SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
[XX] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For Fiscal Year Ended December 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES ACT
OF 1934
For the transition period to .
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Commission File No. 1-11976
Unapix Entertainment, Inc.
(Exact name of registrant as specified in its charter)
Delaware 95-4404537
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation of organization)
200 Madison Avenue, New York, NY 10016
(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
Common Stock 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
Indicate by check mark if no disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is contained herein, and will not 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-K or any
amendment to this Form 10-K ( ).
<PAGE>
The aggregate market value of the common stock held by non-affiliates of the
registrant is approximately $14,232,832 (based upon the closing sales price
of these shares on the American Stock Exchange on March 6, 2000).
On March 6, 2000, there was a total of 10,281,219 shares of the registrant's
common stock outstanding.
Documents Incorporated by Reference:
1. Proxy statement for 2000 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 June 30, 1996.
4. Certain exhibits to Quarterly Report on Form 10-QSB for the quarterly
period ended September 30, 1997.
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 Annual report on Form 10-KSB for the year ended
December 31, 1996.
9. Certain exhibits to Annual Report on Form 10-KSB for the year ended
December 31, 1997.
10. Certain exhibits to Annual Report on Form 10-KSB for the year ended 1998.
11. Certain exhibits to Current Report on Form 8-K for Event of June 21,
1995.
12. Certain exhibits to Current Report on Form 8-K for Event of July 16,
1998.
13. Certain exhibits to Current Report on Form 8-K for Event of September 28,
1999.
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Part I
Item 1. Business
Unapix Entertainment, Inc. (the "Company") is primarily a world-wide
distributor, licensor and producer of feature films and video and television
programming; it exploits multiple distribution channels, including all forms
of television (including free and pay television, syndication, broadcast,
cable and satellite), the home video market, including videocassette, laser
discs and digital video disks ("DVD"), and the consumer market, including
direct response and electronic commerce ("E-Commerce"). The Company's current
"library" of films and programs includes feature films, non-fiction series,
children's programming, educational and special interest programming, musical
concerts, comedy shows, adventure series and classic films and serials
(together with music videos and audio recordings, "Properties").
Since 1993 the Company has sought to exploit the increasing worldwide demand
for television programming and feature films 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, DVD's and other products. This fragmentation has been
augmented by technological developments including, most recently, the growth
of the Internet. The Company primarily focuses on the licensing and
distribution of Properties that are designed to appeal to a specific
segmented audience. However, commencing in 1998 and continuing in 1999 the
Company expanded its development, production and distribution of Properties
that it believes have broader appeal, such as reality-based television
programming and fictional feature films designed for a relatively wide
audience, such as family films. During 1999 the Company continued its
exploitation of new technologies by marketing most of its Properties over its
own E-Commerce web sites as well as over 100 E-Commerce web sites operated by
others and by expanding the number of its Properties that it distributes on
DVD.
The Company's operations currently consist principally of the following: the
distribution of feature films via videocassettes to domestic home video
rental stores; the distribution of Properties from the Company's library to
foreign broadcasters and home video publishers; the licensing of Properties
to the North American television market; and the marketing of products
(including music recordings) that are intended to be purchased by consumers,
including via sales to mass merchants and through catalogues and the
internet. In many instances the same Property is distributed by the Company
through multiple channels. As an example, a feature film that is distributed
by the Company to the home video rental market will, in almost all cases, be
subsequently distributed by the Company to the consumer market, and may also
be licensed for exhibition on television. Television programs that are
licensed by the Company for domestic exhibition may also, in some instances,
be licensed by the Company internationally.
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.
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ACQUISITION OF FEATURE FILMS AND TELEVISION PROGRAMMING
The Company continuously monitors the industry for available films and
television programming and attempts to acquire rights to such Properties
which it believes are saleable to various markets. Before acquiring the
rights to a specific film or program, the Company analyzes its viability for
licensing or distribution in light of its projected costs and revenues and
attempts to target the Property's audience appeal. The Company includes in
its calculation the degree to which it will be able to exploit the Property
through its various distribution channels. In determining the desirability of
acquiring rights to films or television programs, the Company examines their
content, genre, 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 films or programming,
management typically views a program or film in its entirety to evaluate its
commercial viability.
In order to obtain licensing or distribution rights with respect to films or
television programs, the Company generally enters into a licensing or
distribution arrangement with the copyright holder or an assignee of rights
from the copyright holder. The Company's rights may cover all media, or may
be limited to specific media (e.g., broadcast television, cable or home
video). The rights also may be limited to particular geographic areas. Most
of the Company's domestic distribution rights to feature films that it has
acquired or co-produced during the last year, have terms ranging from 15
years to perpetuity. The Company's distribution rights with respect to
television programming are often of shorter duration. In acquiring rights,
the Company usually pays a non-refundable advance and/or commits to expend a
certain amount of funds on marketing. In some 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 percentage of revenues) as
well as recouped its advance and specific recoupable marketing and other
distribution expenses. In other cases, 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.
While the majority of the films and television programs that the Company
acquired for distribution during 1999 were produced by others and had been
completed at the time the Company acquired rights therein, the Company has
increasingly been acquiring distribution rights in films and television
programs by funding a portion of their production, or in certain instances,
by funding all of their 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 an Executive Producer's fee. 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. The Company assigns executives to monitor the production, in an
effort to reduce such risk.
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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 engaging 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.
After acquiring rights in a feature film or television program prior to
production, the Company typically, at a minimum, has approval rights over key
product elements and maintains a production supervisory staff to carefully
monitor production and maintain quality control. In connection with acquiring
rights in television programming prior to production, the Company has often
acted as an independent production company, engaging the personnel and other
elements required for production, and frequently developing concepts for
programs as well.
Commencing in 1996 the Company had developed and produced documentary and
educational non-fiction programming. An example of this type of programming
is the two part, two hour documentary, "Nelson Mandela," that was broadcast
on the Public Broadcasting Systems "Frontline" series in May 1999 and was co-
produced by the Company with Story Street Productions and Films 2 People.
During the second quarter of 1998 and continuing in 1999, the Company shifted
its television production focus to reality based and creative television
programming that is principally designed to have mass audience appeal. An
example of this type of programming is the Company's three part television
special, "Totally Out of Control," which was produced by the Company during
1999 and was broadcast on the ABC Television Network during December 1999 and
January 2000.
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 creation of print materials or 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 or print materials. Pre-sales consist of
license fees paid or 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
video, television or ancillary markets in certain negotiated territories.
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 either not be entitled to be paid by the licensee to whom it pre-sold
the programs or may have to reimburse amounts already paid; 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 relatively limited production costs, the Company has funded its
entire production without pre-selling the series. During 1999 the Company
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completed production of approximately 12 hours of television programming,
consisting of the following: Three one-hour programs of the series "Record
Setters" featuring unforgettable record setters; Three one-hour programs of
the series "Magic's Greatest Illusions" which explores the origins of the
world's greatest illusions; a two-hour program entitled "The Long Walk of
Nelson Mandela" which was broadcast on PBS in June 1999; a one-hour program,
"Shocking Behavior: Caught on Tape," which was broadcast domestically on the
Fox television network during February 2000; and three one-hour programs of
"Totally Out of Control, which were broadcast on the ABC television network
in December 1999 and January 2000."
In connection with the financing of the production of a feature 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 addition, in most instances
when the Company provides production financing of a feature film the producer
obtains a completion bond that guarantees delivery of a finished film. In the
future, the Company anticipates that it will, in some instances, act as the
lead producer on feature films by developing projects and hiring creative and
other production personnel. One such project that the Company is developing
with a release currently scheduled for the year 2001 is "The Texas Chainsaw
Massacre - V." Another production is "Jack Frost II" which will be the sequel
to the film "Jack Frost," that the Company successfully released to the
domestic home video rental market in 1997. In such cases, the Company
anticipates that it will not proceed to principal photography unless it has
obtained a significant level of pre-sales. In 1999 the Company co-financed
the production of five films, and it plans to co-finance the production of
ten films during 2000.
There is no assurance that in the future the Company will not change its
conditions for providing production financing for feature films or television
programs.
The Company believes that by providing production financing it can acquire
distribution rights to higher quality films and programs with better
production values and more 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 films
and television programs as is practicable. This permits a single Property to
be marketed by more than one of the Company's divisions and subsidiaries and
has permitted the Company to exploit new technological developments such as
DVD.
VIDEOCASSETTE DISTRIBUTION OF FEATURE FILMS TO HOME VIDEO RENTAL STORES IN
THE UNITED STATES
The Company, through A-Pix Entertainment ("A-Pix"), is engaged in the
promotion and distribution of feature films for the home video rental market
in the United States, primarily consisting of video rental chains, individual
video rental stores, and supermarkets.
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The Company commenced distributing videocassettes to the home video rental
market in 1994, releasing a total of 22 films during that year. During 1995,
1996, 1997 and 1998 the Company released a total of 23, 24, 25 and 27 films,
respectively. The Company released 32 films in 1999 and expects to release
approximately 24 films in 2000. Most of the films distributed by the Company
in this market to date have been films that were released directly to the
video rental market without any prior exhibition in theaters or without a
premiere on cable or broadcast television.
The market for home videos has become increasingly competitive and 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 or has actually declined for the past several years.
Furthermore technological developments could make competing delivery systems
economically viable and could affect the home video marketplace. This has
resulted in a significant decrease in the number of A-Pix's competitors.
Furthermore, in the past owners of films typically did not share in video
rental income; however, it is becoming increasingly common for video
distributors to enter into revenue sharing arrangements with rental and
retail stores. Under such arrangements, videocassettes are sold at a reduced
price to video rental stores and a percentage of the video rental revenue is
then shared with owners (or licensors) of the films. The Company has been
reacting to this evolving market by seeking to acquire increasingly higher
quality films with more recognizable stars and better production values.
As a result of the Company's focus on higher quality films, the Company may
reduce the number of films it releases into the rental marketplace in years
after the year 2000. By focusing on producing or acquiring higher quality
films, the Company anticipates that the proportion of the films that it
releases to the home video rental market which have previously been released
to the theatrical market or premiered on cable television will increase. The
Company believes that a theatrical or cable premiere prior to the video
release increases the demand for the feature film, and, concomitantly, should
increase the revenues generated from the video rental release (because both
more copies of the videocassettes should be purchased by the video rental
stores and, to the extent the Company is entering into revenue sharing
arrangements, there should be more rentals per copy of each videocassette in
the rental stores). During 1999, three of the films released by the Company
to the home video rental market were first theatrically released by the
Company and six of the films were first theatrically released by independent
third parties. Two of the films released to the rental market by the Company
first premiered on a cable channel (pursuant to licenses granted by
independent parties). The Company has licensed for cable premieres three of
the films that it plans to release to the home video rental market in 2000 or
2001: such films include "Stranger than Fiction" which has premiered on HBO
and "My Brother the Pig" which will premiere on Nickelodeon.
