [incorporated herein by
reference to Exhibit 10.1 to the June 1996 Form 10-QSB]
35
<PAGE>
Exhibit
Number Description
- ------ -----------
10.24 Stock Purchase Agreement, dated March 17, 1997, relating to the
Company's purchase of all of the capital stock of Miramar Images,
Inc. ("Miramar")
10.25 Pooled Consideration Agreement, dated March 17, 1997, entered into in
connection with the Company's purchase of Miramar
10.26 Settlement Agreement, dated March 17, 1997, among the Company,
Miramar and Steven Churchill, entered into in connection with the
Company's purchase of Miramar(1)
10.27 Assignment Agreement, dated March 17, 1997, among the Company,
Miramar and Charles Walsh, entered into in connection with the
Company's purchase of Miramar (1)
10.28 Agreement, dated October 16, 1996, between the Company and Strategic
Growth International relating to payment of Finder's Fee with respect
to private placement (1)
10.29 Lease Agreement, as amended to date, for Miramar's offices at 200
Second Avenue West, Seattle, Washington (1)
11.1 Statement of Computation of Per Share Earnings (1)
21.1 Subsidiaries (1)
23.1 Consent of Richard A. Eisner & Company, LLP. (1)
27.1 Financial Data Schedule. (1)
- -----------------------------------
(1) Filed herewith.
* Management contract or compensatory plan or arrangement.
36
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized on the 28th day of March, 1997.
UNAPIX ENTERTAINMENT, INC.
By:/s/ David M. Fox
-----------------------------------------
David M. Fox
President, Chief Executive Officer
(principal executive officer)
By:/s/ Daniel T. Murphy
-----------------------------------------
Daniel T. Murphy
Chief Financial Officer
(principal financial officer)
By:/s/ Steven P. Low
-----------------------------------------
Steven P. Low
Chief Accounting Officer
(principal accounting officer
37
<PAGE>
In accordance with the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
/s/ Herbert M. Pearlman Chairman of the
- -------------------------- Board of Directors March 28, 1997
Herbert M. Pearlman
/s/ David M. Fox President, Chief Executive
- -------------------------- Officer and Director March 28, 1997
David M. Fox
/s/ David S. Lawi Chairman of the Executive
- -------------------------- Committee, Treasurer,
David S. Lawi Secretary, and Director March 28, 1997
/s/ Robert Baruc Executive Vice President
- -------------------------- and Director March 28, 1997
Robert Baruc
/s/ Scott Hanock Vice President of Inter-
- -------------------------- national Sales and Marketing
Scott Hanock and Director March 28, 1997
/s/ Martin D. Payson Director March 28, 1997
- --------------------------
Martin D. Payson
/s/ Walter M. Craig, Jr. Director March 28, 1997
- --------------------------
Walter M. Craig, Jr.
/s/ Lawrence Bishop Director March 25, 1997
- --------------------------
Lawrence Bishop
38
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of
Unapix Entertainment, Inc.
We have audited the accompanying consolidated balance sheet of Unapix
Entertainment, Inc. and subsidiaries as at December 31, 1996, and the related
consolidated statements of operations, changes in stockholders' equity, and cash
flows for each of the years in the two-year period then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements enumerated above present fairly,
in all material respects, the consolidated financial position of Unapix
Entertainment, Inc. and subsidiaries as at December 31, 1996, and the
consolidated results of their operations and their consolidated cash flows for
each of the years in the two-year period then ended in conformity with generally
accepted accounting principles.
Richard A. Eisner & Company, LLP
New York, New York
March 5, 1997
F-1
<PAGE>
UNAPIX ENTERTAINMENT, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
(In thousands, except share amounts)
December 31,
1996
------------
ASSETS
Cash and equivalents $ 659
Accounts receivable-trade, net of allowances of $1,004 10,153
Film costs, released films, net of amortization
of $27,423 8,585
Film costs, unreleased films and films in process 8,463
Product inventory 689
Property and equipment, net 485
Other assets, including related party receivables of $13 2,214
-------
Total Assets $31,248
=======
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities :
Accounts payable and accrued expenses $ 5,880
Deferred income taxes 130
Royalty payable 2,769
Bank line of credit 309
Acquisition fund payable 927
Variable rate senior subordinated notes 2,821
10% convertible subordinated notes 5,598
-------
Total Liabilities $18,434
=======
Stockholders' Equity :
Common stock $.01 par value per share; 20,000,000
authorized; 5,325,000 shares issued and outstanding 53
Cumulative convertible series A 8% preferred stock,
$.01 par value per share; 3,000,000 authorized;
538,000 issued and outstanding (aggregate
liquidation preference of $1,614) 5
Additional paid-in capital 15,273
Notes receivable from equity sales (2,033)
Accumulated deficit (484)
-------
Total Stockholders' Equity $12,814
-------
Total Liabilities and Stockholders' Equity $31,248
=======
See accompanying notes to consolidated financial statements
F-2
<PAGE>
UNAPIX ENTERTAINMENT, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands, except per share amounts)
For the Years Ended December 31
1996 1995
---- ----
Revenues:
Licensing and distribution $ 6,673 $ 5,744
Home video 15,740 12,545
-------- --------
22,413 18,289
-------- --------
Operating costs:
Licensing and distribution 4,704 3,306
Home video 10,373 8,988
General and administrative expenses 6,224 4,934
-------- --------
21,301 17,228
-------- --------
Income from operations before other income (expense) 1,112 1,061
Other income (expense):
Interest and debt expense (541) (404)
Interest income 418 293
-------- --------
(123) (111)
-------- --------
Income before provision for income taxes $ 989 $ 950
-------- --------
Provision for income taxes 400 15
-------- --------
Net income $ 589 $ 935
======== ========
Net income per common share $ .09 $ .22
======== ========
Average number of common shares outstanding 5,268 3,599
======== ========
See accompanying notes to consolidated financial statements
F-3
<PAGE>
UNAPIX ENTERTAINMENT, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
(In thousands)
<TABLE>
<CAPTION>
Convertible
Common Stock Preferred Stock
------------ ---------------- Notes
Par Par Additional Receivable
Value Value Paid-in on Stock Accumulated
Shares ($.01) Shares ($.01) Capital Sales Deficit Total
------ ------ ------ ------ ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
January 1, 1995 2,595 $26 728 $7 $6,740 $(95) $(1,851) $4,827
Exercise of options
and warrants 1,536 16 - - 5,116 - - 5,132
Private placement of
common stock 700 7 - - 2,868 - - 2,875
Warrant, option and
private placement
expenditures - - - - (196) - - (196)
Notes receivable on
common stock
sales and
exercise of
warrants - - - - - (1,996) - (1,996)
Issuance of common
stock 3 - - - 15 - - 15
Preferred stock
dividend 23 - - - 108 - (157) (49)
Issuance of warrants - - - - 72 - - 72
Preferred stock
conversion 74 (74) - - - - -
Net income for the
year ended
December 31,1995 - - - - - - 935 935
------ ------ ------- ------- -------- --------- ------- ---------
Balance at
December 31, 1995 4,931 $49 654 $7 $14,723 ($2,091) ($1,073) $11,615
------ ------ ------ ------ --------- --------- -------- ----------
5% stock dividend 249 3 (3) - -
Notes receivable on
common stock
sales and
exercise of
warrants 58 - 58
Warrant, option and
private placement
expenditures (86) - (86)
Issuance of common
stock 3 - 12 - 12
Preferred stock
dividend 23 - (52) (52)
Issuance of warrants 679 - 679
Preferred stock
conversion 119 1 (116) (2) - - (1)
Net income for the
year ended
December 31,1996 - - - - - - 589 589
------ ------ ------- ------- -------- --------- ------- ---------
Balance at
December 31, 1996 5,325 $53 538 $ 5 $15,273 ($2,033) ($484) $12,814
====== ====== ======= ======= ======= ========= ====== =========
</TABLE>
See accompanying notes to consolidated financial statements
F-4
<PAGE>
UNAPIX ENTERTAINMENT, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
For the Years Ended December 31,
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 589 $ 935
Adjustments to reconcile net income to net cash used by
operating activities:
Amortization and depreciation 10,033 9,529
Deferred income taxes 360 (29)
Accretion of debentures discount 49 33
Loss on disposal of assets 2 -
Increase in accounts receivable, net (1,765) (3,586)
Film cost expenditures (17,635) (13,181)
Increase in product inventory (341) (266)
Increase in other assets (1,326) (459)
Increase in accounts payable and
accrued expenses 1,300 1,551
Increase (decrease) in royalties payable 1,494 (691)
------- --------
Total cash flows used by operating activities (7,240) (6,164)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES -
Purchase of property and equipment (304) (234)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from 10% convertible notes private placement 5,948 -
Net borrowings under bank line of credit 309 -
Proceeds from employee notes receivable 56 -
Proceeds from warrant and option exercises - 4,639
Proceeds from common stock private placement - 1,275
Private placement expenditures (86) (196)
Proceeds from variable rate notes private placement - 401
Employee purchase of common stock 81
Employee payment on notes receivable for preferred stock - 5
Preferred stock dividend (52) (49)
-------- -------
Total cash flows from financing activities $ 6,175 $ 6,156
------- -------
</TABLE>
F-5
<PAGE>
UNAPIX ENTERTAINMENT, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (continued)
(In thousands)
<TABLE>
<CAPTION>
For the Years Ended December 31
1996 1995
---- ----
<S> <C> <C>
NET DECREASE IN CASH AND EQUIVALENTS $(1,369) $ (242)
CASH AND EQUIVALENTS AT BEGINNING OF
YEAR 2,028 2,270
------- ---------
CASH AND EQUIVALENTS AT END OF YEAR $ 659 $ 2,028
======= =========
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Conversion of accrued liability to acquisition fund
payable 79 -
Preferred stock dividend paid in common stock 86 108
Notes received for employee common stock purchase - 2,001
Warrants issued 292 37
Conversion of debt to equity 12 24
------- ---------
$ 469 $ 2,170
======= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest $ 632 $ 159
======= =========
Cash paid for taxes $ 44 $ 94
======= =========
</TABLE>
See accompanying notes to consolidated financial statements
F-6
<PAGE>
UNAPIX ENTERTAINMENT, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1. Business Organization and Summary of Significant Accounting Policies:
Business organization and presentation:
Unapix Entertainment. Inc. and its subsidiaries (the "Company"), is a worldwide
licensor and distributor of feature films and television programs primarily for
the television market, including free and pay television, cable and satellite,
and the home video market, including cassette and laser disc.
Certain accounts in 1995 have been reclassified in order to conform with 1996
presentation.
Significant Accounting Policies:
The following is a summary of significant accounting policies consistently
followed by the Company in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles which
require management to make estimates and assumptions that effect the amounts
reported in the financial statements and related notes. Actual amounts could
differ from those estimates.
Principles of consolidation:
The consolidated financial statements include the accounts of Unapix
Entertainment, Inc. and its wholly - owned subsidiaries, Green Leaf Advertising
Company, Inc., and Unapix Films, Inc. All significant intercompany balances and
transactions have been eliminated.
Revenue and cost recognition:
Revenues earned under non-cancelable film and television programming licenses
are recognized when the films or programming are made available to the licensee
and all other conditions of the sale are met. Home video and direct marketing
revenues are recorded upon shipment. The Company follows the practice of making
provisions for estimated future returns and allowances at the time the units are
sold. Revenues relative to other services are recognized when such services are
performed.
Film costs include the direct costs of acquiring films and television
programming, as well as exploitation costs which benefit future periods. The
Company amortizes film costs using the individual-film-forecast-computation
method. This method amortizes costs in the same ratio that current gross
revenues bear to anticipated total gross revenues for each particular film. The
anticipated total gross revenues are reviewed quarterly by management, which may
result in revised amortization rates and, when
F-7
<PAGE>
UNAPIX ENTERTAINMENT, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1. Business Organization and Summary of Significant Accounting Policies:
(continued)
applicable, write downs to net realizable value. Direct costs, such as
duplication and shipping, are expensed as the related product is shipped.
Film costs are stated at the lower of unamortized historical cost or estimated
net realizable value. Participation, royalty, and commission expense, to the
extent that such amounts can be reasonably estimated, are accrued when revenue
is recognized on the related license agreement.
Property and equipment:
Property and equipment, which are stated at cost, are depreciated using the
straight-line method over estimated useful lives of 3 to 10 years.
Net income per common share:
Net income per common share ("EPS") is based upon the weighted average number of
common shares outstanding during each period. The weighted average shares
exclude all warrants, options and other convertible securities as their impact
on the earnings per share calculation would be anti-dilutive or immaterial. Net
income available for common shares reflects preferred stock dividends of
$138,000 and $157,000, for the years ended December 31, 1996 and December 31,
1995, respectively.
The number of shares and net income per share for the year ended December 31,
1995 have been restated to reflect the 5% stock dividend paid in the second
quarter of 1996 described in Note 5.
Cash Equivalents
The Company considers all highly liquid investments purchased with a maturity of
three months or less to be cash equivalents.
New Pronouncements:
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 123 "Accounting for Stock-Based Compensation
Arrangements" ("SFAS 123"). SFAS 123 permits a company to choose either a new
fair value-based method of accounting for employee stock based compensation, or
retaining the current intrinsic value based method of accounting for stock-based
compensation. The statement requires pro forma disclosures of net income and
earnings per share computed as if the fair value-based method had been applied
in financial statements of companies that continue to follow the intrinsic
value-based method of accounting. The Company adopted SFAS 123 following the
alternative for disclosure method only, and as a result, the adoption of SFAS
123 will not materially impact the Company's financial position or results of
operations.
F-8
<PAGE>
UNAPIX ENTERTAINMENT, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
2. Film Costs
The Company's film costs include, in thousands:
December 31,
1996
------------
Films released $ 36,008
Films completed but not released 2,355
Films in process 6,108
--------
44,471
Accumulated amortization (27,423)
--------
$ 17,048
========
The company expects that it will amortize approximately 80% of its remaining
film costs during the three-year period ending December 31, 1999.
3. Property and Equipment
Property and equipment consists of the following, in thousands:
December 31,
1996
------------
Furniture and equipment $484
Leasehold Improvements 180
Less accumulated depreciation (179)
------
$485
====
4. Financing
On June 21, 1995, the Company entered into a credit facility with Atlantic Bank
of New York (the "Bank") providing for borrowings of up to $2,500,000. Loans are
extended and required to be repaid based upon the Company's outstanding accounts
receivable and other contractual rights to payment. Interest on the outstanding
loan balance accrues at a rate of 1.5% per annum in excess of the Bank's
publicly announced benchmark rate. The Company is also required to pay a
facility fee of 1% per annum, and an unused credit line fee at a rate equal to
0.25% per annum of the amount by which $2,500,000 exceeds the average daily loan
balance during any quarter. The term of the facility expires on May 31, 1997,
and may be terminated by either party upon 60 days notice after such date. The
Bank may also terminate the facility upon 60 days notice at any time throughout
the term. Outstanding amounts under the facility are secured by substantially
F-9
<PAGE>
UNAPIX ENTERTAINMENT, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
4. Financing (continued)
all of the Company's assets. The facility contains restrictive covenants that
require minimum (i) tangible net worth, (ii) liquidity and (iii) earnings to
interest expense ratios. The covenants prohibit the payment of cash dividends on
common stock or a change in control of the Company. The covenants also, among
other things, limit the Company's ratio of debt to net worth and the amount of
loan proceeds which can be utilized to acquire film rights or finance film
productions. In connection with the transaction, the Company issued warrants to
purchase up to 39,000 shares of common stock of which 21,000 warrants have an
exercise price of $4.91 per share and 18,000 warrants have an exercise price of
$4.17 and have certain vesting and dilution provisions, expire on and various
dates through December 31, 2000. The warrants have an aggregate value of $25,000
and recorded as deferred loan costs which are being amortized over the term of
the loan facility. Mr. Pearlman and The Mezzanine Financial Fund, L.P. (the
"Fund") are contingently liable to pay outstanding amounts under the Facility up
to $300,000 in the aggregate. Herbert Pearlman and David Lawi, the Company's
Chairman of the Board and Treasurer, respectively, are each officers, directors
and principal stockholders of the general partner of the Fund. Walter M. Craig,
Jr., a director of the Company, is also an officer and director of the general
partner of the Fund. In consideration of its financial accommodation, the Fund
is entitled to receive 7,875 Class B Warrants for every year that its
accommodation is in effect and $500 per month during the term of the
accommodation and during which amounts are outstanding under the Facility. The
Company is obligated to repay any sums that the Fund may be required to pay to
the Bank, and in order to secure this obligation, the Company has granted the
Fund a security interest in substantially all of its assets, which is
subordinated to the Bank's security interest. As of December 31, 1996, the
Company had borrowed $309,000, had an outstanding letter of credit of $300,000
and had remaining availability of $1,891,000.
As of December 31, 1996, the Company had issued in a private offering $5,972,500
of Units, for proceeds of $5,947,500, each Unit consisting of: (i) a $250,000
principal amount 10% Convertible Subordinated Note due June 30, 2003 convertible
into the Company's common stock, par value $.01 per share ("Common Stock") at a
price of $4.50 per share (a "Note"); and (ii) Warrants to purchase 25,000 shares
of the Common Stock, at an exercise price of $6.00 per share ("Warrant"),
expiring June 30, 2003. The Warrants and Notes are redeemable by the Company
under certain circumstances. The Units and the securities comprising the Units
were offered in a private placement only to accredited investors and have not
been registered under the Securities Act of 1933 and may not be offered or sold
in the United States absent registration or an applicable exemption from
registration requirements. The shares of Common Stock issuable upon exercise and
conversion of the Notes and Warrants have certain registration rights.
Subsequent to December 31, 1996, the Company sold an additional $250,000
bringing Notes issued to a total of approximately $6,222,500. A total of 622,250
Warrants were issued in conjunction with this offering. During 1996 the Company
incurred placement fees of approximately $319,000 and 235,000 five year warrants
with an exercise price of $4.50. Such warrants were valued at $133,000 and
recorded as deferred financing costs which are being amortized over the term of
the Notes.
In April 1995, the Company received the final $400,000 under a placement of
Variable Rate Senior Subordinated Notes ("Variable Rate Notes") and Common Stock
Purchase Warrants ("Private Placement Warrants"). The units were sold only to
accredited investors by officers of the Company (without
F-10
<PAGE>
UNAPIX ENTERTAINMENT, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
4. Financing (continued)
remuneration). Certain customers of an investment advisory firm, of which a
director of the Company is an Executive Vice President, have acquired the units
in the placement. The Variable Rate Notes are due in seven years and bear
interest at a rate of 10% per annum for the first three years and at 3% over the
prime rate for the remaining four years, provided however, that the rate does
not fall below 8% or exceed 12% per annum. Mandatory repayment of 10% will
commence at the end of the 4th year, followed by 15% of the original amount at
the end of years 5 and 6. The Variable Rate Notes are subordinated to
indebtedness of the Company incurred to a bank or other financial institution.
For a limited period of time, after the third year of the term, a noteholder
will be permitted to convert up to 50% of his note into shares of the Company's
common stock at a price per share equal to the greater of (1) the then average
Market Price Per Share, as defined, over the last 60 trading days of 1997 or (2)
$2.86. The Company may redeem all or a portion of the Variable Rate Notes at any
time after December 31, 1997 at a premium over the principal amount of the notes
of 6% , which declines annually at the rate of 2% until January 1, 2001, after
which the redemption price will be the principal amount of the notes. A total of
410,000 Private Placement Warrants have been issued under this offering, each
such warrant entitles the holder to purchase one share of Common Stock at an
exercise price of $3.70 per share and expires on December 31, 2001. The units
were not registered under the Securities Act of 1933 as amended, but the holders
of the Private Placement Warrants are entitled to certain registration rights
with respect to the shares issuable upon exercise thereof.
In December 1993, the Company developed an acquisition fund for the purpose of
funding the acquisition of the distribution rights to independently produced
films. The initial investors were the Chairman, Secretary and a group of
investors who are customers of an investment advisory firm, of which a director
of the Company is an Executive Vice President. The acquisition fund provided
$150,000 in 1993, $200,000 in 1994 and $79,000 in 1996. Until formal agreements
are signed the $429,000 is treated as demand loans. The oral agreement provides
for: (i) a term to be determined (ii) the acquisition fund to recoup 110% of its
investment in any one film from the first dollars of gross receipts; (iii) the
fund to receive up to 20% of the net profits of each film in which it invests;
(iv) roll-over of the fund's receipts into other films; and (v) shortfall of
investment in any film to be recovered in shares of common stock of the Company
issued at market, or if market is less than $2.86 a share, at the lower of $2.86
or 125% of market. The initial funding of the fund was fully utilized to acquire
film distribution rights. The investors also received 36,750 Class B warrants
for providing such funding, which were valued at $12,000 and were charged to
expense.
5. Stockholders' Equity
In April 1996, the Company declared a special 5 percent stock dividend, payable
on May 6, 1996 to stockholders of record of its common stock on April 22, 1996.
The company issued 249,000 shares of common stock pursuant to the declared stock
dividend.
F-11
<PAGE>
UNAPIX ENTERTAINMENT, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
5. Stockholders' Equity (continued)
In June 1996, the Company entered into an agreement with an investor relations
firm, pursuant to which the Company issued 300,000 common stock purchase
options. Each option entitles the holder to purchase one share of Common Stock
at a price of $3.875, which was the market price as of the date of the
Agreement. The options have a term of five years and were valued at
approximately $160,000. The Company is also obligated to issue an additional
100,000 options which will expire within one year unless all of the Company's
Class B Warrants have been exercised prior to that time. If all the Class B
Warrants are exercised during the one year period, the additional options will
also have a term of five years.
In September 1995, the Company completed the placement of 420,000 shares of
common stock under a stock purchase plan ("the Plan") which permitted certain of
the Company's employees, directors and consultants to purchase units ("Units"),
each of which consists of one share of common stock, one common stock purchase
warrant with an exercise price of $19.05 per share and one common stock purchase
warrant with an exercise price $28.57 per share. The warrants expire on December
31, 2000. They are redeemable by the Company (at a price of $0.025 per warrant)
at any time after the closing sales price of the common stock has been at least
125% of the then effective exercise price of the warrants for a period of 20
consecutive business days after the underlying shares of common stock have been
registered under the Securities Act of 1933. The purchase price of each unit was
$4 (which was the closing market price of the common stock on effective date of
the Plan). The Company ascribed a diminimus value to the common stock purchase
warrants.
The Plan permitted participants to acquire Units by paying 5% of the total price
upon purchase and delivering a promissory note for the remaining 95% of the
price. Each note provides for the annual payment of 5% of the original principal
amount thereof, commencing in 1996, with a balloon payment of the remaining
unpaid principal amount of the Note payable on a specified date in 2005 (the
"Maturity Date"). Interest accrues on each Note at a rate of 6% per annum,
payable on the last day of each year throughout the term of the Note, with all
remaining accrued and unpaid interest due on the Maturity Date. Each participant
pledged 95% of the Units that they acquired under the plan to the Company as
security for such participant's Note. Such Units may be released to the
participant as the Note is paid under certain circumstances. Participants are
permitted to make payments under their Notes by delivering shares of common
stock that they own, including pledged shares, which are credited against
amounts owed under their Notes at fair market value thereof. Purchasers of Units
are entitled to certain registration rights with respect to the securities
comprising the Units.
In September 1995, the Company gave notice that it would redeem the Class A
warrants. Prior to December 31, 1995, the Company received proceeds of
$4,648,000 from the exercise of 1,507,000 warrants, primarily Class A warrants.
In addition, the Company also received $482,000 of notes receivable from
officers, employees and consultants relating to the exercise of the warrants.
The Company completed, in July 1995, a private placement to two investors of
315,000 shares of common stock for a price of $4.05 per share, which was the
market value of the common stock on the commencement of the offering. Net
proceeds from the placement were approximately $1,200,000, after deducting,
among other expenses, a placement fee equal to 5% of the gross proceeds.
F-12
<PAGE>
UNAPIX ENTERTAINMENT, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
5. Stockholders' Equity (continued)
As of December 31, 1996 there are 538,000 shares of Cumulative Convertible
Series A 8% Preferred Stock outstanding. Each share has a liquidation preference
of $3.00 plus accumulated and unpaid dividends; is convertible into 1.05 shares
of common stock at any time prior to redemption; and is entitled to one vote.
Semi-annual dividends of $0.12 per share are payable on June 30 and December 31,
commencing June 30, 1994. The Company may redeem the shares if the market price
of the common stock has exceeded twice the then applicable conversion price at a
time when the underlying shares of common stock are registered under the
Securities Act of 1933. During calendar year 1997, the Company may redeem all or
part of the Preferred shares at $3.15 plus accrued and unpaid dividends.
Thereafter the Company may redeem the shares at a premium of 4% declining
annually at the rate of 1% until January 1, 2002, after which the redemption
price will be $3.00.
The Company accepted 9% promissory notes aggregating $95,000, of which $10,000
was paid at December 31, 1996, from three officers in connection with their
participation in the preferred stock offering. The corresponding shares are held
by the Company as collateral for the notes. The Company declared preferred stock
dividends of $138,000 and $157,000 for the years ended December 31, 1996 and
1995, respectively. Shareholders were given the option of receiving shares of
common stock (at a price equal to 90% of the average closing sales price of the
common stock over the last 10 trading days preceding the dividend payment date)
in lieu of the cash dividend declared, which resulted in $86,000 and $108,000 of
the dividends being paid in shares of common stock for the years ended December
31, 1996 and 1995, respectively, and the remainder in cash.
As of December 31, 1996, there were 1,393,000 B warrants outstanding and
2,200,000 other warrants. The Class B warrants are exercisable at $4.29, and are
redeemable by the Company at $0.10 per warrant commencing June 1994 provided the
common stock has a high bid closing price of at least $5.71 for the prior 20
consecutive trading days and 30 days prior notice is given to the warrant
holders. In addition, there were 1,900,000 options and 55,000 preferred stock
options outstanding as of December 31, 1996, entitling the holders thereof to
purchase an aggregate of 5,548,000 shares of the Company's common stock for
aggregate proceeds to the Company in the approximate amount of $38,638,000.
F-13
<PAGE>
UNAPIX ENTERTAINMENT, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
5. Stockholders' Equity (continued)
Warrants:
A summary of the status of the Company's warrants as of December 31, 1996 and
1995, and changes during the years ending on those dates is presented below:
<TABLE>
<CAPTION>
1996 1995
----- ----
Weighted Weighted
Shares Average Shares Average
(000) Exercise Price (000) Exercise Price
----- -------------- ----- --------------
<S> <C> <C> <C> <C>
Outstanding at beginning
of year 2,762 $ 10.12 3,319 $ 3.69
Granted 831 $ 5.58 949 $ 21.54
Exercised - $ - (1,506) $ (3.14)
Forfeited - $ - - $ -
- - - -
Outstanding at end
of year 3,593 $ 9.07 2,762 $ 10.12
===== ==== ===== =====
Warrants exercisable at
year-end 3,593 $ 9.07 2,762 $ 10.12
===== ==== ===== =====
Weighted-average fair
value of warrants
granted during the $ .63 $ .11
year ===== =======
</TABLE>
The following table summarizes information relating to warrants outstanding at
December 31, 1996:
<TABLE>
<CAPTION>
Warrants Outstanding Warrants Exercisable
-------------------- --------------------
Number Weighted-Average Weighted- Number Weighted-
Range Outstanding Remaining Average Exercisable Average
Exercise Prices at 12/31/96 Contractual Life Exercise Price at 12/31/96 Exercise Price
- ---------------- ----------- ---------------- ------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$3.14 - $4.50 2,135 3 $ 4.17 2,135 $ 4.17
$4.91 - $6.00 618 6 $ 5.96 618 $ 5.96
$19.05 - $28.57 840 4 $ 23.81 840 $ 23.81
------- - -------- ------ --------
$3.14 - $28.57 3,593 4 $ 9.07 3,593 $ 9.07
===== = ==== ===== ====
</TABLE>
F-14
<PAGE>
UNAPIX ENTERTAINMENT, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
5. Stockholders' Equity (continued)
Employee Stock Option Plan:
The 1993 Option Plan (the "Plan") authorizes the grant of options to purchase up
to an aggregate of 600,000 shares. Both non-qualified options and options
intended to qualify as "Incentive" stock options under Section 422 of the
Internal Revenue Code of 1986, as amended, may be granted under the Plan. A
Stock Option Committee of the Board of Directors administers the Plan. As of
December 31, 1996, the exercise price of any option granted under the Plan shall
not be less than the fair market value of the common stock on the date of the
grant.
A summary of the status of the Company's employee stock options as of December
31, 1996 and 1995, and changes during the years ending on those dates is
presented below:
<TABLE>
<CAPTION>
1996 1995
---- ----
Weighted Weighted
Shares Average Shares Average
(000) Exercise Price (000) Exercise Price
----- -------------- ----- --------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 265 $ 3.16 248 $ 2.98
Granted 154 $ 4.15 23 $ 5.00
Exercised - $ - (6) $ (3.00)
Forfeited - $ - - $ -
- - - -
Outstanding at end
of year 419 $ 3.52 265 $ 3.16
=== ==== === ====
Options exercisable at
year-end 385 $ 3.48 229 $ 3.20
=== ==== === ====
Weighted-average fair
value of options
granted during the
year $ .55 $ .61
===== =====
</TABLE>
Other Options:
In April 1993, the Company granted options ("Earning Performance Options") to
purchase an aggregate of 945,000 shares of Common Stock at an exercise price of
$2.86 per share to employees and other persons considered to be instrumental to
the progress of the Company. The Earnings Performance Options are
F-15
<PAGE>
UNAPIX ENTERTAINMENT, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
5. Stockholders' Equity (continued)
exercisable by the holders at various times through June 2003.
A summary of the status of the Company's other stock options as of December 31,
1996 and 1995, and changes during the years ending on those dates is presented
below:
<TABLE>
<CAPTION>
1996 1995
---- ----
Weighted Weighted
Shares Average Shares Average
(000) Exercise Price (000) Exercise Price
----- -------------- ----- --------------
<S> <C> <C> <C> <C>
Outstanding at beginning 1,173 $ 2.79 1,272 $ 2.92
of year
Granted 400 $ 3.88 - $ -
Exercised - $ - (99) $ (4.44)
Forfeited (37) $ (6.39) - $ -
Outstanding at end
of year 1,536 $ 2.98 1,173 $ 2.79
===== ==== ===== ====
Options exercisable at
year-end 1,097 $ 2.94 569 $ 2.48
===== ==== === ====
Weighted-average fair
value of options
granted during the $ .49 $ -
year ===== ===
</TABLE>
The following table summarizes information related to options outstanding at
December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------- -------------------
Number Weighted-Average Weighted- Number Weighted-
Range Outstanding Remaining Average Exercisable Average
Exercise Prices at 12/31/96 Contractual Life Exercise Price at 12/31/96 Exercise Price
--------------- ----------- --------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$1.10 - $3.12 1,349 6 $ 2.70 1,010 $ 2.65
$3.81 - $5.00 605 4 $ 3.99 472 $ 4.01
------- - ------- ------ -------
$1.10 - $5.00 1,955 5 $ 3.10 1,482 $ 3.08
===== = ==== ===== ====
</TABLE>
F-16
<PAGE>
UNAPIX ENTERTAINMENT, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
5. Stockholders' Equity (continued)
The fair value of each warrant and option grant is estimated on the date of
grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in 1995 and 1996: dividend yield of
five (5%) percent, expected volatility of thirty-seven (37%) percent, risk-free
interest rates ranging from 4.95% to 6.49%, and expected life ranging from 3 to
10 years.
The Company applies APB Opinion 25 and related Interpretations in accounting for
its options. Accordingly, no compensation cost has been recognized for its stock
option grants. The effect of applying SFAS No. 123 on 1995 and 1996 pro forma
net income is not necessarily representative of the effects on reported net
income for future years due to, among other things, (1) the vesting period of
stock options and (2) the fair value of additional stock options in future
years. Had compensation costs for the Company's stock option grants been
determined based on the fair value at the grant dates for awards consistent with
the method of FASB Statement 123, the Company's net income and earnings per
share would have reduced to the pro forma amounts indicated below (in thousands)
except per share data.
1996 1995
---- ----
Net Income As reported $ 589 $ 935
Pro forma $ 538 $ 927
Net Income Per Share As reported $ .09 $ .22
Pro forma $ .08 $ .21
6. Financial Instruments
Other than cash and cash equivalents the Company's financial instruments consist
of the credit facility, Acquisition Fund payable, 10% Convertible Subordinated
Notes and Variable Rate Notes described in Note 4 and notes receivable from
common stock and convertible preferred stock sales described in Note 5. The
Company is unable to estimate the fair value of the Acquisition Fund debt
because it is dependent on, in addition to the stated interest rate, the future
cash flows of films presently released and those future films in which the
rolling proceeds to the Fund will be invested. Management believes that based on
the current interest rate, and provision for future adjustment of such rate, the
fair value of the Variable Rate Notes and 10% Convertible Subordinated Notes
approximates their face value. The fair value of the Notes receivable from
common stock and convertible preferred stock sales is not readily determinable.
F-17
<PAGE>
UNAPIX ENTERTAINMENT, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
7. Income Taxes
The provision for income taxes for 1996 consists of current state taxes of
$40,000 and deferred taxes of $360,000. The provision for income taxes for 1995
consists of Federal income taxes of $22,000, State taxes of $23,000 and a
deferred tax benefit of $30,000 primarily attributable to the reduction of
valuation allowance. Deferred income taxes reflect the impact of temporary
differences between the amounts of assets and liabilities for financial
reporting purposes and the tax law treatments of such amounts. The principal
items comprising deferred taxes are differences in accounts receivable valuation
reserves, film inventory amortization and net operating losses.
The deferred tax assets (liabilities) as of December 31, 1996, in thousands, are
as follows:
Accounts receivable and general reserves $ 110
Film inventory amortization (1,771)
Net operating loss carryforwards 1,531
-----
(130)
Valuation allowance -
-----
Net $ (130)
=====
A reconciliation between the actual income tax expense and income taxes computed
by applying the Federal income tax rate to income before taxes, in thousands, is
as follows:
1996 1995
---- ----
Computed at federal statutory rate $ 335 $ 323
Reduction of valuation allowance - (362)
Permanent differences 28 26
State taxes, net of federal benefit 26 15
Other 11 13
------- -------
$ 400 $ 15
======= =======
At December 31, 1996, net operating loss carryforward available to reduce future
federal taxable income amounted to approximately $4,500,000, expiring at various
dates through 2010.
F-18
<PAGE>
UNAPIX ENTERTAINMENT, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
8. Operating Leases
The Company leases office facilities and certain equipment under non-cancelable
lease agreements expiring through January 2007. Total lease expense for the
years ended December 31, 1996 and 1995 were $317,000 and $247,000, respectively.
Minimum future payments, in thousands, as of December 31, 1996 are:
1997..................................... $ 415
1998..................................... 379
1999..................................... 340
2000..................................... 329
2001 and later........................... 1,947
-----
Total lease payments ..... .............. $ 3,410
=====
Included in the above minimum future payments, is the cost of certain executive
offices, occupied pursuant to an office sharing arrangement with an affiliate at
the monthly base rate of $2,700.
9. Commitments and Other Matters
Credit risk exists with respect to accounts receivable which are primarily due
from video distributors, television stations, pay cable channels and video
distributors. Two customers each accounted for 16% and 9% of net revenues,
respectively, in 1996 and each accounted for 9% in 1995.
As of December 31, 1996, commitments for advances and guaranteed royalties
amounted to $1,478,000.
10. Related Party Transactions
General and administrative costs include $182,000 and $310,000 for services
rendered by an affiliate for the years ended December 31, 1996 and December 31,
1995, respectively.
F-19
<PAGE>
UNAPIX ENTERTAINMENT, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
11. Export Sales
December 31
-----------
(in thousands)
1996 1995
---- ----
Europe $1,972 $1,493
Asia 987 1,117
Latin America 900 751
Africa 580 266
Australia 27 268
Other 339 344
--- ---
$4,805 $4,239
====== ======
Export sale contracts are generally denominated in US dollars. For the years
ended December 31, 1996 and 1995, there were no significant foreign exchange
gains or losses.
12. Subsequent Events
In February 1997, the Company commenced a private offering of Units, each
consisting of: (i) a $250,000 principal amount 10% Convertible Subordinated Note
due June 30, 2003 convertible into the Company's common stock, par value $.01
per share ("Common Stock") at a price of $5.00 per share (a "Note"); and (ii)
Warrants to purchase 25,000 shares of the Common Stock, at an exercise price of
$6.00 per share ("Warrant"), expiring June 30, 2003. The Warrants and Notes are
redeemable by the Company under certain circumstances. The Units and the
securities comprising the Units were offered in a private placement and have not
been registered under the Securities Act of 1933 and may not be offered or sold
in the United States absent registration or an applicable exemption from
registration requirements. The shares of Common Stock issuable upon exercise and
conversion of the Notes and Warrants have certain registration rights. In March
1997, the Company sold $250,000 of Notes. A total of 25,000 Warrants were issued
in conjunction with this offering. The Company incurred placement fees of
approximately $19,000 and 15,000 five year warrants with an exercise price of
$4.50.
In March 1997 the Company acquired all of the capital stock of Miramar Images,
Inc. ("Miramar"), a producer and distributor of music videos and audio
recordings primarily for the New Adult Contemporary market, for an aggregate
purchase price of 290,996 shares of the Company's common stock. The Company's
shares had an aggregate fair market value of approximately $1,300,000 as of the
closing date and were issued and delivered to certain creditors and shareholders
of Miramar in exchange for the capital stock and Miramar debt. The Company has
committed to file a registration statement registering such shares within six
months of the closing. It is expected that almost all of such shares will be
liquidated periodically during the six-month period immediately following such
registration statement's being declared effective under the Securities Act of
1933 primarily to enable the shareholders and certain other creditors to repay
debt they have incurred to institutional lenders. To the extent the proceeds of
the liquidation of approximately 243,000 of such shares are not at least
approximately $1,100,000 in one year following the closing of the acquisition,
the Company has agreed to pay in cash the amount of such shortfall.
Additionally, Miramar's shareholders received 22,557 shares of Common Stock of
the Company having an aggregate fair market value of $100,000 as of the closing
date. In connection with the acquisition, the Company also advanced $200,000 and
has committed to advance another $550,000, to Miramar to settle certain
liabilities to trade creditors and others. The acquisition of Miramar is being
accounted for as a purchase.
F-20
<PAGE>
UNAPIX ENTERTAINMENT, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
12. Subsequent Events (continued)
In connection with the acquisition, the Company entered into a four-year
employment agreement with the current president of Miramar providing for, among
other things, an annual salary of $125,000 per year, a performance bonus equal
to 5% of Miramar's pre-tax profit (as defined), and one-half of one percent of
the increase of the gross revenues of Miramar over its revenues for the
immediately preceding year. In addition, for each fiscal year commencing on or
after January 1, 1998, if such increase in revenues is equal to or greater than
20% of such precedings year's gross revenues, then the president also will
receive one-half of one percent of the excess of such previous year's gross
revenues over the gross revenues realized by Miramar during the second
immediately preceding fiscal year. The Company also issued an aggregate of
210,000 stock options to Miramar employees and consultants (including the
current president). Each option entitles the holder to purchase one share of the
Company's Common Stock at a purchase price of $4.375 (i.e. $.125 above the
market price of the Company's Common Stock on the closing date of the
acquisition), subject to the holder's continuing to be employed by the Company.
The options have a term of ten years, but, subject to certain exceptions, will
not be exercisable for a period of 9.5 years unless Miramar's operations attain
certain earnings thresholds.