Almost all feature films released by A-Pix are subsequently distributed by
the Company to the consumer market. Many films that were previously released
by A-Pix have been, and all of its current films are, reformatted on DVD for
distribution for purchase by consumers.
Notable films that have recently been released by A-Pix or are scheduled to
be released by it (both on DVD and videocassette) within the next 12 months
include the following:
<PAGE>
"A Merry War" (starring Richard E. Grant and Helena Bonham Carter);
"Junior's Groove" (starring Lynn Whitfield);
"Oxygen" (starring Maura Tierny and Adrien Brody);
"The Fear - Halloween Night" (which is a sequel to "The Fear" the Company's
successful 1995 video release)
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.
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 acquisitions for international distribution have been
exhibited domestically on PBS, The Disney Channel, The Discovery Channel, The
A&E Network, as well as on The Learning Channel.
Many of the Company's acquisitions for international distribution have been
exhibited domestically on PBS, The Disney Channel, The Discovery Channel, The
A&E Network, Showtime and Animal Planet as well as on The Learning Channel.
In addition to the Company's television productions such as "Totally Out of
Control," "Record Setters," and "Magic's Greatest Illusions," that the
Company also distributes to the domestic television market, notable
Properties that the Company distributes in the international marketplace
include the following:
"The Planet's Funniest Animals"(a series consisting of 26 half-hour programs
which focus on the world's funniest animals. The episodes include features
such as "The Dog Etiquette Guide," "Amazing and Pointless Animal Tricks," and
"Pig Soap Opera." The series aired on Discovery's Animal Planet in the United
States); and
"Super Structures" (a series consisting of 10 one-hour programs which focus
on the most amazing things ever built. Programs focus on the EuroTunnel,
Seawolf, Skyscrapers, the Panama Canal, the Grasburg Mine, Norad, the London
Underground, Kansai International Airport and the International Space
Station); and
"Jackie: Behind the Myth," (a two-hour special that premiered domestically on
PBS). The program provides an intimate account of Jacqueline Kennedy Onassis
by those who knew her.
NORTH AMERICAN TELEVISION LICENSING
The Company licenses the Company's feature films and television programs 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. The Company's licensing activities to the domestic television
market are conducted by the Company's division, Unapix Program Enterprises
("UPE"), and the Company's majority-owned subsidiary Unapix Syndication, Inc.
("Unapix Syndication").
<PAGE>
UPE licenses Properties primarily for exhibition on pay-per view, pay
television and basic cable channels. Customers have included the following:
HBO; Showtime; The Sundance Channel; Encore; Disney Channel; Lifetime; USA
Network; TNT; Comedy Central; Nickelodeon; The Discovery Channel; The History
Channel; American Movie Classics; F/X; The Family Channel; The Learning
Channel ("TLC"); Animal Planet; The Sci-Fi Channel; and CNBC. In addition to
the feature films distributed to the domestic home video rental market,
notable Properties that UPE has licensed 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 had
been broadcast in France for many years. The series began broadcast on CNBC
in January 1998); and "Superstructures."
The Company commenced its syndication operations in the fourth quarter of
1998 in order to distribute, to individual domestic television broadcasters,
the Company's Properties as well as first-run series and specials produced
directly for syndication and off-network syndication strips (in which shows
originally produced for weekly broadcast on a network are aired five days a
week). Unapix Syndication licenses Properties for domestic national or
regional broadcast on a television station by television station basis
(including television station groups). During April 1999 Unapix Syndication's
first series was broadcast on television stations covering 85% of the United
States viewing audience, including being broadcast on WABC in New York and
KABC in Los Angeles. The series was known as "Flix One" and consisted of
fifteen feature films, previously released by A-Pix to the video rental
market, that were broadcast on a once-per-month basis. Unapix Syndication,
during 1999, also syndicated: a one-hour special known as "Beisbol - The
Latin Dream" featuring legendary Latino baseball players (The special was
broadcast to 80% of the United States television viewing audience); and "The
Country Music Showdown," a one hour special broadcast to 85% of the United
States television viewing audience.
In addition to the operations of UPE and Unapix Syndication, in the second
quarter of 1998, the Company began to focus on developing and producing
specials for broadcast on domestic television networks. The Company develops
the ideas for the specials then attempts to obtain production financing from
the networks. During February 1999 the Company's first such production,
"Shocking Behavior: Caught on Tape," a one-hour special, was broadcast
domestically on the Fox network. During December 1999 and January 2000
"Totally Out of Control" (a series consisting of three one-hour programs on
people, nature and vehicles running amok), was broadcast on the ABC
television network.
CONSUMER PRODUCTS
The Company conducts "sell-through" operations, marketing products that are
intended to be purchased by consumers, under the names Unapix Home
Entertainment and Unapix Online, Inc. Products marketed by the Company for
consumer purchase primarily consist of feature films, television series and
special interest programs on videocassettes and DVD's. Typical suggested
retail prices for videocassettes to be marketed as sell-through range from
$9.95 to $19.95 per program; suggested retail prices on DVD's range from
$14.98 to $29.98 per program. At such prices it is believed that the product
becomes attractive for consumer purchase.
<PAGE>
The Company distributes for consumer purchase films and programs licensed and
distributed by the Company in other markets as well as Properties acquired or
produced by the Company solely for sell-through distribution. An example of a
Property acquired solely for the sell-through market is Lifetime's "Intimate
Portrait" series (each episode of which presents biographies of women from
the diverse worlds of art, entertainment, politics, business and sports).
Another example is the "Ultimate DVD Collection," (released in December
1999), which consists of Silver, Gold and Platinum discs that feature work
from well known producers, artists and engineers and demonstrates the latest
in DVD technology, capabilities and features. The "Ultimate DVD Collection"
is distributed domestically and in select international markets. The
"Ultimate DVD Collection" was inspired by the success of the Company's
"Ultimate DVD Demo" which was released by the Company in 1997 and of which
the Company distributed in excess of 800,000 units. 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 six months after the initial rental market
release.
The Company currently operates two direct mail catalogues, consisting of:
"Inner Dimensions," which offers programs and products purchased wholesale
primarily from other vendors (but which includes some of the Company's own
proprietary products), all of which are focused on healthy living; and
"The Jazz Store," which features collections of jazz recordings, videos, T-
shirts, books and collectibles and which is operated through the Company's
90% owned subsidiary The Jazz Store, Inc. ("The Jazz Store"). Most of the
products distributed through The Jazz Store catalogue are acquired wholesale
from third party vendors, but certain of the products are The Jazz Store's
own proprietary items.
The Company operates a number of E-Commerce web-sites. The E-Commerce sites
consist of the following:
The Jazz Store (www.thejazzstore.com), which offers substantially the same
merchandise as The Jazz Store catalogue;
Horrormovies.com (www.horrormovies.com), which offers genre videos and
related merchandise to horror fans. The site also offers a chat room and
articles pertaining to the genre;
Inner Dimensions (www.innerdimensions.com), which features the same products
as the catalogue by the same name.
The Company operates a number of other web-sites that serve, via links on
such sites, as conduits for its E-Commerce web-sites. As an example, the
Company has its own corporate site (www.unapixent.com) that offers
information about the Company, as well as links to all of the Company's other
sites. It is the intent of the Company to significantly develop its e-
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commerce and other web sites during the next year, including to: sell banner
advertisements on its sites to third parties; attract viewers and customers
to its sites by banner advertisements on third party sites; include more chat
rooms on its sites; and increase the content on its web sites, such as
articles, etc. Through developing chat rooms and enhanced content the
Company believes that it will create a "community" for its web-sites which
should increase the number of visitors to its sites and the duration of their
visits; and consequently increase the revenues generated by such visitors'
purchases and the sale of banner advertisements. The Company plans to develop
its web sites so that they are appropriate for both consumer purchases and
business-to-business commerce. During 2000 the Company also plans to
establish separate web sites to promote the feature films that it
theatrically releases, as well as certain other films that it initially
releases to other markets. Such web sites will also sell ancillary
merchandise related to the films (where the Company has the right to
distribute such merchandise) and serve as a link to the Company's other web
sites.
In addition to its own web sites, the Company markets its products via the
internet through over 100 e-commerce web sites operated by others. During
1999 Amazon.com established a dedicated video section ("virtual store") for
the Intimate Portrait home video series being distributed by the Company.
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, cable system operators and home video
companies worldwide. The Company also presents certain of its films and
television programs to foreign and domestic broadcasters, cable system
operators 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 films and television programming to
the international marketplace and its licensing of such Properties to the
North American television market, the Company licenses Properties for
exhibition primarily via pay, basic cable, pay-per-view 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 videocassettes
internationally, rather, it licenses videocassette distribution rights to
sub-distributors.
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
<PAGE>
delivers a copy of the master of the film or television program in a format
appropriate to the customer's needs. 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 station or pay or basic 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. In certain cases,
Unapix Syndication will enter into barter arrangements where the license fee
it receives from a television station consists of advertising time, or a
combination of a set cash license fee and advertising time. The Company then
sells the advertising time to advertisers, with the ultimate fee being paid
for such sale based upon the rating the Company's Property receives upon
broadcast.
The Company distributes videocassettes of feature films to the domestic home
video rental market primarily by selling them to seven wholesale
distributors, who then sell the videocassettes to rental outlets, such as
video rental chains, individual video rental stores, and supermarkets. The
Company also sells videocassettes directly to Blockbuster Entertainment and
Hollywood Entertainment. During 1999 the Company began entering into revenue
sharing arrangements with certain video rental store chains. Under such
arrangements, videocassettes are sold at a reduced price to the rental store
chain, and a percentage of the video rental revenue is then shared by the
owner of the rental store with the Company. The Company anticipates that such
revenue sharing arrangements will increase in the future.
The Company currently selects an average of approximately two feature films
for release each month to the United States home video rental market. However
the Company currently plans to reduce the number of films it releases in
2001, so that it can concentrate on bigger budget films with more
recognizable actors, better production values and a larger advertising
campaign. 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
videocassettes to the United States 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.
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 United States home video rental market are key factors in
determining the amount of sales. The Company believes that it was one of the
first distributors to utilize several new techniques of video box designs
including the use of 3-D graphics and "moving" images, along with multiple
box designs for the same films. 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 artwork for these materials. The Company then arranges for the
printing, production and distribution of all promotional materials.
<PAGE>
Most of the feature films the Company distributes to the domestic home video
rental marketplace are released directly to that market. From 1995 to 1998,
the Company had not engaged in theatrical distribution, albeit, during such
period, it had distributed films that were released by others theatrically.
As the Company has been acquiring rights in feature films earlier in their
production stages, the Company has been seeking to acquire all rights in the
United States, including theatrical distribution rights. Because the
production quality of these films as well as the caliber of their stars has
been improving, the Company intends to increasingly exploit the theatrical
rights it acquires by engaging in theatrical distribution itself. During the
first quarter of 2000 the Company retained four employees to specialize in
the theatrical release of films.
Theatrical distribution of a film involves the manufacture of release prints,
the promotion of the picture through advertising and publicity campaigns and
the licensing of the motion picture to theatrical exhibitors. The costs
incurred in connection with the distribution of a motion picture can vary
significantly, depending among other things, on the number of screens on
which the motion picture is to be exhibited and the competition among
distributors for theaters during certain seasons. The distributor and
theatrical exhibitor generally enter into an arrangement providing for the
exhibitor's payment to the distributor of a percentage of box office receipts
for the exhibition period, in some cases after deduction of the theater's
overhead, or a flat negotiated weekly amount. The distributor's percentage
of box office receipts varies widely, depending upon the success of the
motion picture at the box office and other factors.
The Company has to date theatrically released films only on a platform basis.
In a platform release a film is exhibited in theatres in one or two cities
where the film is promoted; if the release is successful in those cities,
then it is released in other cities. Usually, the film is exhibited in only
one or two theatres in the initial cities. Platform releases entail
substantially less promotional and print and advertising costs than national
releases. Major studios can spend in excess of $50 million to promote motion
pictures for a national release and have combined print and advertising costs
in excess of $19 million. The Company theatrically released three films
during 1999 and anticipates theatrically releasing on a platform basis up to
six films during 2000.
Films that are first released theatrically are generally released to the home
video rental market four to six months after the theatrical release. Films
that are first exhibited on cable television are generally released to the
home video rental market two to three months after the television premiere.
The Company believes that a theatrical release or pay cable premiere of a
film should complement its home video release and its subsequent sale in
television syndication by generating greater interest and awareness of the
film before it is marketed in those areas. In order to enhance theatrical
releases of films, and certain other feature films that are not initially
released theatrically, the Company plans to establish separate web sites for
such films.
<PAGE>
The Company markets films and television programs that are intended to be
purchased by consumers by the following means: (i) selling to distributors
and "rack-jobbers" who then sell the products to large retail outlets (such
as "Best Buy," "Musicland" and "Tower Records"), convenience stores (such as
"Seven Eleven") or mass merchants (such as "Sam's Club"), or otherwise market
the products via shelf space they occupy at these locations, for resale to
the ultimate consumer, (ii) direct response advertisements appearing on the
Company's videocassettes and at the end of broadcasts of some of the
Company's programs, and (iii) sales to specialty retail outlets (such as
governmental agencies, gift stores, libraries, museums, Radio Shack, The
Nature Company, and The Sharper Image). In addition, the Company markets
Properties directly to consumers through their inclusion in catalogues
operated by the Company and others, and through web-sites operated by the
Company and others. All of the Company's E-Commerce web-sites are promoted
via direct advertising, web addresses on telecasts of Company programs, in
Company mail-order catalogues, customer response cards included with Company
product, the use of trailers on the Company's videos, via links to other Web
sites operated by the Company, and links to certain search engines. The
Company's E-Commerce sites themselves cross-promote the Company's other
products; as an example, horrormovies.com may contain promotion for an
upcoming horror video release by A-Pix.
MUSIC VIDEOS AND AUDIO TAPES AND COMPACT DISCS - MIRAMAR RECORDINGS
The Company, through its division Miramar Recordings ("Miramar"), which was
acquired by the Company in 1997, primarily produces and distributes audio
recordings for the New Adult Contemporary market, i.e., products that are
designed to appeal to individuals over the age of 35. During 1999 the Company
released Roger Smith's "Both Sides." "Off the Hook," the first single from
"Both Sides," spent four weeks as the number one record on Radio and Records
NAC/Smooth Jazz Charts. Roger Smith was named Break Out Artist of the Year
by Radio and Records Magazine and was nominated for Smooth Jazz Artist of the
Year by Gavin Magazine. In addition, during 1999, the Company released new
recordings by artists who enjoy significant name recognition among audiences
over the age of 35 based upon their past recordings; such artists include
Alan Parsons; and Danny O'Keefe (best known for his 1972 top-ten hit "Good
Time Charlie's Got the Blues"). Other artists who have recorded on the
Miramar label include the following: Tangerine Dream; Pete Bardens; Jan
Hammer; Thomas Dolby; and Abraxas Pool.
In addition to its audio recordings, Miramar has in the past produced and
distributed long form music videos. Such videos match visual images with
music rather than attempting to tell a story. Early Miramar productions
included "Natural States," "Desert Vision" and "Canyon Dreams." During the
early 1990's Miramar 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." In 1999, Miramar's
music video "Televoid," which was released in 1998, was nominated for a
Grammy Award for Best Long Form Video. Miramar markets the soundtrack to a
number of its videos separately as audio products. Miramar also has a
children's line of videos, examples of which are "Gift of the Whales,"
"Imaginaria" and "Elroy's Toys". During 1999 Miramar did not acquire or
produce any new videos for distribution, and it has no immediate plans to do
so in the future.
<PAGE>
Recordings are primarily obtained from artists and their agents who approach
Miramar seeking a distribution label. In most cases, the music has been
recorded on a relatively high quality master when it is presented to Miramar.
Miramar may then re-sequence and remix the master. To an increasing extent,
Miramar is arranging for a record to be produced by an artist in a recording
studio.
Currently, approximately one-half of Miramar's 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
re-recording the music on the master for a period of three to seven years.
The other half of the recordings Miramar distributes are currently obtained
by Miramar's being granted a license for 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, museums, Radio Shack and The Sharper Image.
In January, 1998 Miramar entered into a distribution agreement with
Distribution North America ("DNA"), a division of Valley Media, Inc., for
distributing its music videocassettes and audio compact discs and tapes in
the "traditional retail marketplace" in United States, which is the principal
territory in which Miramar's products are sold. The distribution agreement
with DNA expires in December 2000. 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, including through catalogues operated by the Company and others,
and the Company's Web sites.
FOREIGN SALES
Revenues derived by the Company from foreign markets were $6,521,000 and
$6,313,000, in the years ended December 31, 1999 and 1998, 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.
<PAGE>
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, have 103 employees, two of which
are part-time.
COMPETITION
Success in the distribution of films, television 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
faces 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 that
companies are willing to offer to producers and recording artists and the
producers' 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 Cinema, Artisan Home Entertainment, Trimark Entertainment,
Columbia Tristar Home Video, Pearson Television, Winstar Home Entertainment
and Tapestry International. The Company's principal competitors for
recordings are Windham Hill, Private Music, CMC, Rhino and Higher Octave.
Many of the Company's competitors have significantly greater financial
resources and longer operating histories than the Company. In general, the
Company acquires films, television programming, videos and recordings that
are designed to appeal to a specific niche audience, and which can be
promoted with a limited advertising budget. Many of the films and television
programs the Company acquires may appeal to such a targeted audience that
competitors who 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, do not have as good a
marketing reputation, or are unable to exploit the films or programs in as
many markets as the Company (i.e. domestic television, domestic home video
rental, consumer or international markets). The Company also believes that it
is able to compete against larger companies because it can react to trends in
the entertainment industry and public tastes more quickly than such
competitors since it lacks the more elaborate bureaucracies that often
characterize larger organizations. Most of the recordings that Miramar seeks
to acquire are not pursued by major record labels because of their niche
appeal. The Company believes that Miramar can compete against other smaller
record labels for acquisitions of recordings because of Miramar's reputation
in the industry.
<PAGE>
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 volume.
SERVICEMARKS AND TRADEMARKS
The Company has registered the following trademarks or service marks with the
United States Patent and Trademark Office: "UNAPIX;" "MIRAMAR PRODUCTIONS;"
A-PIX ENTERTAINMENT;" "INNER DIMENSION;" "UNAPIX FILMS;" "The HORROR SHOP"
and "The Jazz Store." The Company has applied for federal registration of the
following trademarks or service marks: "UNAPIX CONSUMER PRODUCTS;" "DOCERE;"
and "ULTIMATE DVD DEMO" and related logo treatments and designs.
FACTORS WHICH MAY AFFECT RESULTS
This Annual Report on Form 10-K contains "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements may consist of any statement other than a recitation of historical
fact and can be identified by the use of forward-looking terminology such as
"expect," "estimate," "anticipate," "may," "believe," or "continue" or the
negative thereof and similar expressions and variations thereof. The reader
is cautioned that all forward-looking statements are necessarily speculative
and that there are certain risks and uncertainties that could cause actual
events or results to differ materially from those referred to in such
forward-looking statements. Certain of those risks and uncertainties are set
forth below. However, the risks highlighted below and elsewhere in this
Annual Report should not be assumed to be the only things that could affect
the Company's future performance. The Company does not have a policy of
updating or revising forward-looking statements and thus it should not be
assumed that silence by the Company's management over time means that actual
events are bearing out as estimated in such forward-looking statements.
Nature of the Entertainment Industry - The film, television 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.
<PAGE>
Capital Intensive Industry; Additional Financing Requirements - The film,
television 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 and Chief
Executive Officer, Scott Hanock, Co-President of the Company and Managing
Director of International Sales and Marketing, Robert Baruc, Co-President of
the Company and Chief Executive Officer of A-Pix, David S. Lawi, Chairman of
the Company's Executive Committee, David A. Dreilinger, Co-President of the
Company and Chief Operating Officer, and Cheryl Freeman, Chief Financial
Officer of the Company. The loss of the services of one or more of Messrs.
Pearlman, Hanock, Baruc, Lawi or Dreilinger or Ms. Freeman could have a
material adverse effect upon the Company's business. Presently, the Company
has key man life insurance on the life of Mr. Baruc in the amount of
$750,000.