F-21
<PAGE>
EXHIBIT INDEX
Exhibit Sequential
Number Description Page Location
- ------- ----------- -------------
3.1 Company's Certificate of Incorporation, dated January
7, 1993 [incorporated herein by reference to Exhibit
3.1 to the Company's Form SB-2 Registration
Statement, File No. 33-61798 (the "Registration
Statement")]
3.1.1 Amendment No. 1 to Company's Certificate of
Incorporation, dated March 15, 1993 [incorporated
herein by reference to Exhibit 3.1.1 to the
Registration Statement]
3.1.2 Certificate of Ownership and Merger, dated March 23,
1993 [incorporated herein by reference to Exhibit
3.1.2 to the Registration Statement]
3.1.3 Amendment No. 2 to Company's Certificate of
Incorporation, dated April 21, 1993 [incorporated
herein by reference to Exhibit 3.1.3 to the
Registration Statement]
3.1.4 Amendment No. 3 to Company's Certificate of
Incorporation, dated June 10, 1993 [incorporated
herein by reference to Exhibit 3.1.4 to the
Registration Statement]
3.1.5 Certificate of Designations, Preferences and Rights
of Series A 8% Cumulative Convertible Preferred Stock
[incorporated herein by reference to Exhibit 3.1.5 to
the Company's Annual Report on Form 10-KSB for 1993
(the "1993 Form 10-KSB")]
3.1.6 Certificate of Increase to the Certificate of
Designations, Preferences and Rights of Series A 8%
Cumulative Convertible Preferred Stock [incorporated
herein by reference to Exhibit 3.1.6 to the Company's
Annual Report on Form 10-KSB for 1994 (the "1994 Form
10-KSB")]
3.1.7 Certificate of Ownership and Merger, dated August 8,
1996, of A Pix Entertainment, Inc. into the Company
(1)
<PAGE>
Exhibit Sequential
Number Description Page Location
- ------- ----------- -------------
3.2 By-Laws of the Company [incorporated herein by
reference to Exhibit 3.2 to the Registration
Statement]
4.1 Form of Common Stock Certificate [incorporated herein
by reference to Exhibit 4.1 to the Registration
Statement]
4.2 Form of Class A Warrant Certificate [incorporated
herein by reference to Exhibit 4.2 to the
Registration Statement]
4.3 Form of Class B Warrant Certificate [incorporated
herein by reference to Exhibit 4.3 to the
Registration Statement]
4.4 Form of Class A Warrant Agreement between American
Stock Transfer & Trust Company ("AST") and the
Company [incorporated herein by reference to Exhibit
4.4 to the Registration Statement]
4.5 Form of Class B Warrant Agreement between AST and the
Company [incorporated herein by reference to Exhibit
4.5 to the Registration Statement]
4.6 Form of Underwriter's Unit Purchase Option
[incorporated herein by reference to Exhibit 4.6 to
the Registration Statement]
4.7 Common Stock Purchase Warrant Certificate to Purchase
150,000 shares of Common Stock [incorporated herein
by reference to Exhibit 4.1 of the Company's
Quarterly Report on Form 10-Q for the Quarterly
Period ended September 30, 1993]
4.8 Form of Variable Rate Senior Subordinated Note due
December 31, 2001 [incorporated herein by reference
to Exhibit 4.8 of the 1994 Form 10-KSB]
4.9 Form of Common Stock Purchase Warrant Certificate for
Warrants issued together with Variable Rate Senior
Subordinated Notes due December 31, 2001
[incorporated herein by reference to Exhibit 4.9 of
the 1994 Form 10-KSB]
<PAGE>
Exhibit Sequential
Number Description Page Location
- ------- ----------- -------------
4.10 Common Stock Purchase Warrant Certificate issued to
Atlantic Bank of New York entitling it to purchase
20,000 shares of Common Stock [incorporated herein by
reference to Exhibit 10.3 of the Company's Current
Report on Form 8-K for event of June 21, 1995 (the
"June 8-K")]
4.11 Common Stock Purchase Warrant Certificate entitling
the holder to purchase 15,000 shares of common stock
at an exercise price of $4.25 per share and expiring
on June 30, 2000 [incorporated herein by reference to
Exhibit 4.11 of the Company's Annual Report on Form
10-KSB for 1995 (the "1995 Form 10-KSB")]
4.12 Common Stock Purchase Warrant Certificate entitling
the holder to purchase 10,000 shares of common stock
at an exercise price of $4.50 per share and expiring
on December 31, 2000 [incorporated herein by
reference to Exhibit 4.12 of the 1995 Form 10-KSB]
4.13 Form of 10% Convertible Subordinated Note due June
30, 2003 [incorporated herein by reference to Exhibit
4.1 to the Company's Quarterly Report on Form 10-QSB
for the Quarterly Period ended June 30, 1996 (the
"June 1996 Form 10-QSB")]
4.14 Form of Common Stock Purchase Warrant Certificate,
entitling the holder to purchase shares of Common
Stock at $6.00 per share and expiring on June 30,
2003 [incorporated herein by reference to Exhibit 4.2
to the June 1996 Form 10-QSB]
4.15 Form of Common Stock Purchase Warrant Certificate,
entitling the holder to purchase shares of Common
Stock at $4.50 per share and expiring on December 31,
2001 (1)
4.16 Form of 10% Convertible Subordinated Note due
December 31, 2003(1)
*10.1 Employment Agreement between the Company and David
Fox [incorporated herein by reference to Exhibit 10.1
to the Registration Statement]
<PAGE>
Exhibit Sequential
Number Description Page Location
- ------- ----------- -------------
*10.1.1 Form of Amendment No. 1 to Employment Agreement
between the Company and David Fox [incorporated
herein by reference to Exhibit 10.1.1 to the
Registration Statement]
*10.2 Employment Agreement between the Company and Scott
Hanock [incorporated herein by reference to Exhibit
10.2 to the Registration Statement]
*10.2.1 Form of Amendment No. 1 to Employment Agreement
between the Company and Scott Hanock [incorporated
herein by reference to Exhibit 10.2.1 to the
Registration Statement]
*10.2.2 Form of Amendment No. 2 to Employment Agreement
between the Company and Scott Hanock [incorporated
herein by reference to Exhibit 10.2.2 to the
Registration Statement]
*10.3 Form of Employment Agreement between the Company and
Herbert M. Pearlman [incorporated herein by reference
to Exhibit 10.4 to the Registration Statement]
*10.4 Form of Employment Agreement between the Company and
David S. Lawi [incorporated herein by reference to
Exhibit 10.5 to the Registration Statement]
*10.5 1993 Stock Option Plan, as amended (1)
10.6 Lease Agreement for Sherman Oaks, California offices
[incorporated herein by reference to Exhibit 10.8 to
the Registration Statement]
10.7 Lease Extension Agreement, dated April 22, 1996,
relating to Sherman Oaks, California offices (1).
10.8 Lease Extension Agreement, dated March 12, 1997,
relating to Sherman Oaks, California offices (1)
10.9 Form of Lease Agreement for 537 Steamboat Road,
Greenwich, CT offices [incorporated herein by
reference to Exhibit 10.9 to the 1994 Form 10-KSB]
10.10 Lease Agreement for 200 Madison Avenue Location
[incorporated herein by reference to Exhibit 10.9 to
the 1995 Form 10-KSB]
<PAGE>
Exhibit Sequential
Number Description Page Location
- ------- ----------- -------------
10.11 Account Financing Agreement, dated June 21, 1995,
among Atlantic Bank of New York, the Company and A
Pix [incorporated herein by reference to Exhibit 10.1
to the June 8-K]
10.12 Covenant Supplement to Accounts Financing Agreement,
dated June 21, 1995, among Atlantic Bank of New York,
the Company and A Pix [incorporated herein by
reference to Exhibit 10.2 to the June 8-K]
*10.13 Stock Option Agreement between the Company and David
Fox (embodied in Exhibit 10.1) [incorporated herein
by reference to Exhibit 10.1 to the Registration
Statement]
*10.14 Form of Earnings Performance Stock Option Agreement
between the Company and Herbert M. Pearlman, dated
April 23, 1993 [incorporated herein by reference to
Exhibit 10.18 to the Registration Statement]
10.14.1 Schedule of omitted documents in the form of Exhibit
10.14, including material detail in which such
documents differ from Exhibit 10.14 [incorporated
herein by reference to Exhibit 10.18.1 to the
Registration Statement]
*10.15 Employment Agreement between the Company and Robert
Baruc [incorporated herein by reference to Exhibit
10.1 of the Company's Quarterly Report on Form 10-Q
for the Quarterly Period ended June 30, 1993]
*10.16 Amendment No. 1 to Employment Agreement of Robert
Baruc (1).
*10.17 Employment Agreement between the Company and Robert
Miller (1)
*10.18 Employment Agreement between the Company and Timothy
Smith (1)
10.19 Investment Agreement between the Company and Herbert
M. Pearlman [incorporated herein by reference to
Exhibit 10.24 to the 1993 Form 10-KSB]
<PAGE>
Exhibit Sequential
Number Description Page Location
- ------- ----------- -------------
10.20 Investment Agreement between the Company and David S.
Lawi [incorporated herein by reference to Exhibit
10.25 to the 1993 Form 10-KSB]
10.21 Investment Agreement between the Company and Lawrence
Bishop [incorporated herein by reference to Exhibit
10.26 to the 1993 Form 10-KSB]
*10.22 Stock Option Agreement between the Company and Scott
Hanock, dated May 17, 1991 [incorporated herein by
reference to Exhibit 10.17 to the Registration
Statement]
*10.22.1 Schedule of omitted documents in the Form of Exhibit
10.22 [incorporated herein by reference to Exhibit
10.21.1 to the 1994 10-KSB]
10.23 Agreement under which Strategic Growth International
serves as Investor Relations Consultant to the
Company incorporated herein by reference to Exhibit
10.1 to the June 1996 Form 10-QSB]
10.24 Stock Purchase Agreement, dated March 17, 1997,
relating to the Company's purchase of all of the
capital stock of Miramar Images, Inc. ("Miramar") (1)
10.25 Pooled Consideration Agreement, dated March 17, 1997,
entered into in connection with the Company's
purchase of Miramar (1)
10.26 Settlement Agreement, dated March 17, 1997, among the
Company, Miramar and Steven Churchill, entered into
in connection with the Company's purchase of
Miramar(1)
10.27 Assignment Agreement, dated March 17, 1997, among the
Company, Miramar and Charles Walsh, entered into in
connection with the Company's purchase of Miramar (1)
10.28 Agreement, dated October 16, 1996, between the
Company and Strategic Growth International relating
to payment of Finder's Fee with respect to private
placement (1)
<PAGE>
Exhibit Sequential
Number Description Page Location
- ------- ----------- -------------
10.29 Lease Agreement, as amended to date, for Miramar's
offices at 200 Second Avenue West, Seattle,
Washington (1)
11.1 Statement of Computation of Per Share Earnings (1)
21.1 Subsidiaries (1)
23.1 Consent of Richard A. Eisner & Company, LLP. (1)
27.1 Financial Data Schedules
- -----------------------------
(1) Filed herewith.
*Management contract or compensatory plan or arrangement.
State of Delaware
Office of the Secretary of State PAGE 1
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF OWNERSHIP,
WHICH MERGES:
"A PIX ENTERTAINMENT, INC.", A NEW YORK CORPORATION, WITH AND INTO "UNAPIX
ENTERTAINMENT, INC." UNDER THE NAME OF "UNAPIX ENTERTAINMENT, INC.", A
CORPORATION ORGANIZED AND EXISTING UNDER THE LAWS OF THE STATE OF DELAWARE, AS
RECEIVED AND FILED IN THIS OFFICE THE NINETEENTH DAY OF AUGUST, A.D. 1996, AT 9
O'CLOCK A.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE KENT COUNTY
RECORDER OF DEEDS FOR RECORDING.
[GREAT SEAL OF THE STATE
OF DELAWARE 1793-1847-1907]
/s/ Edward J. Freel
-----------------------------------------
Edward J. Freel, Secretary of State
[SEAL] SECRETARY'S OFFICE
1793 DELAWARE 1855
2321665 8100M AUTHENTICATION: 8073242
960241126 DATE: 08-19-96
<PAGE>
CERTIFICATE OF OWNERSHIP AND MERGER
OF
A PIX ENTERTAINMENT, INC.
INTO
UNAPIX ENTERTAINMENT, INC.
Under Section 253 of the
General Corporation Law
The undersigned, being the Chairman of the Board and Secretary of Unapix
Entertainment, Inc. ("Unapix") hereby certify:
FIRST: That the name of the Subsidiary corporation is A Pix
Entertainment, Inc. and the name of the surviving corporation is Unapix
Entertainment, Inc.
SECOND: That Unapix owns ninety and one-half percent (90.5%) of the
outstanding shares of A Pix Entertainment, Inc.
THIRD: That the Board of Directors of Unapix at a meeting duly
called and held on the 6th day of June 1966, adopted the following
resolutions:
Whereas, Unapix Entertainment, Inc., a Delaware corporation
Unapix"), owns ninety and one-half percent t (90.5%) of the outstanding
shares of each class of A Pix Entertainment, Inc., a New YORK corporation
("A Pix"), and it is deemed expedient that Unapix shall acquire and be
possessed of all the estate, property, rights, privileges, and franchises
of A Pix; now therefore be it
<PAGE>
RESOLVED, that Unapix merge into itself A Pix, and
assume all of its obligations; and be it further
RESOLVED, that upon surrender of each share of capital stock of A
Pix not owned by Unapix the holder thereof shall be entitled to
receive 10,526.3 shares of common stock, $.01 par value, of Unapix;
and be it further
RESOLVED, that the officers of Unapix be empowered and are directed
to do all other acts and things whatsoever which may be in any way
requisite or proper for the full and complete accomplishment of said
merger.
IN WITNESS WHEREOF, the undersigned affirm that the statements made herein
are true under penalties of perjury, this 8 day of August 1996.
UNAPIX ENTERTAINMENT, INC.
BY /s/ Herbert M. Pearlman
----------------------------------------
Herbert M. Pearlman, Chairman
ATTEST:
/s/ David S. Lawi
- ------------------------
David S. Lawi, Secretary
2
<PAGE>
VOID AFTER 5:00 P.M., NEW YORK, NEW YORK LOCAL TIME ON DECEMBER 31, 2001.
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF
(COLLECTIVELY THE "SECURITIES") HAVE EVEN ACQUIRED FOR INVESTMENT ONLY AND HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR
ANY STATE SECURITIES LAW, AND MAY NOT BE SOLD, PLEDGED, HYPOTHECATED, OR
OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE ACT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO UNAPIX
ENTERTAINMENT, INC. THAT AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE.
UNAPIX ENTERTAINMENT, INC.
COMMON STOCK PURCHASE WARRANT CERTIFICATE
TO PURCHASE ______
SHARES OF COMMON STOCK
Certificate No. PW- 01
This Warrant Certificate certifies that _________, having an office at
_______________, or registered assigns, is the registered Holder (the "Holder")
of ________ (_____) Common Stock Purchase Warrants (the "Warrants") to purchase
shares of the common stock, $.01 par value (the "Common Stock"), of Unapix
Entertainment, Inc., a Delaware corporation (the "Company").
The Warrants represented by this Warrant Certificate were issued as
partial compensation for the Holder's acting as a non-exclusive Placement Agent
or as a finder's fee in connection with a private placement made by the Company
pursuant to a certain Confidential Private Placement Memorandum dated April 30,
1996, as supplemented to date (the "Memorandum").
1. EXERCISE OF WARRANT.
(A) Each Warrant enables the Holder, subject to the provisions of
this Warrant Certificate and to the listing of the shares issuable upon exercise
hereof on the American Stock Exchange (the "AMEX"), to purchase from the Company
at any time and from time to time commencing on the date of issuance (the
"Initial Exercise Date") through the including 5:00 p.m., New York, New York
local time on December 31, 2001 (the "Expiration Date") one (1) fully paid and
non-assessable share of Common Stock ("Shares") upon due presentation and
surrender of this Warrant Certificate accompanied by payment of the purchase
price of $4.50 per Share (the "Exercise Price"). Payment shall be made in lawful
money of the
<PAGE>
United States of America by certified check payable to the Company at its
principal office at 200 Madison Avenue, New York, New York 10016, or upon
surrender of this Warrant as hereinafter described. As hereinafter provided, the
Exercise Price and number of Shares purchasable upon the exercise of the
Warrants are subject to modification or adjustment upon the happening of certain
events.
(B) Subject to the shares issuable upon exercise of the Warrant
being listed on the AMEX, this Warrant Certificate is exercisable at any time on
or after the Initial Exercise Date in whole or in part by the Holder in person
or by attorney duly authorized in writing at the principal office of the
Company.
2. EXCHANGE, FRACTIONAL SHARES, TRANSFER.
(A) Upon surrender to the Company, this Warrant Certificate may be
exchanged for another Warrant Certificate or Warrant Certificates evidencing a
like aggregate number of Warrants. If this Warrant Certificate shall be
exercised in part, the Holder shall be entitled to receive upon surrender hereof
another Warrant Certificate or Warrant Certificates evidencing the number of
Warrants not exercised;
(B) Anything herein to the contrary notwithstanding, in no event
shall the Company be obligated to issue Warrant Certificates evidencing other
than a whole number of Warrants or issue certificates evidencing other than a
whole number of Shares upon the exercise of this Warrant Certificate; provided,
however, that the Company shall pay with respect to any such fraction of a Share
an amount of cash based upon the current public market value (or book value, if
there shall be no public market value) for Shares purchasable upon exercise
hereof;
(C) The Company may deem and treat the person in whose name this
Warrant Certificate is registered as the absolute true and lawful owner hereof
for all purposes whatsoever; and
(D) This Warrant Certificate may not be transferred except in
compliance with the provisions of the Act and applicable state securities laws
and in accordance with the provisions of Section 11 hereof.
3. RIGHTS OF A HOLDER. No Holder shall be deemed to be the Holder of
Common Stock or any other securities of the Company that may at any time be
issuable on the exercise hereof for any purpose nor shall anything contained
herein be construed to confer upon the Holder any of the rights of a shareholder
of the Company or any right to vote for the election of directors or upon any
matter submitted to shareholders at any meeting thereof or to give or withhold
consent to any corporate action (whether upon any reorganization, issuance of
stock, reclassification or conversion of stock, change of par value,
consolidation, merger, conveyance, or otherwise) or to receive notice of
meetings or to receive dividends or subscription rights or otherwise until a
Warrant shall have been exercised and the Common Stock purchasable upon the
exercise thereof shall have become issuable.
2
<PAGE>
4. REGISTRATION OF TRANSFER. The Company shall maintain books for the
transfer and registration of Warrants. Upon the transfer of any Warrants in
accordance with the provisions of Section 2(D) hereof (a "Permitted Transfer"),
the Company shall issue and register the Warrants in the names of the new
Holder. The Warrants shall be signed manually by the Chairman, Chief Executive
Officer, President or any Vice President and the Secretary or Assistant
Secretary of the Company. The Company shall transfer, from time to time, any
outstanding Warrants upon the books to be maintained by the Company for such
purpose upon surrender thereof for transfer properly endorsed or accompanied by
appropriate instructions for transfer. Upon any Permitted Transfer, a new
Warrant Certificate shall be issued to the transferee and the surrendered
Warrants shall be cancelled by the Company. Warrants may be exchanged at the
option of the Holder, when surrendered at the office of the Company, for another
Warrant, or other Warrants of different denominations, of like tenor and
representing in the aggregate the right to purchase a like number of Shares.
Subject to the terms of this Warrant Certificate, upon such surrender and
payment of the purchase price at any time after the Initial Exercise Date, the
Company shall issue and deliver with all reasonable dispatch to or upon the
written order of the Holder of such Warrants and in such name or names as such
Holder may designate, a certificate or certificates for the number of full
Shares so purchased upon the exercise of such Warrants. Such certificate or
certificates shall be deemed to have been issued and any person so designated to
be named therein shall be deemed to have become the Holder of record of such
Shares as of the date of the surrender of such Warrants and payment of the
purchase price; provided, however, that if, at the date of surrender and
payment, the transfer books of the Company shall be closed, the certificates for
the Shares shall be issuable as of the date on which such books shall be opened
and until such date the Company shall be under no duty to deliver any
certificate for such Shares; provided, further, however, that such transfer
books, unless otherwise required by law or by applicable rule of any national
securities exchange or interdealer quotation system, shall not be closed at any
one time for a period longer than 20 days. The rights of purchase represented by
the Warrants shall be exercisable, at the election of the Holders, either as an
entirely or from time to time for only part of the Shares at any time on or
after the Initial Exercise Date.
5. STAMP TAX. The Company will pay any documentary stamp taxes
attributable to the initial issuance of the Shares issuable upon the exercise of
the Warrants; provided, however, that the Company shall not be required to pay
any tax or taxes which may be payable in respect of any transfer involved in the
issuance or delivery of any certificates for Shares in a name other than that of
the Holder in respect of which such Shares are issued, and in such case the
Company shall not be required to issue or deliver any certificate for Shares or
any Warrant until the person requesting the same has paid to the Company the
amount of such tax or has established to the Company's satisfaction that such
tax has been paid.
6. LOST, STOLEN OR MUTILATED CERTIFICATES. In case this Warrant
Certificate shall be mutilated, lost, stolen or destroyed, the Company may, in
its discretion, issue and deliver in exchange and substitution for and upon
cancellation of the mutilated Warrant Certificate, or in lieu of and
substitution for the lost, stolen or destroyed Warrant Certificate, a new
Warrant Certificate of like tenor representing an equivalent right or interest,
but only upon
3
<PAGE>
receipt of evidence satisfactory to the Company of such loss, theft or
destruction and an indemnity, if requested, also satisfactory to it.
7. RESERVED SHARES. The Company warrants that there have been reserved,
and covenants that at all times in the future it shall keep reserved, out of the
authorized and unissued Common Stock, a number of Shares sufficient to provide
for the exercise of the rights of purchase represented by this Warrant
Certificate. The Company agrees that all Shares issuable upon exercise of the
Warrants shall be, at the time of delivery of the certificates for such Shares,
validly issued and outstanding, fully paid and non-assessable and that the
issuance of such Shares will not give rise to preemptive rights in favor of
existing stockholders.
8. ANTI-DILUTION PROVISIONS.
(A) Stock Dividend - Split-Ups. If after the date hereof, the number
of outstanding shares of Common Stock is increased by a stock dividend payable
in shares of Common Stock or by a split-up of shares of Common Stock or other
similar event, then, on the day following the date fixed for the determination
of holders of Common Stock entitled to received such stock dividend or split-up,
the number of shares issuable on exercise of each Warrant shall be increased in
proportion to such increase in outstanding shares and the then applicable
Exercise Price shall be correspondingly decreased.
(B) Aggregation of Shares. If after the date hereof, the number of
outstanding shares of Common Stock is decreased by a consolidation, combination
or reclassification of shares of Common Stock or other similar event, then,
after the effective date of such consolidation, combination or reclassification,
the number of shares issuable on exercise of each Warrant shall be decreased in
proportion to such decrease in outstanding shares and the then applicable
Exercise Price shall be correspondingly increased.
(C) Reorganization, etc. If after the date hereof any capital
reorganization or reclassification of the Common Stock of the Company, or
consolidation or merger of the Company with another corporation, or the sale of
all or substantially all of its assets to another corporation or other similar
event shall be effected, then, as a condition of such reorganization,
reclassification, consolidation, merger, or sale, lawful and fair provision
shall be made whereby the Warrant holders shall thereafter have the right to
purchase and receive, upon the basis and upon the terms and conditions specified
in the Warrants and in lieu of the shares of Common Stock of the Company
immediately theretofore purchasable and receivable upon the exercise of the
rights represented thereby, such shares of stock, securities, or assets as may
be issued or payable with the respect to or in exchange for the number of
outstanding shares of such Common Stock equal to the number of shares of such
stock immediately theretofore purchasable and receivable upon the exercise of
the rights represented by the Warrants, had such reorganization,
reclassification, consolidation, merger, or sale not taken place and in such
event appropriate provision shall be made with respect to the rights and
interests, of the Warrant holders to the end that the provisions hereof
(including, without limitation, provisions for adjustment of the Exercise Price
and of the number of shares purchasable upon the exercise of the Warrants) shall
thereafter
4
<PAGE>
be applicable, as nearly as may be in relation to any share of stock,
securities, or assets thereafter deliverable upon the exercise hereof.
(D) Notice of Certain Transactions. If, at any time while this
Warrant is outstanding, the Company shall pay any dividend payable in cash or in
Common Stock, shall offer to the holders of its Common Stock for subscription or
purchase by them any shares of stock of any class or any other rights, or shall
enter into an agreement to merge or consolidate with another corporation, the
Company shall cause notice thereof to be mailed to the registered holder of this
Warrant at its address appearing on the registration books of the Company, at
least 30 days prior to the record date as of which holders of Common Stock shall
participate in such dividend, distribution or subscription or other rights or at
least 30 days prior to the effective date of the merger or consolidation.
Failure to give notice as required by this Section, or any defect therein, shall
not affect the legality or validity of any dividend, distribution or
subscription or other right.
9. CONSOLIDATION OR MERGER. The Company covenants and agrees that it
will not merge or consolidate with or into or sell or otherwise transfer all or
substantially all of its assets to any other corporation or entity unless at the
time of or prior to such transaction the successor corporation (if other than
the Company) resulting from such consolidation or merger, or the corporation
purchasing such assets, shall expressly assume all of the liabilities and
obligations of the Company under this Warrant and (without limiting the
generality of the foregoing) shall expressly agree that the Holder of this
Warrant shall thereafter have the right to receive upon the exercise of this
Warrant the number and kind of shares of stock and other securities and property
receivable upon such transaction by a Holder of the number and kind of shares
which would have been receivable upon the exercise of this Warrant immediately
prior to such transaction.
10. REGISTRATION RIGHTS UNDER THE SECURITIES ACT OF 1933.
(A) The Company shall advise the Holder of this Warrant or of
the Warrant Shares or any then Holder of Warrants of Warrant Shares (such
persons being collectively referred to herein as "Holders") by written notice at
least three weeks prior to the anticipated filing of any registration statement
under the Act (other than a registration statement on Forms S-4 or Form S-8
promulgated under the Act or any successor or similar form) filed by the Company
covering the public offering of securities of the Company for its own account
(the "Registration Statement"), or subject to the Company's not being prohibited
from doing so pursuant to an agreement with another party, for the account of
another party, and will for a period of two (2) years commencing the date
hereof, upon the request of any such Holder given not later than 10 days after
receipt of such notice from the Company (which notice from the Company will
offer such Holder the option to include Shares in such Registration Statement),
include in any such Registration Statement such information as may be required
to permit a public offering of the Shares. Such inclusion shall be on the same
terms and conditions as any similar securities of the Company so included,
including, without limitation, the same registration form. Notwithstanding the
foregoing, if the Managing Underwriter of any such offering shall
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<PAGE>
advise the Company in writing that, in its opinion, the distribution of all or a
portion of the shares requested to be included in the registration concurrently
with the securities being registered by the Company would materially adversely
affect the distribution of such securities then the Holders who shall have
requested registration of Warrant Shares shall withdraw the offer and sale of
such Warrant Shares (or the portions thereof so designated by such Managing
Underwriter) for such period as the Managing Underwriter shall in its sole
discretion determine. The Company shall supply prospectuses and other documents
as the Holder may reasonably request in order to facilitate the public sale or
other disposition of the Shares, use its best efforts to qualify the Shares for
sale in such states as any such Holder reasonably designates and do any and all
other acts and things which may be necessary or desirable to enable such Holders
to consummate the public sale or other disposition of the Shares, and furnish
indemnification in the manner as set forth in Subsection (B)(2)(a) and (b) of
this Section 10. Such Holders shall furnish information and indemnification as
set forth in Subsection (B)(2)(c) of this Section 10. Notwithstanding anything
to the contrary contained herein, each holder of Warrants or Warrant Shares
shall be entitled to exercise his or its rights pursuant to the terms of this
Section 10(A) with respect to not more than one registration which becomes
effective under the Act.
(B) The following provisions of this Section 10 shall also be
applicable:
(1) The Company shall bear the entire cost and expense
of any registration of securities under Subsection (A) of this
Section 10 notwithstanding that Shares subject to this Warrant
may be included in any such registration, except that the
Holders shall bear the fees of their own counsel and any
underwriting discounts or commissions applicable to any of the
securities sold by them.
(2) (a) The Company shall indemnify and hold harmless
each such Holder whose Shares are included in any such
registration statement, the directors and officers of any such
Holder, and each person that controls such Holder (within the
meaning of Section 15 under the Act), and each underwriter,
within the meaning of the Act, who may purchase from or sell
for any such Holder any Shares, from and against any and all
losses, claims, damages and liabilities caused by any untrue
statement or alleged untrue statement of a material fact
contained in such registration statement or any post-effective
amendment thereto under the Act or any prospectus included
therein or filed or furnished in connection therewith, or
caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to
make the statements therein not misleading, except insofar as
such losses, claims, damages or liabilities are caused by any
such untrue statement or alleged untrue statement or omission
or alleged omission based upon information furnished or
required to be furnished in writing to the Company by such
Holder or underwriter expressly for use therein, which
indemnification
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shall include each person, if any, who controls any such
underwriter within the meaning of such Act; provided, however,
that the Company shall not be so obliged to indemnify any such
underwriter or controlling person unless such underwriter
shall at the same time indemnify the Company, its directors,
each officer signing the related registration statement and
each person, if any, who controls the Company within the
meaning of such Act, from and against any and all losses,
claims, damages and liabilities caused by any untrue statement
or alleged untrue statement of a material fact contained in
any such registration statement or any prospectus included
therein or filed or furnished in connection therewith or
caused by any omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein not misleading, insofar as such losses,
claims, damages or liabilities are caused by any untrue
statement or alleged untrue statement or omission based upon
information furnished in writing to the Company by any such
underwriter expressly for use therein.
(b) If any action or proceeding (including any
governmental investigation) shall be brought, threatened or
asserted against any indemnified person in respect of which
indemnity may be sought from the Company, such indemnified
person shall promptly notify the Company in writing, and the
Company shall assume the defense thereof, including the
retention of counsel and the payment of all related expenses.
Any such indemnified person shall have the right to employ
separate counsel in any such action and to participate in the
defense thereof, but the fees and expenses of such counsel
shall be at the expense of such indemnified person unless: (i)
the Company has agreed to pay such fees and expenses; or (ii)
the Company shall have failed to assume the defense of such
action or proceeding. The Company shall not be liable for any
settlement of any such action or proceeding or confession of
judgement effected by the indemnified person without the
Company's consent.
(c) The Holders registering Shares shall agree to
indemnify and hold harmless the Company, its directors and
officers, and each person, if any, who controls the Company
within the meaning of Section 15 of the Act, to the same
extent as the indemnity from the Company to each such person
provided in Subsection (B)(2)(a) of this Section 10 but only
with respect to information relating to such indemnified
person furnished in writing by such indemnified person to the
Company expressly for use in the registration statement or
related prospectus (preliminary or final), or any amendment or
supplement thereto. In case any action or proceeding shall be
brought against the Company or its directors or officers or
any such controlling person, in respect to which indemnity may
be sought against a Holder under the preceding sentence, each
such Holder shall
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have the rights and duties given the Company under Section
(B)(2)(b) of this Section 10.
(C) Notwithstanding anything to the contrary contained in this
Section 10, the Holder shall not be entitled to registration rights or to
receive notice, in each case pursuant to Section 10 if the Holder receives an
opinion in form and substance reasonably satisfactory to him from counsel to the
Company reasonably acceptable to him that the proposed offer and sale of the
Shares by him is exempt from the registration requirements of the Act, by reason
of the availability of the exemption provided by Rule 144.
(D) The Holders requesting registration shall furnish to the
Company in writing such information and documents as, in the opinion of counsel
to the Company, may be reasonably required properly to prepare and file such
registration statement in accordance with the applicable provision of the Act.
11. TRANSFER TO COMPLY WITH THE SECURITIES ACT OF 1933.
(A) The Holder of this Warrant Certificate, each transferee
hereof and any Holder and transferee of any Shares, by his acceptance thereof,
agrees that (a) no public distribution of Warrants or Shares will be made in
violation of the Act, and (b) during such period as the delivery of a prospectus
with respect to Warrants or Shares may be required by the Act, no public
distribution of Warrants or Shares will be made in a manner or on terms
different from those set forth in, or without delivery of, a prospectus then
meeting the requirements of Section 10 of the Act and in compliance with
applicable state securities laws. The Holder of this Warrant Certificate and
each transferee hereof further agrees that if any distribution of any of the
Warrants or Shares is proposed to be made by them otherwise than by delivery of
a prospectus meeting the requirements of Section 10 of the Act, such action
shall be taken only after submission to the Company of an opinion of counsel,
reasonably satisfactory in form and substance to the Company's counsel, to the
effect that the proposed distribution will not be in violation of the Act or of
applicable state law. Furthermore, it shall be a condition to the transfer of
the Warrants that any transferee thereof deliver to the Company his written
agreement to accept and be bound by all of the terms and conditions contained in
this Warrant Certificate.
(B) This Warrant or the Shares or any other security issued
or issuable upon exercise of this Warrant may not be sold or otherwise disposed
of except as follows:
(1) To a person who, in the opinion of counsel for the
Holder reasonably acceptable to the Company, is a person to whom this Warrant or
Shares may legally be transferred without registration and without the delivery
of a current prospectus under the Act with respect thereto and then only against
receipt of an agreement of such person to comply with the provisions of this
subsection (B)(l) with respect to any resale or other disposition of such
securities which agreement shall be satisfactory in form and substance to the
Company and its counsel; provided that the foregoing shall not apply to any such
Warrant, Shares or other security
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<PAGE>
as to which Holder shall have received an opinion letter from counsel to the
Company as to the exemption thereof from the registration under the Act pursuant
to Rule 144 under the Act; or
(2) To any person upon delivery of a prospectus then
meeting the requirements of the Act relating to such securities and the offering
thereof for such sale or disposition.
(C) Each certificate for Shares issued upon exercise of this
Warrant shall bear a legend relating to the non-registered status of such Shares
under the Act, unless at the time of exercise of this Warrant such Shares are
subject to a currently effective registration statement under the Act.
12. MISCELLANEOUS.
(A) LAW TO GOVERN. This Warrant shall be governed by and
construed in accordance with the substantive laws of the State of New York,
without giving effect to conflict of laws principles.
(B) ENTIRE AGREEMENT. This Warrant Certificate constitutes and
expresses the entire understanding between the parties hereto with respect to
the subject matter hereof, and supersedes all prior and contemporaneous
agreements and understandings, inducements or conditions whether express or
implied, oral or written. Neither this Warrant Certificate nor any portion or
provision hereof may be changed, waived or amended orally or in any manner other
than by an agreement in writing signed by the Holder and the Company.
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<PAGE>
(C) NOTICES. Except as otherwise provided in this Warrant
Certificate, all notices, requests, demands and other communications required or
permitted under this Warrant Certificate or by law shall be in writing and shall
be deemed to have been duly given, made and received only when delivered against
receipt or when deposited in the United States mails, certified or registered
mall, return receipt requested, postage prepaid, addressed as follows:
Company: Unapix Entertainment, Inc.
200 Madison Avenue
New York, NY 10016
Attn: President
Holder: At the address shown for the
Holder in the registration
book maintained by the
Company.
Copy to: Michael R. Epps, Esq.
c/o The Mezzanine Financial Fund
2 Bridge Avenue
Red Bank, NJ 07701
(D) SEVERABILITY. If any provision of this Warrant Certificate
is prohibited by or is unlawful or unenforceable under any applicable law of any
jurisdiction, such provision shall, as to such jurisdiction be in effect to the
extent of such prohibition without invalidating the remaining provisions hereof;
provided, however, that nay such prohibition in any jurisdiction shall not
invalidate such provision in any other jurisdiction; and provided, further that
where the provisions of any such applicable law may be waived, that they hereby
are waived by the Company and the Holder to the full extent permitted by law and
to the end that this Warrant instrument shall be deemed to be a valid and
binding agreement in accordance with its terms.
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<PAGE>
IN WITNESS WHEREOF, Unapix Entertainment, Inc., has caused this Warrant
Certificate to be signed by its duly authorized officers as of the ____ day of
_____ 1996.
UNAPIX ENTERTAINMENT, INC.
By:_______________________________
Herbert M. Pearlman,
Chairman
Attest:
_______________________________
David S. Lawi, Secretary
[CORPORATE SEAL]
11
THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") NOR UNDER
ANY STATE SECURITIES LAW AND MAY NOT BE PLEDGED, SOLD, ASSIGNED, HYPOTHECATED OR
OTHERWISE TRANSFERRED UNTIL (1) A REGISTRATION STATEMENT WITH RESPECT THERETO IS
EFFECTIVE UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAW OR (2) THE
COMPANY RECEIVES AN OPINION OF COUNSEL TO THE COMPANY OR OTHER COUNSEL TO THE
HOLDER OF SUCH NOTE, THAT SUCH NOTE AND/OR COMMON STOCK MAY BE PLEDGED, SOLD,
ASSIGNED, HYPOTHECATED OR TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT OR APPLICABLE STATE SECURITIES LAWS.
UNAPIX ENTERTAINMENT, INC.
10% Convertible Subordinated Note
Due December 31, 2003
THIS NOTE WAS ISSUED WITH ORIGINAL ISSUE DISCOUNT
To obtain information Regarding Original Issue
Discount Contact Steven P. Low, Chief Accounting
Officer of Unapix Entertainment, Inc., Telephone
number: 212-252-7600
$________________ NO. CS-
________________, 1997
Unapix Entertainment, Inc., a Delaware corporation (the "Company"), for
value received, hereby promises to pay to ________________, with an address
located at ___________, or his registered assigns (the "Payee" or "Holder"), the
principal amount of ____________________ DOLLARS ($___________) and accrued
interest thereon in accordance with the terms and provisions hereof.
This Note was issued by the Company in a private placement pursuant to a
Private Placement Memorandum, dated February 14, 1997, and was issued as part of
a Unit or Units, each of which consisted of: (i) a Note in the principal amount
of $250,000; and (ii) Warrants to purchase 25,000 shares of the common stock of
the
<PAGE>
Company, par value $.01 per share ("Common Stock"), at an exercise price of
$6.00 per share and expiring June 30, 2003. The series of Notes issued in
connection with said private placement are referred to hereafter as the "Notes".
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<PAGE>
1. PAYMENT OF PRINCIPAL AND INTEREST; METHOD OF PAYMENT.
1.1 Method of Payment. Payment of the principal of and accrued
interest on this Note shall be made in such coin or currency of the United
States of America as at the time of payment shall be legal tender for the
payment of public and private debts. The Company will pay or cause to be paid
all sums becoming due hereon for principal and interest by check sent to the
Holder's above address or to such other address as Holder may designate for such
purpose from time to time by written notice to the Company, without any
requirement for the presentation of this Note or making any notation thereon
except that the Holder hereof agrees that payment of the final amount due shall
be made only upon surrender of this Note to the Company for cancellation. Prior
to any sale or other disposition of this instrument, the Holder hereof agrees to
endorse hereon the amount of principal paid hereon and the last date to which
interest has been paid hereon and to notify the Company of the name and address
of the transferee.
1.2 Payment of Principal. The entire outstanding principal balance
of this Note shall be due and payable on December 31, 2003 (the "Maturity
Date").
1.3 Payment of Interest. Interest (computed on the basis of a
360-day year of twelve 30-day months) on the unpaid portion of the principal
amount from time to time outstanding hereunder shall be paid by the Company to
the Payee at the rate of ten percent (10%) per annum (the "Stated Interest
Rate"). Said interest to be paid semi-annually on each June 30 and December 31
(commencing June 30, 1997) and on the Maturity Date.
2. SUBORDINATION PROVISIONS.
2.1 Principal and Interest. The Company, for itself, its successors
and assigns, covenants and agrees, and the Payee and each successive Holder by
acceptance of this Note, likewise cove-nants and agrees that payment of the
principal of and interest on this Note is subordinated in right of payment to
the payment of all existing and future "Senior Debt" (as hereinafter defined) of
the Company. The term "Senior Debt" shall mean the principal of, pre- mium, if
any, and interest on: (i) all Indebtedness of the Company to any bank or other
financial institution (including, without limitation, to Atlantic Bank of New
York or Imperial Bank) whether
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<PAGE>
such indebtedness is heretofore or hereafter created, incurred or entered into
(or acquired by assignment) (including, without limitation, all such
indebtedness arising under guarantees) and any deferrals, renewals,
modifications or extensions of any such indebtedness, unless under the express
provisions of the instrument creating or evidencing any such indebtedness, or
pursuant to which the same is outstanding, such indebtedness is not superior in
right of payment to this Note; and (ii) all Indebtedness of the Company owed
with respect to its Variable Rate Senior Subordinated Notes due December 31,
2001. "Indebtedness" for all purposes herein means and includes without
duplication, as of any date as of which the amount thereof is to be determined
(whether or not secured by lien, pledge or deposit), all direct obligations to
repay money borrowed (including without limitation, amounts borrowed under
revolving credit facilities, either now existing or hereafter created (including
any increase in existing facilities), all notes payable and drafts accepted
representing extensions of credit, and all obligations evidenced by bonds,
debentures, notes or other similar instruments) and all interest accrued and
unpaid thereon.
2.2 Default. No payment or prepayment, directly or indirectly, on
account of the principal of or interest on this Note shall be made, and no
holder of this Note shall be entitled to demand or receive any such payment or
prepayment if, at the time of such payment or prepayment or immediately after
giving effect thereto, there shall have occurred any event or default under such
Senior Debt or under any agreement pursuant to which any such Senior Debt has
been or will be issued which default has not been waived or cured as of the date
on which such payment or prepayment is due.