Income Forecast; Basis of Principal Assets; Possible Fluctuation in Operating
Results - Included in the Company's assets at December 31, 1999 are
unamortized film costs of $47,074,000 which include costs incurred for the
production, acquisition and distribution of its Properties and other rights
acquired from third parties. Amortization of these costs is based on the
"individual film forecast method" of accounting. This method, which is
prescribed by generally accepted accounting principles and is standard
practice in the entertainment industry, requires management to project future
revenues to be generated by the Company's Properties and to amortize the
costs of the Properties based on the percentage that revenue recognized bears
to total projected revenues. There can be no assurance that management's
projection of future revenues will be realized. Moreover, if the Company
subsequently determines that future revenues will be less than originally
projected, an adjustment would have to be made in the carrying value of
deferred costs which could materially affect operating results reported in
the period such adjustment is made. Accordingly, there may be significant
fluctuation in quarterly financial results reported by the Company as a
result of such adjustments.
Competition - The Company currently competes with other distribution
companies including many of which have longer-standing relationships in the
industry, significantly greater financial resources and more extensive
libraries than the Company. There can be no assurance that the Company will
be able to compete successfully against these other companies.
<PAGE>
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 one-half years, and annual rent of $320,739 during the remainder of the
lease term.
The Company also leases approximately 14,000 square feet of space located at
15910 Ventura Boulevard, Encino, California, pursuant to a sublease with a
term commencing on April 1, 1999 and expiring on December 31, 2003. This
space is used for the offices of Unapix International and certain
administrative personnel. The lease provides for a base annual rent of
$250,000.
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 four years commencing June 1998 with an annual base rent of $112,500
for the first year, $117,000 for the second year, $121,500 for the third year
and $126,000 for the fourth year. The Company currently pays approximately
25% of the rent.
Miramar's offices, consisting of approximately 3,880 square feet of office
space, are located at the Fourth and Vine Building, 2601 Fourth Avenue,
Seattle, Washington 98121. Miramar occupies these offices pursuant to a lease
expiring in August 2002, which provides for a base annual rent of $75,660.
Unapix Productions West's offices occupy 2,000 square feet of space at 10950
West Washington Boulevard, Culver City, California 90232. The offices are
occupied pursuant to a five year lease that commenced in June 1998. The lease
provides for a base annual rent of approximately $50,000 per year.
The Jazz Store's offices, consisting of a total of 3,163 square feet of
space, are located at 427 Bloomfield Avenue, Montclair, New Jersey, 07042.
The Jazz Store's offices are occupied pursuant to a five year lease, that
commenced in October 1998. The Jazz Store's offices are occupied pursuant to
a three year lease that commenced in June 1998. The leases provide for base
annual rent aggregating approximately $77,000 per year.
The Company believes that its office space is adequate for its current needs.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in legal proceedings which it considers to be routine
and incidental to its 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
None
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
(a) Market Information
The Company's Common Stock is primarily traded on the American Stock Exchange
(the "AMEX") under the symbol UPX. Until June 22, 1998, the Company's Class B
Warrants also traded on the AMEX under the symbol UPX.W.S.B. Trading of the
Class B Warrants was discontinued as a result of the expiration of such
warrants in accordance with their terms.
The following table sets forth the range of high and low sales prices of the
Company's securities as reported by the AMEX.
<TABLE>
<S> <c: <C> <C>
American
Stock Exchange
1998 Low High
First Quarter Common Stock 4 1/8 5 1/16
Class B Warrants 7/16 15/16
Second Quarter Common Stock 4 1/16 6 1/16
Class B Warrants* 3/8 7/8
Third Quarter Common Stock 2 5 1/4
Fourth Quarter Common Stock 1 3/4 2 3/4
1999 Low High
First Quarter Common Stock 1 5/8 2 5/16
Second Quarter Common Stock 1 5/8 3 1/2
Third Quarter Common Stock 2 3/8 3 5/16
Fourth Quarter Common Stock 1 1/2 2 7/8
</TABLE>
- ----------------------------
* Trading of the Class B Warrants was discontinued by the AMEX as of the
close of business on June 22, 1998.
<PAGE>
(b) Holders
As of March 3, 2000, there were, to the best of the Company's knowledge,
approximately 318 holders of record (not beneficial holders) of the Company's
Common Stock.
(c) Dividends
The Company has not paid any cash dividends on its common stock. The Company
does not anticipate paying any cash dividends in the foreseeable future, and
the Company's working capital credit facility limits the amount of dividends
it can pay.
(d) Recent Sales of Unregistered Securities
Set forth below is a description of all sales of unregistered securities
during the fourth quarter of 1999 (sales of unregistered securities during
the first three quarters of 1999 were previously reported on the Company's
Quarterly Reports on Form 10-Q).
In October 1999 the Company issued warrants to purchase 150,000 shares of the
Company's common stock to Reedland Capital Partners as a portion of the
finder's fee payable with respect to the $40,000,000 credit facility the
Company entered into with General Electric Capital Corporation. The warrants
have an exercise price of $2.77 per share and expire in October 2000. The
warrants were issued pursuant to an exemption contained in Section 4(2) of
the Securities Act. In October 1999 the Company also issued 185,646 common
stock purchase warrants to four individuals or entities. Each warrant
entitles the holder to purchase one share of the Company's common stock at a
price of $4.00 per share and expires on June 30, 2003. The warrants were
issuable upon conversion of the Company's 10% Convertible Notes due June 30,
2003 and were issued pursuant to the exemption contained in Section 3(a) of
the Securities Act of 1933, as amended.
In December 1999 the Company granted a total of 90,000 common stock purchase
options to employees, all of which have an exercise price of $2.0625 per
share. All such options expire in December 2009. The options become
exercisable based solely upon the grantee's continuing to provide services to
the Company. The options were issued pursuant to the exemption contained in
Section 4(2) of the Securities Act of 1933, as amended (the "Act").
In November 1999 the Company issued 22,058 shares of its Common Stock to
Steve and Marcia Brecker, who are officers, directors and shareholders of the
Company's subsidiary, The Jazz Store, Inc. (the "Jazz Store"). Such shares
were a portion of an aggregate of 75,000 shares of Common Stock that the
Company was obligated to issue to Steve and Marcia Brecker in exchange for a
total of 598 shares of the Jazz Store, constituting 28.2% of the Jazz Store's
outstanding shares, that they sold to the Company.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<S> <C> <C> <C> <C> <C>
Year Ended December 31,
------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Revenues $41,862 $36,481 $32,152 $22,413 $18,289
Income from operations 2,406 1,524 3,270 1,112 1,061
Income (loss) before
extraordinary item (952)(A) 110 1,347 589 935
====== ====== ====== ====== ======
Per share
Income (loss before extraordinary item
Basic $ (.16) $ (.01) $ .21 $ .09 $ .22
Diluted (.16) (.01) .19 .08 .19
====== ====== ====== ====== ======
</TABLE>
(A) Includes debt conversion expense (non-cash) of $1,418
<TABLE>
<S> <C> <C> <C> <C> <C>
December 31,
----------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Total assets $76,806 $65,478 $47,071 $31,248 $21,833
Line of credit outstanding 30,641 9,978 6,793 309 -
Variable rate
subordinated notes 701 2,608 2,864 2,821 2,785
10% Convertible
subordinated notes 4,586 13,343 8,001 5,598 -
Stockholders' equity 31,017 24,771 16,030 12,814 11,615
====== ====== ====== ====== ======
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
YEAR ENDED DECEMBER 31, 1999 COMPARED WITH YEAR ENDED DECEMBER 31, 1998
Revenues increased to $41,862,000 in 1999, an increase of $5,381,000 (15%)
compared to $36,481,000 in 1998. The increase is primarily the result of an
increase in licensing and distribution revenues of $6,868,000 (59%) to
$18,647,000 in 1999 compared to $11,679,000 in 1998. Revenues for 1999
include $15,647,000 in licensing revenue and a license fee of $3,000,000 of
certain rights relating to 37 titles for which the Company has distribution
rights. Management expects that the improvement over the prior years will
continue in 2000 as higher volume and margin genre films are released. This
growth is expected to be the result of continued market penetration and the
Company's emphasis on licensing and distributing higher quality films to the
rental marketplace and non-fiction titles to the sell-through marketplace.
Operating costs were $39,456,000 in 1999, an increase of $4,499,000 (13%)
compared to $34,957,000 in 1998. The increase was due primarily to an
increase in licensing and distribution costs of $4,457,000 (59%) to
$12,000,000 in 1999 from $7,543,000 in 1998. The increase was due to
increased film expenses directly related to the increased licensing and
distribution revenues.
<PAGE>
Income from operations in 1999 increased $882,000 (58%) in 1999 to $2,406,000
from $1,524,000 in 1998 due to the increased revenues discussed above.
Interest expense increased by $147,000 (12%) in 1999 to $1,395,000 from
$1,248,000 in 1998 due to increased borrowings under the revolving credit
offset by reduced interest on variable rate notes and 10% convertible notes
as a result of the extinguishment discussed in note 4 to the consolidated
financial statements.
The Company had income before a debt conversion charge and taxes of
$1,011,000 in 1999 compared to income of $276,000 in 1998. After a non-cash
debt conversion charge of $1,418,000 related to the additional shares of
common stock issued in the conversion, the loss before taxes in 1999 was
$407,000 compared to income of $276,000 in 1998.
Income taxes of $545,000 were provided in 1999 primarily because of the non-
deductibility of the $1,418,000 debt conversion expense for tax purposes.
The net loss of $1,666,000 for 1999 includes total net charges related to the
debt conversion of $2,132,000, including a net extraordinary charge of
$714,000.
YEAR ENDED DECEMBER 31, 1998 COMPARED WITH YEAR ENDED DECEMBER 31, 1997
Revenues increased to $36,481,000 in 1998, an increase of $4,329,000 (14%),
compared to $32,152,000 in 1997. The increase is primarily the result of the
increase in home video revenues of $5,321,000 (27%) to $24,802,000 in 1998
compared to $19,481,000 in 1997.
Licensing and distribution costs decreased by $1,404,000 (16%) to $7,543,000
in 1998 from $8,947,000 in 1997. The decrease was due to lower sales in 1998
and a major sale in 1997 to which a higher than normal amortization rate
applied. Home video costs increased $1,825,000 (15%) to $14,396,000 in 1998
compared with $12,571,000 in 1997 which reflects increased royalty,
amortization and other film expenses associated with higher level of
revenues.