2.3 Liquidation, Dissolution, etc. In the event of any insolvency or
bankruptcy proceeding, and any receivership, total liquidation, reorganization
or other similar proceedings in connection therewith, relative to the Company,
or to its property, or in the event of any proceedings for voluntary
liquidation, dissolution or other winding up of the Company, whether or not
involving insolvency or bankruptcy, then the holders of Senior Debt shall be
entitled to receive payment in full of all principal (and premium, if any) and
interest on all such Senior Debt before the holders of this Note shall be
entitled to receive any payment on account of principal or interest of this
Note, and to that end (but subject to the power of a court of competent
jurisdiction to make
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<PAGE>
other equitable provisions reflecting the rights conferred by these provisions
upon such Senior Debt and the holders thereof with respect to this Note and the
Holder hereof by a lawful plan or reorganization under applicable bankruptcy
law) the holders of Senior Debt (until payment in full of all principal, premium
(if any) and interest on all such Senior Debt, including interest thereon
accruing before or in respect of periods subsequent to the commencement of any
such proceedings) shall be entitled to receive for application in payment
thereof any payment or distribution of any kind or character, whether in cash or
property, or by set-off or otherwise, which may be payable or deliverable in any
such proceedings in respect of this Note (including any such payment or
distribution which may be payable or deliverable by reason of the provisions of
any indebtedness of the Company which is subordinate and junior in right to this
Note), except securities issued in such proceedings which are the subordinate
and junior in right of payment to the payment of Senior Debt.
2.4 Subrogation. Subject to the payment in full of Senior Debt, the
holders of this Note shall be subrogated to the rights of the holders of such
Senior Debt to receive payment or distributions of assets of the Company
applicable to such Senior Debt until this Note shall be paid in full, and no
payment or distributions to the holders of such Senior Debt by or on behalf of
the Company from the proceeds that would otherwise be payable to the holder of
this Note shall, as between the Company and the holder of this Note, be deemed
to be a payment by the Company to or on account of this Note.
2.5 Amendment. These provisions with respect to subordination cannot
be amended, modified or waived without the prior written consent of the holder
or holders of all Senior Debt at the time outstanding; and the subordination
effected hereby shall not be affected by any amendment or modification of, or
addition or supplement to, any such Senior Debt or any instrument or agreement
relating thereto, without the prior written consent of the holder or holders of
all such Senior Debt at the time outstanding. No present or future holder of
Senior Debt shall be prejudiced in his right to enforce subordination of this
Note by any act or failure to act on the part of the Company.
2.6 Benefit of Senior Debt. The foregoing subordination provisions
shall be for the benefit of the holders of Senior Debt
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<PAGE>
and may be enforced directly by such holders against the holder of this Note.
Upon any payment or distribution of assets of the Company referred to above, the
holder of this Note shall be entitled to rely upon a certificate of the
receiver, trustee in bankruptcy, liquidating trustee, agent or other person
making such payment or distribution, delivered to the holder of this Note, for
the purpose of ascertaining the persons entitled to participate in such
distribution, the holders of Senior Debt and other indebtedness of the Company,
the amount thereof or payable thereon, the amount or amounts paid or distributed
thereon and all other facts pertaining thereto or hereto.
2.7 Obligation to Pay Principal and Interest Absolute. The foregoing
provisions as to subordination are solely for the purpose of defining the
relative rights of the holders of such Senior Debt, on the one hand, and the
holder of this Note on the other hand. Nothing contained herein is intended to
or shall impair as between the Company, its creditors, other than the holders of
Senior Debt, and the holder of this Note, the obligation of the Company, which
shall be absolute and unconditional, to pay the holder of this Note the
principal and interest on this Note as and when the same shall become due and
payable in accordance with the terms hereof or affect the relative rights of the
holder of this Note and the creditors of the Company other than holders of
Senior Debt, nor shall anything herein prevent the Holder hereof from exercising
all remedies otherwise permitted by applicable law upon default hereunder
subject to the rights of holders of Senior Debt, if any, in respect of cash,
properties or securities of the Company received upon the exercise of any such
remedy. The Holder of this Note by acceptance hereof acknowledges and agrees
that the subordination provisions of this Section 2 are, and/or are intended to
be, an inducement and a consideration to each holder of any Senior Debt, whether
such Senior Debt was created or acquired before or after the issuance of this
Note, to acquire and continue to hold, or to continue to hold, such Senior Debt
and each holder of Senior Debt shall be deemed conclusively to have relied on
such subordination provisions in acquiring and continuing to hold, or in
continuing to hold, such Senior Debt. Nothing contained herein or elsewhere in
this Note shall prevent the Company from making payment of the principal of or
interest on this Note at any time except under the conditions described above.
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<PAGE>
2.8 Further Instruments. The Holder of this Note covenants and agrees to
execute such further instruments and waivers as may be necessary in the opinion
of a lender or creditor, or reasonably requested by the Company, to facilitate
the issuance or the continued holding of Senior Debt.
3. EVENTS OF DEFAULT.
It shall be an Event of Default with respect to this Note upon the
occurrence and continuation uncured of any of the following events:
3.1 This Note.
(a) a default in the payment of any principal payment on this Note,
when and as the same shall become due and payable, and such default shall
continue uncured for thirty (30) days after the day fixed for the making of such
principal payment; or
(b) a default in the payment of any interest payments on this Note,
and such default shall continue uncured for thirty (30) days after the date
fixed for the making of such interest payment; or
(c) a material default in the performance, or material breach, of
any covenant of the Company in this Note (other than a covenant or a default
which is elsewhere herein specifically dealt with as an Event or Default), and
continuance of such default or breach uncured for a period of ninety (90) days
after notice has been given to the Company of such default.
3.2 Bankruptcy. The entry of a decree or order by a court having
jurisdiction adjudging the Company as bankrupt or insolvent, or approving a
petition seeking reorganization, arrangement, adjustment or composition of or in
respect of the Company, under Federal bankruptcy law, as now or hereafter
constituted, or any other applicable Federal or state bankruptcy, insolvency or
other similar law, or appointing a receiver, liquidator, assignee, trustee,
sequestrator or other similar official of the Company or of any substantial part
of its assets, and the continuance of any such decree or order unstayed and in
effect for a period of ninety (90) days; or the commencement by the Company of a
voluntary case under Federal bankruptcy law, as now or
7
<PAGE>
hereafter constituted, or any other applicable Federal or state bankruptcy,
insolvency, or other similar law, or the consent by it to the institution of
bankruptcy or insolvency proceedings against it, or the filing by it of a
petition or answer or consent seeking reorganization or relief under Federal
bankruptcy law or any other applicable Federal or state bankruptcy, insolvency,
or other similar law, or the consent by it to the filing of such petition or to
the appointment of a receiver, liquidator, assignee, trustee, sequestrator or
similar official of the Company or of any substantial part of its property, or
the making by it of an assignment for the benefit of creditors, or the admission
by it in writing of its inability to pay its debts generally as they become due.
3.3 Limitations on Claims in Bankruptcy or on Acceleration Upon an
Event of default. Should an acceleration of the maturity of this Note be
declared as a result of the occurrence and continuation of an Event of Default,
absent bankruptcy, the claim of the Holder would be for the unpaid principal
amount and accrued interest of the Note. The amount that the Holder would be
able to recover from the Company under a bankruptcy or an Event of Default, may,
however, be limited by applicable law to the issued price of this Note plus that
portion of any original issue discount which has been amortized.
4. REMEDIES UPON DEFAULT.
4.1 Acceleration. Upon each occurrence of an Event of Default and at
any time during the continuation thereof (unless the principal of this Note
shall already have become due and payable), the Holder, by notice in writing
given to the Company, may declare the principal of and accrued interest on this
Note then outstanding to be due and payable immediately, and upon any such
declaration the same shall become and be due and payable immediately, anything
herein to the contrary notwithstanding.
4.2 Proceedings and Actions. During the continuation of any one or
more Events of Default, the Holder may institute such actions or proceedings in
law or equity as it shall deem expedient for the protection of its rights, and
may prosecute and enforce its claims, against all assets of the Company and
shall be entitled to receive therefrom payment on such claims up to an amount
not exceeding the principal amount of this Note then outstanding plus
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<PAGE>
accrued interest to the date of payment plus reasonable expenses of collection,
including, without limitation, attorney's fees and expenses.
5. REDEMPTION
The Notes may be redeemed at the option of the Company, in whole or
in part, from time to time at any time after January 1, 1999, on not less than
30 nor more than 60 days written notice. Any such redemptions shall be made at
the following prices, expressed as percentages of the principal amount being
redeemed, during the respective periods set forth below, plus accrued and unpaid
interest thereon to the redemption date. If redeemed during the 12-month period
beginning January 1:
Year Percentage
---- ----------
1999 106.0%
2000 104.5%
2001 103.0%
2002 101.5%
2003 100.0%
If less than the entire principal amount of the Series of Notes is
to be redeemed at one time, the Notes may be redeemed on a pro rata basis or the
Notes to be redeemed may be selected by lot, such manner to be determined by the
Board of Directors of the Company in its sole discretion.
6. CONVERSION
6.1 Conversion Privilege. At any time and from time to time
commencing with the date hereof until the earlier of (i) the Maturity Date or
(ii) the date set for redemption in accordance with the provisions of Section 5
hereof, the outstanding amount of debt of this Note is convertible at the
Holder's option into the Company's shares of common stock, $.01 par value per
share (the "Common Stock"), upon surrender of this Note, at the Office of the
Company, accompanied by a written notice of conversion in form annexed hereto
duly executed by the registered holder or its duly authorized attorney. The
outstanding indebtedness of this Note is convertible at the option of the Holder
from time to time at any time on or after the date hereof into shares of Common
Stock at a price of $5.00 per share of Common Stock (the "Conversion Price").
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<PAGE>
No fractional shares or scrip representing fractional shares will be issued upon
any conversion, but an adjustment in cash will be made, in respect of any
fraction of a share which would otherwise be issuable upon the surrender of this
Note for conversion. The Conversion Price is subject to adjustment as provided
in Section 6.3 hereof.
6.2 Registration of Transfer. Subject to the terms of this Note, at
any time after the date hereof, upon surrender of this Note for conversion, the
Company shall issue and deliver with all reasonable dispatch to or upon the
written order of the Holder of this Note and in such name or names as such
Holder may designate, a certificate or certificates for the number of full
shares of Common Stock due to such Holder upon the conversion of this Note (the
"Shares"). Such certificate or certificates shall be deemed to have been issued
and any person so designated to be named therein shall be deemed to have become
the Holder of record of such Shares as of the date of the surrender of this
Note; provided, however, that if, at the date of surrender the transfer books of
the Common Stock shall be closed, the certificates for the Shares shall be
issuable as of the date on which such books shall be opened and until such date
the Company shall be under no duty to deliver any certificate for such Shares;
provided, further, however, that such transfer books, unless otherwise required
by law or by applicable rule of any national securities exchange, shall not be
closed at any one time for a period longer than 20 days.
6.3 Adjustments for Dividends, Reclassifications, Stock Issuances,
etc. Subject to the provisions of this Section 6.3, the Conversion Price in
effect, and accordingly, the number of shares of Common stock into which this
Note may be converted, shall be subject to adjustment from time to time as
follows:
(a) In case the Company shall declare a dividend or make any other
distribution upon any stock of the Company payable in Common Stock, then the
Conversion Price shall be proportionately decreased as of the close of business
on the date of record of said dividend.
(b) If the Company shall at any time subdivide its outstanding
Common Stock by recapitalization, reclassification or split-up thereof, the
Conversion Price immediately prior to such subdivision shall be proportionately
decreased, and if the Company
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<PAGE>
shall at any time combine the outstanding Common Stock by recapitalization,
reclassification or combination thereof, the Conversion Price immediately prior
to such combination shall be proportionately increased. Any such adjustment to
the Conversion Price shall become effective at the close of business on the
record date for such subdivision or combination.
(c) In case the Company after the date hereof shall distribute to
all of the holders of outstanding shares of Common Stock any securities or other
assets (other than a cash distribu- tion made as a dividend payable out of
earnings), the Board of Directors shall be required to make such equitable
adjustment in the Conversion Price, as in effect immediately prior to the record
date for such distribution, as may be necessary to preserve for the Holder
rights substantially proportionate to those enjoyed here-under by the Holder
immediately prior to the happening of such distribution. Any such adjustment to
the Conversion Price shall become effective at the close of business on the
record date for such distribution.
(d) If any capital reorganization or reclassification of the capital
stock of the Company, or consolidation or merger of the Company with another
corporation, or the sale of all or substantially all of its assets to another
corporation, shall be effected in such a way that holders of Common Stock shall
be entitled to receive stock, securities, cash, or assets with respect to or in
exchange for Common Stock, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, the Company or such successor
or purchasing corporation, as the case may be, shall make such appropriate
provision so that the Holder shall have the right thereafter and until the
Maturity Date to convert this Note for the kind and amount of stock, securities,
cash or assets receivable upon such reorganization, reclassification,
consolidation, merger or sale by a holder of the number of shares of Common
Stock into which this Note might have been converted immediately prior to such
reorganization, reclassification, consolidation, merger or sale, subject to
further adjustments which shall be as nearly equivalent as may be practicable to
the adjustments provided for in this Section 6.3.
(e) If at any time after the date of issuance hereof the Company
shall grant or issue any shares of Common Stock, or grant or issue any rights or
options for the purchase of, or stock or
11
<PAGE>
other securities convertible into, Common Stock (such convertible stock or
securities being herein collectively referred to as "Convertible Securities")
other than:
(i) shares issued in a transaction described in subparagraph
(f) of this Section 6.3; or
(ii) shares issued, subdivided or combined in transactions
described in subparagraphs (a),(b),(c), or (d) of this Section
6.3;
for a consideration per share which is less than the Conversion Price, then the
Conversion Price in effect immediately prior to such issuance or sale (the
"Applicable Conversion Price") shall, and thereafter upon each issuance or sale,
the Applicable Conversion Price shall, simultaneously with such issuance or
sale, be adjusted, so that such Applicable Conversion Price shall equal a price
determined by multiplying the Applicable Conversion Price by a fraction, the
numerator of which shall be:
(A) the sum of (x) the total number of shares of Common Stock
outstanding immediately prior to such issuance plus (y) the number
of shares of Common Stock which the aggregate consideration
received, as determined in accordance with subparagraph (g) below
for the issuance or sale of such additional Common Stock or
Convertible Securities deemed to be an issuance of Common Stock as
provided in subparagraph (h) below, would purchase (including any
consideration received by the Company upon the issuance of any
shares of Common Stock or Convertible Securities since the date the
Applicable Conversion Price became effective not previously included
in any computation resulting in an adjustment pursuant to this
subparagraph (e)) at the Applicable Conversion Price; and the
denominator of which shall be
(B) the total number of shares of Common Stock outstanding (or
deemed to be outstanding as provided in subparagraph (g))
immediately after the issuance or sale of such additional shares.
If, however, the Applicable Conversion Price thus obtained would result in the
issuance of a lesser number of shares upon exercise
12
<PAGE>
than would be issued at the initial Conversion Price specified in the first
paragraph hereof, the Applicable Price shall be such initial Conversion Price.
(f) Anything in this Paragraph 6.3 to contrary notwithstanding, no
adjustment in the Conversion Price shall be made in connection with:
(i) the grant, issuance or exercise of any Convertible Securities
pursuant to the Company's qualified or non-qualified Employee Stock
Option Plans or any other bona fide employee benefit plan or
incentive arrangement (including, without limitation, pursuant to
individual employment agreements), previously adopted, authorized or
entered into or as may hereafter be adopted, authorized or entered
into by the Company's Board of Directors or its officers, for the
benefit of the Company's employees, consultants or directors, as any
such plans, agreements or arrangements may hereafter be amended from
time to time; and
(ii) the issuance of any shares of Common Stock pursuant to the
grant or exercise of Convertible Securities outstanding as of the
date hereof.
(g) For the purpose of subparagraph (e) above, the following
provisions shall also be applied:
(i) In case of the issuance or sale of additional shares of Common
Stock for cash, the consideration received by the Company therefor
shall be deemed to be the amount of cash received by the Company for
such shares, before deducting therefrom any commissions,
compensation or other expenses paid or incurred by the Company for
any underwriting of, or otherwise in connection with, the issuance
or sale of such shares.
(ii) In case of the issuance of Convertible Securities, the
consideration received by the Company therefor shall be deemed to be
the amount of cash, if
13
<PAGE>
any, received by the Company for the issuance of such rights or
Convertible Securities, plus the minimum amounts of cash and fair
value of other consideration, if any, payable to the Company upon
the exercise of such rights or options or payable to the Company on
conversion of such Convertible Securities.
(iii) In the case of the issuance of shares of Common Stock or
Convertible Securities for a consideration in whole or in part,
other than cash, the consideration other than cash shall be deemed
to be the fair market value thereof as reasonably determined in good
faith by the Board of Directors of the Company (irrespective of
accounting treatment thereof); provided, however, that if such
consideration consists of the cancellation of debt issued by the
Company, the consideration shall be deemed to be the amount the
Company received upon issuance of such debt (gross proceeds) plus
accrued interest and, in the case of original issue discount or zero
coupon indebtedness, accreted value to the date of such
cancellation, but not including any premium or discount at which the
debt may then be trading or which might otherwise be appropriate for
such class of debt.
(iv) In case of the issuance of additional shares of Common Stock
upon the conversion or exchange of any obligations (other than
Convertible Securities), the amount of the consideration received by
the Company for such Common Stock shall be deemed to be the
consideration received by the Company for such obligation or shares
so converted or exchanged, before deducting from such consideration
so received by the Company any expenses or commissions or
compensations incurred or paid by the Company for any underwriting
of, or otherwise in connection with, the issuance or sale of such
obligations or shares, plus any consideration received by the
Company in adjustment of interest and dividends. If obligations or
shares of the same class or series of a class as the obligations or
shares so converted or exchanged have been originally issued for
different amounts of consideration, then the amount of consideration
received by the Company upon the original issuance of each of the
obligations or shares so converted or exchanged shall be deemed to
be
14
<PAGE>
the average amount of the consideration received by the Company upon
the original issuance of all such obligations or shares. The amount
of consideration received by the Company upon the original issuance
of the obligations or shares so converted or exchanged and the
amount of the consideration, if any, other than such obligations or
shares received by the Company upon such conversion or exchange
shall be determined in the same manner as provided in Paragraphs (i)
through (iii) above with respect to the consideration received by
the Company in case of the issuance of additional shares of Common
Stock or Convertible Securities.
(h) For purposes of the adjustments provided for in subparagraph (e)
above, if at any time, the Company shall issue any Convertible Securities, the
Company shall be deemed to have issued at the same time as the issuance of such
Convertible Securities the maximum number of shares of Common Stock issuable
upon conversion of the total amount of Convertible Securities.
(i) On the expiration, cancellation or redemption of any Convertible
Securities, the Conversion Price then in effect hereunder shall forthwith be
readjusted to such Conversion Price as would have been obtained (a) had the
adjustments made upon the issuance or sale of such expired, cancelled or
redeemed Convertible Securities been made upon the basis of the issuance of only
the number of shares of Common Stock theretofore actually delivered upon the
exercise or conversion of such Convertible Securities (and the total
consideration received therefor) and (b) had all subsequent adjustments been
made only on the basis of the Conversion Price as readjusted under this
subparagraph (i) for all transactions (which would have affected such adjusted
Conversion Price) made after the issuance or sale of such Convertible
Securities.
(j) Anything in this Section 6.3 to the contrary notwith- standing, no
adjustment in the Conversion Price shall be required unless such adjustment
would require an increase or decrease of at least 1% in such Conversion Price;
provided, however, that any adjustments which by reason of this subparagraph (j)
are not required to be made shall be carried forward and taken into account in
making subsequent adjustments. All calculations under this
15
<PAGE>
Section shall be made to the nearest cent or to the nearest tenth of a share, as
the case may be.
(k) Upon any adjustment of any Conversion Price, then and in each such
case the Company shall promptly deliver a notice to the registered Holder of
this Note, which notice shall state the Conversion Price resulting from such an
adjustment and the increase or decrease, if any, in the number of shares
purchasable at such price upon the conversion hereof, setting forth in
reasonable detail the method of calculation and the facts upon which such
calculation is based.
(l) Upon any adjustment of the Conversion Price pursuant to any provisions
contained in this Paragraph 6.3, the number of Shares issuable upon conversion
of this Note shall be changed accordingly.
6.4 In case at any time:
(i) The Company shall pay any dividend payable in stock upon the
Common Stock or make any distribution (other than regular cash dividends) to the
holders of the Common Stock;
(ii) The Company shall offer for subscription pro-rata to the
holders of the Common Stock any additional shares of stock of any class or other
rights;
(iii) There shall be any capital reorganization or reclassification of
the capital stock of the Company, or consolidation or merger of the Company
with, or sale of all or substantially all of its assets to, another corporation;
or
(iv) There shall be a voluntary or involuntary dissolution,
liquidation, or winding-up of the Company;
then, in any one or more of such cases, the Company shall give written notice to
the Holder of the date on which (X) the books of the Company shall close or a
record shall be taken for such dividend, distribution, or subscription rights,
or (Y) such reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding-up shall take place, as the case may be.
Such notice shall also specify the date as of which the holders of Common Stock
of record shall participate in such
16
<PAGE>
dividend, distribution, or subscription rights or shall be entitled to exchange
their Common Stock for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation, or winding-up, as the case may be. Such notice shall be given at
least ten (10) days prior to the record date or the date on which the Company's
transfer books are closed in respect thereof. Failure to give such notice, or
any defect therein, shall not affect the legality or validity of any of the
matters set forth in this paragraph.
7. TRANSFER TO COMPLY WITH THE SECURITIES ACT OF 1933.
The Holder of this Note, each transferee hereof and any Holder and
transferee of any shares of Common Stock into which this Note is convertible
(the "Shares"), by his acceptance thereof, agrees that (i) no public
distribution of Note or Shares will be made in violation of the Securities Act
of 1933, as amend (the "Act"), and (ii) during such period as the delivery of a
prospectus with respect to the Shares may be required by the Act, no public
distribution of the Shares will be made in a manner or on terms different from
those set forth in, or without delivery of, a prospectus then meeting the
requirements of Section 10 of the Act and in compliance with applicable state
securities laws. The Holder of this Note and each transferee hereof further
agrees that if any distribution of any Shares is proposed to be made by them
otherwise than by delivery of a prospectus meeting the requirements of Section
10 of the Act, such action shall be taken only after submission to the Company
of an opinion of counsel, reasonably satisfactory in form and substance to the
Company's counsel, to the effect that the proposed distribution will not be in
violation of the Act or of applicable state law. Furthermore, it shall be a
condition to the transfer of this Note that any transferee thereof deliver to
the Company his written agreement to accept and be bound by all of the terms and
conditions contained in this Note.
This Note or the Shares or any other security issued or issuable upon
conversion of this Note may not be sold or otherwise disposed of except as
follows:
(1) To a person who, in the opinion of counsel for the Holder reasonably
acceptable to the Company, is a person to whom this Note or Shares may legally
be transferred without registration and
17
<PAGE>
without the delivery of a current prospectus under the Act with respect thereto
and then only against receipt of an agreement of such person to comply with the
provisions of this Section with respect to any resale or other disposition of
such securities which agreement shall be satisfactory in form and substance to
the Company and its counsel; provided that the foregoing shall not apply to any
such Note, shares or other security as to which such Holder shall have received
an opinion letter from counsel to the Company as to the exemption thereof from
the registration under the Act pursuant to Rule 144(k) under the Act; or
(2) To any person upon delivery of a prospectus then meeting the
requirements of the Act relating to such securities and the offering thereof for
such sale or disposition.
Each certificate for Shares issued upon conversion of this Note
shall bear a legend relating to the non-registered status of such Shares under
the Act, unless at the time of conversion of this Note such Shares are subject
to a currently effective registration statement under the Act and the Holder is
not otherwise an "affiliate," or could potentially be deemed an "affiliate," of
the Company as such term is defined in the Act.
8. MISCELLANEOUS
8.1 Notices. All communications provided hereunder shall be in
writing and, if to the Company, delivered or mailed by registered or
certified mail addressed to Unapix Entertainment, Inc.,
______________________________________, Attention: President, or, if to the
Holder at the address shown for the Holder in the registration books,
maintained by the Company.
8.2 Lost, Stolen, or Mutilated Notes. In case this Note shall be
mutilated, lost, stolen or destroyed, the Company may, in its discretion, issue
and deliver in exchange and substitution for and upon cancellation of the
mutilated Note, or in lieu of and substitution for the Note, lost, stolen, or
destroyed, a new Note 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 and an indemnity, if requested, also satisfactory to
it.
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<PAGE>
8.3 Stamp Tax The Company will pay any documentary stamp taxes
attributable to the initial issuance of the Common Stock issuable upon
conversion of this Note; provided, however, that the Company shall not be
required to pay any tax or taxes which may be payable in respect of any transfer
involved in the issuance or delivery of any certificates for the Common Stock in
a name other than that of the Holder in respect of which this Note is issued,
and in such case the Company shall not be required to issue or deliver any
certificate for the Common Stock until the person requesting the same has paid
to the Company the amount of such tax or has established to the Company's
satisfaction that such tax has been paid.
8.4 Shares Validly Issued. The Company agrees that all shares
issuable upon conversion of this Note shall be, at the time of delivery of
certificates for such shares, validly issued and outstanding, fully paid and
non-assessable and that the issuance of such shares will not give rise to
preemptive rights in favor of existing stockholders.
8.6 Governing Law. This Note shall be construed in accordance
with and governed by the laws of the State of New York, without giving effect
to conflict of laws principles.
8.7 No Recourse. No recourse whatsoever, either directly or through
the Company or any trustee, receiver or assignee, shall be had in any event or
in any manner against any past, present or future stockholder, director or
officer of the Company for the payment of the redemption price, principal of or
interest on this Note or for any claim based thereon or otherwise in respect
this Note; this Note being a corporate obligation only.
8.8 Registration of Transfer. The Company shall maintain books for
the transfer and registration of Notes. The Company may treat the person in
whose name this Note is registered as the owner and Holder of the Note for the
purpose of receiving principal of or interest on this Note and for all other
purposes whatsoever and the Company shall not be affected by any notice to the
contrary. Upon the transfer of any Note in accordance with the provisions of
Section 7 hereof, the Company shall issue and register the Note in the names of
the new holders. The Notes shall be signed manually by the Chairman, Chief
Executive Officer, President or any Vice President and the Secretary or
Assistant
19
<PAGE>
Secretary of the Company. Subject to the terms of Sections 6 and 7 and
Section 8.3, upon surrender of this Note, the Company shall issue and deliver
with all reasonable dispatch to or upon the written order of the Holder of such
Note, and in such name or names as such Holder may designate, a certificate or
certificates for the number of full shares due to such Holder upon the
conversion of this Note. Such certificate or certificates shall be deemed to
have been issued and any person so designated to be named therein shall be
deemed to have become the Holder of record of such Shares as of the date of the
surrender of this Note pursuant to said sections; provided, however, that if, at
the date of surrender the transfer books of the Common stock shall be closed,
the certificates for the Shares shall be issuable as of the date on which such
books shall be opened and until such date the Company shall be under no duty to
deliver any certificate for such Shares; provided, further, however, that such
transfer books, unless otherwise required by law or by applicable rule of any
national securities exchange, shall not be closed at any one time for a period
longer than 20 days.
20
<PAGE>
IN WITNESS WHEREOF, Unapix Entertainment,Inc. has caused this Note to
be signed in its corporate name by its President and to be dated the day and
year first above written.
UNAPIX ENTERTAINMENT, INC.
By: _____________________________________
Name: ___________________________________
Title: __________________________________
Attest:
_______________________
Name:
Title:
21
<PAGE>
Assignment
For value received I hereby assign
to $
principal amount of the 10% Convertible Subordinated Note due Decmeber 31, 2003
evidenced hereby and hereby irrevocably appoint
attorney to transfer the Note on the books of the within named corporation with
full power of substitution in the premises.
Dated:
In the presence of:
____________________________
__________________________________
22
<PAGE>
CONVERSION NOTICE
TO: UNAPIX ENTERTAINMENT, INC.
The undersigned holder of this Note hereby irrevocably exercises the option to
convert $ principal amount of such Note (which may be less than the stated
principal amount thereof) into shares of common stock of Unapix Entertainment,
Inc. ("Common Stock"), in accordance with the terms of such Note, and directs
that the shares of Common Stock issuable and deliverable upon such conversion,
together with a check (if applicable) in payment for any fractional shares as
provided in such Note, be issued and delivered to the undersigned unless a
different name has been indicated below. If shares of Common Stock are to be
issued in the name of a person other than the undersigned holder of such Note,
the undersigned will pay all transfer taxes payable with respect thereto.
____________________________________
Name and Address of Holder
__________________________
Signature of Holder
Principal amount converted $_______
If shares are to be issued otherwise than to the holder:
_____________________________________________________
Name of Transferee
__________________________
Name and SS# of Transferee
23
UPX ENTERTAINMENT, INC.
1993 Stock Option Plan
Section 1. Purpose; Definitions.
1.1 Purpose. The purpose of the UPX Entertainment, Inc. (the
"Company") 1993 Stock Option Plan (the "Plan") is to enable the Company to offer
to its key employees, officers, directors and consultants whose past, present
and/or potential contributions to the Company have been, are or will be
important to the success of the Company, an opportunity to acquire a proprietary
interest in the Company.
1.2 Definitions. For purposes of the Plan, the following terms
shall be defined as set forth below:
(a) "Agreement" means the agreement between the Company and
the Holder setting forth the terms and conditions of an award under the Plan.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended
from time to time, and any successor thereto and the regulations promulgated
thereunder.
(d) "Committee" means the Stock Option Committee of the Board
or any other committee of the Board which the Board may designate to administer
the Plan or any portion thereof. If no Committee is so designated, then all
references in this Plan to "Committee" shall mean the Board.
(e) "Common Stock" means the Common Stock of the Company,
par value $.01 per share.
(f) "Company" means UPX Entertainment, Inc., a corporation
organized under the laws of the State of Delaware.
(g) "Disability" means disability as determined under
procedures established by the Committee for purposes of the Plan.
(h) "Effective Date" means the date set forth in Section
7.
(i) "Fair Market Value", unless otherwise required by any
applicable provision of the Code or any regulations issued thereunder, means, as
of any given date: (i) if the Common Stock is listed on a national securities
exchange, quoted on the NASDAQ National Market System or quoted on the NASDAQ
Small Cap Market, the last sale price of the Common Stock on the last preceding
day
<PAGE>
on which the Common Stock was traded, as reported by the exchange or NASDAQ, as
the case may be; (ii) if the Common Stock is not listed on a national securities
exchange or quoted on the NASDAQ National Market System or NASDAQ Small Cap
Market, but is traded in the over-the-counter market, the average of the high
bid and low asked prices for the Common Stock on the last preceding day for
which such quotations are reported by a service providing such quotations (e.g.,
National Quotation Bureau, Inc.); and (iii) if the fair market value of the
Common Stock cannot be determined pursuant to clause (i) or (ii) above, such
price as the Committee shall determine, in good faith.
(j) "Family Group Member" shall mean the spouse, sibling or
lineal descendant of the Holder or a trust established for any such person.
(k) "Holder" means a person who has received an award
under the Plan.
(l) "Incentive Stock Option" means any Stock Option intended
to be and designated as an "incentive stock option" within the meaning of
Section 422 of the Code.
(m) "Non-Qualified Stock Option" means any Stock Option
that is not an Incentive Stock Option.
(n) "Normal Retirement" means retirement from active
employment with the Company or any Subsidiary on or after age 65.
(o) "Parent" means any present or future parent corporation of
the Company, as such term is defined in Section 424(e) of the Code.
(p) "Plan" means the UPX Entertainment, Inc. 1993 Stock
Option Plan, as hereinafter amended from time to time.
(q) "Stock" means the Common Stock of the Company, par
value $.01 per share.
(r) "Stock Option" or "Option" means any option to purchase
shares of Stock which is granted pursuant to the Plan.
(s) "Subsidiary" means any present or future subsidiary
corporation of the Company, as such term is defined in Section 424(f) of the
Code.
Section 2. Administration.
2.1 Committee Membership. The Plan shall be administered by the
Board or a Committee. Committee members shall serve for such term as the Board
may in each case determine, and shall be subject to removal at any time by the
Board. It is the intent of the Board that the Plan qualify under
2
<PAGE>
Rule 16b-3 promulgated under the Securities Exchange Act of 1934. To that end,
unless otherwise determined by the Board, each committee member shall be a
disinterested person (i.e., a director who is not, during the one year prior to
service as an administrator of the plan, or during such service, granted or
awarded equity securities of the Company pursuant to the Plan or any other plan
of the Company or its affiliates as provided by Rule 16b-3).
2.2 Powers of Committee. The Committee shall have full authority,
subject to Section 4.1 hereof, to grant Stock Options pursuant to the terms of
the Plan. For purposes of illustration and not of limitation, the Committee
shall have the authority (subject to the express provisions of this Plan):
(a) to select the officers, key employees, directors and
consultants of the Company or any Subsidiary to whom Stock Options may from time
to time be granted hereunder;
(b) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any Stock Option granted hereunder (including,
but not limited to, number of shares, share price, any restrictions or
limitations, and any vesting, exchange, surrender, cancellation, acceleration,
termination, exercise or forfeiture provisions, as the Committee shall
determine);
(c) to determine any specified performance goals or such other
factors or criteria which need to be attained for the vesting of an award
granted hereunder;
(d) to permit a Holder to elect to defer a payment under the
Plan under such rules and procedures as the Committee may establish, including
the crediting of interest on deferred amounts denominated in cash and of
dividend equivalents on deferred amounts denominated in Stock;
(e) to determine the extent and circumstances under which
Stock and other amounts payable with respect to an award hereunder shall be
deferred which may be either automatic or at the election of the Holder; and
(f) to substitute (i) new Stock Options for previously granted
Stock Options, which previously granted Stock Options have higher option
exercise prices and/or contain other less favorable terms.
2.3 Interpretation of Plan.
(a) Committee Authority. Subject to Section 6 hereof, the
Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall,
from time to time, deem advisable, to interpret the terms and provisions of the
Plan and any award issued under the Plan (and to determine the form and
substance of all Agreements relating thereto), and to otherwise supervise the
3
<PAGE>
administration of the Plan. Subject to Section 10 hereof, all decisions made by
the Committee pursuant to the provisions of the Plan shall be made in the
Committee's sole discretion and shall be final and binding upon all persons,
including the Company, its Subsidiaries and Holders.
(b) Incentive Stock Options. Anything in the Plan to the
contrary notwithstanding, no term or provision of the Plan relating to Incentive
Stock Options or any Agreement providing for Incentive Stock Options shall be
interpreted, amended or altered, nor shall any discretion or authority granted
under the Plan be so exercised, so as to disqualify the Plan under Section 422
of the Code, or, without the consent of the Holder(s) affected, to disqualify
any Incentive Stock Option under such Section 422.
Section 3. Stock Subject to Plan.
3.1 Number of Shares. The total number of shares of Common Stock
reserved and available for distribution under the Plan shall be 600,000 shares.
Shares of Stock under the Plan may consist, in whole or in part, of authorized
and unissued shares or treasury shares. If any shares of Stock that have been
optioned cease to be subject to a Stock Option granted hereunder are forfeited
or any such award otherwise terminates without a payment being made to the
Holder in the form of Stock, such shares shall again be available for
distribution in connection with future grants and awards under the Plan. Only
net shares issued upon a stock-for-stock exercise (including stock used for
withholding taxes) shall be counted against the number of shares available under
the Plan.
3.2 Adjustment Upon Changes in Capitalization, Etc. In the event of
any merger, reorganization, consolidation, recapitalization, dividend (other
than a cash dividend), stock split, reverse stock split, or other change in
corporate structure affecting the Stock, such substitution or adjustment shall
be made in the aggregate number of shares reserved for issuance under the Plan
and in the number and exercise price of shares subject to outstanding Options
granted under the Plan as may be determined to be appropriate by the Committee
in order to prevent dilution or enlargement of rights, provided that the number
of shares subject to any award shall always be a whole number.
Section 4. Eligibility.
4.1 General. Awards may be made or granted to key employees,
officers, directors and consultants who are deemed to have rendered or to be
able to render significant services to the Company or its Subsidiaries and who
are deemed to have contributed or to have the potential to contribute to the
success of the Company. No Incentive Stock Option shall be granted to any person
who is not an employee of the Company or a Subsidiary at the time of grant.
4
<PAGE>
4.2 Grant of Options to Officers and Directors. The granting of
options to officers and directors of the Company shall be determined by a
committee of two or more directors, of which all members shall be disinterested
persons, as described in Section 2.1 hereof.
Section 5. Stock Options.
5.1. Grant and Exercise. Stock Options granted under the Plan may be
of two types: (i) Incentive Stock Options and (ii) NonQualified Stock Options.
Any Stock Option granted under the Plan shall contain such terms, not
inconsistent with this Plan, or with respect to Incentive Stock Options, the
Code, as the Committee may from time to time approve. The Committee shall have
the authority to grant Incentive Stock Options, Non-Qualified Stock Options, or
both types of Stock Options and may be granted alone or in addition to other
awards granted under the Plan. To the extent that any Stock Option intended to
qualify as an Incentive Stock Option does not so qualify, it shall constitute a
separate Non-Qualified Stock Option. An Incentive Stock Option may only be
granted within the ten year period commencing from the Effective Date and may
only be exercised within ten years of the date of grant (or five years in the
case of an Incentive Stock Option granted to an optionee ("10% Stockholder")
who, at the time of grant, owns Stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company or a Parent or
Subsidiary.
5.2. Terms and Conditions. Stock Options granted under the Plan
shall be subject to the following terms and conditions:
(a) Exercise Price. The exercise price per share of Stock
purchasable under a Stock Option shall be determined by the Committee at the
time of grant and may be less than 100% of the Fair Market Value of the Stock at
the time of grant; provided, however, that the exercise price of an Incentive
Stock Option shall not be less than 100% of the Fair Market Value of the Stock
at the time of grant (110%, in the case of 10% Holder).
(b) Option Term. Subject to the limitations contained in
Section 5.1, the term of each Stock Option shall be fixed by the Committee.
(c) Exercisability. Stock Options shall be exercisable at such
time or times and subject to such terms and conditions as shall be determined by
the Committee. If the Committee provides, in its discretion, that any Stock
Option is exercisable only in installments, i.e., that it vests over time, the
Committee may waive such installment exercise provisions at any time at or after
the time of grant in whole or in part, based upon such factors as the Committee
shall determine.
(d) Method of Exercise. Subject to whatever installment,
exercise and waiting period provisions are applicable in a particular case,
Stock Options may be exercised in whole or in part at any time during the term
of the Option, by giving written
5
<PAGE>
notice of exercise to the Company specifying the number of shares of Stock to be
purchased. Such notice shall be accompanied by payment in full of the purchase
price, which shall be in cash or, unless otherwise provided in the Agreement, in
shares of Stock or, partly in cash and partly in such Stock, or such other means
which the Committee determines are consistent with the Plan's purpose and
applicable law. Cash payments shall be made by wire transfer, certified or bank
check or personal check, in each case payable to the order of the Company;
provided, however, that the Company shall not be required to deliver
certificates for shares of Stock with respect to which an Option is exercised
until the Company has confirmed the receipt of good and available funds in
payment of the purchase price thereof. Payments in the form of Stock shall be
valued at the Fair Market Value of a share of Stock on the date prior to the
date of exercise. Such payments shall be made by delivery of stock certificates
in negotiable form which are effective to transfer good and valid title thereto
to the Company, free of any liens or encumbrances. A Holder shall have none of
the rights of a stockholder with respect to the shares subject to the Option
until such shares shall be transferred to the Holder upon the exercise of the
Option.
(e) Transferability. No Stock Option shall be transferable by
the Holder, otherwise than by will or by the laws of descent and distribution,
and all Stock Options shall be exercisable, during the Holder's lifetime, only
by the Holder; provided however that, notwithstanding anything to the contrary
contained herein, the Committee may in its sole discretion allow a Non-Incentive
Stock Option to be transferred to a Family Group Member.
(f) Termination by Reason of Death. If a Holder's employment
by the Company or a Subsidiary terminates by reason of death, any Stock Option
held by such Holder, unless otherwise determined by the Committee at the time of
grant and set forth in the Agreement, shall be fully vested and may thereafter
be exercised by the legal representative of the estate or by the legatee of the
Holder under the will of the Holder, for a period of one year (or such other
greater or lesser period as the Committee may specify at grant) from the date of
such death or until the expiration of the stated term of such Stock Option,
whichever period is the shorter.
(g) Termination by Reason of Disability. If a Holder's
employment by the Company or any Subsidiary terminates by reason of Disability,
any Stock Option held by such Holder, unless otherwise determined by the
Committee at the time of grant and set forth in the Agreement, shall be fully
vested and may thereafter be exercised by the Holder for a period of one year
(or such other lesser period as the Committee may specify at the time of grant)
from the date of such termination of employment or until the expiration of the
stated term of such Stock Option, whichever period is the shorter.
(h) Other Termination. Subject to the provisions of Section 8
below and unless otherwise determined by the Committee
6
<PAGE>
at the time of grant and set forth in the Agreement, if a Holder is an employee
of the Company or a Subsidiary at the time of grant and if such are Holder's
employment by the Company or any Subsidiary terminates for any reason other than
death or Disability, the Stock Option shall thereupon automatically terminate,
except that if the Holder's employment is terminated by the Company or a
Subsidiary without cause or due to Normal Retirement, then the portion of such
Stock Option which has vested on the date of the termination of employment may
be exercised for the lesser of three months after termination of employment or
the balance of such Stock Option's term.
(i) Additional Incentive Stock Option Limitation. In the case
of an Incentive Stock Option, the amount of aggregate Fair Market Value of Stock
(determined at the time of grant of the Option) with respect to which Incentive
Stock Options are exercisable for the first time by a Holder during any calendar
year (under all such plans of the Company and its Parent and Subsidiary) shall
not exceed $100,000.
(j) Buyout and Settlement Provisions. The Committee may at any
time offer to buy out a Stock Option previously granted, based upon such terms
and conditions as the Committee shall establish and communicate to the Holder at
the time that such offer is made.
(k) Stock Option Agreement. Each grant of a Stock Option
shall be confirmed by, and shall be subject to the terms of, the Agreement
executed by the Company and the Holder.
(l) Holding Period. All shares of Stock received by a Holder
upon exercise of an Option granted hereunder shall be non-transferable by the
Holder until at least six months has elapsed from the date of the granting of
such Option.
Section 6. Amendments and Termination.
The Board (but not the Committee) may at any time amend, alter,
suspend or discontinue the Plan, but no amendment, alteration, suspension or
discontinuance shall be made which would impair the rights of a Holder under any
Agreement theretofore entered into hereunder, without his consent.
Section 7. Term of Plan.
7.1 Effective Date. The Plan shall be effective as of April 23, 1993
("Effective Date"), subject to the approval of the Plan by the stockholders of
the Company within one year after the Effective Date. Any awards granted under
the Plan prior to such approval shall be effective when made (unless otherwise
specified by the Committee at the time of grant), but shall be conditioned upon,
and subject to, such approval of the Plan by the Company's stockholders. If the
Plan shall not be so approved, all awards granted thereunder shall be of no
effect and any Stock received by
7
<PAGE>
a Holder upon the exercise of an award shall be deemed forfeited and the Holder
shall return the Stock to the Company.
7.2 Termination Date. Unless terminated by the Board, this Plan
shall continue to remain effective until such time no further awards may be
granted and all awards granted under the Plan are no longer outstanding.
Notwithstanding the foregoing, grants of Incentive Stock Options may only be
made during the ten year period following the Effective Date.
Section 8. General Provisions.
8.1 Written Agreements. Each award granted under the Plan shall be
confirmed by, and shall be subject to the terms of the Agreement executed by the
Company and the Holder. The Committee may terminate any award made under the
Plan if the Agreement relating thereto is not executed and returned to the
Company within 60 days after the Agreement has been delivered to the Holder for
his or her execution.
8.2 Unfunded Status of Plan. The Plan is intended to constitute an
"unfunded" plan for incentive and deferred compensation. With respect to any
payments not yet made to a Holder by the Company, nothing contained herein shall
give any such Holder any rights that are greater than those of a general
creditor of the Company.
8.3 Employees.
(a) Engaging in Competition With the Company. In the event an
employee Holder terminates his employment with the Company or a Subsidiary for
any reason whatsoever, and within eighteen (18) months after the date thereof
accepts employment with any competitor of, or otherwise engages in competition
with, the Company, the Committee, in its sole discretion, may require such
Holder to return to the Company the economic value of any award which was
realized or obtained (measured at the date of exercise) by such Holder at any
time during the period beginning on that date which is six months prior to the
date of such Holder's termination of employment with the Company.
(b) Termination for Cause. The Committee may, in the event an
employee is terminated for cause, annul any award granted under this Plan to
such employee and in such event the Committee, in its sole discretion, may
require such Holder to return to the Company the economic value of any award
which was realized or obtained (measured at the date of exercise) by such Holder
at any time during the period beginning on that date which is six months prior
to the date of such Holder's termination of employment with the Company.
(c) No Right of Employment. Nothing contained in the Plan or
in any award hereunder shall be deemed to confer upon any employee of the
Company or any Subsidiary any right to continued employment with the Company or
any Subsidiary, nor shall
8
<PAGE>
it interfere in any way with the right of the Company or any Subsidiary to
terminate the employment of any of its employees at any time.
8.4 Investment Representations. The Committee may require each
person acquiring shares of Stock pursuant to a Stock Option or other award under
the Plan to represent to and agree with the Company in writing that the Holder
is acquiring the shares for investment without a view to distribution thereof.
8.5 Additional Incentive Arrangements. Nothing contained in the Plan
shall prevent the Board from adopting such other or additional incentive
arrangements as it may deem desirable, including, but not limited to, the
granting of stock options and the awarding of stock and cash otherwise than
under the Plan; and such arrangements may be either generally applicable or
applicable only in specific cases.
8.6 Withholding Taxes. Not later than the date as of which an amount
first becomes includible in the gross income of the Holder for Federal income
tax purposes with respect to any option or other award under the Plan, the
Holder shall pay to the Company, or make arrangements satisfactory to the
Committee regarding the payment of, any Federal, state and local taxes of any
kind required by law to be withheld or paid with respect to such amount. If
permitted by the Committee, tax withholding or payment obligations may be
settled with Common Stock, including Common Stock that is part of the award that
gives rise to the withholding requirement. The obligations of the Company under
the Plan shall be conditional upon such payment or arrangements and the Company
or the Holder's employer (if not the Company) shall, to the extent permitted by
law, have the right to deduct any such taxes from any payment of any kind
otherwise due to the Holder from the Company or any Subsidiary.
8.7 Governing Law. The Plan and all awards made and actions taken
thereunder shall be governed by and construed in accordance with the laws of the
State of Delaware (without regard to choice of law provisions).
8.8 Other Benefit Plans. Any award granted under the Plan shall not
be deemed compensation for purposes of computing benefits under any retirement
plan of the Company or any Subsidiary and shall not affect any benefits under
any other benefit plan now or subsequently in effect under which the
availability or amount of benefits is related to the level of compensation
(unless required by specific reference in any such other plan to awards under
this Plan).
8.9 Non-Transferability. Except as otherwise expressly provided in
the Plan, no right or benefit under the Plan may be alienated, sold, assigned,
hypothecated, pledged, exchanged, transferred, encumbranced or charged, and any
attempt to alienate, sell, assign, hypothecate, pledge, exchange, transfer,
encumber or charge the same shall be void.
9
<PAGE>
8.10 Applicable Laws. The obligations of the Company with respect to
all Stock Options and awards under the Plan shall be subject to (i) all
applicable laws, rules and regulations and such approvals by any governmental
agencies as may be required, including, without limitation, the effectiveness of
a registration statement under the Securities Act of 1933, as amended, and (ii)
the rules and regulations of any securities exchange on which the Stock may be
listed.
8.11 Conflicts. If any of the terms or provisions of the Plan
conflict with the requirements of with respect to Incentive Stock Options,
Section 422A of the Code, then such terms or provisions shall be deemed
inoperative to the extent they so conflict with the requirements of said Section
422A of the Code. Additionally, if this Plan does not contain any provision
required to be included herein under Section 422A of the Code, such provision
shall be deemed to be incorporated herein with the same force and effect as if
such provision had been set out at length herein.
8.12 Non-Registered Stock. The shares of Stock being distributed
under this Plan have not been registered under the Securities Act of 1933, as
amended (the "1933 Act"), or any applicable state or foreign securities laws and
the Company has no obligation to any Holder to register the Stock or to assist
the Holder in obtaining an exemption from the various registration requirements,
or to list the Stock on a national securities exchange.
10
C B ASSOCIATES
23586 Parksouth Street
Calabasas, CA 91302
(818) 222-2604; Fax (818) 222-9455
LEASE EXTENSION AGREEMENT
It is thereby agreed by and between Lessor, C. B. Associates, and Lessee, UNAPIX
INTERNATIONAL, that the leases on suites 301 and 302, at 4515 Van Nuys
Boulevard, be and hereby are extended for one year, commencing April 1, 1996
through March 31, 1997 at the current rental rate of $2,300 per month for suite
301, and $1,400 per month for suite 302. All the other terms and conditions to
remain the same.
Lessee agrees to give Lessor notice 90 days before the end of the above
referenced term as to whether Lessee intends to further extend said leases. If
Lessee does not intend to extend, Lessor shall have the right to show and market
said suite during the final 90 days of said term.
Dated: 4/22/96 Dated: May 1996
C B ASSOCIATES UNAPIX INTERNATIONAL
Lessor Lessee
By: /s/ Lucille Chauncey BY: /s/ Scott Hanock
------------------------ -------------------------------
Scott Hanock
C B ASSOCIATES
24816 Wooded Views
West Hills, CA 91387
(818) 598-8566 Fax (818) 395-9346
LEASE EXTENSION AGREEMENT
It is thereby agreed by and between Lessor, C. B. Associates, and Lessee, UNAPIX
INTERNATIONAL, that the lease at 4515 Van Nuys Boulevard, Sherman Oaks, on Suite
301, is hereby extended for two years, commencing April 1, 1997 through March
31, 1999 at the new rental rate of $2,300 per month for the first year (April 1,
1997 through March 31, 1998), and $2,350 per month for the second year (April 1,
1998 through March 31, 1999). All the other terms and conditions to remain the
same.
That the lease at 4515 Van Nuys Boulevard, Sherman Oaks, on Suite 302, is hereby
extended for two years, commencing April 1, 1997 through March 31, 1999 at the
current rental rate of $1,500 per month for the two-year period. All the other
terms and conditions to remain the same.
Lessee agrees to give Lessor notice 90 days before the end of the above
referenced terms as to whether Lessee intends to further extend said leases. If
Lessee does not intend to extend, Lessor shall have the right to show and market
said suite during the final 90 days of said term.
Dated: March 12, 1997 Dated: 3/11/97
C B ASSOCIATES UNAPIX INTERNATIONAL
Lessor Lessee
By: /s/ Lucille Chauncey BY: /s/ Scott Hanock
------------------------ -------------------------------
Scott Hanock
AMENDMENT NO. 1
TO
EMPLOYMENT AGREEMENT
AMENDMENT NO. 1, effective as of January 1, 1996, to the employment
agreement, dated as of August 9, 1993 (the "Employment Agreement"), between
Unapix Entertainment, Inc., a Delaware corporation ("Employer" or "Company"),
and Robert Baruc ("Employee"). Except as otherwise expressly provided herein,
each initially capitalized term used herein has the meaning ascribed to it in
the Employment Agreement.
WHEREAS, the Employment Agreement provides for certain compensation to be
paid to the Employee with respect to his employment by the Company and certain
other terms of employment;
WHEREAS, the Employment Agreement provides for Employee's serving as
President and Chief Executive Officer of A Pix Entertainment, Inc. ("A Pix"),
the Company's home video subsidiary;
WHEREAS, A Pix, has been, or will be, merged into the Company (the
"Merger");
WHEREAS, the parties desire to change the compensation which is to be paid
to the Employee, and to effect certain changes to the Employment Agreement to
reflect the Merger as well as certain other changes to the terms of Employee's
employment, and to amend the Employment Agreement accordingly;
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants hereinafter set forth, the parties agree as follows:
1. The Employment Agreement is hereby amended by changing the definition
of "Home Video Subsidiary" which appears in the first recital of the Employment
Agreement to mean the Company's division known as "A Pix Entertainment" which
distributes to the North American home video rental market all films as to which
the Company has such distribution rights.
2. Section 2 of the Employment Agreement is hereby amended to read in its
entirety as follows:
"2. Term: Subject to the provisions of termination as hereinafter
provided, the term of this Agreement shall begin on January 1, 1996, and shall
terminate on December 31, 2000 (being five years after the commencement date);
provided, however, that such term will be automatically renewed for successive
four year periods, unless either Employer or Employee gives notice to the other
of its election not to so renew the term at least 90 days prior to the end of
the
<PAGE>
then current term; provided, further, however, that if Employer gives notice to
Employee that it elects not to renew such term less than one year prior to the
end of the then current term, then the term shall be extended so that it expires
one year from the date such notice is delivered to Employee. The term of this
Agreement is hereinafter sometimes referred to as the "Employment Period."
3. Section 3(a) of the Employment Agreement is hereby amended to read in
its entirety as follows:
"(a) For all services rendered by the Employee under this Agreement, the
Employer shall pay the Employee the following annual salary for the respective
periods set forth below (the "Base Salary"):
$195,000 for calendar year 1996;
$220,000 for calendar year 1997; and
$245,000 for calendar year 1998.
Commencing January 1, 1999 and for each year thereafter that this
agreement is in effect, Employee's Base Salary will be increased by the increase
in the Consumer Price Index applicable to the New York, New York Metropolitan
Region (the "Index") during the prior year. If the Employer's board of directors
awards the Employee a discretionary bonus or increases his salary in any year by
an amount in excess of that specifically provided herein and an increase is due
to Employee as a result of an increase in the Index, the increase attributable
to the increase in the Index will be offset by the amount of discretionary bonus
or salary increase received by the Employee in the prior year."
Employee's Base Salary shall be payable in equal installments in
conformity with the regular payroll policy of the Employer."
4. Section 3 (b) of the Employment Agreement is hereby amended to read in
its entirety as follows:
"(b) Employee will receive from the Company the following bonus
compensation:
(i) For the year 1996, two and one-quarter percent (2.25%) of the
Company's annual earnings before taxes ("Company EBT") in excess of $650,000;
(ii) For the year 1997, three percent (3%) of Company EBT in excess of
$650,000;
(iii) For the year 1998 and for each year thereafter during the Employment
Period, three percent (3%) of Company EBT; and
(iv) In addition to the bonus payable pursuant to clauses (i), (ii) and
(iii) of this Section 3 (b), for each of the Company's
2
<PAGE>
fiscal years during the Employment period, if Company EBT for such year is at
least 5% of the Company's total consolidated sales for said year ("Company
Sales"), then Employee shall be paid a bonus equal to 1% of all A Pix total net
sales for said year, if any, exceeding 125% of A Pix's total net sales for its
immediately preceding fiscal year; provided, however, that in no event shall the
bonus paid pursuant to this clause (iv) exceed $100,000 with respect to any
particular fiscal year nor shall the bonus paid to Employee pursuant to this
clause (iv) with respect to any particular year ever exceed 75% of the bonus
paid to David M. Fox, the President of the Company, based upon Company Sales for
such year; provided, further, however, that (x) if Company EBT is less than 5%
of Company Sales for any particular fiscal year during the Employment Period but
greater than 2.5% of such sales for said year, Employee shall be paid a bonus
equal to the bonus to which he would otherwise have been entitled for such year
had Company EBT constituted more than 5% of Company Sales for such year
proportionally reduced to the extent Company EBT is less than 5% (i.e. such
bonus shall be reduced by 4% for every 1/10% that Company EBT constitutes less
than 5% of Company Sales for said year), and (y) if Company EBT for a particular
year is not greater than 2.5% of Company Sales for such year, then Employee
shall not be entitled to any such additional bonus pursuant to this clause (iv).
For purposes of this Section 3(b), Company EBT for a particular year shall
consist of the Company's earnings for such year before payment of all local,
state and federal income taxes, but after deduction of all other expenses
allocable to that year, and shall be determined in accordance with generally
accepted accounting principles ("GAAP"). For purposes of clause (iv) of this
Section 3(b), Company Sales for any particular year shall be determined in
accordance with GAAP and shall be based entirely upon such amounts reflected in
the Company's audited financial statements for such year; provided, however,
that a sale of a property with respect to which the Company is acting as a sales
agent for another company, such as sales agent for Orion Pictures, shall not be
included in such amounts except if a commission is accrued by the Company
constituting more than 10% of said sale.
Employer will remit payment of any bonus to Employee within thirty (30)
days of the date Employer's independent auditors complete the financial
statements of the Company for the year with respect to which such bonus is being
paid. If such bonus is being paid with respect to any fiscal year of the Company
during which the Employment Period either commenced or terminated, then the
amount of the bonus to be paid shall be the amount that would otherwise be
payable pursuant to this Section 3(b) had the Employment Period commenced prior
to such year or ended after such year multiplied by a fraction the numerator of
which is the number of days comprising the Employment Period during that year
and the denominator of which is 365.
3
<PAGE>
Employer shall not reduce any bonus payments to which Employee is entitled
hereunder as a result of bonus amounts advanced pursuant to the Employment
Agreement prior to the effective date of Amendment No. 1 hereto, and Employee is
hereby released from any obligation to repay any amount of his bonus advanced to
him pursuant to Section 3(b) of his Employment Agreement as in effect
immediately prior to said Amendment No. 1."
5. Section 4 of the Employment Agreement is hereby amended to read in its
entirety as follows;
"4. DUTIES: The Employee is employed as President and Chief Executive
Officer of the Home Video Subsidiary and as an Executive Vice President of
Employer. His duties shall be consistent with the responsibilities of such
offices and shall include oversight of all of the Home Video Subsidiary's
day-to-day operations and activities. Employee shall perform such other
reasonable activities related to such offices as are assigned to him by the
Company's Chairman of the Board, President or its Board of Directors. Subject to
reasonable travel requirements on behalf of the Company and Home Video
Subsidiary, Employee's duties shall be performed at an office in New York City.
The Company shall consult with Employee regarding the location of such office.
In performing his duties, Employee shall attend such festivals and markets as
are reasonably necessary and desirable in the performance of his duties.
Notwithstanding anything to the contrary contained herein, Employee shall not be
entitled to incur any expenses in excess of $10,000 on behalf of the Home Video
Subsidiary or the Company without the prior written approval of the Company's
President; provided, however, that so long as the film that the Employee seeks
to acquire does not glorify drugs or contain excessive violence, after
consulting with the Company's President but without being required to obtain the
approval of the Company of its President, the Employee shall have the right to
enter into agreements for the acquisition of titles for domestic home video
rental distribution for an advance or purchase price of not more that $100,000
per title and aggregating not more that $300,000 for all unreleased films at any
one time. Subject to the foregoing, Employee shall have complete creative
control in connection with the acquisition and marketing of all titles for the
domestic home video rental market."
6. The second sentence of Section 7 of the Employment Agreement is hereby
amended to read in its entirety a follows: "Employee shall not be required to
account to the Company for any such expenses."
7. Sections 10 (a) and (b) of the Employment Agreement are hereby amended
to read in their entirety as follows:
"(a) Death. If Employee dies during the Employment Period, the
Company shall pay Employee's designated beneficiary
4
<PAGE>
(or, in the event of the death of or failure to designate a beneficiary,
Employee's personal representative) the Base Salary provided for in Section 3(a)
above, for the 6 month period (the "6 Month Period") from the week in which
Employee dies, at the rate in effect at the time of his death, plus the pro-rata
amount of bonus pursuant to Section 3(b) as if the Employment Period had ended
six months after the date of the Employee's death. The Employment Period shall
be deemed to end as of the end of the 6 Month Period, but without prejudice to
any other payment due in respect of Employee's death.
(b) Disability. If Employee suffers a Disability (as hereinafter
defined) and as a result is unable to perform substantially and continuously the
duties assigned to him for a period of ninety (90) consecutive or
non-consecutive days out of any consecutive twelve-month period, the Company
shall have the right to terminate the employment of the Employee effective 30
days after notice in writing to the Employee. In the event of termination
pursuant to this Section 10 (b), the Employee shall be entitled to receive (i)
any Base Salary and other benefits earned and accrued, and reimbursement for
expenses incurred, prior to the date of termination, (ii) regular installments
of the Employee's Base Salary for the six month period immediately following
such termination, and (iii) the pro-rata amount of bonus pursuant to Section 3
(b) and Fringe Benefits as if the Employment Period has ended six months after
the date of such termination. No provision of this Agreement shall limit any of
Employee's rights under any Plans for which the Employee was eligible at the
time of such death or Disability. During the period of any Disability prior to
termination of the Employee's employment, the Employee shall continue to receive
his Base Salary.
For purposes of this Agreement, "Disability" shall mean the mental or
physical inability of the Employee to materially perform his duties under this
Employment Agreement. Notwithstanding anything else to the contrary contained
herein, the amount of any Base Salary or other amounts to be paid to the
Employee pursuant to this Section 10(b) shall be reduced by any payments paid to
Employee for the same period because of Disability under any disability or
pension plan of the Company."
8. The last sentence of Section 10(c) is hereby amended to read in its
entirety as follows: "Upon termination of employment pursuant to this Section
10(c), Employee shall not be entitled to any further bonus payments pursuant to
Section 3(b)."
9. The second sentence of Section 10(d) is hereby amended to read in its
entirety as follows: "In such event, or in the event of a wrongful termination
of Employee, (i) the discounted present value of the Base Salary due to Employee
through the end of the Employment Period (had employment not been so terminated)
shall be paid immediately by Employer, and (ii) Employee shall be entitled
5
<PAGE>
to receive the bonus compensation pursuant to Section 3(b)and the fringe
benefits to which he otherwise would have been entitled, at the times he would
have otherwise been entitled to such compensation and fringe benefits, had
Employee's employment not been so terminated."
10. The second and third sentences of the first paragraph of Section 15
are hereby amended to read in their entirety as follows: "The outstanding
balance of principal and accrued interest on the Loan shall be due and payable
upon the Company's demand." The second, third, fourth, and fifth paragraphs of
Section 15 of the Employment Agreement are hereby deleted in their entirety.
11. Section 14 of the Employment Agreement is hereby amended by adding a
new paragraph (b) to read in its entirely as follows:
"(b) If any options to purchase shares of the Company's common stock, $.01
par value, are granted after the date hereof to David M. Fox, the
Company's president, Employee shall be entitled to receive a grant of
options equal to 75% of the number of options granted by the Company to
Mr. Fox and having substantially identical terms as such options granted
to Mr. Fox."
12. Section 16 of the Employment Agreement is hereby deleted in its
entirety.
13. Section 18 of the Employment Agreement is hereby amended by adding a
new paragraph (1) to read in its entirety as follows:
"(1) Setoff of debt: The Company and Employee hereby agree that Employee
is entitled to $6,250 for bonus payments for 1995, net of the advance paid
to Employee for such year. The Company and Employee also agree that such
amount shall be setoff against the following amounts that Employee would
otherwise be required to pay to the Company: (i) the principal payment in
the amount of $5,000 due on May 1, 1996 (the "May 1 Principal Payment") on
that certain promissory note, in the original principal amount of $95,000,
and dated as of September 1, 1995, made by Employee payable to the
Company; and (ii) the principal payment, in the amount of $1,250, due on
January 3, 1996 (the "January 3 Principal Payment"), on that certain
promissory note in the original principal amount of $25,000 and, dated as
of January 3, 1994, made by Employee payable to the Company."
14. Except as expressly provided in this Amendment No. 1, the terms and
provisions of the Employment Agreement shall remain in full force and effect.
6
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment No. 1 to the
Employment Agreement as of the date first written above.
UNAPIX ENTERTAINMENT, INC.
By: /s/ Herbert M. Pearlman
-----------------------------
Herbert M. Pearlman
Chairman of the Board
/s/ Robert Baruc
-------------------------------
Robert Baruc
Employee
7
Exhibit 10.17
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made effective as of February 19, 1996, and has been
entered into between Unapix Entertainment, Inc., a Delaware corporation with its
principal offices at 200 Madison Avenue, New York, NY 10016 (hereinafter,
together with its subsidiaries referred to as the "Employer" or "Company"), and
Robert Miller, an individual with a residence located at 128 Riverside Avenue,
Riverside, CT 06878 (hereinafter called the "Employee").
WHEREAS, Employer desires to employ, on the terms and conditions set forth
herein, the Employee as Executive Vice President of Employer's Unapix North
American division (the "North American Division"); and
WHEREAS, The Employee desires to be employed by the Employer on the
terms and conditions set forth herein,
NOW THEREFORE, the Employer and Employee agree as follows:
1. EMPLOYMENT:
The Employer hereby employs the Employee, and the Employee hereby
accepts such employment, upon the terms and conditions hereinafter set forth.
2. TERM:
Subject to the provisions of termination as hereinafter provided,
the term of this agreement shall begin on February 19, 1996, and shall terminate
on February 18, 1999 (being three years after the commencement date). The term
of this Agreement is hereinafter sometimes referred to as the "Employment
Period".
3. COMPENSATION:
(a) For all services rendered by the Employee under this Agreement,
the Employer shall pay the Employee a salary of $136,000 per year (the "Base
Salary").
Such compensation shall be payable in equal installments in conformity
with the regular payroll of Employer. Commencing January 1, 1997 and for each
year thereafter that this agreement is in effect, Employee's Base Salary will be
increased by the increase, during the prior year, in the Consumer Price Index
applicable to the New York, New York, Metropolitan Region as published by the
Bureau of Labor statistics of the U.S. Department of Labor (the "Index"). If the
Employer's Board of Directors awards the Employee a discretionary bonus or
increases his salary in any year and an increase is due to Employee as a result
of an increase in the Index, the increase attributable to the increase in
<PAGE>
the Index will be offset by the amount of the discretionary bonus or salary
increase received by the Employee in the prior year.
(b) Employee will receive from the Company, as bonus compensation, the
following percentages of "Commissions" (as hereinafter defined) actually
received by the North American Division during the Employment Period from such
division's distribution of entertainment properties during such period: (i) 2.5%
of all Commissions; plus (ii) 2.5% of all Commissions generated by sales or
licenses of entertainment properties for which Employee was the principal
salesperson of the Company responsible for originating and completing same. Such
bonus shall be payable on the 45th day following the end of each calendar
quarter during the Employment Period with respect to Commissions received during
such quarter. "Commissions" shall mean all sums actually received (on a cash
basis) by the North American Division as payment of a sales commission or
distribution fee; provided, however, that the following shall not be included in
the definition of "Commissions": (x) any sums received by the North American
Division with respect to licenses granted, or sales made, by such division to
other divisions or subsidiaries of the Company or any affiliates of the Company;
and (y) any sums received by the North American Division with respect to
licenses or sales of "Ushuaia". Notwithstanding anything else to the contrary
contained herein, (i) the Company shall pay Employee $1,500 per month as an
advance of his bonus hereunder, which advance shall be setoff against all bonus
amounts which would otherwise be due Employee hereunder whether for the year in
which such advance is paid or for subsequent periods, and (ii) the last day of
the Employment Period shall be deemed to be the last day of a calendar quarter
for purposes of computing the bonus to which Employee is entitled with respect
to the calendar quarter in which his Employment Period ends.
4. DUTIES:
The Employee is employed as Executive Vice President of the North
American Division. Employee shall report to the President and Chairman of the
Board of the Company, until otherwise directed by the Company's Board of
Directors, and shall perform such duties as are assigned to him by the President
or Chairman of the Board.
5. EXTENT OF SERVICES:
During the term of his employment, Employee will devote all of his
business related time to the performance of his services for the Company, and
except as may be specifically permitted by the Board of Directors of the
Company, shall not be engaged in any other business activity during the
Employment Period.
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6. VACATION:
The Employee shall be entitled each year to a vacation of three
weeks as well as three personal days, during which time his compensation shall
be paid in full and his fringe benefits shall not be suspended or diminished.
7. FRINGE AND RETIREMENT BENEFITS:
The Employee shall be entitled to participate on the same basis, and
subject to the same qualifications as other executives of the Employer (other
than those benefits provided under or pursuant to separate individual employment
agreements or arrangements), in any pension, profit sharing, insurance, stock
purchase, savings, hospitalization, sick leave and other fringe benefit plans
("Plans") in effect from time to time with respect to executives of the Employer
(the "Fringe Benefits"). Employee's Base Salary shall constitute the
compensation on the basis of which the amount of Employee's benefits under any
such plan shall be fixed and determined.
8. EXPENSES:
The Employee shall be entitled to reimbursement for reasonable
out-of-pocket expenses incurred on behalf of the Employer, including all
reasonable travel and entertainment expenses paid or incurred by Employee in
connection with the performance of his duties. Employee shall provide such
documentation for such expenses as Employer shall from time to time reasonably
require.
9. TERMINATION:
(a) Death. If Employee dies during the Employment Period, the
Company shall pay Employee's designated beneficiary (or, in the event of the
death of or failure to designate a beneficiary, Employee's personal
representative) the Base Salary provided for in Section 3(a) above, for the four
calendar week period (the "Four Week Period") following the calendar week in
which Employee dies, at the rate in effect at the time of his death. The
Employment Period shall be deemed to end as of the end of the Four Week Period,
but without prejudices to any other payments due in respect of Employee's death.
(b) Disability. If Employee suffers a "Disability" (as hereinafter
defined) and as a result is unable to perform substantially and continuously the
duties assigned to him for a period of 90 consecutive or non-consecutive days
out of any consecutive twelve-month period, the Company shall have the right to
terminate the employment of the Employee effective 30 days after notice in
writing to the Employee. In the event of termination pursuant to this Section
9(b), the Employee shall be entitled to
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<PAGE>
receive (i) any Base Salary and other benefits earned and accrued, and
reimbursement for expenses incurred, prior to the date of termination, (ii)
regular installments of the Employee's Base Salary for the four week period
immediately following such termination. No provision of this Agreement shall
limit any of Employee's rights under any Plans for which the Employee was
eligible at the time of such death or Disability. During the period of any
Disability prior to termination of the Employee's employment, the Employee shall
continue to receive his Base Salary, reduced by any payments paid to the
Employee for the same period because of disability under any disability or
pension plan of the Company.
For purposes of this Agreement, "Disability" shall mean the mental or
physical inability of the Employee to materially perform his duties under this
Employment Agreement.
(c) Termination for Employee's Breach. Employer shall have the right to
terminate this Agreement and the employment hereunder if Employee materially
violates his responsibilities under the Agreement and such violation continues
after having received notice of such violation and 30 days to cure such
violation(s) to the satisfaction of Employer's Board of Directors. Employer may
immediately terminate this Agreement (i) upon the good-faith determination,
based upon reasonable evidence, by Employer's Board of Directors that the
Employee has willfully defaulted on a material obligation of this Agreement,
(ii) upon the good-faith determination, based upon reasonable evidence, by
Employer's Board of Directors that there has been a defalcation of the
Employer's funds by Employee, (iii) upon conviction of Employee on a felony
charge, (iv) upon Employee's commission of an act of moral turpitude which is in
some manner related to the business of the Company; or (v) subject to Section 10
below, upon the good-faith determination, based upon reasonable evidence, by
Employer's Board of Directors that the Employee has continued to have
unauthorized discussions of Employer's business activities, or continued to
improperly disclose trade secrets or confidential information concerning
Employer's business activities or proposed business activities, after having
been provided with written notice from the Company with respect to unauthorized
discussions or improper disclosure of trade secrets or confidential information.
Upon termination of employment pursuant to this Section 10(c), Employee shall
not be entitled to any further bonus payments pursuant to Section 3(b).
(d) Termination for Employer's Breach. Employee shall have the right
to terminate this Agreement if the Employer materially breaches any of the
provisions hereof and such breach is not cured within thirty (30) days after the
Employer receives written notice from Employee thereof.
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10. CUSTOMER LISTS AND TRADE SECRETS:
From and after the date of this Agreement, including after the
Employment Period, Employee shall treat as the Company's confidential trade
secrets all data, information, ideas, knowledge and papers pertaining to the
affairs of the Company. Without limiting the generality of the foregoing, such
trade secrets shall include: the identity of the Company's customers, suppliers
and prospective customers and suppliers; the identity of the Company's creditors
and other sources of financing; the Company's estimating and costing procedures
and the cost and gross prices charged by the Company for its products; the
prices or other consideration charged to or required of the Company by any of
its suppliers or potential suppliers; the Company's sales and promotional
policies; and all information relating to entertainment programs or properties
being produced or otherwise developed by the Company. Employee shall not reveal
said trade secrets to others except in the proper exercise of his duties and
authorities for the Company, or use his knowledge thereof in any way that would
be detrimental to the interests of the Company, unless compelled to disclose
such information by judicial or administrative process; provided, however, that
the divulging of information shall not be a breach of this Section 10 to the
extent that such information was (i) previously known by the party to which it
is divulged, (ii) already in the public domain, all through no fault of
Employee, or (iii) required to be disclosed by Employee pursuant to judicial or
governmental order. Employee shall also treat all information pertaining to the
affairs of the Company's suppliers and customers and prospective customers and
suppliers as confidential trade secrets of such customers and suppliers and
prospective customers and suppliers.
11. CERTAIN RESTRICTIONS:
During the Employment Period and for a period of two years
thereafter Employee shall not (i) influence or attempt to influence any customer
not to do business with the Company, (ii) induce, invite, solicit or attempt to
induce, invite or solicit any person who shall have been an employee of the
Company at the time of termination of the Employment Period or during any part
of the period of one year prior to such date to leave the employ of the Company
or to become interested in or in any way connected with a business similar to
that of the Company, or employ or attempt to employ any such employee of the
Company, (iii) divert or attempt to divert any business from the Company, (iv)
interfere or attempt to interfere in any way with the Company's relationship
with any of such customers, employees or suppliers.
In addition to any other restrictions on Employee's activities, Employee
shall not, during the Employment Period, directly or indirectly, except with the
written consent of Company, engage in any business (whether alone or as a
consultant, officer, director, owner, employee, partner or other active or
passive participant) with or for, be financially interested in, or
5
<PAGE>
represent or otherwise render assistance or services to any person or entity who
or which competes or intends to compete, or who or which is affiliated (by
reason of common control, ownership or otherwise) with any other person or
entity who or which competes or intends to compete, directly or indirectly, with
the business then conducted by the Company or any of its affiliates.
12. INJUNCTION:
Notwithstanding any other provisions of this Agreement, Employee
acknowledges and agrees that in the event of a violation or threatened violation
of any of the provisions of Sections 10 or 11, Employer shall have no adequate
remedy at law and shall therefore be entitled to enforce each such provision by
temporary or permanent injunctive or mandatory relief obtained in any court of
competent jurisdiction without the necessity of proving damage, without posting
bond or other security, and without prejudice to any other remedies that may be
available at law or in equity.
13. OPTIONS TO PURCHASE COMMON STOCK:
Promptly following execution of this Agreement the Company shall
issue to Employee 78,750 common stock purchase options (the "Initial Options"),
each entitling the Employee to purchase one share of the Company's common stock
at an exercise price of $4.29 per share (Such figures give effect to the
Company's 5% stock dividend paid on May 6, 1996 to stockholders of record on
April 28, 1996). The Company shall issue to Employee 75,000 additional options
(the "Additional Options"; collectively, the Initial Options together with the
Additional Options are referred to as the "Options") to purchase shares of the
Company's common stock, upon the following terms and conditions: (i) if the
North American Division has "Fee Income" (as hereinafter defined) of at least
$500,000 ("Fee Benchmark I") for the year ended December 31, 1996, then 25,000
Additional Options shall be issued to Employee (i.e. options to purchase 25,000
shares of the Company's common stock); if the North American Division has Fee
Income of at least $750,000 ("Fee Benchmark II) for the year ended December 31,
1997, then another 25,000 Additional Options will be issued to Employee (i.e.
options to purchase another 25,000 shares of the Company's common stock); and if
the North American Division has Fee Income of at least $1,000,000 ("Fee
Benchmark III," and together with Fee Benchmarks I and II, the "Fee Benchmarks")
for the year ended December 31, 1998, then the remaining 25,000 Additional
Options will be issued (i.e. options to purchase the remaining 25,000 shares of
the Company's common stock). The Additional Options to be issued following a
particular year will be issued on a pro rata basis if at least 50% of the Fee
Benchmark for that year has been attained. For example, if during the year ended
December 31, 1996 the North American Division attains Fee Income of only
$250,000 (one-half of Fee Benchmark I), one-half of one-third of the Additional
Options will be issued (i.e. 12,500 Additional Options).
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<PAGE>
The Fee Benchmarks shall be cumulative through the year ending December 31, 1998
to the extent the Company does not achieve any of the prior years' Fee
Benchmarks. For example, if during the year ending December 31, 1996, the North
American Division attains Fee Income of only $250,000 (and, therefore, only
one-half of one-third of the Additional Options are issued following that year),
the one-half of one-third portion which were not issued following such year may
be issued following the year ending December 31, 1997, if the North American
Division attains Fee Income of $1,000,000 (Fee Income of $750,000 which would
meet Fee Benchmark II for the year ending December 31, 1997, and an additional
Fee Income of $250,000, which compensates for the amount by which Fee Benchmark
I was missed in the previous year).
Each Additional Option shall entitle the Employee to purchase one share of
the Company's common stock at an exercise price equal to the "Market Value" (as
hereinafter defined) of such common stock on the date such option is issued. The
Additional Options earned with respect to any particular year shall be issued on
the day preceding the Company's announcement of its earnings with respect to
such year. "Market Value" means the closing sales price of the Company's common
stock as reported by the principal stock exchange on which shares of the
Company's common stock are traded, and if not so traded on a securities
exchange, then as reported by NASDAQ (and if not so reported by NASDAQ or traded
on a securities exchange, the "Market Value" shall mean the average of the bid
and asked prices of the Company's common stock as reported in the "pink
sheets.")
The Initial Options shall terminate on June 30, 2001. Each Additional
Option shall terminate five years after the date of its issuance.
Notwithstanding the foregoing, all Options shall terminate ninety (90) days
after termination of Employee's employment by the Company, unless such
termination of employment is pursuant to Section 9(c), in which case such
Options shall immediately expire. The Options shall have such other terms and
provisions as are customarily contained in options granted by the Company to its
other employees.
For purposes of this Section 13, "Fee Income" for a particular year means
the North American Division's income for such year derived from sales
commissions or distribution fees, determined in accordance with generally
accepted accounting principles and as reflected in the Company's audited
financial statements for such year; provided however, that the following shall
not be included in the definition of "Fee Income": (x) any sums received by the
North American Division with respect to licenses granted, or sales made, by such
division to other divisions or subsidiaries of the Company or any affiliates of
the Company; and (y) any sums received by the North American Division with
respect to licenses or sales of "Ushuaia".
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<PAGE>
14. MISCELLANEOUS PROVISIONS:
(a) Notice and Communication. All notices and communications
hereunder shall be in writing and shall be hand delivered or sent postage
prepaid by registered or certified mail, return receipt requested, to the
addresses first above written or to such other address of which notice shall
have been given in the manner herein provided.
(b) Entire Agreement. All prior agreements and understandings
between the parties with respect to the subject matter of this Agreement are
superseded by this Agreement, and this Agreement constitutes the entire
understanding between the parties with respect to employment of the Employee by
Employer. This Agreement may not be modified, amended, changed or discharged,
except by a writing signed by the parties hereto and then only to the extent
therein set forth.
(c) Non-Delegation, Etc. Neither party may assign any rights under
this Agreement; provided, however, that upon the sale of all or substantially
all of the assets, business and goodwill of the Company, or upon the merger of
the Company into or consolidation thereof with another corporation, this
Agreement shall bind and inure to the benefit of both the Employee and the
acquiring, succeeding or surviving corporation or other entity or individual, as
the case may be.
(d) Waiver. No waiver of any breach of this agreement or of any
objection to any act or omission connected herewith shall be implied or claimed
by any party, or be deemed to constitute a consent to any continuation of such
breach, act or omission, unless in a writing signed by the party against whom
enforcement of such waiver or consent is sought, and then only to the extent
therein set forth.
(e) Section Headings. The section headings of this agreement
are solely for the purpose of convenience and shall neither be deemed a part
of this agreement nor used in any interpretation thereof.
(f) Governing Law. This Agreement and the relationship of the
parties shall be governed by, and construed in accordance with, the laws of the
State of New York, without giving effect to conflict of laws principles.
(g) Prior Employment. Employee represents to Employer that Employee
is not a party to or bound by any other agreement, understanding or restriction
relating to his employment. Employee expressly represents, undertakes and agrees
that he has not done and will not do anything in furtherance of this Agreement
or his duties hereunder that will violate any obligations he may have to any
prior employer (or will impose upon Employer any liability to
8
<PAGE>
any prior employer) and that he will comply with all requirements of notice
applicable to the termination of any prior employment or agreement before he
commences his employment under this Agreement.
(h) Severability. If any provision of this Agreement or part
thereof, is held to be unenforceable, the remainder of such provision and this
Agreement, as the case may be, shall nevertheless remain in full force and
effect.
(i) Binding Effect. This Agreement shall be binding upon and
inure to the benefit of Employee, the Company, and the Company's successors
and assigns.
(j) Cooperation in Connection with Obtaining Key Man Life Insurance.
If the Company, in its discretion, elects to obtain "Key Man", life insurance
with respect to Employee, which insures Employee's life and names the Company as
beneficiary, Employee shall cooperate with the Company in obtaining said
insurance. Without limiting the generality of the foregoing, Employee agrees to
submit to such medical examinations, and take such other actions, as may be
reasonably requested by the Company in obtaining such insurance.