General and administrative expenses were $12,685,000 in 1998 compared to
$7,364,000 in 1997, an increase of $5,321,000 (72%). The increase is
primarily attributable to costs related to the infrastructure required to
support the Company's expansion and diversification. These costs consisted
mainly of increased staffing and office costs to support increased marketing
activity and establishment of new business units. Other non-recurring costs
of $333,000 in 1998 represent costs incurred primarily for termination and
relocation expenses.
Income from operations was $1,524,000 in 1998 and $3,270,000 in 1997. The
decrease reflects higher general and administrative expenses referred to
above.
Interest and debt expense, net increased to $1,248,000 in 1998 from $977,000
in 1997. The increase reflects interest on the 10% convertible notes issued
in the second half of 1997 and in 1998, as well as increased bank borrowings.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
In 1999, operating activities provided cash of $9,098,000. The company used
$24,657,000 in investing activities which consisted primarily of $24,389,000
incurred in acquiring and producing new properties for the home video rental
and licensing and distribution markets. The additional cash requirements were
primarily met by proceeds of $14,153,000 from financing activities which
included $30,641,000 borrowed under the GE Capital credit facility,
$4,499,000 borrowed under the bank line of credit, less, $14,477,000
repayment of the Imperial credit facility, $5,595,000 to repurchase principal
amount of the Company's outstanding subordinated indebtedness, financing
costs of $1,512,000 for the GE Capital credit facility, and $500,000 proceeds
from private placement of preferred stock.
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
$3,352,000 as of December 31, 1999, which amounts are payable upon delivery
of the films. The Company also expects to incur significant additional cash
flow needs relating to its continued expansion. In order to meet its future
funding needs the Company will utilize cash on-hand (including cash from the
financing described below), operating cash flows, its revolving line of
credit and other potential financing.
The Company's borrowing facility provides for borrowing of up to $40,000,000,
$26,000,000 secured by the Company's library of films and other entertainment
programming and $14,000,000 secured by accounts receivable. The proceeds from
loans under the facility have been, and will be, used for repayment of the
Imperial facility in full, repurchase $5,595,000 principal amount of the
Company's outstanding subordinated indebtedness and for working capital
purposes, including the acquisition of distribuion rights with respect to
entertainment programming. As of December 31,1999, the Company has borrowed
$30,641,000 and had a remaining availability of $2,070,000.
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 financings to continue its long term plans of expansion
and growth. The Company anticipates that as its asset base grows it will
secure an increased working capital line of credit as well as explore other
film acquisition financing arrangements. The Company may also have additional
debt or equity financings.
YEAR 2000
The Company completed the Year 2000 compliance program including testing
efforts by December 31, 1999. The Company did not experience any disruptions
to normal operations as a result of any Year 2000 rollover efforts to January
1, 2000. The Company will continue to monitor key dates throughout 2000 but
has no expectation that related issues will arise in the current year.
<PAGE>
Except for the historical information contained herein, the matters discussed
are forward-looking statements which are necessarily speculative and are
subject to risks and uncertainties which could cause actual events or results
to differ materially from those referred to in such forward-looking
statements. Certain of such risks include the following: (i) The film,
television 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; and (ii) The film, television 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 entertainment 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. Additional
factors that could affect results are described in "FACTORS WHICH MAY AFFECT
RESULTS". The highlighted risks should not be assumed to be the only things
that could affect the Company's future performance. The Company does not have
a policy of updating or revising forward-looking statements and thus it
should not be assumed that silence by the Company's management over time
means that actual events are bearing out as estimated in such forward-looking
statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company has a borrowing facility on which it incurs interest equal to
1.25% per annum above the Index Rate which was 8.5% at December 31, 1999. A
1% change in the Index Rate applied to the outstanding borrowings at December
31, 1999 would result in an increase or decrease in interest expense of
$306,400 per year.
Receivables from sales to foreign customers are generally denominated in U.S.
dollars. The Company has no significant foreign exchange gains or losses.
ITEM 8. FINANCIAL STATMENTS AND SUPPLEMENTARY DATA
SEE FINANCIAL STATEMENTS SET FORTH IN ITEM 14 OF THIS ANNUAL REPORT
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
The information required by Item 10 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 2000 to be filed with the Securities and
Exchange Commission not later than 120 days after December 31, 1999 (the
"Proxy Statement").
ITEM 11. EXECUTIVE COMPENSATION.
The information required by Item 10 is incorporated herein by reference to
the material under this heading in the Proxy Statement.
ITEM 12. 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 13. 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.
PART IV
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K.
(a) (1) Financial Statements and Supplemental Schedule
Page
Independent Auditor's Report............... F-1
Consolidated Balance Sheets as of
December 31, 1999 and 1998.............. F-2
Consolidated Statements of Operations
for the years ended December 31, 1999, 1998
and 1997................................ F-3
Consolidated Statements of Changes in
Stockholders' Equity for the years
ended December 31, 1999, 1998 and 1997.. F-5
Consolidated Statements of Cash Flows for
the years ended December 31, 1999, 1998
and 1997................................ F-11
Notes to Consolidated Financial Statements. F-13
Independent Auditor's Report on Schedule .. F-33
Schedule II Valuation and Qualifying
Accounts................................ F-34
(b) Reports on Form 8-K
<PAGE>
The Company filed a Current Report on Form 8-K for an event of September 28,
1999. The report covers the Company's closing on a credit facility with
General Electric Capital Corporation, the repurchase of a portion of the
Company's subordinated indebtedness with the proceeds therefrom, and the
conversion into shares of common stock of a portion of such indebtedness.
(c) Exhibits
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, merging A-Pix
Entertainment, Inc. into the Company [incorporated herein by reference to
Exhibit 3.1.7 to the Company's Annual Report on Form 10-KSB for 1996 (the
"1996 Form 10-KSB")]
3.1.8
Certificate of Amendment of the Company's Certificate of Incorporation, dated
October 7, 1997, increasing the number of authorized shares of common stock
[incorporated herein by reference to Exhibit 3 to the Company's Quarterly
Report on Form 10-QSB for the Quarterly Period ended September 30, 1997]
<PAGE>
3.1.9
Certificate of Designation, Powers, Preferences and Rights of the 6% Series B
Convertible Preferred Stock [incorporated herein by reference to Exhibit 3.1
to the Company's Current Report on Form 8-K for Event of July 16, 1998 (the
"July 1998 Form 8-K")]
3.1.10
Certificate of Designations, Preferences and Rights of Series C 8% Cumulative
Convertible Preferred Stock [incorporated herein by reference to Exhibit
3.1.10 to the Company's Annual Report on Form 10-KSB for 1998 (the "1998 Form
10-KSB")]
3.2
By-Laws of the Company [incorporated herein by reference to Exhibit 3.2 to
the 1998 Form 10-KSB]
4.1
Form of Common Stock Certificate [incorporated herein by reference to Exhibit
4.1 to the Registration Statement]
4.2
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]
4.3
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]
4.4
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]
4.5
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")]
4.6
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]
4.7
Form of 10% Convertible Subordinated Note due June 30, 2003 having an
original conversion price of $4.50 per share [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")]
<PAGE>
4.8
Form of Common Stock Purchase Warrant Certificate, entitling the holder to
purchase shares of Common Stock at an original exercise price of $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]
4.9
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 [incorporated herein by reference to Exhibit 4.15 of the 1996 Form
10-KSB]
4.10
Form of 10% Convertible Subordinated Note due June 30, 2003 having an
original conversion price of $4.75 per share [incorporated herein by
reference to Exhibit 4.13 of the Company's Annual Report on Form 10-KSB for
1997 (the "1997 Form 10-KSB")]
4.11
Form of 10% Convertible Subordinated Note due June 30, 2004 having an
original conversion price of $5.00 per share [incorporated herein by
reference to Exhibit 4.14 to the 1997 Form 10-KSB]
4.12
Form of Common Stock Purchase Warrant Certificate, entitling the holder to
purchase shares of Common Stock at an original exercise price of $6.00 per
share and expiring on June 30, 2004 [incorporated herein by reference to
Exhibit 4.15 to the 1997 Form 10-KSB]
4.13
Form of Common Stock Purchase Warrant Certificate, entitling the holder to
purchase shares of Common Stock at $5.00 per share and expiring December 31,
2002 [incorporated herein by reference to Exhibit 4.16 to the 1997 Form 10-
KSB]
4.14
Form of Common Stock Purchase Warrant dated July 16, 1998 in favor of KA
Investments with respect to 200,000 shares of underlying common stock
[incorporated herein by reference to Exhibit 10.3 to the July 1998 Form 8-K]
*10.1
Employment Agreement between the Company and Scott Hanock [incorporated
herein by reference to Exhibit 10.2 to the Registration Statement]
*10.1.1
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]
*10.1.2
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]
*10.2
1993 Stock Option Plan, as amended (1)
<PAGE>
10.3
Form of Lease Agreement for 537 Steamboat Road, Greenwich, Connecticut
offices [incorporated herein by reference to Exhibit 10.9 to the 1994 Form
10-KSB]
10.4
Lease Agreement for 200 Madison Avenue Location [incorporated herein by
reference to Exhibit 10.9 to the 1995 Form 10-KSB]
*10.5
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]
10.6
Schedule of omitted documents in the form of Exhibit 10.9, including material
detail in which such documents differ from Exhibit 10.9 [incorporated herein
by reference to Exhibit 10.18.1 to the Registration Statement]
*10.7
Amended and Restated Employment Agreement between the Company and Robert
Baruc (1)
*10.8
Employment Agreement between the Company and David A. Dreilinger, as amended
(1)
*10.9
Employment Agreement between the Company and Cheryl Freeman (1)
*10.10
Employment Agreement between the Company and Michael Epps (1)
*10.11
Separation Agreement, dated January 31, 1999, between the Company and David
M. Fox (1)
10.12
Lease Agreement, as amended to date, for Miramar's offices at 200 Second
Avenue West, Seattle, Washington [incorporated herein by reference to Exhibit
10.29 to the 1996 Form 10-KSB]
10.13
Lease Agreement for Miramar's offices located at the Fourth and Vine
Building, 2601 Fourth Avenue, Seattle, Washington 98121 (1)
10.14
Convertible Preferred Stock Purchase Agreement, dated as of July 15, 1998,
between KA Investments LDC and the Company [incorporated herein by reference
to Exhibit 10.1 to the July 1997 Form 8-K]
10.15
Registration Rights Agreement, dated as of July 15, 1998, between KA
Investments LDC and the Company [incorporated herein by reference to Exhibit
10.2 to the July 1998 Form 8-K]
<PAGE>
10.16
Lease Agreement for Unapix Production West's office space located at 10950
West Washington Boulevard, Culver City, California 90232 [incorporated herein
by reference to Exhibit 10.21 to the 1998 Form 10-KSB]
10.17
Lease Agreement for The Jazz Store's offices located at 427 Bloomfield
Avenue, Montclair, New Jersey 07042 [incorporated herein by reference to
Exhibit 10.22 to the 1998 Form 10-KSB]
10.18
Sublease Agreement for Unapix International's Office space located at 15910
Ventura Boulevard, Encino, California [incorporated herein by reference to
Exhibit 10.23 to the 1998 Form 10-KSB]
10.19
Credit and Security Agreement, dated as of September 28, 1999, among Unapix
Entertainment, Inc. and its subsidiaries and General Electric Capital
Corporation [incorporated herein by reference to Exhibit 10.1 to the
Company's Current Report on Form 8-K for event of September 28, 1999]
10.20
Amendment No. 1 to Credit and Security Agreement and Waiver, dated as of
April 12, 2000, among Unapix Entertainment, Inc. and its subsidiaries and
General Electric Capital Corporation (1)
21.1
Subsidiaries (1)
23.1
Consent of Richard A. Eisner & Company, LLP. (1)
27.1
Financial Data Schedules (1)
- - - - - - - - - - -
(1) Filed herewith.