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IN WITNESS WHEREOF, the parties hereto execute this Agreement and intend
to be hereby bound, effective as of the date first above written.
UNAPIX ENTERTAINMENT, INC.
ATTEST:
/s/ By:/s/ David M. Fox
- -------------------------- -----------------------
David M. Fox, President
WITNESS:
/s/ Daniel J. Murphy /s/ Robert Miller
- --------------------------- ------------------------
Robert Miller
10
Exhibit 10.18
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made effective as of May 6, 1996, and has been entered
into between Unapix Entertainment, Inc., a Delaware corporation with its
principal offices at 500 Fifth Avenue, New York, NY, 10110 (hereinafter,
together with its subsidiaries referred to as the "Employer" or "Company"), and
Timothy Smith , an individual with a residence located at Valencia Road, Orinda,
California 94563 (hereinafter called the "Employee").
WHEREAS, Employer desires to employ, on the terms and conditions set forth
herein, the Employee as Executive Vice President of Production of Employer's
Unapix North American division (the "North American Division") and Pangea
Digital Pictures; and
WHEREAS, the Employee desires to be employed by the Employer on the terms
and conditions set forth herein,
NOW THEREFORE, the Employer and Employee agree as follows:
1. EMPLOYMENT:
The Employer hereby employs the Employee, and the Employee hereby
accepts such employment, upon the terms and conditions hereinafter set forth.
2. TERM:
Subject to the provisions of termination as hereinafter provided,
the term of this agreement shall begin on May 6, 1996, and shall terminate on
February 14, 1998; provided, however, that such term shall be automatically
extended for an additional one year period, unless either Employer or Employee
gives notice to the other of its election not to so extend the term at least 180
days prior to February 14, 1998. The term of this Agreement is hereinafter
sometimes referred to as the "Employment Period".
3. COMPENSATION:
(a) For all services rendered by the Employee under this Agreement,
the Employer shall pay the Employee a salary of $135,000 per year (the "Base
Salary").
Such compensation shall be payable in equal installments in conformity
with the regular payroll of Employer. Commencing January 1, 1997 and for each
year thereafter that this agreement is in effect, Employee's Base Salary will be
increased by the increase, during the prior year, in the Consumer Price Index
applicable to the New York, New York, Metropolitan Region as
<PAGE>
published by the Bureau of Labor statistics of the U.S. Department of Labor (the
"Index"). If the Employer's Board of Directors awards the Employee a
discretionary bonus or increases his salary in any year and an increase is due
to Employee as a result of an increase in the Index, the increase attributable
to the increase in the Index will be offset by the amount of the discretionary
bonus or salary increase received by the Employee in the prior year.
(b) Employee will be paid, as bonus compensation, an amount equal to
five percent (5%) of the profits accrued by the Company, during the Employment
Period and for the six month period immediately thereafter (the "Bonus Period"),
from programs ("Employee Programs") that are produced by the Company which he
developed and the production of which he is the principal employee of the
Company to supervise ("Program Profits"). Such profits shall be determined on a
title by title and accrual basis and computed by deducting the following from
revenues accrued by the Company from each such program: (i) all direct costs of
such program's production; (ii) interest expenses and other financing costs
incurred with respect to such production; (iii) distribution and marketing fees
and expenses incurred with respect to such program; (iv) all third-party
participations in connection with the distribution and production thereof; and
(v) an allocable portion of the Company's overhead expenses, which it is agreed
shall equal thirty percent (30%) of the Company's commitment to fund the
production budget of such program (and shall be deducted from revenues in
addition to the amount deducted pursuant to clause (i) above). Notwithstanding
the foregoing or anything else to the contrary contained herein, the amount of
such overhead expenses allocated to a program shall be reduced to the extent
overhead expense items of the Company are included in the production budget for
said program (for example, the inclusion of a portion of Employee's salary in
the budget). Such bonus shall be payable on the 45th day following the end of
each calendar quarter during the Bonus Period with respect to Program Profits
received during such quarter. If such bonus is being paid with respect to any
calendar quarter during which the Bonus Period terminated, then the amount of
the bonus to be paid pursuant to this Section 3(b) shall be the amount that
would otherwise be payable pursuant to this Section 3(b) had the Bonus Period
ended after such quarter multiplied by a fraction the numerator of which is the
number of days comprising the Bonus Period during that quarter and the
denominator of which is 91. Notwithstanding anything else to the contrary
contained herein, (i) the Company shall pay Employee $3000, as an advance of his
bonus hereunder, for successfully completing the production of each of the first
three six-part series of the "VISIONARIES" (i.e. a total advance of $9,000 for
successfully completing the production of the first 18 programs of the series),
which advance shall be recoupable from all bonus amounts which would otherwise
be due Employee hereunder and (ii) if a bonus payment is made to Employee with
respect to Program Profits accrued during a particular period (the "Applicable
Period") from a particular
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program, and there are subsequent chargebacks, returns or other adjustments
during subsequent periods with respect to such program, which adjustments relate
to sales or other items reflected in the calculation of Program Profits from
such program during the Applicable Period, then the Company shall be entitled to
recoup from future bonus payments otherwise payable to Employee under this
Section 3(b), the difference between (x) the bonus payment that was paid to
Employee with respect to such program for the Applicable Period and (y) the
amount that would have been payable to Employee with respect to such program for
the Applicable Period had the subsequent adjustments been reflected in the
calculation for the Applicable Period.
Employer agrees to negotiate in good-faith the amount of a bonus to be
paid to Employee based upon a percentage of the profits generated by programs
that Employer produces that were developed by Employee but the production of
which he is not the principal employee of Employer to supervise. Employee
understands and acknowledges that such percentage will be less than five percent
(5%).
4. DUTIES:
The Employee is employed as Executive Vice President of Production
of the North American Division and Pangea Digital Pictures. Employee shall
report to the President and Chairman of the Board of the Company, until
otherwise directed by the Company's Board of Directors, and shall perform such
duties as are assigned to him by the President or Chairman of the Board.
5. EXTENT OF SERVICES:
During the term of his employment, Employee will devote all of his
business related time to the performance of his services for the Company, and
except as may be specifically permitted by the Board of Directors of the
Company, shall not be engaged in any other business activity during the
Employment Period.
6. VACATION:
The Employee shall be entitled each year to a vacation of two weeks
as well as three personal days, during which time his compensation shall be paid
in full and his fringe benefits shall not be suspended or diminished.
7. FRINGE AND RETIREMENT BENEFITS:
The Employee shall be entitled to participate on the same basis, and
subject to the same qualifications as other executives of the Employer (other
than those benefits provided under or pursuant to separate individual employment
agreements or arrangements), in any pension, profit sharing, insurance, stock
purchase, savings, hospitalization, sick leave and other fringe benefit plans
("Plans") in effect from time to time with respect to
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executives of the Employer (the "Fringe Benefits"). Employee's Base Salary shall
constitute the compensation on the basis of which the amount of Employee's
benefits under any such plan shall be fixed and determined.
8. EXPENSES:
The Employee shall be entitled to reimbursement for reasonable
out-of-pocket expenses incurred on behalf of the Employer, including all
reasonable travel and entertainment expenses paid or incurred by Employee in
connection with the performance of his duties. Employee shall provide such
documentation for such expenses as Employer shall from time to time reasonably
require.
9. TERMINATION:
(a) Death. If Employee dies during the Employment Period, the
Company shall pay Employee's designated beneficiary (or, in the event of the
death of or failure to designate a beneficiary, Employee's personal
representative) the Base Salary provided for in Section 3(a) above, for the four
calendar week period (the "Four Week Period") following the calendar week in
which Employee dies, at the rate in effect at the time of his death. The
Employment Period shall be deemed to end as of the end of the Four week Period,
but without prejudice to any other payments due in respect of Employee's death.
(b) Disability. If Employee suffers a "Disability" (as hereinafter
defined) and as a result is unable to perform substantially and continuously the
duties assigned to him for a period of 90 consecutive or non-consecutive days
out of any consecutive twelve-month period, the Company shall have the right to
terminate the employment of the Employee effective 30 days after notice in
writing to the Employee. In the event of termination pursuant to this Section
9(b), the Employee shall be entitled to receive (i) any Base Salary and other
benefits earned and accrued, and reimbursement for expenses incurred, prior to
the date of termination, and (ii) regular installments of the Employee's Base
Salary for the four week period immediately following such termination. No
provision of this Agreement shall limit any of Employee's rights under any Plans
for which the Employee was eligible at the time of such death or Disability.
During the period of any Disability prior to termination of the Employee's
employment, the Employee shall continue to receive his Base Salary, reduced by
any payments paid to the Employee for the same period because of disability
under any disability or pension plan of the Company.
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For purposes of this Agreement, "Disability" shall mean the mental or
physical inability of the Employee to materially perform his duties under this
Employment Agreement.
(c) Termination for Employee's Breach. Employer shall have the right to
terminate this Agreement and the employment hereunder if Employee materially
violates his responsibilities under the Agreement and such violation continues
after having received notice of such violation and 30 days to cure such
violation(s) to the satisfaction of Employer's Board of Directors. Employer may
immediately terminate this Agreement upon: (i) determination by Employer's Board
of Directors that the Employee has willfully defaulted on a material obligation
of this Agreement; (ii) upon the determination by Employer's Board of Directors
that there has been a defalcation of the Employer's funds by Employee or that
Employee has otherwise been dishonest in connection with his employment; (iii)
upon conviction of Employee on a felony charge or commission of an act of moral
turpitude; or (iv) upon the determination by Employer's Board of Directors that
the Employee has had unauthorized discussions of Employer's business activities,
or improperly disclosed trade secrets or confidential information concerning
Employer's business activities or proposed business activities. Notwithstanding
anything to the contrary contained in this Agreement, upon termination of
employment pursuant to this Section 9(c), Employee shall not be entitled to any
further bonus payments pursuant to Section 3(b).
(d) Termination for Employer's Breach. Employee shall have the right to
terminate this Agreement if the Employer materially breaches any of the
provisions hereof and such breach is not cured within thirty (30) days after the
Employer receives written notice from Employee thereof.
10. CUSTOMER LISTS AND TRADE SECRETS:
From and after the date of this Agreement, including after the
Employment Period, Employee shall treat as the Company's confidential trade
secrets all data, information, ideas, knowledge and papers pertaining to the
affairs of the Company. Without limiting the generality of the foregoing, such
trade secrets shall include: the identity of the Company's customers, suppliers
and prospective customers and suppliers; the identity of the Company's creditors
and other sources of financing or potential creditors and other potential
sources of financing; the Company's estimating and costing procedures and the
cost and gross prices charged by the Company for its products; the prices or
other consideration charged to or required of the Company by any of its
suppliers or potential suppliers; the Company's sales and promotional policies;
and all information relating to entertainment programs or properties being
produced or otherwise developed by the Company. Employee shall not reveal said
trade secrets to others except in the proper exercise of his duties and
authorities for the Company, or use his knowledge
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thereof in any way that would be detrimental to the interests of the Company,
unless compelled to disclose such information by judicial or administrative
process; provided, however, that the divulging of information shall not be a
breach of this Section 10 to the extent that such information was (i) previously
known by the party to which it is divulged or (ii) already in the public domain,
all through no fault of Employee. Employee shall also treat all information
pertaining to the affairs of the Company's suppliers and customers and
prospective customers and suppliers as confidential trade secrets of such
customers and suppliers and prospective customers and suppliers.
11. CERTAIN RESTRICTIONS:
During the Employment Period and for a period of one year thereafter
Employee shall not (i) influence or attempt to influence any customer not to do
business with the Company, (ii) induce, invite, solicit or attempt to induce,
invite or solicit any person who shall have been an employee of the Company at
the time of termination of the Employment Period or during any part of the
period of one year prior to such date to leave the employ of the Company or to
become interested in or in any way conducted with a business similar to that of
the Company, or employ or attempt to employ any such employee of the Company,
(iii) divert or attempt to divert any business from the Company, (iv) interfere
or attempt to interfere in any way with the Company's relationship with any of
such customers, employees or suppliers. Notwithstanding the foregoing or
anything else to the contrary contained herein, the provisions of this paragraph
shall not be applicable if Employee terminates this Agreement pursuant to
Section 9 (d) as a result of Employer's material breach of the provisions of
this Agreement.
In addition to any other restrictions on Employee's activities during and
after the Employment Period contained in this Agreement or otherwise, Employee
shall not, during the Employment Period, directly or indirectly, except with the
written consent of Company, engage in any business (whether alone or as a
consultant, officer, director, owner, employee, partner or other active or
passive participant) with or for, be financially interested in, or represent or
otherwise render assistance or services to any person or entity who or which
competes or intends to compete, or who or which is affiliated (by reason of
common control, ownership or otherwise) with any other person or entity who or
which competes or intends to compete, directly or indirectly, with the business
then conducted by the Company or any of its affiliates. Notwithstanding the
foregoing, Employee shall not be precluded from the ownership, directly or
indirectly, solely as an investment, of securities of any entity which are
traded on any national securities exchange or NASDAQ, if Employee (A) is not a
controlling person of, or a member of a group which controls, such entity and
(B) does not, directly or indirectly, own 5% or more of any class of securities
of such entity.
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12. INJUNCTION:
Notwithstanding any other provisions of this Agreement, Employee
acknowledges and agrees that in the event of a violation or threatened violation
of any of the provisions of Section 10 or 11, Employer shall have no adequate
remedy at law and shall therefore be entitled to enforce each such provision by
temporary or permanent injunctive or mandatory relief obtained in any court of
competent jurisdiction, without prejudice to any other remedies that may be
available at law or in equity.
13. OPTIONS TO PURCHASES COMMON STOCK:
Promptly following execution of this Agreement the Company shall
issue to Employee 25,000 common stock purchase options (the "Initial Options"),
each entitling the Employee to purchase one share of the Company's common stock
at an exercise price of $4.00 per share. None of the Initial Options shall be
exercisable until the first anniversary of the date of this Agreement.
Commencing on such first anniversary and on each of the next two such
anniversaries during the Employment Period, one third of the Initial Options
shall become exercisable (i.e. on the first anniversary 8,334 Initial Options
shall become exercisable; on the second anniversary 8,333 Initial Options shall
become exercisable; and on the third anniversary the remaining 8,333 Initial
Options shall become exercisable); provided, however, that all of Employee's
options shall become immediately exercisable if (i) the Company sells all or
substantially all of its assets or (ii) merges into or consolidates with another
corporation or sells shares of capital stock, and in connection with such
transaction there is a change in the composition of a majority of the Company's
Directors.
The Company will issue to Employee an additional 25,000 common stock
purchase options (the "Additional Options;" the Initial Options together with
the Additional Options are referred to collectively as the "Options") at such
time during the Employment Period as Employee has developed, and been the
principal employee of the Company to have overseen the production of, at least
18 television programs for the Company and all of the programs developed and so
overseen by Employee, on a cumulative basis, have resulted in a profit for the
Company (the "Additional Option Threshold"). Such profit shall be determined on
an accrual basis and shall be computed by deducting the following from the
revenues accrued by the Company from such programs: all direct costs of their
production; interest expenses and other financing costs incurred with respect to
such productions; all distribution and marketing fees and expenses incurred with
respect to such programs; all third party participations in connection with the
distribution and production thereof; and all overhead expenses allocated to said
programs and deducted from revenues derived therefrom in computing the profits
from such programs pursuant to Section 3(b). Each Additional Option shall
entitle Employee to
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purchase one share of the Company's common stock ("Common Stock") at an exercise
price equal to $.125 above the "Market Value" (as hereinafter defined) of such
Common Stock on the date such Additional Options have been earned in accordance
herewith. "Market Value" means the closing sales price of a share of Common
Stock as reported by the principal stock exchange on which shares of Common
Stock are traded, or if not so traded on a securities exchange, then as reported
by NASDAQ (and if not so reported by NASDAQ, then the average of the bid and ask
prices as reported by the National Quotation Bureau). The Additional Options
shall be deemed earned on the date immediately preceding the Company's public
announcement of financial results for a fiscal quarter or fiscal year in which
the Additional Option Threshold has been achieved.
The Initial Options shall terminate on June 30, 2001. Each Additional
Option shall terminate five years after the date it is earned. Notwithstanding
the foregoing, all Options shall terminate ninety (90) days after termination of
Employee's employment by the Company, unless such termination of employment is
pursuant to section 9 (c), in which case such Options shall immediately expire.
The Options shall have such other terms and provisions as are customarily
contained in options granted by the Company to its other employees.
14. MISCELLANEOUS PROVISIONS:
(a) Notice and Communication. All notices and communications
hereunder shall be in writing and shall be hand delivered or sent postage
prepaid by registered or certified mail, return receipt requested, to the
addresses first above written or to such other address of which notice shall
have been given in the manner herein provided. A copy of any notice sent to
Employee shall also be sent to Neal S. Solomon, Esq., c/o Pellettieri, Rabstein
and Altman, 100 Nassau Park Blvd., Suite 111, Princeton, New Jersey 08543-5301.
(b) Entire Agreement. All prior agreements and understandings
between the parties with respect to the subject matter of this Agreement are
superseded by this Agreement, and this Agreement constitutes the entire
understanding between the parties with respect to employment of the Employee by
Employer. This Agreement may not be modified, amended, changed or discharged,
except by a writing signed by the parties hereto and then only to the extent
therein set forth.
(c) Non-Delegation, Etc. Neither party may assign any rights or
obligations under this Agreement, without the consent of the other party
hereto.
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(d) Waiver. No waiver of any breach of this agreement or of any
objection to any act or omission connected herewith shall be implied or claimed
by any party, or be deemed to constitute a consent to any continuation of such
breach, act or omission, unless in a writing signed by the party against whom
enforcement of such waiver or consent is sought, and then only to the extent
therein set forth.
(e) Section Headings. The section headings of this agreement are
solely for the purpose of convenience and shall neither be deemed a part of
this agreement nor used in any interpretation thereof.
(f) Governing Law. This Agreement and the relationship of the
parties shall be governed by, and construed in accordance with, the laws of
the State of New York.
(g) Prior Employment. Employee represents to Employer that Employee
is not a party to or bound by any written agreement, understanding or
restriction relating to his employment, nor, to the best of his knowledge and
belief, is he a party to or bound by any other agreement, understanding, or
restriction relating to his employment. Employee expressly represents,
undertakes and agrees that to the best of his knowledge and belief he has not
done and will not do anything in furtherance of this Agreement or his duties
hereunder that will violate any obligations he may have to any prior employer
and that he has complied with all requirements of notice applicable to the
termination of any prior employment or agreement before he commenced his
employment under this Agreement.
(h) Severability. If any provision of this Agreement or part
thereof, is held to be unenforceable, the remainder of such provision and this
Agreement, as the case may be, shall nevertheless remain in full force and
effect.
(i) Binding Effect. This Agreement shall be binding upon and
inure to the benefit of Employee, the Company, and the Company's successors
and assigns.
(j) Cooperation in Connection with Obtaining Key Man Life Insurance.
If the Company, in its discretion, elects to obtain "Key Man" life insurance
with respect to Employee, which insures Employees life and names the Company as
beneficiary, Employee shall cooperate with the Company in obtaining said
insurance. Without limiting the generality of the foregoing, Employee agrees to
submit to such medical examinations, and take such other actions, as may be
reasonably requested by the Company in obtaining such insurance.
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(k) Relocation Expenses. Employer shall reimburse Employee for all
reasonable fees charged by moving companies to transport his personal property
from his present residence located in the San Fransisco metropolitan area (the
"California Residence") to his residence located in the New York City
metropolitan area (the "New York City Residence"). Employer shall also reimburse
Employee for reasonable travel expenses incurred by him in transporting he and
his family from the California Residence to the New York City Residence.
In order to be entitled to reimbursement or any other payments pursuant to
the provisions of this Section 14(k), Employee shall promptly provide Employer
with copies of all documents, instruments and agreements, requested by Employer,
(i) evidencing the expenses incurred for which reimbursement is sought, or (ii)
otherwise necessary to enable the Employer to determine the amount of payments
to which the Employee is entitled pursuant to this Section 14(k). Within 30 days
of receipt of proper evidence of such expenses, Employer shall reimburse
Employee.
Notwithstanding the foregoing or anything else to the contrary contained
in this Agreement, in no event shall Employer be obligated to reimburse Employee
for any such relocation expenses exceeding $20,000.
(l) Indemnification. Subject to the accuracy of Employee's
representations and warranties contained in Section 14(g), and Employee's
compliance with this Agreement, Employer will indemnify and hold Employee
harmless from and against any and all loses, costs, expenses and liabilities
arising from (i) claims brought by third parties with respect to programs
produced by Employer that Employee develops and supervises on behalf of
Employer, and (ii) suits brought by IVN Communications, Inc. against Employee in
connection with the termination of his employment with IVN and his becoming
employed by Employer.
If any action, claim, proceeding or investigation is instituted or
threatened by a third party against Employee in respect of which indemnity may
be sought hereunder, Employee shall promptly notify Employer thereof in writing,
but the omission so to notify Employer shall not relieve Employer from any other
obligation or liability that Employer may have to Employee under this Agreement
or otherwise unless such failure to notify has materially prejudiced Employer.
Employee will, upon notice to Employer, have the right to retain counsel of his
choice in connection with any such action, claim, proceeding or investigation,
and to be reimbursed by Employer for the reasonable fees and disbursements for
such counsel. In lieu of reimbursing Employee for the expenses of defending any
such action, claim, proceeding or investigation, Employer shall have the option
of assuming and paying directly for the defense thereof with counsel reasonably
acceptable to Employee, and Employer shall have no liability for the expenses of
defending any such action, claim, proceeding or investigation incurred by
Employee after Employer notifies Employee of its assumption of such defense.
Notwithstanding the foregoing or anything to the contrary contained in this
Agreement, Employer will have no
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liability or obligation to indemnify Employee for any losses, costs or expenses
incurred with respect to a settlement effected without its prior written
consent.
IN WITNESS WHEREOF, the parties hereto execute this Agreement and intend
to be hereby bound, effective as of the date first above written.
UNAPIX ENTERTAINMENT, INC.
ATTEST:
/s/_______________________________ By: /s/ David M. Fox
------------------------------
David M. Fox, President
WITNESS:
/s/ Kelly Costigan-Smith /s/ Timothy Smith
- ----------------------------------- -------------------------------
Timothy Smith
11
STOCK PURCHASE AGREEMENT
AGREEMENT, made and entered into as of the 17th day of March, 1997, by and
among Unapix Entertainment, Inc., a Delaware corporation with offices at 200
Madison Avenue, New York, NY 10016 ("Buyer"); G. Paul Sullivan ("Sullivan"), an
individual residing at 8202 South 123rd Street, Seattle, WA 98178; Paul Speer
("Speer"), an individual residing at 14715 South East 37th Street, Bellevue, WA
98006; David Lanz ("Lanz"), an individual residing at 2281 North East 60th
Street, Seattle, WA 98115; Kevin Garrison ("Garrison"), an individual residing
at 12000 NE 8th Street, No. 204, Bellevue, WA 98005; and Kipp Kilpatrick, an
individual residing at 11047-38th Avenue NE, Seattle, WA 98125 ("Kilpatrick";
collectively, Sullivan, Speer, Lanz, Garrison and Kilpatrick are referred to as
the "Shareholders").
R E C I T A L S:
1. The Shareholders own, in the aggregate, 100% of the issued and
outstanding shares of the common stock, no par value per share (the "Miramar
Common Stock"), of Miramar Images, Inc., a Washington corporation (the
"Company");
2. The Company has no other shares of capital stock outstanding other than
Miramar Common Stock;
3. The Shareholders hold certain debt of the Company (the "Shareholder
Debt");
4. Other than the Shareholder Debt, there is no other debt of the Company
held by any of the Shareholders; and
5. Buyer desires to acquire, and the Shareholders desire to sell, on the
terms and conditions hereinafter set forth, all of the issued and outstanding
shares of Miramar Common Stock and all of the Shareholder Debt.
NOW, THEREFORE, the parties hereto hereby agree as follows:
<PAGE>
ARTICLE I
THE ACQUISITION OF MIRAMAR COMMON STOCK AND SHAREHOLDER DEBT
1.1 Purchase and Sale of Miramar Common Stock. Subject to the terms and
conditions of this Agreement, at the Closing to be held as provided in Section
1.2, each of the Shareholders shall sell and assign to Buyer the shares of
Miramar Common Stock owned by him and the Shareholder Debt owed to him, free and
clear of all encumbrances whatsoever, and Buyer shall purchase such shares and
debt from each of the respective Shareholders.
1.2 Time and Place of Closing. The closing of the transactions
contemplated by this Agreement (the "Closing") shall take place at 10:00 A.M. at
the offices of Unapix Entertainment, Inc., 200 Madison Avenue, New York, New
York 10016 on March 17, 1997 (the "Closing Date"), or at such other time and on
such other date as the parties hereto shall mutually agree.
1.3 Purchase Price. The purchase price for the Shareholder Debt and the
shares of Miramar Common Stock held by each Shareholder shall be the
consideration provided by Buyer in the Pooled Consideration Agreement of even
date herewith by and among Buyer, the Shareholders, Charles E. Walsh and
Critical Mass, L.L.C. (as amended from time to time, the "Consideration
Agreement").
1.4 Additional Consideration. In addition to paying the Basic Purchase
Price, Buyer agrees to pay, and undertake the following, as additional
consideration to the Shareholders for the sale of the Shareholder Debt and the
shares of Miramar Common Stock:
(a) Buyer shall, as soon as practicable and in any event within six months
of the Closing: (i) prepare and file under the Securities Act of 1933, as
amended (the "Act"), a registration statement relating to the resale of the
shares of the Buyer's Common Stock delivered pursuant to the Consideration
Agreement (the "Buyers Shares") (the term "registration statement" as used
herein being deemed to include any form which may be used to register a
distribution of securities to the public for cash); (ii) prepare and file with
the appropriate state blue sky authorities the necessary documents to register
or qualify (or obtain an exemption therefrom) the sale of the Buyers Shares in
such states as may be reasonably required to facilitate the transactions
contemplated by the terms of the Consideration Agreement; and (iii) use diligent
efforts to cause such registration statement to become effective and to keep
such registration statement and state blue sky filings current and effective for
a period of two years.
All expenses in connection with preparing and filing any registration
statement (and any registration or qualification under the blue sky laws of the
states in which the offering will be made under such registration statement)
shall be borne in full by Buyer, except that (subject to the provisions of
Section 1.4(b) below) the underwriting commissions, discounts and expenses
attributable to the Buyer Shares so registered and the fees and disbursements of
counsel, if any, to
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each of the Shareholders shall be borne by each of them. Buyer may include other
securities in any such registration statement.
1.5 Delivery of Buyer Disclosure Documents. Each Shareholder acknowledges
that Buyer has delivered to him a copy of (a) its Annual Report on Form 10-KSB
for the year ended December 31, 1995, (as amended); (b) its Proxy Statement for
its 1996 Annual Meeting of Stockholders; (c) its Quarterly Report on Form 10-QSB
for the Quarterly Period ended September 30, 1996; and (d) its Prospectus, dated
February 16, 1996, including the investment considerations contained therein;
(collectively, the "Disclosure Documents"). Each Shareholder represents that he
has reviewed each of the Disclosure Documents to his satisfaction.
1.6 Agreements and Representations of Shareholders with respect to
Registration Under the Act. Each Shareholder, represents, warrants and agrees
that:
(a) He will complete, execute and deliver all such documents and
undertakings as the Buyer may deem necessary or desirable for purposes of
compliance with applicable Federal and state securities laws. The Buyer's
obligations set forth in Section 1.4 (a) with respect to the Buyers Shares are
contingent on such Shareholder's satisfaction of his obligations set forth
herein;
(b) He has been afforded the opportunity to obtain any information
necessary to verify the accuracy of any information set forth in the Disclosure
Documents and has had all of his inquiries to Buyer answered in full, and has
been furnished all requested materials relating to Buyer and the sale of the
Buyers Shares;
(c) He has not been furnished any literature about Buyer other than the
Disclosure Documents; and
(d) He is acquiring the Buyer Shares as principal for his own investment
account, and not (i) with a view to the resale or distribution of all or any
part of such shares (other than as expressly set forth in the Consideration
Agreement), or (ii) on behalf of another person who has not made the foregoing
representation.
ARTICLE II
Intentionally Left Blank
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS REGARDING THE
COMPANY, AUTHORITY AND SHARES OF MIRAMAR COMMON STOCK
The Shareholders, jointly and severally, represent, warrant and agree as
follows:
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3.1 Organization. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Washington and has
all requisite corporate power and authority to own, lease and operate its
properties and to carry on its business as now being conducted. The Company is
duly qualified or licensed and in good standing to do business in each
jurisdiction in which the property owned, leased or operated by it or the nature
of the business conducted by it makes such qualification or licensing necessary,
except in such jurisdictions where the failure to be so duly qualified or
licensed and in good standing will not individually or in the aggregate have a
material adverse effect on the business, operations or financial condition of
the Company. A list of all states and jurisdictions where the Company, is
presently qualified is set forth on Schedule 3.1. Complete copies of the
Company's Certificate of Incorporation and By-laws, as currently in effect, have
been delivered to Buyer.
3.2 Subsidiaries and Other Entities. The Company does not own any equity
interests in any corporation, partnership, joint venture or other entity,
domestic or foreign. The Company has no interest, direct or indirect, and has no
commitment to purchase any interest, direct or indirect in any other corporation
or in any partnership, joint venture, limited liability company or other
business enterprise. The business carried on by the Company has not been
conducted through any other direct or indirect subsidiary or affiliate of the
Company or any Shareholder.
3.3 Authority Relative to this Agreement. Each Shareholder has full power
and authority to execute, deliver and perform this Agreement and the
Consideration Agreement. This Agreement and the Consideration Agreement have
been duly and validly executed and delivered by each Shareholder, and each of
this Agreement and the Consideration Agreement constitutes the valid and binding
agreement of each such Shareholder in accordance with its terms, except to the
extent that enforceability thereof may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
affecting the enforcement of creditor' rights generally or by equitable
principles.
3.4 No Violation. The execution and delivery of this Agreement does not,
and the consummation of the transactions contemplated hereby will not: (a)
violate any provision of the Certificate of Incorporation or By-laws of the
Company; (b) violate any provision of, or be an event that would result in the
imposition of any damages, penalties or other loss, under any agreement,
understanding or arrangement, whether written or oral, to which the Company or
any Shareholder is a party or by which any of them or the Company's assets may
be bound or affected; (c) violate any provision of, or be an event that is, or
with the passage of time or the giving of notice will result in, the
acceleration of or entitle any party to accelerate (whether after the giving of
notice or lapse of time or both) any obligation under, or result in the
imposition of any lien upon or the creation of a security interest in any of the
assets of the Company or any Shareholder pursuant to, any mortgage, lien, lease,
agreement, instrument, order, arbitration award, judgement or decree to which
the Company or any Shareholder is a party or by which any of them is bound; (d)
violate or conflict with any other restriction of any kind or character to which
the Company or any Shareholder is subject or bound or by which the Company or
any Shareholder or any assets of the Company are affected;
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<PAGE>
or (e) violate or conflict with any order, writ, injunction, decree, law,
statute, rule or regulation (foreign or domestic) applicable to the Company or
any Shareholder or their respective assets.
3.5 Title to the Miramar Common Stock. Schedule 3.5 sets forth the entire
authorized capital Stock of the Company, the number of shares of the Company
that are issued and outstanding, and the record holder of such shares. All of
such issued and outstanding shares of capital stock are owned both beneficially
and of record by the Shareholders and the shares set forth on Schedule 3.5 shall
be owned by the respective shareholders set forth on Schedule 3.5 at the
Closing. Other than as set forth on Schedule 3.5, there are no outstanding: (a)
securities convertible into or exchangeable for capital stock or debt securities
of the Company; (b) options, warrants or other rights (contractual or arising by
operation of law, including, without limitation, rights of first refusal) to
purchase or subscribe to purchase capital stock or debt securities of the
Company or securities convertible into or exchangeable for capital stock or debt
securities of the Company; (c) contracts, commitments, agreements,
understandings or arrangements of any kind relating to the issuance, purchase,
redemption, preemptive rights, holding or voting (pursuant to a voting trust or
agreement or otherwise) of any capital stock or debt securities of the Company
or any such convertible or exchangeable securities or any such options, warrants
or rights or (d) settlement agreements with former Shareholders or creditors of
the Company. The outstanding shares of Miramar Common Stock are owned by the
Shareholders free and clear of all liens, mortgages, charges, security
interests, encumbrances (including, but not limited to, adverse claims) or other
restrictions or limitations of any kind whatsoever. At the Closing, Buyer will
receive good and valid title to all of the outstanding shares of Miramar Common
Stock, free and clear of all liens, claims, charges or other encumbrances or
restrictions of any nature whatsoever. The shares of Miramar Common Stock held
by the Shareholders are outstanding fully paid and nonassessable.
3.6 Title to Assets. Except as disclosed in Schedule 3.6 hereto, the
Company is the sole owner of the properties and assets it owns, or uses in its
business or purports to own, including, without limitation, those reflected in
its books and records and in the financial statements referred to Section 3.13
hereof and has good and marketable title to all such assets, free and clear of
all liens, claims, charges, options or other title defects or encumbrances. All
of the properties and assets owned, leased, or used by the Company are in good
operating condition and repair, are suitable for the purposes used, are adequate
and sufficient for all current operations of the Company and are directly
related to the business of the Company. Schedule 3.6 hereto also contains a list
of each item of tangible personal property owned, leased or used by the Company
except for items having a value of less than $15,000.
3.7 Realty and Plants. Schedule 3.7 hereto sets forth an accurate list and
summary description of all real property owned, used or leased by the Company in
connection with its business. Except as set forth in Schedule 3.7 hereto, the
plants or offices listed thereon are free from defects (patent and latent), have
been maintained in accordance with normal industry practice, are in good
operating condition and repair (subject to normal wear and tear), and are
suitable for the purposes for which they are presently used. All such real
property, plants or offices and places of business conform with all applicable
laws in all material respects. Without limiting the generality
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<PAGE>
of the foregoing, the Company's occupancy of the premises leased by it is in
compliance with all applicable law.
3.8 Litigation; Orders. Except as disclosed in Schedule 3.8, and except
for collection actions against accounts receivable debtors of the Company, there
are no lawsuits, actions, administrative or arbitration or other proceedings or
governmental investigations pending or, to the Shareholder's knowledge,
threatened, against or involving the Company, its officers, directors or
employees, its properties, assets or business or transactions contemplated by
this Agreement, and no Shareholder knows or has reason to be aware of any bases
for the same.
3.9 Trademarks, Trade Names and Service Marks etc. Except as set forth on
Schedule 3.9, the Company possesses all trademarks, trade names and service
marks, service names, trade secrets and other proprietary rights (collectively
"Trade Rights") necessary or advisable for the conduct of its business. Schedule
3.9 contains a complete description of all such Trade Rights owned or used by or
registered in the name of the Company, in the United States or in any other
country, including whether such Trade Rights owned or used by or registered in
the name of the Company, in the United States or in any other country, are owned
by or are licensed to or by the Company, and any royalty agreements entered into
by the Company in connection therewith. The Company possesses valid and
enforceable rights to use (without payment) all of the Trade Rights within the
respective jurisdictions where such Trade Rights are currently used in its
business. Except as disclosed in Schedule 3.9, the Company has used all of its
Trade Rights without interruption in such respective jurisdictions for not less
than five years and has not received any notice of conflict that asserts the
rights of others with respect to any such Trade Rights, and to the Shareholder's
knowledge there is no reason to believe that the Trade Rights conflict with any
rights of others. The Company has performed all obligations required to be
performed by it and it is not in default under any agreement relating to any
Trade Right. The conduct of the Company's business does not infringe upon the
patents, trademarks, copyrights or trade names of anyone.
3.10 Consents; Licenses; Approvals and Other Authorizations.
(a) The conduct of the Company's business and the ownership and use of the
Company's properties complies in all respects with all applicable laws, rules,
regulations, ordinances, orders, judgments and decrees and upon consummation of
the transactions contemplated by this Agreement, Buyer will be able to legally
continue the Company's business as presently conducted by it. No proceeding is
pending or, to any Shareholder's knowledge, threatened, seeking the revocation
or limitation of any license, permit, order or other authorization and, to the
knowledge of Shareholders, there is no basis or ground for any such revocation
or limitation.
(b) Schedule 3.10 contains a list of all consents, registrations, filings,
applications, notices, transfers, approvals, orders, qualifications, waivers and
other actions of any kind required of any persons, entities, governmental
authorities or private agencies in connection the consummation of this Agreement
and the Consideration Agreement (other than with respect to the
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<PAGE>
registration under the Securities Act of 1933, as amended of the Buyer Shares)
and the transfer of the Shareholder Debt and the outstanding shares of Miramar
Common Stock.
3.11 Contracts, Commitments and Officers and Directors.
(a) Except as set forth in Schedule 3.11, the Company is not a party to
bound by or the beneficiary of any written or oral, express or implied (i)
contract or commitment for the employment of any officer or employee not
terminable, without penalty, on less than 30 days' prior notice, (ii) lease to
it as lessee of real or personal property, (iii) continuing contract or
commitment for the future purchase by it of materials, supplies, equipment or
services in excess of the requirements of its normal operating inventories, (iv)
lease under which it is lessor of real or personal property, (v) bonus, pension,
profit-sharing, retirement, stock purchase or stock option plan or any
hospitalization, insurance or similar plan or practice, formal or informal, in
effect with respect to employees or others (collectively the "Plans"), (vi)
advertising contract or commitment, (vii) insurance policy, or insurance
binders; or (viii) material contract or commitment not made in the ordinary
course of business, including, without limitation, with respect to sums
borrowed. All the contracts and commitments listed in Schedule 3.11 are valid
and binding obligations of the parties thereto in accordance with their
respective terms and conditions, and, except as disclosed in Schedule 3.11 or
any other Schedule hereto, there are no liabilities arising from any breach or
default of any provision of any such contract or agreement by any party thereto,
and no event has occurred which, with the lapse of time or the giving of notice,
or both, would constitute a breach or default by any party to any such contract
or agreement or would cause acceleration of any obligation of any party thereto
or the creation of any lien, encumbrance or security interest in or upon any
assets of either the Company or any of the Shareholders. The Company has in all
material respects performed all obligations required to be performed by it to
date, and, except as disclosed in Schedule 3.11, the Company is not in default
in any material respect under any contract, agreement, lease or other instrument
to which it is a party or by which it is bound. True and complete copies of all
contracts, agreements, leases, and other documents listed on Schedule 3.11
(together with any and all amendments thereto) have been delivered to Buyer.
Additionally, set forth on Schedule 3.11 is a list of all of the Company's
directors and officers and the names of all persons, if any, holding tax or
other powers of attorney of the Company and a summary of the terms thereof as of
the Closing Date.
(b) Except as set forth on Schedule 3.11, upon termination of the
employment of any employees, the Company, will not, by reason of anything done
prior to the Closing, be liable to any employees for any specific "severance
pay" or any other payments, except for liabilities accrued on the Company's
books and records (all of which are set forth on Schedule 3.11) or as may be
required under state unemployment insurance or other laws.
(c) The Company has complied in all respects and is in compliance with all
Federal, state and local laws and regulations respecting employment and
employment practices (including, without limitation, OSHA), terms and conditions
of employment, wages and hours, collective bargaining and the payment of social
security and similar taxes. There has not been any (i) termination of any
"defined benefit plan" within the meaning of the Employee Retirement Income
Security Act of 1974
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("ERISA") maintained by the Company or any person, firm or corporation which is
under "common controlled" within the meaning of Section 4.001(b) of ERISA with
the Company (an "Affiliate"), or (ii) commencement of any proceeding to
terminate any such plan pursuant to ERISA, or otherwise or (iii) written notice
given to the Company or any Affiliate of the intentions to commence or seek the
commencement of any such proceeding. All accrued benefits under each pension or
profit sharing plan of the Company are fully provided for as of the Closing Date
and are fully funded. Each funded pension and profit sharing plan maintained by
the Company for one or more of its employees constitutes a qualified plan under
Section 401(a) of the Internal Revenue of Code 1986, as amended (the "Code") and
meets all applicable requirements of ERISA. A true correct complete copy of the
Company's 401(k) Plan has been delivered to the Buyer as an attachment to
Schedule 3.11, is and has at all times been qualified under Section 401(a) of
the Code and any trust maintained pursuant thereto has been at all times and is
exempt from taxation under Section 501(a) of the Code. The 401(k) plan has
received a determination letter from the Internal Revenue Service ("IRS")
stating that it is qualified. The Company has not engaged in a prohibited
transaction as defined in Section 4975(c) of the Code or the Section 406(a) of
ERISA with respect to the 401(k) plan. The 401(k) plan has never been subject to
the funding standards of Section 302 of ERISA or Section 412 of the Code. No
complete or partial termination of the 401(k)plan has occurred. Any bonding
required by ERISA with respect to the 401(k) plan has obtained and is in full
force and effect. The 401(k) plan has been administered in accordance with its
provisions and is in compliance with ERISA and all applicable laws except to the
extent any failure to so administer such plan would have an material adverse
effect on the Company. There are no disputed claims under the 401(k) plan which
have been or to the Company to the Shareholder's knowledge, may reasonably be
asserted, including those which would have resulted in pending or threatened
litigation, other than claims for benefits in the ordinary course of the
operation of the 401(k) plan and there are, to the Shareholders' best knowledge,
no pending government investigation, proceedings or inquiries with respect to
the 401(k)plan. All required filings including filings required to be made with
the United States Department of Labor, the IRS and the PPGC have been timely
filed with respect to the 401(k) plan the following documents have been
delivered to the Buyer with respect to the 401(k) plan: (a) a copy of the
401(k), (b) summary plan description, (c) summaries of material modifications,
(d) annual reports or returns on Form 5500 Series and (auditors reports since
the adoption of the 401(k) plan, and (e) all determination letters, rulings,
exemptions, waivers and opinions issued by the IRS, PPGC or Department of Labor.
(d) Except as set forth in Schedule 3.11 none of the obligations or
liabilities of the Company is guaranteed by, or subject to a similar contingent
liability of, any other person, firm, corporation or other entity, nor has the
Company guaranteed or otherwise become contingently liable, for the obligations
or liabilities of any other person, firm, corporation or other entity.
(e) Set forth on Schedule 3.11 is the name of each bank at which the
Company has an account or safe deposit box and the names of all persons
authorized to draw thereon or have access thereto and the names of all persons,
if any, holding tax or other powers of attorneys from the Company and a summary
of the terms thereof.
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3.12 Taxes. Except as set forth on Schedule 3.12 hereto, within the times
and in the manner prescribed by law, the Company has filed all tax returns and
reports required to be filed by law, including, without limitation, returns and
reports for any employee benefit plans, franchise taxes and estimated returns
with respect to Federal, state and local income taxes, and has paid all taxes,
interest, penalties, assessments and deficiencies which have become due and
payable in connection with such returns or otherwise. Except as set forth on
Schedule 3.12, the Company is not a party to any pending action or proceeding,
and there is no action or proceeding threatened by any government authority, for
the assessment or collection of taxes or other governmental charges or any
unresolved claim or lien for assessment or collection of taxes, nor have such
charges, claims or liens been asserted against the Company or any of its assets.
Except as set forth on Schedule 3.12, there are no outstanding waivers or
extensions of time with respect to the assessment or audit of any tax return of
the Company nor any matters under discussion with any taxing authority. The
Company's state tax obligations have been audited and accepted by the taxation
authority of the State of Washington for all of its fiscal years through March
31, 1996. A true correct and complete copy of the letter from the State of
Washington taxation authority regarding such audit has been delivered to the
Buyer as part of Schedule 3.12. On or about July 1, 1987, the Company converted
from C Corporation to S Corporation status under the Code and at such date, the
Company had no accumulated earnings and profits. The Company has not had both
accumulated earnings and profits as well as passive investments income that
exceeds twenty-five (25%) percent of its gross receipts during the past three
consecutive tax years.
3.13 Financial Statements. Buyer has been provided with the audited
balance sheet of the Company as at December 31, 1995 (the "Year End Balance
Sheet")and the related statements of operations and retained earnings for the
year then ended, including the notes thereto (the "Year End Financial
Statements"). Buyer has been provided with the unaudited balance sheet of the
Company as at November 30, 1996 (the "Interim Balance Sheet") and the related
statements of operations and retained earnings for the eleven months then ended,
including the notes thereto (together with the Interim Balance Sheet, the
"Interim Financial Statements"). The Year End Financial Statements and the
Interim Financial Statements are complete and correct, have been prepared in
accordance with generally accepted accounting principles consistently applied,
and fairly present the financial condition of the Company at the dates thereof
and, except as indicated therein, reflect all claims against and all debts and
liabilities of the Company, fixed or contingent or otherwise, as at the
respective dates thereof. Except as set forth in Schedule 3.13, as of November
30, 1996 there were no liabilities or obligations of any nature (absolute,
accrued or contingent) which were not fully reflected or reserved against in the
Interim Balance Sheet, and the reserves, if any, reflected in the Interim
Balance Sheet are adequate, appropriate and reasonable. As of November 30, 1996,
except as set forth on Schedule 3.13, there are no grounds or any basis for the
assertion against the Company of any liability of any nature not fully reflected
or reserved against in the Interim Balance Sheet (excluding any notes thereto).
The Interim Financial Statements do not contain any items of special or non
recurring income or any other income not earned in the ordinary course of
business except as expressly specified therein, and such Interim Financial
Statements include all adjustments, which consist of only normal recurring,
accruals, necessary for such fair presentation.
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Except as set forth in Schedule 3.13, since November 30, 1996, there has
not been any: (a) adverse change (in any case or in the aggregate) in the
financial condition, liabilities, assets or business of the Company; (b)
destruction, damage to, or loss of any asset of the Company (whether or not
covered by insurance) that adversely affects the financial condition (in any
case or in the aggregate) of the Company; (c) labor trouble or other
labor-related event or condition of any character which in any case or in the
aggregate adversely affects the financial condition, business or assets of the
Company; (d) sale, transfer or lease of any asset of the Company, except in the
ordinary course of business; (e) license, contract commitment or transaction to
which the Company is a party, except in the ordinary course of business; (f)
mortgage, pledge or other encumbrance of any asset of the Company, except in
connection with loans extended to the Company by Buyer; (g) change in
compensation or other amounts payable or to become payable to any employee of
the Company or any change in any then existing bonus or similar plan, agreement
or arrangement; or (h) other events or conditions of any character that alone or
in the aggregate might reasonably be expected to have an adverse effect on the
financial or operating condition, business or assets (in any case or in the
aggregate) of the Company.
3.14 Insurance. Schedule 3.14 contains an accurate and complete list
(specifying the insurer, the policy number or covering note number with respect
to binders, the premium and coverage amounts and any claims outstanding) of all
current policies of fire, liability, worker's compensation, vehicular,
directors' and officers' liability, crime, fiduciary, protection/indemnity,
errors and omissions, casualty, business disruption, performance, completion and
surety bonds, letters of credit and other forms of insurance owned or held by
the Company. Such policies are in full force and effect. All premiums with
respect thereto covering all periods up to and including the Closing Date have
been paid, no notice of cancellation or termination has been received, and no
material increase of such premiums is, to Shareholder's knowledge, threatened
with respect to any such policy. The Company has not been refused any insurance
with respect to its business or assets, nor has its coverage been limited, by
any insurance carrier to which it has applied for any such insurance or with
which it has carried insurance during the last five years.
3.15 Entertainment Properties.
(a) Schedule 3.15A contains an accurate and complete list of all
entertainment properties (including without limitation, audio-visual programs
and solely audio programs) (collectively, "Properties"), both released and
unreleased, with respect to which the Company has an ownership interest in the
copyright or has otherwise licensed or acquired distribution rights. Set forth
on Schedule 3.15A is an accurate description of the Company's interest in each
such property, including whether the Company owns the copyright or licenses
distribution rights, the term of any such license and the territory in which the
Company may distribute each Property.
(b) Schedule 3.15B contains an accurate and complete list of all
Properties which are currently licensed to third parties for distribution,
exhibition, broadcast or for other purposes, the respective territories and
media to which such licenses relate and the expiration of the terms of such
licenses.
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(c) Accurate and complete copies of the Company's distribution agreements
(as amended through the Closing Date) with BMG Music, BMG Video International,
Image Entertainment and Sirius Publishing, as amended to date, have previously
been delivered to Buyer.
(d) All necessary transfer of rights, permissions and licenses from the
owners of any legally protected right or interest in the Properties have been
obtained. Schedule 3.15C contains an accurate and complete list of the
respective royalties with respect to each Property (indicating royalty and
advance amounts past due as of March 1, 1997 and due dates and calculation
formulas for amounts initially due after the Closing Date), and any advances or
guarantees that are either currently due and owing with respect to a Property or
are scheduled to be paid in the future. Except as set forth on Schedule 3.15C,
all royalties, advances, guarantees or any other third party participation
(including, without limitation payments to any union or guild or any member
thereof, actor, director, writer, composer, craftsmen or performer) that are
currently due and payable with respect to the Properties have been paid.
(e) Except as specifically set forth on Schedule 3.15C, all material
agreements, instruments, rights, and contracts relating to the Properties are in
full force and effect and no defaults exist or will, with the passage of time
and the giving of notice, exist which will give another party the right to
cancel or terminate any such agreements, instruments, rights, and contracts.
(f) All applicable governmental regulations and requirements of unions and
guilds relating to the Properties and the distribution thereof have been met.
(g) The masters of the Properties are in all respects of a technical
quality adequate for television and home video exhibition. The masters of the
Properties are in the possession of the Company or agents of the Company which
have provided written receipts therefor to the Company.
(h) The Company's distribution of the Properties has not, and will not,
infringe or violate any trademark, trade name, copyright, contract, right of
privacy or publicity, or defame or invade any right of any party or entity and
there is no claim or action by any such person pending, or to the knowledge of
any Shareholder threatened, with respect thereto.
(i) Schedule 3.15D contains a substantially accurate and complete list of
all relevant holdback restrictions respecting the Properties. Other than as set
forth thereon, and subject to the distribution rights that have been granted by
the Company and are currently in effect, each of the Properties are immediately
available for exhibition and distribution in all the media and territories.
3.16 No Bankruptcy; Insolvency; and Judgements. Neither any Shareholder
nor the Company has sought relief under the Bankruptcy Code and no Shareholder
has any reason to believe that a petition seeking such relief will be filed
against the Company or against a Shareholder, nor, except as set forth on
Schedule 3.6 or on Schedule 3.8, is any judgement recorded against the Company
or any Shareholder or any of its or his assets. None of the Shareholders is
currently
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insolvent nor will any of them be rendered insolvent as a result of the
consummation of the transactions contemplated hereby.
3.17 Disclosure. No representation, warranty or statement made by the
Shareholders in this Agreement or in the schedules attached hereto or in the
certificates or other written materials furnished to Buyer or its
representatives, attorneys and accountants in connection with this Agreement and
the transactions contemplated hereby, contains or will contain any untrue
statement of a material fact or omits or will omit to state a material fact
required to be stated herein or therein or, in light of the circumstances under
which they were made, necessary to make the statements contained herein or
therein, not misleading or necessary in order to provide a perspective purchaser
of all the outstanding shares of capital stock of the Company with adequate
information as to the Company and its condition (financial and otherwise),
properties, assets, liabilities, business and prospects and the Shareholders
have disclosed a Buyer in writing all material adverse facts known to them
relating to the same. Without limiting the generality of the foregoing, each of
the amounts described as "Consideration" in any settlement agreement between and
among Buyer, the Company and one or more creditors of the Company (including the
lease amendment with TRP General Partnership) entered into on or prior to the
date hereof, represents bona fide amounts due the respective creditor of the
Company by the Company immediately prior to the date of such settlement
agreement.
3.18 Brokers, Finders, etc. Shareholders represent that neither they nor
the Company have employed any broker, finder, consultant or intermediary in
connection with the transactions contemplated by this Agreement, other than
Baldwin & Associates. A complete and accurate copy of the Company's agreement
with Baldwin & Associates is annexed hereto as Schedule 3.18.
3.19 Shareholder Debt. Schedule 3.19 contains a complete and accurate
description of all Shareholder Debt and the record and beneficial owners
thereof. True and correct copies of all instruments and documents evidencing the
Shareholder Debt are annexed hereto as Schedule 3.19A; and
3.20 Funded Indebtedness to Shareholder Debt. Set forth on Schedule 3.20
is a complete and accurate description of each debt (including all direct
obligations and indirect or contingent obligations by way of guaranty or
otherwise) of the Company for money borrowed from the Shareholders, financial
institutions, and other Persons (collectively, "Funded Indebtedness"), including
a description of unpaid principal, interest and fees initially due on or prior
to the Closing Date and all principal, interest, fees and other amounts
scheduled to be initially due after the Closing Date. Attached to Schedule 3.20
are complete and accurate copies of all documents pertaining to the all Funded
Indebtedness. Except as set forth on Schedule 3.20, all payments of interest,
fees and principal that are required to be paid with respect to the Funded
Indebtedness on or prior to the Closing Date shall have been paid on or before
such date. There has been no default or event of default under any document
evidencing any Funded Indebtedness which has not been waived in a writing by the
holder of such debt, a copy of which has been delivered to the Buyer.
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3.21. Transactions With Certain Persons. Except as set forth on Schedule
3.21, during the past three years the Company has not, directly or indirectly,
purchased, leased from others or otherwise acquired any property or obtained any
services from, or sold, leased to others or otherwise disposed of any property
or furnished any services to, or otherwise dealt with (except with respect to
compensation for services rendered as a director, officer, or employee of the
Company), in the ordinary course of business or otherwise (i) any shareholder of
the Company or (ii) any person, firm, corporation, which directly or indirectly
alone or together with others, controls or is controlled by or is under common
control with the Company or any Shareholders of the Company. Except as set forth
on Schedule 3.21, the Company does not owe any amount to or have any contract
with or commitment to, any of its current or former Shareholders, directors,
officers, employee or consultants (other than compensation for current services
not yet due and payable and reimbursement of expenses arising in the ordinary
course of business), and none of such persons owes any money to the Company.
Except as expressly and specifically denoted on Schedule 3.21, all of the
transactions set forth on Schedule 3.21 are pursuant to terms no less favorable
to the Company then would have existed if such transactions were at arms length.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents, warrants and agrees as follows:
4.1 Incorporation; Authorization, etc. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. The execution and delivery of this Agreement and consummation of the
transactions contemplated hereby have been duly and validly authorized by all
necessary and appropriate corporate action of the Board of Directors of the
Buyer. Buyer has full corporate power and is duly authorized to perform its
obligations under and to consummate the transactions contemplated by this
Agreement. The execution, delivery and performance of this Agreement do not and
will not violate any provision of the certificate of incorporation or by-laws of
Buyer or any provision of any mortgage, lien, lease, agreement, instrument,
order, arbitration award, judgement or decree to which Buyer is a party or by
which it or its property is bound and do not and will not violate or conflict
with any other material restriction of any kind or character to which Buyer is
subject and will not result in the imposition of any lien upon, or the creation
of a security interest in, any of the assets of the Buyer. This Agreement is a
legal, valid and binding agreement of Buyer, enforceable against Buyer in
accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency, moratorium or other laws affecting the enforcement of
creditors' rights generally and by equitable principles.
4.2 Brokers, Finders, etc. Buyer has not employed any broker, finder,
consultant or other intermediary in connection with the transactions
contemplated by this Agreement who might be entitled to a fee or commission from
Buyer, the Company or the Shareholders upon the consummation of the transactions
contemplated hereby.
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4.3 Disclosure. No representation, warranty or statement made by Buyer in
this Agreement or in the schedules attached hereto or in the certificates or
other written materials furnished to Shareholders or any of their
representatives, attorneys and accountants in connection with this Agreement and
the transactions contemplated hereby or thereby, contains or will contain at
Closing any untrue statement of a material fact or omits or will omit to state a
material fact required to be stated herein or therein or, in light of the
circumstances under which they were made, necessary to make the statements
contained herein or therein not misleading.
ARTICLE V
SURVIVAL OF REPRESENTATIONS AND
WARRANTIES; INDEMNITY
5.1 Survival. The representations and warranties of Shareholders and Buyer
included or provided for herein, or in the schedules or other instruments or
agreements delivered or to be delivered pursuant hereto, and the obligations to
indemnify and hold harmless pursuant to Section 5.2, shall survive the Closing
until the third anniversary of the Closing Date except for the representations
and warranties set forth in Sections 3.5 and 3.12 which should survive until
expiration of the applicable statute of limitations, if any.
5.2 Indemnity.
(a) Each of the Shareholders will, and hereby do, jointly and
severally, indemnify and hold harmless Buyer and the directors, officers,
employees, agents and representatives of Buyer (collectively, the "Buyer
Indemnified Parties") at all times after the Closing Date, against and in
respect of any loss, damage, expenses (including, without limitation, reasonable
attorneys' fees) or deficiency sustained by any of the Buyer Indemnified Parties
as a result of any assessment of taxes, judgments or as the result of any other
liabilities of, or claims made by or against, any of the Buyer Indemnified
Parties of any nature, whether accrued, absolute, contingent or otherwise, which
arise out of any untrue representation or warranty of Shareholders contained in
this Agreement or in any agreement or document executed in connection herewith
or the non-fulfillment of any covenant or undertaking of Shareholders contained
in this Agreement or any agreements executed in connection herewith, or any
liability, loss or damage incurred by the Company with respect to amounts due
(including principal, fees, interest and expenses) with respect to Funded
Indebtedness on which one or more of the Shareholders is directly or
contingently liable; provided, however, that Buyer shall not be entitled to
assert any claim for indemnification hereunder unless and until all claims of
Buyer for indemnification in respect hereof exceed $25,000 (the "Liability
Exception") in the aggregate, at which time all claims of Buyer for
indemnification hereunder may be asserted; provided further, the Liability
Exception shall not apply to any losses, liabilities, damages and expenses in
respect of an untrue representation or breach of warranty contained in Sections
3.5 and 3.20 hereof. Notwithstanding anything herein to the contrary, no
Shareholder's liability for indemnification shall exceed the aggregate of (i)
$750,000; (ii) $1,080,612.44; and (iii) any Debt Service Obligations
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satisfied by the Buyer in cash not reimbursed from the proceeds of stock in the
"Account" maintained pursuant to the Consideration Agreement.
(b) Buyer may elect, in its sole discretion, to be indemnified for any
loss by offsetting the amount of such loss against any amounts due and owing to
any of the Shareholders pursuant to this Agreement or otherwise.
(c) Buyer will, and hereby does, indemnify and hold harmless Shareholders
and the agents and representatives of Shareholders (the "Shareholder Indemnified
Parties") at all times after the Closing Date, against and in respect of any
loss, damage, deficiency or expenses (including, without limitation, reasonable
attorneys' fees) sustained by the Shareholder Indemnified Parties as a result of
or arising out of the breach by Buyer of any representation or warranty of Buyer
contained in this Agreement or in any agreement or document executed in
connection herewith or the non-fulfillment of any covenant or undertaking of
Buyer contained in this Agreement or any agreements executed in connection
herewith.
(d) Notwithstanding anything in this Section 5.2 to the contrary, no party
shall have any liability to indemnify any other party or another person entitled
to indemnity hereunder, with respect to losses incurred from settlements
effected without the indemnifying party's consent.
(e) The indemnification provided for hereunder shall remain operative and
in full force and effect following the consummation of the transactions provided
for herein.
5.3 Indemnification Not Sole Remedy. The indemnification contained in this
Agreement shall not be deemed to be the exclusive remedy of the indemnified
party in connection with or arising from any failure by the indemnifying party
to perform any of its covenants or obligations in this Agreement or in the
agreements related hereto or any breach by the indemnifying party of any
warranty or the inaccuracy of any representation of the indemnifying party
contained in this Agreement, nor shall such indemnification be deemed to
prejudice or to operate as a waiver of any remedy to which the indemnified party
may be entitled at law or in equity; provided, however, notwithstanding the
foregoing, the maximum amount recoverable from the shareholders in the aggregate
shall not exceed the limit described in the last sentence of Section 5.2(a).
ARTICLE VI
COVENANTS OF THE SHAREHOLDERS
6.1 Further Assurances. Each party agrees that, from time to time, whether
at or after the Closing, it will execute and deliver such further instruments of
conveyance and transfer and other instruments or documents and take such other
action as is necessary to carry out the terms of this Agreement. Each party
further agrees that it will not take any action that will prevent the
performance of this Agreement in accordance with its terms.
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6.2 Conduct of Business. The Shareholders, jointly and severally, agree
that from the date hereof until the Closing, they shall cause the Company's
operations and activities to be conducted only in the ordinary course of
business consistent with past practice.
Without limitation of the foregoing, from the date of this Agreement, the
Shareholders covenant and agree that each will:
(a) use his best efforts to maintain and preserve the physical assets used
in the conduct of the Company's business;
(b) use his best efforts to maintain all contracts and the relations and
goodwill of employees, producers, customers, distributors, suppliers, lessees
and others having business relations with the Company;
(c) use his best efforts to maintain in full force and effect all
licenses, permits, rights and other authorizations used in the conduct of the
Company's business and in effect on the date hereof;
(d) use his best efforts to prevent any of the Company's assets from being
subjected to any lease, contract of sale, assignment, mortgage, pledge, lien,
charge or encumbrance, except in the ordinary course of the business and except
as may be incurred or granted to Buyer;
(e) cause the Company (i) not to increase the amount of compensation paid
to any of the employees of Company; (ii) not to pay or agree to pay any pension,
retirement allowance, or other employee benefit not required by an existing
plan, collective bargaining agreement or arrangement, to any such employee,
whether past or present; and (iii) not to enter into or renew any employment
contracts, agreements, commitments, or arrangements which cannot be terminated
at will by the Company without penalty;
(f) cause the Company not to sell, transfer, license or otherwise dispose
of, or agree to sell, transfer, license or otherwise dispose of, any of the
Trade Rights, or interests in the Properties, except in the ordinary course of
its business;
(g) cause the Company not to prepay any obligation having a maturity of
more than 90 days from the date it was issued and incurred except with the prior
consent of Buyer;
(h) cause the Company not to enter into any agreement or commitment that
restricts the Company from carrying on its business as presently conducted by it
anywhere in the world;
(i) cause the Company not to cancel any debts or waive any claims or
rights of substantial value;
(j) not permit the Company's Certificate of Incorporation or By-laws to be
amended;
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(k) cause the Company not to incur any obligations or liabilities
(absolute or contingent) other than obligations for money borrowed from Buyer
and other current liabilities incurred, and obligations under contracts entered
into, in the ordinary course of business;
(l) cause the Company not to issue, sell, buy or redeem, or issue rights
to subscribe to, or options or warrants to purchase, or enter into agreements,
commitments or obligations to issue, sell, buy or redeem, any shares of its
capital stock, securities that are convertible into shares of its capital stock
or any other ownership interests; or
(m) cause the Company not to agree or otherwise commit, whether in writing
or otherwise, to take any of the actions prohibited by this Section 6.2.
6.3 Exclusivity. Shareholders agree that Buyer shall have the exclusive
right through the Closing Date (or the earlier termination hereof pursuant to
Article IX) to consummate the transactions contemplated herein, and during such
exclusive period, Shareholders shall ensure that neither Shareholders or the
Company nor any of their authorized representatives will solicit or accept any
other offer to purchase any shares of the Company's capital stock, the
Shareholder Debt or other securities of, or interests in, the Company or any
part of the Company's assets (other than the sale of inventory and interests in
the Company's assets in the ordinary course of business) or enter into any
similar transaction or hold discussions or negotiations with, or provide any
information to, any other individual, corporation, partnership or other entity
concerning such transactions (other than such discussions which are in
furtherance of the transactions contemplated herein). Shareholders, on the one
hand, and Buyer, on the other hand, agree to consult promptly with each other
prior to issuing any press release or otherwise making any public statement with
respect to the transactions contemplated hereby, and shall not issue any such
press release or make any such public statement prior to such consultation,
except as may be required by law or pursuant to any listing agreement with any
national securities exchange.
6.4 Inspection. The Shareholders will cause the Company to permit any
officer, representative or agent of the Buyer to visit and inspect, at the
Buyer's expense, any of the properties of the Company, including its books of
account (and to make copies thereof and to take extracts therefrom), and to
discuss the affairs, finances and accounts of the Company with its officers, all
at such reasonable times and as often as may be reasonably requested. The
Company's officers will furnish to the Buyer's officers, representatives or
agents such financial and operating data and other information with respect to
the Company as such officers, representatives or agents shall request. The
Buyer, when exercising its rights of inspection hereunder, shall use is best
efforts to maintain the confidentiality of all confidential information of Buyer
acquired by it in exercising such rights, and shall also cause its officers,
agents and representatives to agree to do so.
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ARTICLE VII
CONDITIONS TO BUYER'S OBLIGATION TO CLOSE
The obligation of Buyer to consummate this Agreement is subject to the
satisfaction on or prior to the Closing Date of all of the following conditions
(any of which may be waived by Buyer):
7.1 Accuracy of Representations, Warranties and Covenants of Shareholders;
Updated Schedules. Each of the representations and warranties of Shareholders
contained in this Agreement shall be true in all respects on and as of the
Closing Date with the same effect as though such representations and warranties
had been made on and as of such date, and each of the covenants and agreements
of Shareholders to be performed on or before the Closing Date shall have been
duly performed in all respects, and Buyer shall have received at the Closing a
certificate to that effect dated the Closing Date and executed by each
Shareholder. From time to time prior to the Closing, the Shareholders will
promptly supplement or amend the Schedules to this Agreement with respect to any
matter hereafter arising which, if existing or occurring at the date of this
Agreement, would have been required to be set forth or described in the
Schedules to this Agreement. No such supplement or amendment of the Schedules to
this Agreement made pursuant to this Section 7.1 which purports to correct any
prior representation or cure the breach of any prior warranty made in this
Agreement shall be deemed to correct such representation or cure the breach of
such warranty for purposes of this Section 7.1 and Article V of this Agreement,
unless specifically agreed to in writing by Buyer.
7.2 Filings; Consents; Waiting Periods All registrations, filings,
applications, notices, transfers, consents, approvals, orders, qualifications,
waivers and other actions of any kind required of any persons or governmental
authorities or private agencies in connection with the consummation of the
transactions contemplated by this Agreement, as set forth on Schedule 3.10 shall
have been made or obtained and all applicable waiting periods shall have expired
or been terminated. The Buyer shall have received the written consent of
Atlantic Bank of New York to the transactions contemplated hereby.
7.3 No Adverse Change. There shall not have occurred after the date of
this Agreement any change in or effect on the Company's business that is, or
might reasonably be, individually or in the aggregate, materially adverse to the
business, prospects, operations, properties, assets, liabilities or condition
(financial or otherwise) of the Company.
7.4 Bankruptcy; Assignment. Neither any Shareholder nor the Company shall
have made an assignment for the benefit of creditors or admitted in writing his
or its inability to pay his or its debts generally as they become due, nor shall
any Shareholder or the Company have petitioned or applied to any tribunal for
the appointment of a trustee or receiver thereof, or of any substantial part of
the assets thereof, nor shall any Shareholder or the Company have commenced any
proceedings or sought to obtain the benefit of any bankruptcy, arrangement,
insolvency, readjustment of debt, dissolution, reorganization or liquidation law
of any jurisdiction nor shall any
18
<PAGE>
such petition or application been filed, nor any such proceedings been commenced
against any Shareholder or the Company; nor shall any trustee or receiver have
been appointed of the whole or any substantial part of the assets of any
Shareholder or the Company nor shall any order, judgement or decree have been
entered adjudicating any Shareholder or the Company bankrupt or insolvent or
approving the petition in any such proceedings.
7.5 Good Standing Certificates. Shareholders shall have delivered to Buyer
a certificate of good standing for the Company certified by the Secretary of
State of Washington.
7.6 Stock Certificates. Shareholders shall have delivered to Buyer the
certificates representing the shares of Miramar Common Stock held by each of
them, duly endorsed for transfer, or with appropriate stock powers in blank
attached.
7.7 Shareholder Debt. Each Shareholder shall have delivered to Buyer all
instruments, documents and agreements evidencing or otherwise relating to the
Shareholder Debt, together with such instruments or documents assigning such
debt to Buyer as Buyer shall have requested.
7.8 Other Documents. Shareholders shall have delivered to Buyer such other
further documents and instruments as Buyer may have reasonably requested to
effectuate this Agreement.
7.9 Resignations. The individuals named on Schedule 7.9 shall have
resigned as officers and directors of the Company and shall have delivered the
general releases in a form satisfactory to the Buyer.
7.10 Settlement of Debt. The Company shall have settled the outstanding
indebtedness set forth on Schedule 7.10, or Buyer shall have acquired such debt,
on terms that are acceptable to Buyer in its sole discretion. Buyer shall have
received such documents evidencing such settlements or acquisitions as are
acceptable to it in its sole discretion.
7.11 New Credit Facility. The Company shall have entered into a credit
facility with an institutional lender permitting borrowings of up to a maximum
amount of at least $750,000, and having such other terms as are acceptable to
Buyer in its sole discretion. Buyer shall have received copies of all documents
governing such credit facility, which shall be acceptable in all respects to
Buyer in its sole discretion.
7.12 Employment Agreement with G. Paul Sullivan. Sullivan shall have
entered into an Employment Agreement with the Company substantially in the form
annexed hereto as Exhibit A.
7.13 Approval of AMEX Listing Application. The AMEX shall have approved an
application for listing all of the Buyer Shares to be issued pursuant to this
Agreement as well as all shares of Buyer's common stock to be issued by Buyer to
any holders of Company debt in connection with Buyer's purchase thereof.
19
<PAGE>
ARTICLE VIII
CONDITIONS TO SHAREHOLDERS' OBLIGATION TO CLOSE
The obligation of Shareholders to consummate this Agreement is subject to
the satisfaction on or prior to the Closing Date of all of the following
conditions (any of which may be waived by the Shareholders):
8.1 Representations, Warranties and Covenants. Each of the representations
and warranties of Buyer contained in this Agreement shall be true in all
respects on and as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of such date, the
covenants and agreements of Buyer to be performed on or before the Closing Date
shall have been duly performed in all respects, and Shareholders shall have
received at the Closing Date a certificate to that effect dated the Closing Date
and executed on behalf of Buyer by an authorized officer of Buyer.
8.2 Payment of Purchase Price. Buyer shall have delivered to Shareholders
the purchase price for their shares of Miramar Common Stock and shall have
delivered to the Shareholder Debtholders certificates for the Buyer Shares in
payment of the Shareholder Debt.
8.3 Other Documents. The Buyer shall have delivered such other and further
documents and instruments as Shareholders may reasonably request to effectuate
this Agreement.
8.4 Filings; Consents; Waiting Periods. All registrations, filings,
applications, notices, transfers, consents, approvals, orders, qualifications,
waivers and other actions of any kind required of any persons or governmental
authorities or private agencies in connection with the consummation of the
transactions contemplated by this Agreement as set forth on Schedule 3.10 shall
have been made or obtained and all applicable waiting periods shall have expired
or been terminated.
ARTICLE IX
TERMINATION
9.1 Termination Prior to Closing. This Agreement may be terminated and
abandoned at any time prior to the Closing:
(a) By the unanimous consent in writing of Buyer and Shareholders; or
(b) By either Buyer on the one hand, or by all of the Shareholders, on the
other hand, by notice in writing to the other (the "Defaulting Party") if the
Closing shall not have occurred due to: (i) the inability or refusal of the
Defaulting Party to fulfill the conditions precedent to the Closing required of
them pursuant to Articles VII or VIII on or before the Closing Date; (ii) the
breach of any
20
<PAGE>
representation or warranty contained herein by the Defaulting Party; or (iii)
the failure to timely perform any of the covenants and agreements contained
herein by the Defaulting Party.
9.2 Additional Remedies. Any termination pursuant to this Article XIX
shall be without prejudice to the terminating party's rights and remedies under
this Agreement or otherwise by reason of any violation of the Agreement
occurring prior to such termination.
ARTICLE X
MISCELLANEOUS
10.1 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
10.2 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without reference to the
conflicts of laws principles thereof.
10.3 Entire Agreement. This Agreement, and the other agreements and
documents contemplated hereby, contain the entire agreements between the parties
and there are no agreements, understandings, representations or warranties
between the parties other than those set forth in these Agreements and
documents.
10.4 Amendment and Modification. This Agreement may be amended, modified
or supplemented only by written agreement of the Buyer and each of the
Shareholders at any time prior to the Closing with respect to any of the terms
contained herein.
10.5 Agreement for the Parties Benefit Only. This Agreement is not
intended to confer upon any person not a party hereto any rights or remedies
hereunder, and no person other than the parties hereto is entitled to rely on
any representation, warranty or covenant contained herein.
10.6 Expenses. All legal and other costs and expenses incurred in
connection with this Agreement and the transactions contemplated hereby shall be
paid by the party incurring such costs and expenses.
10.7 Notices. All notices to a party hereunder shall be sufficiently given
for all purposes hereunder if in writing and delivered personally or sent by
registered or certified mail, postage prepaid, to the address of such party set
forth in the first paragraph of this Agreement or to such other address and the
attention of such other person as such party may designate by written notice to
the other parties hereto.
21
<PAGE>
Any notice shall be deemed to have been served or given as of the date
such notice is personally delivered or five business days after it is properly
mailed hereunder.
10.8 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their successors and assigns;
provided, however, that this Agreement may not be assigned by Shareholders or
Buyer.
10.9 Judicial Interpretation. Should any of the provisions of this
Agreement require judicial interpretation, it is agreed that the court or
arbitrator interpreting or construing the Agreement shall not apply a
presumption that any provision shall be more strictly construed against one
party by reason of the rule of construction that a document is to be construed
more strictly against the party who itself or through its agents prepared the
same; it being agreed that all parties and their respective agents have
participated in the preparation of this Agreement.
10.10 Arbitration. Any controversy or claim arising out of or relating to
this Agreement or the Escrow Agreement or any breach or validity thereof shall
be settled by arbitration in New York by a panel of three arbitrators in
accordance with the rules of the American Arbitration Association. Judgment upon
the award rendered by the arbitrators may be entered in any court having
jurisdiction thereof and the parties consent to the jurisdiction of the New York
court for this purpose. The parties hereto agree that arbitrators should be
required to follow applicable law and give reasons for their decisions in any
arbitrator's decision.
22
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed as of the date first
above written.
/s/ G. Paul Sullivan
-------------------------
G. Paul Sullivan
-------------------------
Paul Speer
-------------------------
David Lanz
-------------------------
Kevin Garrison
/s/ Kipp Kilpatrick
-------------------------
Kipp Kilpatrick
UNAPIX ENTERTAINMENT, INC.
By: /s/ David M. Fox
----------------------
Name: David M. Fox
Title: President & CEO
23
<PAGE>
_________________________
G. Paul Sullivan
/s/ Paul Speer
-------------------------
Paul Speer
/s/ David Lanz
-------------------------
David Lanz
/s/ Kevin Garrison
-------------------------
Kevin Garrison
_________________________
Kipp Kilpatrick
UNAPIX ENTERTAINMENT, INC.
By: ________________________________
Name:
Title:
23
POOLED CONSIDERATION AGREEMENT
This Pooled Consideration Agreement (the "Agreement") is made and entered
into as of the 17th day of March, 1997, by and among Unapix Entertainment, Inc.,
a Delaware corporation ("Buyer"); G. Paul Sullivan ("Sullivan"); Paul Speer
("Speer"); David Lanz ("Lanz"); Kevin Garrison ("Garrison"); Kipp Kilpatrick
("Kilpatrick", collectively, Sullivan, Speer, Lanz, Garrison and Kilpatrick are
referred to herein as the "Shareholders"); and Charles E. Walsh ("Walsh"); and
Critical Mass, L.L.C., a Washington limited liability company ("CM").
RECITALS
1. The Buyer and the Shareholders have entered into a stock purchase
agreement of even date herewith pursuant to which the Buyer is acquiring all of
the issued and outstanding shares of the common stock , no par value per share,
of Miramar Images, Inc., a Washington corporation (the "Company") as well as
certain debt of the Company held by the Shareholders (as amended from time to
time in writing, the "Stock Purchase Agreement").
2. The Buyer has entered into an assignment agreement of even date
herewith, with Walsh regarding the purchase from Walsh of certain debt of the
Company held by him (as amended from time to time in writing, the "Assignment
Agreement").
3. The Shareholders and Walsh have formed CM for the purposes of pooling
their interests in the receipt of consideration to be paid by the Buyer pursuant
to the Stock Purchase Agreement and the Assignment Agreement.
4. The Stock Purchase Agreement and Assignment Agreement contemplate that
the consideration to be paid by the Buyer thereunder shall be conveyed (in
accordance with the direction of the Shareholders and Walsh) to CM on behalf of
the Shareholders and Walsh in accordance with the terms hereof.
5. The Shareholders and Walsh acting collectively, direct the Buyer to
remit the consideration referred to in Sections 1(b) and (c) below to CM in
which they each have a beneficial interest, and each of the Shareholders and
Walsh acknowledge that the Buyer shall not have any obligation to verify their
interests or relative share of beneficial ownership in CM.
6. The Shareholders and Walsh are the only beneficial owners of CM.
<PAGE>
NOW, THEREFORE, in consideration for the terms of the Stock Purchase
Agreement and the Assignment Agreement, the parties hereto hereby agree as
follows:
1. The Buyer shall deliver the following in consideration:
(a) 38,347 shares of Buyer's common stock $.01 par value per share (the
"Common Stock") delivered directly to, and in the names of the Shareholders and
Walsh in accordance with the table set forth as Schedule X hereto (the
"Disbursed Shares"); plus
(b) 205,402 shares of Common Stock to be placed in an account described
below (the "Escrow Stock"), on the Closing Date (as defined in the Stock
Purchase Agreement and the Assignment Agreement) including the proceeds thereof,
less the proceeds of which are disbursed to Buyer from time to time as expressly
provided below; plus
(c) to the extent not satisfied out of the proceeds of the Escrow Stock,
payments to CM of amounts necessary to timely satisfy the principal and interest
obligations set forth on Schedule X hereto (collectively, the "Debt Service
Obligations").
2. The Escrow Stock will be placed in an account maintained with Burnham
Securities, Inc. (the "Account") in the name of CM; provided CM (i) shall have
no control of or access to the Account, the Escrow Stock or the proceeds thereof
except as expressly provided below; and (ii) hereby grants a plenary
power-of-attorney to Buyer to, from time to time in its sole discretion,
liquidate the Escrow Stock and distribute the proceeds thereof as expressly
provided for below.
3. From time to time, the Buyer may liquidate some or all of the Escrow
Stock and use the proceeds to (i) satisfy the Debt Service Obligations; and (ii)
reimburse itself for Debt Service Obligations previously satisfied by the Buyer
in cash or other amounts due Buyer from the Shareholders, Walsh and CM (a
"Reimbursement"). Notwithstanding anything herein to the contrary, an aggregate
of $530,000 of Escrow Stock (valued as of one or more "Valuation Date" as
defined in Section 4 hereof) and the proceeds thereof (such aggregate amount of
Escrow Stock and proceeds thereof to be identified by the Buyer in its sole
discretion at any time on or prior to the Maturity Date (defined below)) shall
not be subject to a Reimbursement for amounts due Buyer solely from one or more
Shareholders (and not from Walsh). Buyer will provide CM with a telecopied
notice of any liquidation of the Escrow Stock and the nature and amount of the
disbursement of the proceeds thereof within five (5) business days of each such
liquidation. Amounts paid to CM by Buyer pursuant to Section 1(c) and this
Section 3 shall (after taking into account reductions in Debt Service
Obligations pursuant to Section 4 below) be applied first to accrued and unpaid
interest accruing pursuant to Schedule X and next to amortize the principal
amount reflected on Schedule X.
4. CM may notify Buyer at any time by telecopy that it does not want some
or all of a specified number of shares of the then unsold Escrow Stock not then
necessary to provide a Reimbursement, to be sold, in which case, the Buyer shall
maintain in such Account (and not sell)
2
<PAGE>
such number of shares of the Escrow Stock. Upon receipt of such notice by Buyer,
the Debt Service Obligations shall be reduced by an amount equal to the closing
sale price of the Common Stock on the dates specified by the Buyer in one or
more notices to CM as the date or dates on which such shares would have been
sold (the "Valuation Date") (which dates shall be (i) subsequent to such notice
to Buyer from CM, and (ii) prior to the one year anniversary of the date hereof
(the "Maturity Date")), multiplied by the number of some or all of such shares
of Escrow Stock to be held as is specified in Buyer's notice to CM, plus
interest that would have accrued on such amount from the Valuation Date at the
interest rate set forth in Schedule X.
5. On the Maturity Date, the Escrow Stock and proceeds thereof not
necessary to satisfy any remaining Debt Service Obligations shall be disbursed
to CM.
6. The Shareholders and Walsh agree that the Disbursed Shares shall may
not be sold, transferred or assigned or incumbered in any manner prior to the
Maturity Date and each certificate evidencing one or more of the Disbursed
Shares shall bear appropriate legends consistent with this restriction.
7. The Shareholders, Walsh and CM (by way of hypothecation) hereby grant
to Buyer a security interest in the Common Stock maintained in the Account and
the proceeds to secure any and all obligations of the Shareholders and Walsh to
Buyer.
8. Notices hereunder to be sent to Buyer shall be sent to:
Michael R. Epps, General Counsel
Unapix Entertainment, Inc.