* Management contract or compensatory plan or arrangement.
<PAGE>
SIGNATURES
Pursuant to the requirements of 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 30th day
of March, 2000.
UNAPIX ENTERTAINMENT, INC.
By: /s/Herbert M. Pearlman
Herbert M. Pearlman
Chief Executive Officer (principal executive officer)
By: /s/ Cheryl Freeman
Cheryl Freeman
Chief Financial Officer (principal financial and accounting officer)
<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
Herbert M. Pearlman of Directors and Chief
Executive Officer March 30, 2000
/s/David S. Lawi Chairman of the Executive
David S. Lawi Committee and Director March 30, 2000
/s/Robert Baruc Office of the President
Robert Baruc and Director March 30, 2000
/s/Scott Hanock Office of the President
Scott Hanock and Director March 30, 2000
/s/David A. Dreilinger Office of the President
David A. Dreilinger and Director March 30, 2000
/s/George Back Director March 30, 2000
George Back
/s/Lawrence Bishop Director March 30, 2000
Lawrence Bishop
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Unapix Entertainment, Inc.
We have audited the accompanying consolidated balance sheets of Unapix
Entertainment, Inc. and subsidiaries as of December 31, 1999 and 1998, and
the related consolidated statements of operations, changes in stockholders'
equity and cash flows for each of the years in the three-year period ended
December 31, 1999. 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 of December 31, 1999 and 1998, and
the consolidated results of their operations and their consolidated cash
flows for each of the years in the three-year period ended December 31, 1999
in conformity with generally accepted accounting principles.
/s/ Richard A. Eisner & Company, LLP
New York, New York
March 17, 2000
With respect to Note 14,
March 28, 2000
With respect to Note 4,
April 12, 2000
F-1
<PAGE>
UNAPIX ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (In thousands, except share amounts)
<TABLE>
<S> <C> <C>
December 31,
ASSETS 1999 1998
------- -------
Cash and cash equivalents $ 301 $ 1,707
Accounts receivable, net of allowances
of $3,075 and $2,314 17,921 18,563
Film costs, net 47,074 36,525
Product inventory 3,917 2,978
Property and equipment, net 997 1,037
Other assets 1,617 470
Deferred loan cost 1,895 919
Excess of cost over fair value of net
assets acquired, net 3,084 3,279
-------- --------
Total Assets $ 76,806 $ 65,478
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities :
Accounts payable and accrued expenses $ 6,218 $ 8,845
Deferred income taxes 1,259 1,104
Royalty payable 2,384 4,829
Revolving credit 30,641 -
Bank line of credit - 9,978
Variable rate senior subordinated notes 701 2,608
10% convertible subordinated notes 4,586 13,343
-------- --------
Total Liabilities 45,789 40,707
-------- --------
Stockholders' Equity:
Preferred stock; $.01 par value; 3,000,000 authorized
Cumulative convertible Series A 8% preferred stock;
488,000 and 501,000 issued and outstanding (aggregate
liquidation preference of $1,464 and $1,503) 5 5
Non-voting convertible Series B 6% preferred stock;
300 shares issued and outstanding,
(aggregate liquidation reference of $3,000) - -
Cumulative Convertible Series C 8% preferred stock;
1,175 and 675 shares issued and outstanding
(aggregate liquidation preference of $1,175 and $675) - -
Common stock $.01 par value per share;
40,000,000 authorized; -
10,243,000 and 7,515,000 shares issued and outstanding 103 76
Additional paid-in capital 34,923 26,695
Notes receivable from equity sales (2,683) (2,715)
Retained earnings (accumulated deficit) (1,331) 710
-------- --------
Total Stockholders' Equity 31,017 24,771
-------- --------
Total Liabilities and Stockholders' Equity $ 76,806 $ 65,478
======== ========
</TABLE>
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)
<TABLE>
<S> <C> <C> <C>
Years Ended December 31,
1999 1998 1997
----- ----- -----
Revenues:
Licensing and distribution $18,547 $11,679 $12,671
Home video 23,315 24,802 19,481
------ ------ ------
41,862 36,481 32,152
------ ------ ------
Operating costs:
Licensing and distribution 12,000 7,543 8,947
Home video 14,597 14,396 12,571
General and administrative expenses 12,349 12,685 7,364
Cost of settlement of litigation 510 - -
Other - non recurring - 333 -
------ ------ ------
39,456 34,957 28,882
------ ------ ------
Income from operations 2,406 1,524 3,270
------ ------ ------
Interest and other debt expense, net (1,395) (1,248)
(977)
Debt conversion expense (non-cash) (1,418) - -
------ ------ ------
Income (loss) before provision for income taxes (407) 276 2,293
Provision for income taxes 545 166 946
------ ------ ------
Income (loss) before extraordinary item (952) 110 1,347
Extraordinary item - debt extinguishment
(net of $320 tax benefit) (714) - -
------ ------ ------
Net income (loss) (1,666) 110 1,347
------ ------ ------
Less preferred stock dividends 375 203 121
------ ------ ------
Net income (loss) available to
common shareholders $(2,041) $ (93) $ 1,226
====== ====== ======
Net income (loss) per common share - basic
Income (loss) before extraordinary item $ (.16) $ (.01) $ .21
Extraordinary item (.09) - -
------ ------ ------
$ (.25) $ (.01) $ .21
====== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements
F-3
<PAGE>
UNAPIX ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (continued)
(In thousands, except per share amounts)
<TABLE>
<S> <C> <C> <C>
Years Ended December 31,
1999 1998 1997
----- ----- -----
Net income (loss) per share - diluted
Income (loss) before extraordinary item $ (.16) $ (.01) $ .19
Extraordinary item (.09) - -
------ ------ ------
Net income (loss) $ (.25) $ (.01) $ .19
====== ====== ======
Weighted average number of common
shares outstanding
Basic 8,293 6,783 5,796
====== ====== ======
Diluted 8,293 6,783 6,465
====== ====== ======
</TABLE>
F-4
<PAGE>
UNAPIX ENTERTAINMENT, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders Equity
(In thousands)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Convertible Convertible Convertible
Preferred Stock Preferred Stock Preferred Stock
Common Stock Series A Series B Series C
------------ ------------ ------------ ------------
Par Par Par Par
Value Value Value Value
Shares ($.01) Shares ($.01) Shares ($.01) Shares ($.01)
------ ------ ------ ------ ------ ------ ------ ------
Balance at
January 1,
1997 5,325 $53 534 $ 5
Notes receivable
on common stock
sales and exer-
cise of warrants
Acquisition of
subsidiary 314 3
Exercise of
options and
warrants 109 2
Warrant, option
and private
placement
expenditures
Issuance of
common stock 202 2
Preferred stock
dividends
Common stock
issued in lieu
of cash dividend 19
Issuance of
warrants
Preferred stock 33 (33)
conversion
Net income
for 1997
Balance at ------ ------ ------ ------ ------ ------ ------ ------
December
31, 1997 6,002 $60 501 $ 5
</TABLE>
F-5
<PAGE>
UNAPIX ENTERTAINMENT, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders Equity
(In thousands)
<TABLE>
<S> <C> <C> <C> <C>
Notes Retained
Additional Receivable Earnings
Paid-in on Stock (Accumulated)
Capital Sales (Deficit) Total
---------- ---------- ---------- -------
Balance at
January 1, 1997 $15,273 $(2,033) $ (484) $12,814
Notes receivable on
common stock sales
and exercise of warrants 16 16
Acquisition of subsidiary 1,397 1,400
Exercise of options
and warrants 271 273
Warrant, option and private
placement expenditures (14)
(14)
Issuance of common stock 7 9
Preferred stock dividends (61) (60)
(121)
Common stock issued in
lieu of cash dividend 82 82
Issuance of warrants 224 224
Preferred stock conversion
Net income for 1997 1,347 1,347
---------- ---------- ---------- -------
Balance at
December 31, 1997 $17,179 $(2,017) $ 803 $16,030
</TABLE>
F-6
<PAGE>
UNAPIX ENTERTAINMENT, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders Equity
(In thousands)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Convertible Convertible Convertible
Preferred Stock Preferred Stock Preferred Stock
Common Stock Series A Series B Series C
------------ ------------ ------------ ------------
Par Par Par Par
Value Value Value Value
Shares ($.01) Shares ($.01) Shares ($.01) Shares ($.01)
------ ------ ------ ------ ------ ------ ------ ------
Balance at
January 1,
1998 6,002 $60 501 $ 5
Repayment
on Notes
Acquisition of
subsidiary 75 1
Exercise of
warrants, net
of expenses
$313,000 1,399 14
Sale of preferred
stock, net 300 500
Preferred Stock
issued in pay-
ment of princi-
pal variable
rate note 175
Preferred stock
dividends
Common stock
issued in
lieu of cash
dividend 39 1
Issuance of
warrants
Net income
for 1998
------ ------ ------ ------ ------ ------ ------ ------
Balance at
December
31, 1998 7,515 $76 501 $ 5 300 - 675 -
</TABLE>
F-7
<PAGE>
UNAPIX ENTERTAINMENT, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders Equity
(In thousands)
<TABLE>
<S> <C> <C> <C> <C>
Notes Retained
Additional Receivable Earnings
Paid-in on Stock (Accumulated)
Capital Sales (Deficit) Total
---------- ---------- ---------- -------
Balance at
January 1, 1998 $17,179 $(2,017) $ 803 $16,030
Repayment on Notes 80 80
Acquisition of subsidiary 169 170
Exercise of warrants, net
of expenses $313,000 5,620 (778) 4,856
Sale of preferred
stock, net 3,315 3,315
Preferred Stock issued in
payment of principal
variable rate note 175 175
Preferred stock dividends (203)
(203)
Common stock issued in
lieu of cash dividend 118 119
Issuance of warrants 119 119
Net income for 1998 110 110
---------- ---------- ---------- -------
Balance at
December 31, 1998 $26,695 $(2,715) $ 710 $24,771
</TABLE>
F-8
<PAGE>
UNAPIX ENTERTAINMENT, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders Equity (In thousands)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Convertible Convertible Convertible
Preferred Stock Preferred Stock Preferred Stock
Common Stock Series A Series B Series C