200 Madison Avenue
New York, New York 10016
Telephone: 212-252-7600
Telecopy: 212-252-7628
Notices to be sent to CM shall be sent to:
Kevin J. Garrison
Garrison & Kelley CPA's, PLLC
12000 NE 8th, Suite 204
Bellevue, Washington 98005
Telephone: 206-455-5578
Telecopy: 206-646-4266
3
<PAGE>
With a copy to:
Edward R. Langenbach, Esq.
Cable, Langenbach, Kinerk, Bauer & Leshiner, LLP
1000 Second Avenue - Suite 3500
Seattle, Washington 98104
Telephone: 206-292-8800
Telecopy: 206-292-0494
9. Reference is made to the obligations of the Shareholders set forth in
Section 1.4 of the Stock Purchase Agreement and the representations and
warranties of the Shareholders in Sections 1.5 and 1.6 of the Stock Purchase
Agreement and CM hereby adopts and assumes such obligations and makes such
representations and warranties with respect to the Common Stock deposited in the
Account, mutatis mutandis.
10. Whenever and so often as reasonably requested by Burnham Securities,
Inc. or the Buyer, CM, the Shareholders and Walsh will promptly execute and
deliver or cause to be executed and delivered all such other and further
instruments, documents or assurances, and promptly do or cause to be done all
such other and further things as may be necessary and reasonably required in
order to further effectuate the purposes hereof and the transactions intended to
be effected by this Agreement.
11. This Agreement and all the provisions hereof shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns, but this Agreement and the rights, interests or obligations hereunder
shall not be assigned by any of the parties hereto without the expressed written
consent of the other parties. No provision in this Agreement is intended to
create any right in persons or entities other than the parties hereto, their
successors and assigns.
12. This Agreement may be executed in any number of counterparts each of
which shall be deemed to be an original, all of which shall constitute one and
the same instrument.
4
<PAGE>
IN WITNESS WHEREOF, the parties have each caused this Agreement to be
executed and delivered.
UNAPIX ENTERTAINMENT, INC.
By: /s/ David M. Fox
-----------------------------
Name: David M. Fox
Title: President & CEO
Critical Mass, L.L.C.
By: /s/ G. Paul Sullivan
-----------------------------
Name: G. Paul Sullivan
Title: Member
/s/ G. Paul Sullivan
----------------------------
G. Paul Sullivan
____________________________
Paul Speer
____________________________
David Lanz
____________________________
Kevin Garrison
/s/ Kipp Kilpatrick
----------------------------
Kipp Kilpatrick
____________________________
Charles E. Walsh
5
<PAGE>
IN WITNESS WHEREOF, the parties have each caused this Agreement to be
executed and delivered.
UNAPIX ENTERTAINMENT, INC.
By: ______________________________
Name:
Title:
Critical Mass, L.L.C.
By: /s/ Kevin J. Garrison
-----------------------------
Name: Kevin J. Garrison
Title: Member
____________________________
G. Paul Sullivan
/s/ Paul Speer
----------------------------
Paul Speer
/s/ David Lanz
----------------------------
David Lanz
/s/ Kevin Garrison
----------------------------
Kevin Garrison
____________________________
Kipp Kilpatrick
____________________________
Charles E. Walsh
5
<PAGE>
IN WITNESS WHEREOF, the parties have each caused this Agreement to be
executed and delivered.
UNAPIX ENTERTAINMENT, INC.
By: _____________________________
Name:
Title:
Critical Mass, L.L.C.
By: _____________________________
Name:
Title:
____________________________
G. Paul Sullivan
____________________________
Paul Speer
____________________________
David Lanz
____________________________
Kevin Garrison
____________________________
Kipp Kilpatrick
/s/ Charles E. Walsh
----------------------------
Charles E. Walsh
5
<PAGE>
SCHEDULE X
------------------------------------------------
PRINCIPAL
DATE PAYMENT
------------------------------------------------
CLOSING DATE $ 865,387.46
------------------------------------------------
3/31/97 $ 10,548.68
------------------------------------------------
4/30/97 $ 5,999.79
------------------------------------------------
5/31/97 $ 6,013.07
------------------------------------------------
6/30/97 $ 6,026.51
------------------------------------------------
7/31/97 $ 6,040.11
------------------------------------------------
8/31/97 $ 6,053.87
------------------------------------------------
9/30/97 $ 6,061.18
------------------------------------------------
10/30/97 $ 6,081.86
------------------------------------------------
11/30/97 $ 6,096.10
------------------------------------------------
12/30/97 $ 6,110.51
------------------------------------------------
1/30/98 $ 6,125.09
------------------------------------------------
2/28/98 $ 6,139.83
------------------------------------------------
Maturity Date all outstanding principal
------------------------------------------------
- ----------
Additionally, accrued interest on the outstanding principal balance (less
amounts deducted pursuant to Section 4 hereof) at an assumed interest rate of
10.44% per annum shall be due and payable on the 15th and the last business day
of each month and on the Maturity Date; provided, however, that interest on
amounts more than fifteen (15) days past due hereunder shall accrue at the rate
of 13% per annum.
6
<PAGE>
Allocation of Disbursed Shares
Number of Shares
----------------
Charles E. Walsh 15,790
Kipp Kilpatrick 913
G. Paul Sullivan 13,074
Paul Speer 4,066
David Lanz 3,219
Kevin Garrison 1,285
------
38,347
7
SETTLEMENT AGREEMENT AND RELEASE
THE SETTLEMENT AGREEMENT AND RELEASE (the "Agreement") is entered into by
and between the following parties: Steven Churchill (including his activities
d/b/a/ Odyssey Productions and Odyssey Visual Design the "Claimant"), MIRAMAR
IMAGES, INC., a Washington corporation ("Miramar"); and UNAPIX ENTERTAINMENT,
INC., a Delaware corporation ("Unapix").
WHEREAS, Claimant has asserted certain unsatisfied claims against Miramar,
as set forth on Schedule "A" hereto (the "Claims";) and
WHEREAS, Unapix, is considering the acquisition of Miramar (the
"Acquisition"); and
WHEREAS, Unapix has required as a condition to the Acquisition, among
other things, that all Claims (except as set forth on Schedule "B" hereto, if
any) be settled and released on terms satisfactory to Unapix prior to the date
of the closing of the Acquisition (the "Closing Date"); and
WHEREAS, Miramar and Claimant have agreed to settle and release all Claims
(except as set forth on Schedule "B" hereto, if any) on the terms set forth
herein, conditioned upon the consummation of the Acquisition,
NOW THEREFORE be it hereby agreed as follows:
A. SETTLEMENT; CONSIDERATION.
1. In consideration for Claimant's execution delivery and performance of
this Agreement, Claimant shall receive the following consideration
(collectively, the "Consideration") subject to the contingency set forth in
Section F.8. hereof:
(a) the payment of $204,039.95 pursuant to the following Schedule:
AMOUNT
------
1st Payment within 10 days of close $48,288.95
2nd Payment on or before 4/20/97 $31,150.20
3rd Payment on or before 5/20/97 $31,150.20
4th Payment on or before 6/20/97 $31,150.20
5th Payment on or before 7/20/97 $31,150.20
<PAGE>
6th Payment on or before 8/20/97 $31,150.20
(b) the payment to Claimant of $17,709 on the first day of each
calendar month commencing September 1, 1997 to and including March 1,
1998, and $88,537 on the one year anniversary of the Closing Date (the
"Maturity Date") (any prepayments of such amounts shall be applied in
direct order of installments due) less the proceeds of the Shares
disbursed to Claimant as expressly provided below (the "Monetary
Obligations") less the amount by which the Monetary Obligations may be
reduced pursuant to Paragraph A.4; and
(c) such number of shares of Unapix Common Stock $.01 par value per
share as shall aggregate in current market value $212,500 (the "Shares")
(collectively, the "Consideration"). For purposes of this Agreement,
"current market value" shall equal the average of the closing sales prices
of the Unapix Common Stock as reported by the American Stock Exchange
("AMEX"), over the 30 trading days immediately preceding the third trading
day immediately preceding the Closing Date; provided, however, that if on
any such trading day there is no reported sale on the AMEX, then the
average of the last bid and asked price of Unapix's Common Stock on such
date as reported by the AMEX, shall be deemed the closing sales price on
such date.
2. On the Closing Date, the Shares will be placed in an escrow account
maintained with Burnham Securities Inc. (the "Account") in the name of Claimant;
provided Claimant (i) shall have no control of or access to the Account, the
Shares or the proceeds thereof except as expressly provided below; and (ii)
hereby grants a plenary power-of-attorney to Unapix to, from time to time in
sole discretion, liquidate the Shares and distribute the proceeds thereof as
expressly provided for below. Any fees or costs associated with establishment
and maintenance of the Account will be the sole responsibility of Unapix.
3. From time to time, Unapix may liquidate some or all of the Shares and
use the proceeds to reimburse itself for Monetary Obligations previously
satisfied by Unapix in cash.
4. Claimant may notify Unapix at any time by telecopy that it does not
want some or all of a specified number of shares of the then unsold Shares to be
sold, in which case, Unapix shall maintain in such Account (and not sell) such
number of Shares. Upon receipt of such notice by Unapix, the Monetary
Obligations shall be reduced by an amount equal to the closing sale price of the
Unapix Common Stock on the dates specified by the Unapix in one or more notices
to Claimant as the date or dates on which such shares would have been sold (the
"Valuation Date") (which dates shall be (i) subsequent to such notice to Unapix
from Claimant, and (ii) prior to the Maturity Date) multiplied by the number of
some or all of such Shares to be held as is specified in Unapix's notice to
Claimant.
5. On the Maturity Date, the Shares and proceeds thereof not necessary to
satisfy any remaining Monetary Obligations shall be disbursed within ten (10)
days thereof to Claimant.
2
<PAGE>
6. Notices hereunder to be sent to Unapix shall be sent to:
Michael R. Epps, General Counsel
Unapix Entertainment, Inc.
200 Madison Avenue
New York, New York 10016
Telephone: 212-252-7600
Telecopy: 212-252-7628
Notices to be sent to Claimant shall be sent to:
Steven Churchill
4413 Ocean Valley Lane
San Diego, California 92130
Telephone: 619-793-1900
Telecopy: 619-793-1942
7. Whenever and so often as reasonably requested by a party hereto, each
other party to which such request is directed will promptly execute and deliver
or cause to be executed and delivered all such other and further instruments,
documents or assurances, and promptly do or cause to be done all such other and
further things as may be necessary and reasonably required in order to further
effectuate the purposes hereof and the transactions intended to be effected by
this Agreement.
B. RELEASE.
1. In return for the Consideration, Claimant, on behalf of itself, its
agents, servants, attorneys, accountants, representatives, heirs and assigns,
hereby fully releases and discharges Miramar, Unapix, and their respective
parents, subsidiaries or affiliated companies, the successors and assigns,
agents, servants, attorneys, directors, shareholders, officers, accountants and
representatives of each of Miramar, Unapix and their respective parents,
subsidiaries and affiliated companies (collectively, "Related Parties"), from
all suits, debts, liens, liabilities, claims, demands, losses including without
limitation any claims for attorneys' fees and costs and expenses of any nature
whatsoever, known or unknown, fixed or contingent which Claimant now has,
whether or not such matter is contingent or matured, or may hereafter have,
against Miramar, Unapix or the Related Parties, from the beginning of the world
to the day and date of this Agreement relating in any way to the Claims. This
release does not in any way affect the matters set forth in Schedule B.
2. Miramar hereby releases Claimant from any and all obligations of
Claimant to submit to, and renounces all rights of Miramar with respect to any,
audit of the books and records of Claimant as provided for in the Settlement
Agreement described in Schedule A hereto for any claim or right created and
accrued for the first time prior to January 1, 1997.
3
<PAGE>
C. REPRESENTATIONS AND AGREEMENTS OF CLAIMANT.
1. Claimant represents and warrants that there has not been any assignment
or other transfer of, nor shall it assign or transfer after the date hereof, any
interest in the Claims, and Claimant agrees to indemnify and hold Miramar,
Unapix and their respective Related Parties harmless from any liability, in
connection with or arising out of the Claims (including, without limitation,
attorneys' fees) incurred by Miramar, Unapix or their respective Related Parties
as a result of any other person asserting any claims or rights arising from any
assignment or transfer of the Claims or any rights relating thereto.
2. Except as expressly provided in Section F.3 below, Claimant agrees that
if it commences, joins in, or in any manner seeks relief through any suit
arising out of, based upon, or relating to any of the Claims, then Claimant
shall pay to Miramar, Unapix and the Related Parties, in addition to any other
damages caused to Miramar, Unapix and the Related Parties, all attorneys' fees
incurred by Miramar, Unapix and the Related Parties in defending or otherwise
responding to such suit or claim.
3. The releases contained in this Agreement shall act as releases of
future claims (other than as expressly and specifically set forth on Schedule
"B" attached hereto) which may arise from transactions, disputes, or differences
prior to the date hereof whether such Claims are currently known, foreseen or
unforeseen, patent or latent. Claimant understands and acknowledges the
significant consequences of such waiver and hereby assumes full responsibility
for any injuries, damages, losses, or liabilities it may hereafter incur from
the Claims and the transactions, circumstances, and actions relating in any way,
or giving rise to the Claims.
4. Claimant represents and warrants that Claimant is not aware of any
other claims, suits, debts, liens, liabilities, demands or losses of any nature
whatsoever which may be asserted by any affiliate of Claimant (including,
without limitation, any employee, officers, director or owner or other affiliate
of Claimant) against Miramar.
D. UNAPIX'S AGREEMENT TO UNDERTAKE REGISTRATION.
1. Unapix will (a) prepare and file, within six months of the execution of
this Agreement, under the Securities Act of 1933, as amended (the "Act"), a
registration statement relating to the resale of the Shares (the term
"registration statement" as used herein being deemed to include any form which
may be used to register a distribution of securities to the public for cash);
(b) prepare and file with the appropriate state blue sky authorities the
necessary documents to register or qualify the Shares in certain states, if any
is required; and (c) use reasonably diligent efforts to cause such registration
statement to become effective and to keep such registration statement and state
blue sky filings, if any, current and effective for a period of two years.
2. All expenses associated with the preparing and filing of such
registration statement (and any registration or qualification under the blue sky
laws of the states in which the offering will
4
<PAGE>
be made under the registration statement) shall be borne in full by Unapix,
except that the underwriting commissions, discounts and expenses attributable to
the Shares so registered and the fees and disbursements of counsel, if any, to
the Claimant shall be borne by the Claimant. Unapix may include other securities
in any such registration statement.
3. Claimant agrees to complete, execute and deliver all such documents and
undertakings as Unapix may deem necessary or desirable for purposes of
compliance with applicable federal and state securities laws. Claimant agrees to
be responsible for the veracity and comprehensiveness of all information
supplied to Unapix in connection with the registration statement. Unapix's
obligations, set forth in Section D. 1 above, are contingent on Claimant's
satisfaction of its obligations set forth herein.
4. Claimant further acknowledges and agrees that the Certificate
evidencing the Shares will bear a legend substantially as follows:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE (OR ANY SECURITIES
FOR WHICH SUCH SECURITIES ARE EXERCISABLE) HAVE BEEN ACQUIRED BY THE HOLDER
SOLELY FOR HIS OWN ACCOUNT FOR THE PURPOSE OF INVESTMENT AND NOT WITH A VIEW TO,
OR FOR SALE IN CONNECTION WITH ANY DISTRIBUTION OF ANY SUCH SECURITIES. THE
SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR STATE SECURITIES LAWS AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE
TRANSFERRED WITHOUT REGISTRATION UNDER THE ACT OR AN EXCEPTION THEREFROM AS
EVIDENCED BY A WRITTEN OPINION OF LEGAL COUNSEL FOR UNAPIX ENTERTAINMENT, INC.
5. Claimant acknowledges that Unapix has delivered to Claimant copies of
its Annual Report on Form 10-KSB for the year ended December 31, 1995, its Proxy
Statement for its 1996 Annual Meeting of Stockholders and its Quarterly Report
on Form 10-QSB for the Quarterly Period ended September 30, 1996 and Prospectus
dated February 16, 1996 (collectively, the "Disclosure Documents").
6. Claimant acknowledges, represents and agrees as follows:
(a) Claimant acknowledges that Claimant has been afforded the
opportunity to obtain any information necessary to verify the accuracy of any
information set forth in the Disclosure Documents and has had all of Claimant's
inquiries to Unapix answered in full, and has been furnished all requested
materials relating to Unapix and the sale of the Shares.
(b) Claimant acknowledges and represents that Claimant has not been
furnished any literature about Unapix other than as set forth in the Disclosure
Documents.
5
<PAGE>
(c) Claimant acknowledges and represents Claimant is acquiring the
Shares as principal for Claimant's own investment account, and not (i) with a
view to the resale or distribution of all or any part of such Shares, or (ii) on
behalf of another person who has not made the foregoing representation,
(d) Claimant has evaluated the risks of investing in Unapix and has
substantial knowledge concerning, and experience in making investment decisions
of this type.
(e) Claimant has knowledge and experience in financial and business
matters and is capable of evaluating the merits and risk of the perspective
investment and the undersigned understands the fundamental aspects of and risks
involved in an investment in Unapix's Shares, including (1) the speculative
nature of the investment, (2) the financial hazards involved, including the risk
of losing the entire investment, (3) the lack of liquidity and the restrictions
on the transferability of the Shares, and (4) the inherent risks relating to the
business of Unapix.
E. CONDITION PRECEDENT TO THE OBLIGATIONS AND RELEASE CONTAINED HEREIN .
1. The obligations of Unapix, Miramar, and Claimant contained herein, are
expressly subject to and contingent upon the consummation of the Acquisition.
2. Unapix shall have no liability whatsoever for the failure to complete
the Acquisition and accordingly for the failure to consummate the transactions
contemplated hereby and, if the Acquisition is not consummated for any reason
whatsoever, Claimant hereby waives any claim and releases Unapix of any
liability whatsoever hereunder of any nature for damages matured or contingent
that may arise or be in any way connected with this Agreement or the Claims.
F. MISCELLANEOUS.
1. This Agreement is an integral part of a compromise of the Claims,
disputes and differences between the parties and shall not be treated for any
purpose as an admission of liability by any of the parties hereto or as an
admission of the truthfulness of any of the allegations asserted by either
party.
2. This Agreement shall inure to the benefit of, and may be enforced by,
the successors or assigns and other personal representatives of each of the
parties hereto.
3. In the event a suit is brought by any party hereto to enforce the terms
described in this Settlement Agreement and Release, or any controversy arising
therefrom, the prevailing party shall be entitled to costs and reasonable
attorneys' fees.
4. Claimant acknowledges and represents, he has full power and authority
to enter into this Agreement and to complete the transactions contemplated
hereby.
5. This Agreement is made under and shall be construed and enforced in
accordance with the laws of the State of Washington without giving effect to
conflict of law principles.
6
<PAGE>
6. This Agreement contains the entire agreement between the parties hereto
relative to the subject matter hereof. Without limiting the generality of the
foregoing, except as expressly and specifically set forth in Schedule B. hereof,
this Agreement supersedes the Settlement Agreement dated January 1, 1996 between
Claimant and Miramar. No waiver or modification of this Agreement shall be valid
unless in writing and duly executed by both parties.
7. If any provision of this Agreement shall be held unenforceable to any
extent, the remainder of this Agreement shall not be effected thereby and shall
be enforced to the fullest extent permitted by law.
8. In the event the Acquisition is not consummated by March 31, 1997 this
Agreement shall be void and of no further force or effect.
9. Miramar and Unapix agree not to distribute or license Computer
Animation Festival Vols. 1 and 2 outside of the United States of America and
Canada.
Dated: March 17, 1997 MIRAMAR IMAGES, INC.
/s/ G. Paul Sullivan
-------------------------------
By: G. Paul Sullivan, President
UNAPIX ENTERTAINMENT, INC.,
a Delaware Corporation
By: /s/ David M. Fox
---------------------------
Name: David M. Fox
Title: President & CEO
CLAIMANT:
_______________________________
Dated: March 17, 1997 Steve Churchill (including Steve Churchill
d/b/a Odyssey Productions and Odyssey
Visual Design)
7
<PAGE>
6. This Agreement contains the entire agreement between the parties hereto
relative to the subject matter hereof. Without limiting the generality of the
foregoing, except as expressly and specifically set forth in Schedule B. hereof,
this Agreement supersedes the Settlement Agreement dated January 1, 1996 between
Claimant and Miramar. No waiver or modification of this Agreement shall be valid
unless in writing and duly executed by both parties.
7. If any provision of this Agreement shall be held unenforceable to any
extent, the remainder of this Agreement shall not be effected thereby and shall
be enforced to the fullest extent permitted by law.
8. In the event the Acquisition is not consummated by March 31, 1997 this
Agreement shall be void and of no further force or effect.
9. Miramar and Unapix agree not to distribute or license Computer
Animation Festival Vols. 1 and 2 outside of the United States of America and
Canada.
Dated: March 17, 1997 MIRAMAR IMAGES, INC.
_______________________________
By: G. Paul Sullivan, President
UNAPIX ENTERTAINMENT, INC.,
a Delaware Corporation
By: ___________________________
Name:
Title:
CLAIMANT:
/s/ Steve Churchill
-------------------------------
Dated: March 17, 1997 Steve Churchill (including Steve Churchill
d/b/a Odyssey Productions and Odyssey
Visual Design)
7
<PAGE>
SCHEDULE A
Included Claims
All claims and rights to works or any part utilized by Miramar up to the
date of this Settlement and Release Agreement including, without limitation:
(a) Video Releases: Computer Animation Festival Volume One and Computer
Animation Festival Volume Two Licensor: Steve Churchill d/b/a
Odyssey Visual Design
(b) Video: The Mind's Eye, Gate to the Mind's Eye, Beyond the Mind's
Eye, Imaginaria, Natural Selections, Computer Animation Festival
Volume One, Computer Animation Festival Volume Two, Virtual Nature
(c) Claims pursuant to the audit conducted, by Claimant, of the 1994 and
1995 royalties and pursuant to any and all audits or rights to audit
royalty payments due from royalties accrued prior to December 31,
1996, whether or not arising from or pursuant to the Settlement
Agreement by and between Steven Churchill d/b/a Odyssey Visual
Design and Miramar Images, Inc. d/b/a Miramar Productions dated
January 1, 1996
(d) All claims not addressed, specifically or generally, in the
Settlement Agreements referred to in item (c) above.
8
<PAGE>
SCHEDULE B
Excluded Claims
Royalties due and owing from January 1, 1997 forward pursuant to the
written Settlement Agreement referred to below.
All rights and obligations of both parties arising out of, or pursuant to,
the Settlement Agreement dated January 1, 1996 by and between Steven Churchill
d/b/a Odyssey Visual Design and Miramar Images, Inc. d/b/a Miramar Productions
except (x) any rights or obligations under Sections 6 and 8 of each Settlement
Agreement; and (y) any fees or royalties payable by Miramar to Claimant pursuant
to Section 7 thereof which have accrued as a result of sales or licensing
revenue received by Miramar prior to January 1, 1997.
Any other type of claim or right created and accrued for the first time
after the date of this Agreement.
9
<PAGE>
STATE OF California )
) SS.
COUNTY OF San Diego )
BE IT REMEMBERED, that on this 17 day of March, 1997, before me the
subscriber, Steve Churchill, the, President of, Claimant, who I am satisfied, is
the person named in and who executed the within Instrument and I acknowledged
that he signed, sealed and delivered the same for the uses and purposes therein
expressed.
/s/ Susan A. Sczyrbowski
-------------------------------
[SEAL OF CALIFORNIA]
SUSAN A. SCZYRBOWSKI
COMM. #1090031
Notary Public - California
SAN DIEGO COUNTY
My Comm. Exp. Mar. 13, 2000
STATE OF _____________ )
) SS.
COUNTY OF )
BE IT REMEMBERED, that on this ___ day of __________, 199__, before me the
subscriber, _________________________________, the, _______________ of, Unapix
Entertainment, Inc., who I am satisfied, is the person named in and who executed
the within Instrument and I acknowledged that he signed, sealed and delivered
the same for the uses and purposes therein expressed.
_______________________________
STATE OF _____________ )
) SS.
COUNTY OF )
BE IT REMEMBERED, that on this ___ day of __________, 199__, before me the
subscriber, _________________________________, the, _______________ of, Miramar
Images, Inc., who I am satisfied, is the person named in and who executed the
within Instrument and I acknowledged that he signed, sealed and delivered the
same for the uses and purposes therein expressed.
_______________________________
10
ASSIGNMENT AGREEMENT
Agreement, dated as of March 17, 1997, (the "Agreement") by and between
Unapix Entertainment, Inc., a Delaware corporation, with offices at 200 Madison
Avenue, New York, New York 10016 ("Unapix"), and Charles E. Walsh, an individual
residing at 12000 NE 8th Street, Suite 201, Bellevue, WA ("Walsh").
R E C I T A L S
1. Between February and August of 1996 Miramar Images, Inc., a Washington
corporation ("Miramar"), borrowed, for working capital and other purposes, a
total of $520,000 from Walsh pursuant to a series of promissory notes, the
originally executed versions of which are attached to the Assignment (defined
below) (collectively, the "Notes") having as the signatories Miramar, G. Paul
Sullivan, in his individual capacity and Kevin J. Garrison, in his individual
capacity, (collectively, the "Signatories").
2. Unapix has reached an agreement in principle to acquire all of the
capital stock of Miramar (the "Acquisition").
3. On the date of the closing of the Acquisition (said date referred to as
the "Closing Date" and said event being referred to herein as the "Closing")
Walsh agrees to sell and assign the Notes (as well as any other interest he may
have in any other indebtedness of Miramar) to Unapix subject to the terms and
conditions set forth herein.
4. Unapix further desires to purchase pursuant to this Agreement, any
other claims that Walsh may now, or hereafter have, against Miramar, the
Signatories any other principals, officers, directors, shareholders of Miramar,
agents or representatives of Miramar (the "Related Partners"), arising in
connection with the Notes and/or any other transactions by and between Walsh,
Miramar, G. Paul Sullivan, Kevin J. Garrison, and any other shareholder officer,
director, principal, agent or representative of Miramar prior to the Closing,
including, without limitation, claims, suits, charges, causes of action, in
connection with or in any way arising out of the Notes or any event of default
thereunder or other loans, or any agreement to sell equity interests to Walsh
(collectively, all such claims, including the Notes and the indebtedness
evidenced thereby the "Claims") subject to the terms and conditions contained
herein.
NOW, THEREFORE, it is agreed as follows:
1. Walsh hereby agrees to sell and assign to Unapix all Claims for the
consideration provided by Unapix in the Pooled Consideration Agreement of even
date herewith by and among
<PAGE>
Walsh, Unapix and the other parties thereto (as amended from time to time in
writing, the "Consideration Agreement"). The shares of Unapix's Common Stock
delivered pursuant to the Consideration Agreement shall be hereinafter referred
to as the "Shares".
2. Unapix shall, as soon as practicable, and in any event within six
months of the Closing Date, use its best efforts to (i) (a) prepare and file
under the Securities Act of 1933, as amended (the "Act"), a registration
statement relating to the resale of the Shares (the term "registration
statement" as used herein being deemed to include any form which may be used to
register a distribution of securities to the public for cash); (b) prepare and
file with the appropriate state blue sky authorities the necessary documents to
register or qualify the Shares in such states as may be reasonably requested by
Walsh, if any is required; and (c) use reasonably diligent efforts to cause such
registration statement to become effective and to keep such registration
statement and state blue sky filings, if any, current and effective for a period
of two years.
3. All expenses in connection with preparing and filing of any
registration statement (and any registration or qualification under the blue sky
laws of the states in which the offering will be made under such registration
statement) shall be borne in full by Unapix, except that the underwriting
commissions, discounts and expenses attributable to the Shares so registered and
the fees and disbursements of counsel, if any, for Walsh shall be borne by
Walsh. Unapix may include other securities in any such registration statement.
4. Unapix shall indemnify Walsh against any and all losses, claims,
damages, expenses and liabilities caused by any untrue statement of a material
fact contained in such registration statement or contained in a prospectus
furnished under the Act or caused by any omission to state a material fact
therein necessary to make the statements therein not misleading, insofar as such
losses, claims, damages, expenses and liabilities are not caused by such untrue
statement or omission based upon information furnished in writing to Unapix by
Walsh or any of his attorneys, accountants or other agents and expressly
designated for use in such registration statement or prospectus. ("Walsh
Supplied Information"). Walsh shall indemnify Unapix and each person who
controls Unapix within the meaning of Section 15 of the Act, from and against
any and all losses, claims, damages, expenses and liabilities caused any untrue
statement of a material fact in such registration statement or prospectus or
caused by any omission to state a material fact therein necessary to make the
statements therein not misleading, insofar as such losses, claims, damages,
expenses and liabilities are caused by an untrue statement or omission in the
Walsh Supplied Information.
5. Walsh acknowledges and agrees:
(a) that there can be no assurance when or if such registration
statement or blue sky filing will be declared effective. Walsh hereby agrees to
complete, execute and deliver all such documents and undertakings as Unapix may
deem necessary or desirable for purposes of compliance with applicable Federal
and state securities laws. Unapix's obligations set forth in Section 2 are
contingent on Walsh's satisfaction of his obligations set forth herein; and
2
<PAGE>
(b) that until such Shares are registered they are subject to
certain limitations imposed by state and federal law and Walsh will be subject
to such restrictions concerning transfer with regard to the shares; and
(c) Walsh further acknowledges and agrees that the Shares will be
subject to the following restrictions which may appear on each Stock
Certificate:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE (OR ANY SECURITIES
FOR WHICH SUCH SECURITIES ARE EXERCISABLE) HAVE BEEN ACQUIRED BY THE HOLDER
SOLELY FOR HIS OWN ACCOUNT FOR THE PURPOSE OF INVESTMENT AND NOT WITH A VIEW TO
OR FOR SALE IN CONNECTION WITH ANY DISTRIBUTION OF ANY SUCH SECURITIES. THE
SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR STATE SECURITIES LAWS AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE
TRANSFERRED WITHOUT REGISTRATION UNDER THE ACT OR AN EXCEPTION THEREFROM AS
EVIDENCED BY A WRITTEN OPINION OF LEGAL COUNSEL FOR THE COMPANY; and
(d) the sale, assignment, transfer, pledge, encumbrance, or other
disposition of the shares, or any interest in such securities, are further
restricted by the terms and conditions of this Agreement and the Consideration
Agreement.
(e) the Shares will be deposited, maintained, liquidated and
disbursed pursuant to the terms and conditions set forth in the Consideration
Agreement.
6. Walsh acknowledges that Unapix has delivered to him copies of its
Annual Report on Form 10-KSB for the year ended December 31, 1995, its Proxy
Statement for its 1996 Annual Meeting of Stockholders, and its Quarterly Report
on Form 10-QSB for the Quarterly Period ended September 30, 1996 (collectively,
the "Disclosure Documents").
7. Walsh hereby represents, warrants and agrees as follows:
(a) He has been afforded the opportunity to obtain any information
necessary to verify the accuracy of any information set forth in the Disclosure
Documents and has had all of his inquiries to Unapix answered in full, and has
been furnished all requested materials relating to Unapix and the sale of the
Shares;
(b) Walsh has not been furnished any literature about Unapix
other than the Disclosure Documents;
(c) Walsh is acquiring the Shares as principal for his own
investment account, and not (i) with a view to the resale or distribution of all
or any part of such Shares, or (ii) on behalf of another person who has not made
the foregoing representation;
3
<PAGE>
(d) Walsh is an accredited investor, as defined in Rule 501(a) of
Regulation D promulgated pursuant to the Act, by virtue of the fact that he
either: (i) had individual income (exclusive of any income attributable to his
spouse) of more than $200,000 in each of the most recent two years or joint
income with his spouse in excess of $300,000 and reasonably expects to have
income of at least the same level for the current year; or (ii) has an
individual net worth, or a combined net worth with his spouse, in excess of
$1,000,000. For purposes of this paragraph, "individual net worth" means the
excess of total assets at fair market value, including home and personal
property, over total liabilities;
(e) The original of each of the Notes are annexed to the assignment
thereof attached hereto as Exhibit A (the "Assignment") and this and all other
notes, written contracts or other writing which evidence the indebtedness
obligation, or binding agreement of Miramar or the Related Partners to which
Walsh is a party;
(f) He has not previously transferred or sold any of the Claims
and will not transfer or sell any of the Claims prior to the Closing;
(g) He has, and will at the Closing have, full power and authority
to enter into this Agreement and the Assignment and to complete the transactions
contemplated hereby; and
(h) The representations set forth in the Assignment are true,
correct and complete in all respects.
8. This transaction contemplated by the Agreement will be effected
simultaneously with the Closing.
9. Notwithstanding anything to the contrary contained herein, it is hereby
acknowledged and agreed that:
(a) All of Unapix's obligations contained herein are expressly
subject to and contingent upon the consummation of the Acquisition;
(b) Unapix shall have no liability whatsoever for the failure to
complete the Acquisition and accordingly for the failure to consummate the
transactions contemplated hereby and Walsh hereby waives any claim and releases
Unapix of any liability whatsoever hereunder of any nature for damages matured
or contingent, that may arise or be in any way connected with this Agreement,
the Notes or the Claims;
(c) If the Closing has not occurred before March 31, 1997 because
the Acquisition has not closed prior to that date, then this Agreement shall
cease to be of any further force or effect; and
4
<PAGE>
(d) Walsh hereby agrees to take no legal action with respect to the
Claims until the earlier of (x) March 31, 1997 and (y) the Closing.
10. This Agreement is made under and shall be construed and enforced in
accordance with the laws of the State of New York, without giving effect to
conflict of law principles.
11. This Agreement contains the entire agreement between the parties
hereto relative to the subject matter hereof. No waiver or modification of this
Agreement shall be valid unless in writing and duly executed by both parties.
12. If any provision of this Agreement shall be held unenforceable to any
extent, the remainder of this Agreement shall not be effected thereby and shall
be enforced to the fullest extent permitted by law.
13. Each of the parties hereafter shall execute and deliver such further
instruments and do such further acts and things consistent with the provisions
of this Agreement as may be required or useful to carry out the intent and
purpose of this Agreement.
14. This Agreement may be executed in any number of counterparts each of
which shall be deemed to be an original, all of which shall constitute one and
the same instrument.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have hereunder set their hands and
seals on the date of this Agreement.
UNAPIX ENTERTAINMENT, INC.
By: /s/ David M. Fox
----------------------------------------
Name David M. Fox
Title: President & CEO
/s/ Charles E. Walsh
---------------------------------------
Charles E. Walsh
<PAGE>
EXHIBIT A
ASSIGNMENT AGREEMENT
7
UNAPIX ENTERTAINMENT, INC.
200 Madison Avenue
New York, NY 10016
October 16, 1996
Strategic Growth International, Inc.
111 Great Neck Road
Great Neck, NY 11021-5402
Gentlemen:
The purpose of this letter is to set forth the understanding between
Strategic Growth International, Inc., ("SGI") and Unapix Entertainment, Inc.,
("the "Company") with respect to the Company's private placement with Highview
Capital.
The Company hereby agrees with SGI to pay or issue to SGI the following
finders fee in recognition of SGI's introducing Highview to Unapix.
(i) Cash equal to seven and a half percent (7 1/2%) of the aggregate
purchase price of Units (as defined in the private placement
memorandum) sold to Highview; and
(ii) Five-year options to purchase shares of the Company's common
stock at an exercise price of 4.50 per share at the rate of 150,000
options per $2,500,000 aggregate purchase price of Units, or portion
thereof whether less than or more than $2,500,00 is raised.
Please indicate your acknowledgement and acceptance of the foregoing in
the space below.
UNAPIX ENTERTAINMENT, INC.
BY: /s/ David Fox
-------------------------------
David Fox
ACKNOWLEDGED AND AGREED TO:
By: /s/ Stanley Altshuler, President
------------------------------------
Strategic Growth International, Inc.
ELLIOT SAY BUILDING
OFFICE LEASE
THIS lease, made the 24 day of December 1992, by and between TRP General
Partnership, whose address is 619 north 35 St., Suite 311, Seattle, Washington,
98103, hereinafter referred to as "Lessor" and Miramar Images Inc. A Washington
Corporation, whose address is 200 Second Avenue West, Seattle, Washington 98119,
hereinafter referred to as "Lessee."
1. DESCRIPTION, Lessor in consideration of the agreements contained in
this lease, does hereby lease to Lessee, upon the terms and conditions
hereinafter set forth, that certain space consisting of approximately 6978
rentable square feet (hereinafter referred to as "Premises") situated in the
building (along with the parking spaces in the buildings parking lot known as
#7, 8, 9, 10, 11, 13-14, 15-16, 17, 20, 21 ,22, 23) at 200 Second Avenue West,
City of Seattle, State of Washington 98119. The legal description of which is:
LOTS 7 AND 8, BLOCK 17, D. T. DENNY'S WATERFRONT ADDITION TO THE CITY OF
SEATTLE, ACCORDING TO THE PLAT RECORDED IN VOLUME 2 OF PLATS, PAGE 61, IN KING
COUNTY, WASHINGTON, EXCEPT THAT PORTION OF LOT 7. TAKEN FOR PUBLIC ROADWAY IN
KING COUNTY SUPERIOR COURT CAUSE NO. 78943.
2. TERM, The term of this lease shall be from the first day of February,
1993 until the 31 day of January, 1998. The Lessee has the option to renew this
lease for the next succeeding five year term, subject to the same terms and
conditions contained herein and with the beginning rent to be the monthly rental
rate at the expiration of this lease (1\31\1998) with an adjustment for CPI. To
exercise this option tenant must notify the lessor in writing not less than 8
months prior to the expiration date of the current lease.
3. RENT, Lessee covenants and agrees to pay Lessor rent, and a pro-rated
charge for taxes, insurance, utilities including but not limited to, water,
sewer, garbage, gas, electricity, heat and cooling system
<PAGE>
maintenance contract, janitorial services and or cleaning costs and building
supplies, each month in advance on the first day of each calendar month. Rent
shall be adjusted as follows:
A. From February 1 1993 rent shall be $5490 per month.
B. Lessee agrees to pay pro-rated charges for taxes, insurance, utilities
including but not limited to, water, sewer, garbage, gas, electricity, heat and
cooling system maintenance, janitorial services and or cleaning costs and
building supplies. These charges will be based on the relative percentage of:
(1) net rentable square feet in the building as compared to (2) the rentable
square feet occupied by the lessee. There are approximately 9968 net rentable
square feet in the subject building.
D. Beginning February 1,1994 the annual rental rate will be adjusted by
taking the monthly rent amount of $5490 and by changing it by the % that the
revised Consumer Price Index (CPI) has changed for all urban consumers as
published by the US Department of labor for the Seattle-Everett Metropolitan
area for the closest period measured prior to the anniversary date of the lease
(February 1, 1994), but in no event will the monthly rent be less than $5490.
Nor will the annual increase exceed 7.5 percent. There after the annual rental
rate will be adjusted by changing the prior years rental rate by the % that the
revised Consumer Price Index (CPI) has changed for all urban consumers as
published by the US Department of labor for the Seattle-Everett Metropolitan
area for the closest period measured prior to the anniversary date of the lease.
In no event will the monthly rent be less than $5490. Nor will the annual
increase exceed 7.5 percent any time in the first five years of the lease.
Should the tenant choose to exercise their option to renew this lease, the (CPI)
annual increase limit of 7.5% no longer applies after renewal of the lease.
E. The lessor agrees to pay up to twenty five thousand dollars ($25,000)
for remodeling of the space as outlined by Scott Huntleys plans. The final plans
and costs all subject to lessor approval. These costs will be charged back to
the Lessee through increased lease payments starting no later than March 1,
1993. These payments will amortize the costs over five years, at an interest
rate of ten percent per year. Final plans and costs have been approved and are
Attached hereto.
4. Lessee reserves the right of first refusal on the space currently
leased to Aids Impact in eighteen months from the inception date of this lease
(2/1/1993). If lessee wishes to lease that space, than lessee must give written
notice to lessor at least ninety days prior to July 31 1994. The space would be
rented at the rate that Aids Impact is paying when
<PAGE>
Lessee exercises the right of first refusal and subject to annual adjustment for
CPI as discussed above in section "D". In the event that Aids is no longer
renting the space the rental rate will be the current market rate and subject to
annual adjustments for CPI as discussed above in section "D". The term for this
added space shall be coterminous with the term of this lease and subject to all
terms and conditions of this lease.
Lessee further reserves the right of first refusal to additional parking
as it becomes available in the building parking lot, and lessor grants this at
$65 per space, subject to annual adjustments for CPI as discussed above, in
section "D". Parking spaces will only be considered available at lessors option
as parking will generally go with leasable space.
5. CONSIDERATION, As consideration for the execution of this lease, should
the lessee exercise the extension of this lease, Lessee will pay to Lessor the
sum of $5490, payment of which will begin 4/1/98 and will continue over the
following 12 months at a rate of $457.50 per month. In the event Lessee fully
complies with all the terms and conditions of this lease, but not otherwise, an
amount equal to such sum shall be credited on the last month's rental on the
term of this lease.
6. USES, Lessee agrees that Lessee will use and occupy said Premises for
general offices and related purposes and for no other purposes.
7. RULES AND REGULATIONS, Lessee and their agents, employees, servants or
those claiming under Lessee will at all times observe, perform and abide by all
of the Rules and Regulations printed on this instrument, or which may be
hereafter promulgated by Lessor, all of which it is covenanted and agreed by the
parties hereto shall be and are hereby made a part of this lease.
8. CARE AND SURRENDER OF PREMISES, Lessee shall take good care of the
Premises and shall promptly make all necessary repairs except those required
herein to be made by Lessor. At the expiration or sooner termination of this
lease, Lessee, without notice, will immediately and peacefully quit and
surrender the Premises in good order, condition and repair (damage by reasonable
wear, the elements or fire excepted).
<PAGE>
9. ALTERATION, Lessee shall not make any alterations or improvements in,
or additions to said Premises without first obtaining the written consent of
Lessor. All such alterations, additions and improvements shall be at the sole
cost and expense of Lessee and shall become the property of Lessor and shall
remain in and be surrendered with the Premises as a part thereof at the
termination of this lease, without disturbance, molestation or injury.
10. RESTRICTIONS, Lessee will not use or permit to be used in said
Premises anything that will increase the rate of insurance on said building or
any part thereof, nor anything that may be dangerous to life or limb; nor in any
manner deface or injure said building or any part thereof; nor overload any
floor or part thereof; nor permit any objectionable noise or odor to escape or
to be emitted from said Premises, or do anything or permit anything to be done
upon said Premises in any way tending to create a nuisance or to disturb any
other tenant or occupant of any part of sold building. Lessee, at Lessee's
expense, will comply with all health, fire and police regulations respecting
said Premises. The Premises shall not be used for lodging or sleeping, and no
animals or birds will be allowed in the building.
11. WEIGHT RESTRICTIONS, Safes, furniture or bulky articles may be moved
in or out of said Premises only at such hours and in such manner as will least
inconvenience other tenants, which hours and manner shall be at the discretion
of Lessor. No safe or other article of over 2,000 pounds shall be moved into
said Premises without the consent of Lessor, and Lessor shall have the right to
locate the position of any article of weight in said Premises if Lessor so
desires.
12. SIGN RESTRICTION, No sign, picture, advertisement or notice shall be
displayed, inscribed, painted or affixed to any of the glass or woodwork of the
building without the prior approval of Lessor
I3. LOCKS. No additional locks shall be placed upon any doors of the
Premises. Keys will be furnished to each door lock. At the termination of the
lease, Lessee shall surrender all keys to the Premises whether paid for or not.
Lessor will have installed a security system beam at the head of, or near the
main stair area. Lessee will pay for any central station or other monitoring
service and or other related
<PAGE>
maintenance of a security system.
14. KEY, Lessor, his janitor, engineer or other agents may retain a pass
key to said Premises to enable each to examine the Premises from time to time
with reference to any emergency or to the general maintenance of said Premises.
15. TELEPHONE SERVICE. If Lessee desires telephonic or any other electric
connection, Lessor will direct the electricians as to where and how the wires
are to be introduced, and without such directions no boring or cutting for wires
in installation thereof will be permitted.
16. SERVICES. Lessor shall maintain Premises and the public and common
areas of building, such as lobbies, stairs, corridor and restrooms, in
reasonably good order and condition except for damage occasioned by the act of
Lessee.
Lessor shall furnish Premises with electricity for lighting and operation
of low power usage of ice machines, heat, and normal office air-conditioning.
Air-conditioning units and electricity there for special air-conditioning
requirements, such as for computer centers, shall be at Lessee's expense. Lessor
shall also provide toilet room supplies, exterior window washing with reasonable
frequency, and customary janitor service.
Lessor shall not be liable to Lessee for any loss or damage caused by or
resulting from any variation, interruption or any failure of said services due
to any cause whatsoever unless due to willful or negligent conduct by lessor No
temporary interruption or failure of such services incident to the making of
repairs, alterations, or improvements, or, due to accident or strike or
conditions or events not under Lessor's control shall be deemed as an eviction
of Lessee or relieve Lessee from any of Lessee's obligations hereunder.
In the event of any lack of attention on the part of Lessor and any
dissatisfaction with the service of the building, or any unreasonable annoyance
of any kind, Lessee is requested to make complaints at Lessors building office
and not to Lessors employees or agents seen within the building. Lessee is
further requested to remember that Lessor is as anxious as Lessee that a high
grade service be maintained, and that the
<PAGE>
Premises be kept in a state to enable Lessee to transact business with the
greatest possible ease and comfort. The rules and regulations are not made to
unnecessarily restrict Lessee, but to enable Lessor to operate the building to
the best advantage of both parties hereto. To this end Lessor shall have the
right to waive from time to time such part or parts of these rules and
regulations as in his judgment may not be necessary for the proper maintenance
or operation of the building or consistent with good service, and may from time
to time make such further reasonable rules and regulations as in his judgment
may be needed for the safety, care and cleanliness of the Premises and the
building and for the preservation of order therein.
17. ASSIGNMENT, Lessee will not assign this lease, or any interest
hereunder, and this lease, or any interest hereunder, shall not be assigned by
operation of law. Lessee will not sublet said Premises or any part thereof and
will not permit the use of said Premises by others other than Lessee and the
agents of Lessee without first obtaining the written consent of Lessor, Lessor
will not unreasonably withhold written consent. In the event such written
consent shall be given, no other or subsequent assignment or subletting shall be
made without the previous written consent of Lessor.
16. ADDITIONAL TAXES OR ASSESSMENTS, Should there presently be in effect
or should there be enacted during the term of this lease, any law, statute or
ordinance levying any assessment or any tax upon rents or the income from real
estate or rental property (other than federal or state income taxes), Lessee
shall reimburse Lessor for Lessee's proportionate share of said expenses at the
same time as rental payments.
19. LATE PAYMENTS, Any payment, required to be made pursuant to this
lease, not made on the date the some is due shall bear interest at a rate equal
to three percent (3%) above the prime rate of interest charged from time to time
by Seafirst National Bank, or its successor.
Rent shall be invoiced 30 days in advance of due date if after receiving
said invoice and in addition to any interest charged herein, a late charge of
five percent (5%) of the payment amount shall be incurred for payments received
more than ten (10) days late.
<PAGE>
20. INSURANCE RISK, All personal property of any kind or description
whatsoever in the demised Premises shall be at Lessee's sole risk. Lessor shall
not be liable for any damage done to or loss of such personal property or damage
or loss suffered by the business or occupation of the Lessee arising from any
acts or neglect of co-tenants or other occupants of the building, or of Lessor
or the employees of Lessor, or of any other persons, or from bursting,
overflowing or leaking of water, sewer or steam pipes, or from the heating or
plumbing or sprinklering fixtures, or from electric wires, or from gas, or
odors, or caused in any other manner whatsoever except in the case of negligence
on the part of Lessor.
Lessee shall keep in force throughout the term of this lease such
casualty, general liability and business interruption insurance as a prudent
tenant occupying and using the Premises would keep in force. Lessee agrees to
provide one million dollars, ($1,000,00) general liability insurance and name
the lessor as additional insured.
21. INDEMNIFICATION, Lessee will defend, indemnify end hold harmless
Lessor from any claim, liability or suit including attorney's fees on behalf of
any person, persons, corporations and/or firm for any injuries or damages
occurring in or about the said Premises or on or about the sidewalk, stairs, or
thoroughfares adjacent thereto where and to the extent said damages or injury
was caused or partially caused by the ordinary or gross negligence or
intentional act of Lessee and/or by Lessee's agents, employees, servants,
customers or clients.
22. WAIVER OF SUBROGATION, Lessee and Lessor do hereby release and relieve
the other, and waive their entire claim of recovery for loss, damage, injury,
and all liability of every kind and nature which may arise out of, or be
incident to, fire and extended coverage perils, in, on, or about the Premises
herein described, whether due to negligence of either of said parties, their
agents, or employees, or otherwise, provided that this paragraph shall be deemed
inapplicable if it would have the effect of, but only to the extent that it
would have the effect, of invalidating any insurance coverage of lessor or
lessee.
23. SUBORDINATION, This lease and all interest and estate of Lessee
hereunder is subject to and is hereby subordinated to all present and future
mortgages and deeds of trust affecting the Premises or the property of which
said Premises are a part. Lessee agrees to execute at
<PAGE>
no expense to the Lessor, any instrument which may be deemed necessary or
desirable by the Lessor to further effect the subordination of this lease to any
such mortgage or deed of trust. In the event of a sale or assignment of Lessor
interest in the Premises, or in the event of any proceedings brought for the
foreclosure of, or in the event of exercise of the power of sale under any
mortgage or deed of trust made by Lessor covering the Premises, Lessee shall
recognize such purchaser as Lessor. Lessee agrees to execute, at no expense to
Lessor, any Estonia certificate deemed necessary or desirable by Lessor to
further effect the provisions of this paragraph. Lessee further agrees to
provide complete financial information including detailed financial statements
and tax returns for the most recent two calendar years, in the event the lessor
needs them for building financing or sale.
24. CASUALTY, In the event the leased Premises or the said building is
destroyed or injured by fire, earthquake or other casualty to the extent that
they are untenanted in whole or in part, then Lessor may, at Lessor's option,
proceed with reasonable diligence to rebuild and restore the said Premises or
such part thereof as may be injured as aforesaid, provided that within sixty
(60) days after such destruction or injury Lessor will notify Lessee of Lessor's
intention to do so, and during the period of such rebuilding and restoration the
rent shall be abated on the portion of the Premises that is unfit for occupancy.
If necessary, Lessor will provide access to any needed alternative space for
Lessee at the fair market rate if space is available in the building..
25. INSOLVENCY, If Lessee becomes insolvent, or makes an assignment for
the benefit of creditors, or a receiver is appointed for the business or
property of Lessee, or a petition is filed in a court of competent jurisdiction
to have Lessee adjudged bankrupt, then Lessor may at Lessors option terminate
this lease. Said termination shall reserve unto Lessor all of the rights and
remedies available under Paragraph 28 ("Default") hereof, and Lessor may accept
rents from such assignee or receiver without waiving or forfeiting said right of
termination. As an alternative to exercising his right to terminate this lease,
Lessor may require Lessee to provide adequate assurances, including the posting
of a cash bond, of Lessee's ability to perform its obligations under this lease.
26. DEFAULT, If any rent is in arrears for a period of ten (10) days, or
if this lease is terminated in accordance with any of the terms herein
<PAGE>
(with the exception of Paragraph 25), or if Lessee shall fail at any time to
keep or perform any of the covenants or conditions of this lease, and lessee
fails to cure any such default within twenty days of written notice thereof by
lessor then, and in either or any of such events Lessor may, at Lessor's option,
enter into and repossess said Premises and expel the Lessee and all those
claiming under Lessee. In such event Lessor may eject and remove from said
Premises all goods and effects (forcibly if necessary) without being deemed
guilty of trespass and/or without prejudicing any remedy or remedies which might
otherwise be used by Lessor for arrearages or preceding breach of covenant or
condition of this lease. Upon entry as aforesaid, this lease if not otherwise
terminated shall immediately cease and terminate. The termination of this lease
pursuant to this Article shall not relieve Lessee of its obligations to make the
payments required herein. In the event this lease is terminated pursuant to this
Article, or if Lessor enters the Premises without terminating this lease and
Lessor relets all or a portion of the Premises, Lessee shall be liable to Lessor
for all the costs of reletting, including necessary renovation and alteration of
the leased Premises. Lessee shall also be further liable for the remainder of
the term of this lease for any deficiency between the net amounts received
following reletting and the gross amounts due from Lessee.
27. BINDING EFFECT, The parties hereto further agree with each other that
each of the provisions of this lease shall extend to and shall, as the case may
require, bind and inure to the benefit, not only of Lessor and Lessee, but also
of their respective heirs, legal representatives, successors and assigns,
subject, however, to the provisions of Paragraph 15 of this lease.
It is also understood end agreed that the terms "Lessor" and "Lessee" and
verbs and pronouns in the singular number are uniformly used throughout this
lease regardless of gender, number or fact of incorporation of the parties
hereto. The typewritten riders or supplemental provisions, if any, attached or
added hereto are made a part of this lease by reference. It is further mutually
agreed that no waiver by Lessor of a breach by Lessee of any covenant. Or
condition of this lease shell be construed to be a waiver of any subsequent
breach of the same or any other covenant or condition.
28. HOLDING OVER, if Lessee holds possession of the Premises
<PAGE>
after term of this lease, Lessee shall be deemed to be a month-to-month tenant
upon the same terms and conditions as contained herein, except rent which shall
be revised to reflect the then current market rate. During month-to-month
tenancy, Lessee acknowledges Lessor will be attempting to relet the Premises.
Lessee agrees to cooperate with Lessor and Lessee further acknowledges Lessor's
statutory right to terminate the lease with proper notice.
29. ATTORNEY'S FEES, in the event suit is brought under the provisions of
this lease, the prevailing party shall be entitled to reasonable attorneys fees.
30. NO REPRESENTATIONS, The Lessor has made no representations or promises
except as contained herein or in some future writing signed by Lessor.
31. QUIET ENJOYMENT, So long as Lessee pays the rent and performs the
covenants contained in this lease, Lessee shall hold and enjoy the Premises
peaceably and quietly, subject to the provisions of this lease.
32. RECORDATION, Lessee shall not record this lease without the prior
written consent of Lessor. However, at the request of Lessor, both parties shall
execute a memorandum or "short form" of this lease for the purpose of
recordation in a form customarily used for such purpose. Said memorandum or
short form of this lease shall describe the parties, the Premises and the lease
term, and shall incorporate this lease by reference.
34. MUTUAL PREPARATION OF LEASE, it is acknowledged and agreed that this
lease was prepared mutually by both parties. In the event of ambiguity, it is
agreed by both parties that it shall not be construed against either party as
the drafter of this lease.
35. GOVERNING LAW, This lease shall be governed by, construed and enforced
in accordance with the laws of the State of Washington.
36. RIDERS: Riders, attached hereto, as made a part of this lease by
reference:
<PAGE>
EXHIBIT A: PERSONAL GUARANTY.
EXHIBIT B: Lessor agrees to put blinds up
EXHIBIT C: Final remodel plans
Date:_________________ 19__
Lessor TRP General Partnership
_____________________________
Kirby Torrance III (For TRP General Partnership)
State of Washington county of King
I certify that I know or have satisfactory evidence that Kirby Torrance
III for TRP General Partnership signed this instrument and acknowledge it to be
his free and voluntary act for the uses and purposes mentioned in the
instrument.
___________________________
Dated
___________________________
Signature of Notary public
___________________________
Tittle
___________________________
My appointment date expires
Date: 3 Feb 1993
Lessee: Miramar Images Inc.
/s/ [ILLEGIBLE], President
---------------------------
EXHIBIT A: PERSONAL GUARANTY
In consideration of the execution of this lease by the Lessor and for other good
and valuable considerations, the undersigned, for themselves, their heirs,
successors, and assigns, do jointly, individually, and severally hereby become
surety and guaranty for the payment of all amounts due and unpaid under section
3E of this agreement.
If any default under any of the terms and conditions of the lease agreement
should at any time be mode by Lessee and Lessee falls to cure
<PAGE>
within the allotted time, the total unpaid balance due and owing pursuant to
Section 3E of this agreement would become immediately due and payable, together
with any interest and any legal, accounting, court or other costs associated
with the enforcement of collection For example, if the approved construction
costs total twenty five thousand dollars ($25,000) and at the time of default,
ten thousand dollars ($10,000) has already been collected from Lessee, the
amount guaranteed here under would be Fifteen thousand dollars ($15,000) and
this Fifteen thousand dollars ($15,000) becomes immediately due and payable,
together with any interest and any legal, accounting, court or other costs
associated with the enforcement of collection. Under no circumstances will the
amount for which the undersigned is liable exceed that amount remaining unpaid
pursuant to section 3E at the time of any default and failure to cure together
with any interest and any legal, accounting, court or other costs associated
with the enforcement of collection.
While a default by Lessee under any of the terms and conditions of the lease
agreement followed by failure to cure within the allotted time would enable
Lessor to collect monies pursuant to this Guaranty, the undersigned is only
guaranteeing the payment of those monies remaining due and payable pursuant to
section 3E. Under no circumstances will this Guaranty be construed or
interpreted to guarantee any other financial obligation which Lessee may have as
a result of the lease agreement.
INDIVIDUAL GUARANTORS
/s/ [ILLEGIBLE]
- ------------------------
EXHIBIT B.
Lessor agrees to put in window coverings (blinds) in the lessee's offices
on the West side of the building where there are none currently.
EXHIBIT C: Final plans for remodel
<PAGE>
- ----------------------------
ESTIMATE FOR:
MIRAMAR 12/28/92
200 2ND AVE. W.
SEATTLE, WA. 98101
- ----------------------------
<TABLE>
<CAPTION>
PROJECT: OFFICE RENOVATION - LOWER MAIN AREA
--------------------------------------------
<S> <C> <C>
- -----------------------------------------------------------------------
ITEM COST
- -----------------------------------------------------------------------
Dustproofing $150.00
- -----------------------------------------------------------------------
Demo $600.00
- -----------------------------------------------------------------------
Electrical and phone $1,850.00 allotment for phone and power
- -----------------------------------------------------------------------
Build and install double doors using existing $575.00
- -----------------------------------------------------------------------
Framing and drywall $2,875.00
- -----------------------------------------------------------------------
1" x 4" Partitions with wood edge $1,370.00
- -----------------------------------------------------------------------
Casework price for 10 cabinets-installed $1,750.00
- -----------------------------------------------------------------------
Counters p-lam with stained wood nosing $2,090.00 add $335.00 for single
- -----------------------------------------------------------------------
Wood stained and laquered counter splash $300.00
- -----------------------------------------------------------------------
Painting $650.00
- -----------------------------------------------------------------------
Carpet repair and cleaning $650.00
- -----------------------------------------------------------------------
1x4 base painted $575.00
- -----------------------------------------------------------------------
Misc. trim and trim repair $350.00
- -----------------------------------------------------------------------
Cleanup $250.00
- -----------------------------------------------------------------------
Profit and overhead $1,100.00
- -----------------------------------------------------------------------
TOTALS $15,135.00
- -----------------------------------------------------------------------
TOTAL .......................................... $15,135.00
8.2% STATE TAX ................................. +$1,241.07
-----------
TOTAL DUE ...................................... $16,376.07
-----------
</TABLE>
- ----------------------------
Thank you for your business.
Lars Construction
2330 Minor St. E.
Seattle, Wa. 98102
Phone: 329-5838
- ----------------------------
<PAGE>
- ----------------------------
ESTIMATE FOR:
MIRAMAR 12/28/92
200 2ND AVE. W.
SEATTLE, WA. 98101
- ----------------------------
<TABLE>
<CAPTION>
PROJECT: OFFICE RENOVATION - UPPER AREA EAST SIDE
-------------------------------------------------
<S> <C> <C>
- -----------------------------------------------------------------------
ITEM COST
- -----------------------------------------------------------------------
Dustproofing $50.00
- -----------------------------------------------------------------------
Demo $250.00
- -----------------------------------------------------------------------
Electrical and phone $750.00 allotment
- -----------------------------------------------------------------------
Framing and drywall $775.00
- -----------------------------------------------------------------------
Sound batts $100.00
- -----------------------------------------------------------------------
Painting $325.00
- -----------------------------------------------------------------------
Carpet repair $100.00 allotment
- -----------------------------------------------------------------------
1x4 wood painted base $150.00
- -----------------------------------------------------------------------
Misc. trim, trim repair, and barn brd. repair $125.00
- -----------------------------------------------------------------------
Cleanup $100.00
- -----------------------------------------------------------------------
Profit and overhead $275.00
- -----------------------------------------------------------------------
TOTALS $3,000.00
- -----------------------------------------------------------------------
TOTAL ........................................... $3,000.00
8.2% STATE TAX .................................. +$246.00
------------
TOTAL DUE ....................................... $3,246.00
------------
</TABLE>
- ----------------------------
Thank you for your business.
Lars Construction
2330 Minor St. E.
Seattle, Wa. 98102
Phone: 329-5838
- ----------------------------
<PAGE>
- ----------------------------
ESTIMATE FOR:
MIRAMAR 12/28/92
200 2ND AVE. W.
SEATTLE, WA. 98101
- ----------------------------
<TABLE>
<CAPTION>
PROJECT: OFFICE RENOVATION - LAW OFFICE AREA
--------------------------------------------
<S> <C> <C>
- -----------------------------------------------------------------------
ITEM COST
- -----------------------------------------------------------------------
Dustproofing $75.00
- -----------------------------------------------------------------------
Demo $270.00
- -----------------------------------------------------------------------
Electrical and phone $525.00 allotment
- -----------------------------------------------------------------------
Framing and drywall $875.00
- -----------------------------------------------------------------------
Sound batts in walls $125.00
- -----------------------------------------------------------------------
Move doors $375.00
- -----------------------------------------------------------------------
Painting and staining $415.00
- -----------------------------------------------------------------------
Carpet repair $150.00 allotment
- -----------------------------------------------------------------------
1x4 wood painted base $225.00
- -----------------------------------------------------------------------
Misc. trim and trim repair $200.00
- -----------------------------------------------------------------------
Cleanup $125.00
- -----------------------------------------------------------------------
Profit and overhead $330.00
- -----------------------------------------------------------------------
TOTALS $3,690.00
- -----------------------------------------------------------------------
TOTAL ........................................... $3,690.00
8.2% STATE TAX .................................. +$302.58
------------
TOTAL DUE ....................................... $3,992.58
------------
</TABLE>
- ----------------------------
Thank you for your business.
Lars Construction
2330 Minor St. E.
Seattle, Wa. 98102
Phone: 329-5838
- ----------------------------
<PAGE>
LEASE AMENDMENT
THIS LEASE AMENDMENT (the "Agreement") is entered into by and between the
following parties: TRP General Partnership (the "Landlord"), MIRAMAR IMAGES,
INC., a Washington corporation ("Miramar"); and UNAPIX ENTERTAINMENT, INC., a
Delaware corporation ("Unapix").
WHEREAS, Landlord and Miramar are party to a certain office lease dated
December 24, 1992, (as amended to date, the "Lease"); and
WHEREAS, Landlord has asserted certain unsatisfied claims (as defined
below) against Miramar for defaults by Miramar under the Lease and the other
claims set forth on "Schedule A" hereto; and
WHEREAS, Unapix, is considering the acquisition of Miramar (the
"Acquisition"); and
WHEREAS, Unapix has required as a condition to the Acquisition, among
other things, that all Claims (except as set forth on Schedule "B" hereto, if
any) be settled and released and the Lease be amended all on terms satisfactory
to Unapix; and
WHEREAS, Miramar and Landlord have agreed to settle and release all Claims
(except as set forth on Schedule "B" hereto, if any) and amend the Lease on the
terms set forth herein, conditioned upon the consummation of the Acquisition,
NOW THEREFORE be it hereby agreed as follows:
A. SETTLEMENT; CONSIDERATION.
1. Landlord agrees that all Claims, except for obligations or transactions
set forth on Schedule "B", if any, are settled, discharged and released forever
effective upon receipt of the following consideration:
(a) the payment by Miramar to Landlord of an amount equal to $24,952
pursuant to paragraph E(1)(j); and
(b) such number of shares of Unapix Common Stock $.01 par value per
share as shall aggregate in current market value $24,952 (the "Shares")
(collectively, the "Consideration"). For purposes of this Agreement,
"current market value" shall equal the average of the closing sales prices
of the Unapix Common Stock as reported by the American Stock Exchange
("AMEX"), over the 30 trading days immediately preceding the third trading
day immediately preceding the Closing date; provided, however, that if on
any such trading day there is no reported sale on the AMEX, then the
average of the last bid and asked price
<PAGE>
of Unapix's Common Stock on such date as reported by the AMEX, shall be
deemed the closing sales price on such date.
2. Landlord agrees that it shall not sell, transfer, assign, encumber or
convey in any manner the Shares or any interest therein for a period of one year
from the date the Acquisition is consummated.
B. RELEASE.
In return for the Consideration, Landlord, on behalf of itself, its
agents, servants, attorneys, accountants, representatives, heirs and assigns,
hereby fully releases and discharges Miramar, Unapix, and their respective
parents, subsidiaries or affiliated companies, the successors and assigns,
agents, servants, attorneys, directors, shareholders, officers, accountants and
representatives of each of Miramar, Unapix and their respective parents,
subsidiaries and affiliated companies (collectively, "Related Parties"), from
all suits, debts, liens, liabilities, claims, demands, losses including without
limitation any claims for attorneys' fees and costs and expenses of any nature
whatsoever, known or unknown, fixed or contingent which Landlord now has,
whether or not such matter is contingent or matured, or may hereafter have,
against Miramar, Unapix or the Related Parties, from the beginning of the world
to the day and date of this Agreement (collectively, the "Claims") except those
Claims set forth on Schedule "B".
C. REPRESENTATIONS AND AGREEMENTS OF CLAIMANT.
1. Landlord represents and warrants that there has not been any assignment
or other transfer of, nor shall it assign or transfer after the date hereof, any
interest in the Claims, and Landlord agrees to indemnify and hold Miramar,
Unapix and their respective Related Parties harmless from any liability, in
connection with or arising out of the Claims (including, without limitation,
attorneys' fees) incurred by Miramar, Unapix or their respective Related Parties
as a result of any other person asserting any claims or rights arising from any
assignment or transfer of the Claims or any rights relating thereto.
2. Landlord agrees that if it commences, joins in, or in any manner seeks
relief through any suit arising out of, based upon, or relating to any of the
Claims, then Landlord shall pay to Miramar, Unapix and the Related Parties, in
addition to any other damages caused to Miramar, Unapix and the Related Parties,
all attorneys' fees incurred by Miramar, Unapix and the Related Parties in
defending or otherwise responding to such suit or claim.
3. The releases contained in this Agreement shall act as releases of
future claims (other than as expressly and specifically set forth on Schedule
"B" attached hereto) which may arise from transactions, disputes, or differences
prior to the date hereof whether such Claims are currently known, foreseen or
unforeseen, patent or latent. Landlord understands and acknowledges the
significant consequences of such waiver and hereby assumes full responsibility
for any injuries,
2
<PAGE>
damages, losses, or liabilities it may hereafter incur from the Claims and the
transactions, circumstances, and actions relating in any way, or giving rise to
the Claims.
4. Claimant represents and warrants that Claimant is not aware of any
other claims, suits, debts, liens, liabilities, demands or losses of any nature
whatsoever which may be asserted by any affiliate of Claimant (including,
without limitation, any employee, officer, director or owner or other affiliate
of Claimant) against Miramar.
D. UNAPIX'S AGREEMENT TO UNDERTAKE REGISTRATION.
1. Unapix will use its best efforts to (a) prepare and file under the
Securities Act of 1933, as amended (the "Act"), a registration statement
relating to the resale of the Shares (the term "registration statement" as used
herein being deemed to include any form which may be used to register a
distribution of securities to the public for cash); (b) prepare and file with
the appropriate state blue sky authorities the necessary documents to register
or qualify the Shares in certain states, if any is required; and (c) use
reasonably diligent efforts to cause such registration statement to become
effective and to keep such registration statement and state blue sky filings, if
any, current and effective for a period of two years use reasonable efforts to
prepare and file under the Act such amendments and supplements to the
registration statement and the prospectus which is a part thereof as may be
necessary to comply with the provisions of the Act with respect to the
disposition of all of the Shares; (d) furnish such number of copies of the
prospectus which is a part of the registration statement, including any
amendment of or supplement to the prospectus, as may be necessary in order to
facilitate the public sale or other disposition of the Shares by Landlord; and
(e) notify Landlord, after the Landlord has notified Unapix that he intends to
sell, of the happening of an event as a result of which, or upon the discovery
that, the prospectus contained in such registration statement, as then in
effect, includes a 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.
2. All expenses associated with the preparing and filing of such
registration statement (and any registration or qualification under the blue sky
laws of the states in which the offering will be made under the registration
statement) shall be borne in full by Unapix, including, without limitation, all
registration and filing fees, printing expenses, fees and costs of counsel to
Unapix and auditor's fees and expenses, except that the underwriting
commissions, discounts and expenses attributable to the Shares so registered and
the fees and disbursements of counsel, if any, to the Landlord shall be borne by
the Landlord. Unapix may include other securities in any such registration
statement.
3. Landlord agrees to complete, execute and deliver all such documents and
undertakings as Unapix may deem necessary or desirable for purposes of
compliance with applicable federal and state securities laws. Landlord agrees to
be responsible for the veracity and comprehensiveness of all information
supplied to Unapix in connection with the registration
3
<PAGE>
statement. Unapix's obligations, set forth in Section D. 1 above, are contingent
on Landlord's satisfaction of its obligations set forth herein.
4. Landlord further acknowledges and agrees that the Certificate
evidencing the Shares will bear a legend substantially as follows:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE (OR ANY SECURITIES
FOR WHICH SUCH SECURITIES ARE EXERCISABLE) HAVE BEEN ACQUIRED BY THE HOLDER
SOLELY FOR HIS OWN ACCOUNT FOR THE PURPOSE OF INVESTMENT AND NOT WITH A VIEW TO,
OR FOR SALE IN CONNECTION WITH ANY DISTRIBUTION OF ANY SUCH SECURITIES. THE
SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR STATE SECURITIES LAWS AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE
TRANSFERRED WITHOUT REGISTRATION UNDER THE ACT OR AN EXCEPTION THEREFROM AS
EVIDENCED BY A WRITTEN OPINION OF LEGAL COUNSEL FOR UNAPIX ENTERTAINMENT, INC.
ADDITIONALLY, THE SHARES REPRESENTED BY THIS CERTIFICATE (OR ANY
PART OF THEM) MAY NOT BE TRANSFERRED, SOLD, ENCUMBERED OR CONVEYED IN ANY MANNER
PRIOR FOR [ONE YEAR FROM THE DATE THE ACQUISITION IS CONSUMMATED].
5. Landlord acknowledges that Unapix has delivered to Landlord copies of
its Annual Report on Form 10-KSB for the year ended December 31, 1995, its Proxy
Statement for its 1996 Annual Meeting of Stockholders and its Quarterly Report
on Form 10-QSB for the Quarterly Period ended September 30, 1996 and Prospectus
dated February 2, 1996 (collectively, the "Disclosure Documents").
6. Landlord acknowledges, represents and agrees as follows:
(a) Landlord acknowledges that Landlord has been afforded the
opportunity to obtain any information necessary to verify the accuracy of any
information set forth in the Disclosure Documents and has had all of Landlord's
inquiries to Unapix answered in full, and has been furnished all requested
materials relating to Unapix and the sale of the Shares.
(b) Landlord acknowledges and represents that Landlord has not been
furnished any literature about Unapix other than as set forth in the Disclosure
Documents.
(c) Landlord acknowledges and represents Landlord is acquiring the
Shares as principal for Landlord's own investment account, and not (i) with a
view to the resale or distribution of all or any part of such Shares, or (ii) on
behalf of another person who has not made the foregoing representation,
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<PAGE>
(d) Landlord has evaluated the risks of investing in Unapix and has
substantial knowledge concerning, and experience in making investment decisions
of this type.
(e) Landlord has knowledge and experience in financial and business
matters and is capable of evaluating the merits and risk of the perspective
investment and the undersigned understands the fundamental aspects of and risks
involved in an investment in Unapix's Shares, including (1) the speculative
nature of the investment, (2) the financial hazards involved, including the risk
of losing the entire investment, (3) the lack of liquidity and the restrictions
on the transferability of the Shares, and (4) the inherent risks relating to the
business of Unapix.
E. LEASE ESTOPPEL AND AMENDMENT
1. In order to induce Unapix and Miramar to enter into this Agreement,
Landlord represents and warrants:
a. Upon consummation of this Agreement and the Acquisition
and the payment of the Consideration, the Lease (a true,
correct and complete copy of which is attached hereto)
as amended hereby shall represent the entire
understanding of the parties with respect to the leased
premises described therein.
b. Upon consummation of this Agreement and the Acquisition
and upon payment of the Consideration, (i) no event of
default, default or situation or circumstance, which
with the passage of time or the giving of notice or both
shall constitute an event of default or default shall
exist; and (ii) the Lease shall be in full force and
effect.
c. A security deposit of $0 is currently held by Landlord
under the Lease.
d. The demised premises covered by the Lease are: the
second floor Mezzanine; shipping/warehouse, kitchen,
restrooms and 10 parking spaces, office and Production
Studio (the "Demised Premises").
e. Other than amendments expressly and specifically
provided for below, all other terms and conditions of
the Lease remain in full force and effect.
f. The Lease is hereby amended as follows:
g. The description of the leased premises set forth in
Section 1 is hereby amended to include the Demised
Premises.
5
<PAGE>
h. Section 2 is hereby amended by deleting "1998" in the
second line thereof and the third line from the bottom
thereof and replacing same in each case with "1999";
providing for an extension of one year of the initial
term of the Lease and adjusting the commencement of the
five year renewal option term.
i. Section 3.D. is hereby deleted and replaced with the
following: "C. Beginning April 1, 1997, the monthly
rental rate will be $8,250. Such monthly rental rate
shall be adjusted on April 1 of each year thereafter by
increasing such amount by the percentage increase in the
Consumer Price Index for all urban consumers as
published by the U.S. Department of Labor for the
Seattle-Everett Metropolitan area then most recently
published from such Index applicable on April 1 of the
prior year."
j. Section 3.E. is hereby deleted and the following section
inserted in its place: "D. Beginning April 15, 1997, and
on the 15th day of each month thereafter until and
including September 15, 1997, Lessee shall pay $4,158.67
towards amortization of credit extended by Lessor for
"build out" expenses and unpaid rent, (which total
Twenty Four Thousand Nine Hundred Fifty Two Dollars
($24,952)).
k. Paul Sullivan is hereby fully released from his past,
present and executory obligations as Guarantor under the
Lease effective upon the execution of this Agreement.
2. The parties hereto acknowledge that Unapix (other than with respect to
the Consideration set forth in Section 1) shall not be liable, directly or
indirectly, for any amount under or with respect to the Lease as modified
hereby.
F. CONDITION PRECEDENT TO THE LEASE AMENDMENTS
AND RELEASE CONTAINED HEREIN.
1. The obligations of Unapix, Miramar, and Landlord contained herein, are
expressly subject to and contingent upon the consummation of the Acquisition.
2. Unapix shall have no liability whatsoever for the failure to complete
the Acquisition and accordingly for the failure to consummate the transactions
contemplated hereby and Landlord hereby waives any claim and releases Unapix of
any liability whatsoever hereunder of any nature for damages matured or
contingent that may arise or be in any way connected with this Agreement or the
Claims.
6
<PAGE>
G. MISCELLANEOUS.
1. This Agreement is an integral part of a compromise of the Claims,
disputes and differences between the parties and shall not be treated for any
purpose as an admission of liability by any of the parties hereto or as an
admission of the truthfulness of any of the allegations asserted by either
party.
2. This Agreement shall inure to the benefit of, and may be enforced by,
the successors or assigns and other personal representatives of each of the
parties hereto.
3. In the event a suit is brought by any party hereto to enforce the terms
described in this Agreement, or any controversy arising therefrom, the
prevailing party shall be entitled to costs and attorneys' fees which shall be
measured by the customary charges of such party's attorneys.
4. Landlord acknowledges and represents, he has full power and authority
to enter into this Agreement and to complete the transactions contemplated
hereby.
5. This Agreement is made under and shall be construed and enforced in
accordance with the laws of the State of Washington without giving effect to
conflict of law principles.
6. This Agreement contains the entire agreement between the parties hereto
relative to the subject matter hereof. No waiver or modification of this
Agreement shall be valid unless in writing and duly executed by both parties.
7. If any provision of this Agreement shall be held unenforceable to any
extent, the remainder of this Agreement shall not be effected thereby and shall
be enforced to the fullest extent permitted by law.
8. This Agreement shall not be effective unless the Acquisition is
consummated to Landlord and shall be void and of no further force and effect if
the Acquisition is consummated on or prior to March 31, 1997.
Dated: March 17, 1997 MIRAMAR IMAGES, INC.
__________________________________
By: G. Paul Sullivan, President
7
<PAGE>
UNAPIX ENTERTAINMENT, INC.,
a Delaware Corporation
By:_______________________________
Name:
Title:
LANDLORD:
TRP GENERAL PARTNERSHIP
__________________________________
Dated: March 17, 1997 Name: Kirby Torrance, III
Title: General Partner
8
<PAGE>
SCHEDULE A
Included Claims
All claims by Landlord, pursuant, or in any way relating, to the Lease or
obligations of Miramar and Paul Sullivan as Guarantor thereunder, arising or
accruing prior to the date hereof and for all acts and omission of Miramar and
Mr. Sullivan on or prior to the date hereof relating to the Lease or the
occupancy of Miramar of the premises described therein.
9
<PAGE>
SCHEDULE B
Excluded Claims
Executory obligations under the Lease as amended hereby arising or
accruing for the first time after the date hereof.
10
<PAGE>
STATE OF _____________ )
) SS.
COUNTY OF )
BE IT REMEMBERED, that on this 17th day of March, 1997, before me the
subscriber, _________________________________, the, _______________ of,
Landlord, who I am satisfied, is the person named in and who executed the within
Instrument and I acknowledged that he signed, sealed and delivered the same for
the uses and purposes therein expressed.
__________________________________
STATE OF _____________ )
) SS.
COUNTY OF )
BE IT REMEMBERED, that on this 17th day of March, 1997, before me the
subscriber, _________________________________, the, _______________ of, Unapix
Entertainment, Inc., who I am satisfied, is the person named in and who executed
the within Instrument and I acknowledged that he signed, sealed and delivered
the same for the uses and purposes therein expressed.
__________________________________
STATE OF _____________ )
) SS.
COUNTY OF )
BE IT REMEMBERED, that on this 17th day of March, 1997, before me the
subscriber, _________________________________, the, _______________ of, Miramar
Images, Inc., who I am satisfied, is the person named in and who executed the
within Instrument and I acknowledged that he signed, sealed and delivered the
same for the uses and purposes therein expressed.
__________________________________
11
EXHIBIT 11.1
Statement Re: Computation of Per Share Earnings
(In thousands except earnings per common share outstanding)
For the Years ended
December 31,
1996 1995
------- -------
Net income as reported $ 589 $ 935
Preferred Dividends (138) (157)
------- -------
Income used for year 451 778
------- -------
Earnings per common share
outstanding 0.09 0.22
------- -------
Average number of common shares
outstanding 5,268 3,599
------- -------
EXHIBIT 21.1
NAME OF SUBSIDIARY STATE OF INCORPORATION
- ------------------ ----------------------
Green Leaf Advertising Company, Inc. New York
Abacus Films Ltd. New York
Unapix Films, Inc. New York
Miramar Images, Inc. Washington
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in (i) the Post-Effective
Amendment No. 2 on Form S-3 to the Registration Statement on Form SB-2, File
No. 33-61798, (ii) Registration Statement on Form S-3, File No. 33-83186,
(iii) the Registration Statement on Form S-8, File No. 33-86080, and (iv) the
Registration Statement on Form S-3, File No. 33-80019 of our report dated
March 5, 1997 on the consolidated financial statements of Unapix
Entertainment, Inc. and subsidiaries included in its Annual Report on Form
10-KSB for the year ended December 31, 1996, and to the use of our name, and
the statements with respect to us, under the heading "Experts" in the related
Prospectuses.
/s/ Richard A. Eisner & Company, LLP
New York, New York
March 28, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 659
<SECURITIES> 0
<RECEIVABLES> 11,157
<ALLOWANCES> 1,004
<INVENTORY> 689
<CURRENT-ASSETS> 30,763
<PP&E> 664
<DEPRECIATION> 179
<TOTAL-ASSETS> 31,248
<CURRENT-LIABILITIES> 9,088
<BONDS> 9,346
0
5
<COMMON> 53
<OTHER-SE> 12,756
<TOTAL-LIABILITY-AND-EQUITY> 31,248
<SALES> 15,740
<TOTAL-REVENUES> 22,413
<CGS> 10,373
<TOTAL-COSTS> 21,301
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 541
<INCOME-PRETAX> 989
<INCOME-TAX> 400
<INCOME-CONTINUING> 589
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 589
<EPS-PRIMARY> .09 <F1>
<EPS-DILUTED> .09
<FN>
<F1> Earnings per share was presented on a simple basis for financial statement
presentation
</FN>
</TABLE>