------------ ------------ ------------ ------------
Par Par Par Par
Value Value Value Value
Shares ($.01) Shares ($.01) Shares ($.01) Shares ($.01)
------ ------ ------ ------ ------ ------ ------ ------
Balance at
January 1,
1999 7,515 $ 76 501 $ 5 300 0 675 0
Repayment on
Notes
Issued for
Services 2
Exercise of
Options 96 1
Proceeds from
sale of
preferred
stock, net 500
Preferred stock
dividends 135 1
Cash dividend on
Preferred stock
Common stock issued
issued for
film rights 200 2
Conversion
of debts 2,282 23
Preferred Stock
Conversion 13 (13)
Issuance of
warrants
Net loss
for 1999
------ ------ ------ ------ ------ ------ ------ ------
Balance at December
31, 1999 10,243 $103 488 $ 5 300 - 1,175 -
</TABLE>
F-9
<PAGE>
UNAPIX ENTERTAINMENT, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders Equity
(In thousands)
<TABLE>
<S> <C> <C> <C> <C>
Notes Retained
Additional Receivable Earnings
Paid-in on Stock (Accumulated)
Capital Sales (Deficit) Total
---------- ---------- ---------- -------
Balance at
January 1, 1999 $ 26,695 $ (2,715) $ 710 $ 24,771
Repayment on Notes 32 32
Issued for Services 6 6
Exercise of Options 105 106
Proceeds from sale
of preferred stock, net 500 500
Preferred stock dividends 333 (334) -
Cash dividend on
preferred stock (41) (41)
Common stock issued for
for film rights 448 450
Conversion of debts 6,603 6,626
Preferred Stock
Conversion -
Issuance of warrants 233 233
Net loss for 1999 (1,666) (1,666)
---------- ---------- ---------- -------
Balance at
December 31, 1999 $ 34,923 $ (2,683) $ (1,331) $ 31,017
</TABLE>
F-10
<PAGE>
UNAPIX ENTERTAINMENT, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<S> <C> <C> <C>
For the Years Ended December 31,
1999 1998 1997
----- ------ ------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (1,666) $ 110 $ 1,347
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Amortization and depreciation 15,310 13,113 15,200
Non-cash debt conversion and interest expense 1,571 - -
Deferred income taxes 155 107 867
Accretion of debenture discount 238 114 90
Film rights received - - (900)
Common stock issued for services 6 - -
Changes in:
Accounts receivable, net 642 (4,208) (3,802)
Product inventory (939) (1,325) (605)
Other assets (1,147) 927 (800)
Accounts payable and accrued expenses (2,627) 1,256 (1,582)
Royalties payable (2,445) 1,084 976
------ ------ ------
Total cash flows provided by operating activities 9,098 11,178 10,791
------ ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES -
Film cost expenditures (24,389) (24,344) (19,600)
Acquisition of subsidiary - - (736)
Purchase of property and equipment (268) (428) (234)
------ ------ ------
Total cash flows used by investing activities (24,657) (24,772) (20,570)
------ ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from 10% convertible
notes private placement - 4,052 2,511
Payments on 10% convertible notes (4,594) - -
Proceeds from preferred stock offerings, net 500 3,315 -
Repayments on variable rate notes (1,001) (128) -
Borrowings under bank line of credit 4,499 3,185 6,484
Repayment of bank line of credit (14,477) - -
Borrowings under revolving credit 30,641 - -
Costs incurred in connection with
revolving credit (1,512) - -
Proceeds from employee notes receivable 32 80 55
Proceeds from warrant and option exercises 106 4,856 234
Advances from affiliates 675 700 300
Repayments of advances and other
obligations to affiliates (675) (1,100) -
Preferred stock dividends (41) (84) (39)
------ ------ ------
Total cash flows from financing activities 14,153 14,876 9,545
------ ------ ------
</TABLE>
F-11
<PAGE>
UNAPIX ENTERTAINMENT, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (continued)
(In thousands)
<TABLE>
<S> <C> <C> <C>
For the Years Ended December 31,
1999 1998 1997
------- ------- -------
NET INCREASE(DECREASE)IN CASH AND
CASH EQUIVALENTS (1,406) 1,282 (234)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,707 425 659
------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 301 $ 1,707 $ 425
======= ======= =======
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Film cost additions $ - $ 999 $ 1,812
Equipment acquired under capital lease - 217 109
Acquisition of subsidiary - 170 2,365
Warrants issued 233 119 224
Conversion of accrued liability
to acquisition fund payable - - 71
Preferred stock dividends paid in common stock 334 119 82
Notes received for employee common stock purchase - - 39
Notes received for exercise of warrants - 778 -
Exchange of debt payable to affiliates
for 10% convertible subordinated notes - 1,000 -
Series C preferred stock issued for
principal payment on variable rate
senior subordinated note - 175 -
Deferred loan cost on converted debt 340 - -
Common stock issued for film rights 450 - -
Debt converted into common stock 5,395 - -
======= ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 3,270 $ 2,533 $ 1,390
======= ======= =======
Cash paid for taxes $ 89 $ 133 $ 65
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements
F-12
<PAGE>
UNAPIX ENTERTAINMENT, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1. Business Organization and Summary of Significant Accounting Policies:
Operations:
Unapix Entertainment, Inc. and its subsidiaries (the "Company"), is a world-
wide licensor, distributor and producer of programming and feature films for
the television market (including free and pay television, cable and
satellite), the home video market (including video cassette, laser disc and
digital video disks) and the consumer market (including direct response and
electronic commerce). Due to the similarity in products, management considers
such operations to be one reportable segment.
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., its wholly-owned subsidiaries and an immaterial majority
owned subsidiary. 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 provides 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 and producing 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
applicable, write downs to net realizable value. Direct costs, such as
duplication and shipping, are expensed as the related product is shipped.
F-13
<PAGE>
UNAPIX ENTERTAINMENT, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1. Operations and Summary of Significant Accounting Policies: (continued)
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.
Product inventory:
Product inventory consisting principally of video cassettes are stated at the
lower of cost on a first-in-first-out basis or market.
Earnings (Loss) Per Common Share:
The net income (loss) per basic common share is computed by dividing the net
income (loss) available to common shareholders by the weighted average number
of common shares outstanding.
Net income per diluted share is computed by dividing the net income available
to common shareholders, adjusted on an as if converted basis, by the weighted
average number of common shares outstanding plus potential dilutive
securities.
<TABLE>
<S> <C> <C> <C>
Shares (in thousands)
=====================
1999 1998 1997
---- ---- ----
Weighted average basic shares outstanding 8,293 6,783 5,796
Effect of dilutive securities:
Options - - 550
Warrants - - 119
------ ------ ------
Weighted average dilutive shares outstanding 8,293 6,783 6,465
====== ====== ======
Dollars (in thousands)
=====================
1999 1998 1997
---- ---- ----
Net income (loss) $(1,666) $ 110 $1,347
Less preferred stock dividends 375 203 121
------ ------ ------
Net income (loss) available to common
shareholders per basic and dilutive share $(2,041) $ (93) $1,226
====== ====== ======
</TABLE>
F-14
<PAGE>
UNAPIX ENTERTAINMENT, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1. Operations and Summary of Significant Accounting Policies: (continued)
Securities not included in the calculation of diluted earnings per share for
the years ended December 31, because of their anti-dilutive effects are as
follows (in thousands):
<TABLE>
<S> <C> <C> <C>
1999 1998 1997
---- ---- ----
Options 3,677 3,079 340
Warrants 2,606 2,953 2,047
Shares issuable on conversion of preferred stock 1,938 1,671 505
Shares issuable on conversion of convertible notes 1,209 3,177 1,860
------ ------ ------
9,430 10,880 4,752
====== ====== ======
</TABLE>
Cash Equivalents:
The Company considers all highly liquid investments purchased with a maturity
of three months or less to be cash equivalents.
Stock Options and Warrants:
The Company accounts for stock options and warrants issued to employees in
accordance with Accounting Principles Board Opinion 25 "Accounting for Stock
Issued to Employees." For financial statement disclosure purposes and
issuance of options and warrants to non-employees for services rendered, the
Company follows SFAS 123, "Accounting for Stock-Based Compensation."
Excess of Cost over Fair Values of Net Assets Acquired:
Excess of cost over the fair value of net assets acquired is being amortized
on a straight line basis over 20 years and is evaluated periodically, and
adjusted if necessary, if events and circumstances indicate that the carrying
amount is impaired. As of December 31, 1999 and 1998 accumulated amortization
amounted to $483,000 and $288,000, respectively.
Reclassifications:
Certain reclassifications have been made to the 1998 financial statements to
conform with 1999 classifications.
F-15
<PAGE>
UNAPIX ENTERTAINMENT, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
2. Film Costs
The Company's film costs include (in thousands):
<TABLE>
<S> <C> <C>
December 31,
1999 1998
------ ------
Films released $108,909 $ 78,418
Accumulated amortization (68,550) (54,260)
------ ------
40,359 24,158
Films in process 6,715 12,367
------ ------
$ 47,074 $ 36,525
====== ======
</TABLE>
The Company expects that it will amortize approximately 80% of its remaining
film costs during the three-year period ending December 31, 2002.
3. Property and Equipment, Net
Property and equipment, net, consists of the following (in thousands):
<TABLE>
<S> <C> <C>
December 31,
1999 1998
------ ------
Furniture and equipment $ 1,610 $ 1,666
Leasehold improvements 346 242
------ ------
1,956 1,908
Less accumulated depreciation (959) (871)
------ ------
$ 997 $ 1,037
====== ======
</TABLE>
Equipment acquired under capital leases and related accumulated depreciation
amount to $326,000 and $130,000 in 1999 and $326,000 and 65,000 in 1998.
4. Revolving Credit
On September 28, 1999, Unapix Entertainment, Inc. (the "Company") and its
direct and indirectly owned subsidiaries (collectively, the "Borrowers")
entered into a credit facility (the "Facility") with General Electric Capital
Corporation ("GECC") which, as amended on April 12, 2000, provides for
borrowings of up to $40,000,000 (the "Maximum Amount"). Loans are extended
and required to be repaid based upon the then "Borrowing Base" (as such term
is defined in the Credit and Security Agreement, dated September 28, 1999
(the "Credit Agreement"), by and among Borrowers and GECC). The Borrowing
F-16
<PAGE>
Base consists of certain of the Company's accounts receivable and other
contractual rights to payment as well as a specified amount that the
Borrowers are permitted to borrow based upon the value of their library of
films and other entertainment programming (such portion of the borrowing base
is referred to as the "Library Credit"). The Library Credit is initially
$26,000,000 and is required to be reduced by $500,000 per quarter, $1,000,000
per quarter, $2,000,000 per quarter and $3,000,000 per quarter during the
second, third, fourth and fifth years of the Facility respectively. The
Library Credit also is required to be pre-paid under certain other
circumstances. The Maximum Amount will be reduced by an amount equal to the
amount that the Library Credit is reduced. Voluntary prepayments are subject
to certain restrictions and a prepayment premium of 2%. The Borrowers paid to
GECC a closing fee of $200,000 in addition to GECC's out-of-pocket expenses
incurred in connection with the transaction and issued warrants expiring
September 28, 2004 to purchase 150,000 shares of common stock at $2.77 as a
placement fee. The warrants were valued at $233,000 and recorded as deferred
finance costs which is being amortized over the term of the debt. The
Borrowers are also required to pay an unused line fee (the "Unused Line Fee")
at a rate that is initially 0.5% per annum of the sum by which the Maximum
Amount exceeds the average daily closing loan balance of the loans
outstanding under the Facility during the period for which such fee is due.
Interest on the outstanding loan balance accrues at a rate equal to, at the
Borrower's option, either (i) a floating rate equal to the "Index Rate" plus
the "Applicable Margin" (as such terms are defined below" or (ii) a fixed
rate for the periods of one, two or three months equal to the reserve
adjusted London Interbank Offered Rate ("LIBOR RATE") plus the Applicable
Margin. The "Index Rate" is the higher of the prime rate as reported by The
Wall Street Journal or the overnight Federal Funds rate plus 50 basis points.
The "Applicable Margin" for the Index Rate loan is initially 1.25% per annum
and the "Applicable Margin" for the LIBOR loan initially 3.25% per annum.
Commencing with the fiscal quarter ended September 30, 2001, the Applicable
Margins will be increased or decreased quarterly based upon the Borrowers'
consolidated fixed charge coverage ratio, as defined, for the immediate
preceding four quarters. The interest rate at December 31, 1999 was 9.75%.
The term of the Facility expires on September 28, 2004. Outstanding amounts
under the Facility are secured by a security interest in substantially all
the Borrowers' assets. The Facility contains restrictive covenants that
require the Company to maintain minimum fixed charge coverage ratios, to
achieve minimum "EBITDA" (earnings before interest, taxes, depreciation and
amortization) thresholds, and to maintain minimum ratios of film library
values to accounts payable and certain other costs, all determined monthly
based upon the preceding 12 months. The covenants also, among other things,
limit the payments of cash dividends of the Company's common stock and
restrict (i) the amount of costs that the Company can incur in developing,
producing, financing or acquiring entertainment properties, (iii) the amount
of costs and expenses that the Borrowers may incur with respect to theatrical
release of film and (iv) the amount of unreleased completed product. At
December 31, 1999, the Company was in compliance with the restrictive
covenants, as amended on April 12, 2000.
F-17
<PAGE>
The Facility replaces the Company's previous credit facility with Imperial
Bank that permitted borrowing of up to $18,000,000 (the "Imperial Facility").
Proceeds from the Facility were utilized to repay the Imperial Facility in
full. Approximately $6,000,000 of proceeds were used to repurchase $5,595,000
principal amount of the Company's outstanding subordinated indebtedness
together with accrued and unpaid interest and a prepayment premium thereon.
In connection with such repurchase, an additional $5,395,000 principal amount
of subordinated indebtedness (as well as accrued and unpaid interest and
prepayment premiums thereon) was converted into, or exchanged for, shares of
the Company's common stock at a price of $2.52 per share. A total of
2,282,375 shares were issued in connection with such exchanges and
conversions. Other proceeds from loans under the Facility have been, and will
be, used for working capital purposes, including enabling the borrowers to
acquire distribution rights with respect to entertainment programming.
A charge for debt conversion expense of $1,418,000 was recorded for the
additional 567,000 shares of common stock issued to the convertible debenture
holders as an inducement to convert.
An extraordinary charge of $714,000 (net of a $320,000 tax benefit) related
to extinguishment of debt was also recorded and includes premiums paid on
redemption of subordinated debentures and charging off deferred debt expense
and discount on the debentures and deferred debt expense on the previous
credit facility.
Variable rate senior subordinated notes:
The variable rate senior subordinated notes ("variable rate notes") net of
unamortized discount of $19,000 and $114,000 at December 31, 1999 and 1998,
were issued with common stock purchase warrants in a private placement. The
units were sold only to accredited investors by officers of the Company
(without remuneration). Certain customers of an investment advisory firm, of
which a director of the Company is an Executive Vice President, acquired the
units in the placement. The variable rate notes bear interest at a rate of
10% per annum through 1998 and at 3% over the prime rate thereafter, provided
however, that the rate does not fall below 8% or exceed 12% per annum.
Mandatory repayment of 10% of the original principal amount commenced in
1998, to be followed by 15% of the original principal amount in 1999 and 2000
with the balance due in 2001. The 1998 principal payment of $303,000 was paid
$128,000 in cash and the issuance of 175 shares of Series C Preferred Stock
valued at $175,000. As a result of the repurchase and exchange described
below, the mandatory repayments for 1999 and 2000 have been satisfied and the
present outstanding balance is due in 2001.
The variable rate notes are subordinated to indebtedness of the Company to a
bank or other financial institution. The Company may redeem all or a portion
of the notes at any time after December 31, 1998 at a premium over the
principal amount of the notes of 4%, 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 425,804 warrants were issued in
this offering, each such warrant entitles the holder to purchase common stock
at an exercise price of $3.70 per share and expires on December 31, 2001. The
holders of the warrants are entitled to certain registration rights with
respect to the shares issuable upon exercise thereof.
F-18
<PAGE>
During 1999, the Company repurchased $1,001,000 principal amount of the notes
together with accrued and unpaid interest and prepayment penalty thereon of
$69,000. In addition, the Company exchanged $1,001,000 principal amount of
notes together with accrued and unpaid interest and prepayment penalty
thereon of $69,000 for 425,000 shares of the Company's common stock at a
price of $2.52, the market value at the date of exchange.
10% Convertible notes:
In 1996 and through the first half of 1997, the Company completed a
$7,222,500 principal amount private offering of units (proceeds of $5,947,500
in 1996 and $1,275,000 in 1997), each consisting of a 10% $250,000 principal
amount of convertible subordinated note due June 30, 2003 convertible into
common stock at $4.44 per share and warrants to purchase common stock, at an
exercise price of $5.62 per share expiring June 30, 2003. Such warrants
(771,085), were valued at $471,000 and recorded as debt discount. The
warrants and notes are redeemable by the Company under certain circumstances.
The Company incurred placement and finders' fees of $394,000 and granted
warrants to purchase 295,000 shares of common stock at $4.50 expiring in five
years. Such warrants were valued at $167,000 and recorded as deferred
financing costs which are being amortized over the term of the notes.
In the fourth quarter of 1997, the Company sold in a private placement
$1,300,000 principal amount of 10% convertible notes due June 30, 2004. The
notes are convertible into common stock at $4.87 per share. For every $1,000
principal amount of notes purchased, the holders also received warrants to
purchase common stock at $5.64 per share expiring June 30, 2004. Such
warrants (138,298) were valued at $86,000 and recorded as debt discount. The
notes are redeemable by the Company beginning July 1, 1999 at a premium. The
warrants are redeemable on or after July 1, 2000. The Company also issued
warrants expiring December 31, 2002 to purchase 26,000 shares of common stock
at $5.00 per share as a placement fee. Such warrants were valued at $21,000
and recorded as deferred finance costs, which are being amortized over the
term of the notes.
In February 1998, the Company issued, in a private placement, $5,250,000
principal amount of 10% convertible subordinated notes due June 30, 2003
("Notes") convertible initially into common stock at $4.75 per share. The
conversion price on $4,250,000 principal amount of notes is subject to
adjustment in certain circumstances, including resets at September 1, 1998
and March 1, 1999 to 110% of the then current market price of the common
stock but not less than $4.00 and $3.50 respectively. The conversion price
was reset to $4.00 at September 1, 1998 and to $3.50 at March 1, 1999.
On conversion, the holders of $4,250,000 principal amount will receive
warrants to purchase common stock (an aggregate of 538,249) at $5.92 per
share expiring June 30, 2003. The holders of $1,000,000 principal amount will
receive on conversion, warrants to purchase 145,068 shares of common stock at
$5.17 per share expiring June 30, 2003. The Company also issued warrants
expiring June 30, 2003 to purchase 43,074 shares of common stock at $5.92 per
share as a placement fee which were valued at $63,000 and recorded as
deferred financing costs. Notes in the principal amount of $900,000 were
issued to certain investors in a film acquisition fund in exchange for their
interests therein as described below.
F-19
<PAGE>
During 1999, the Company repurchased $4,594,000 principal amount of the
convertible notes together with accrued and unpaid interest and a prepayment
penalty thereon of $296,000. In addition, the Company converted $4,394,000
principal amount of convertible notes together with accrued and unpaid
interest and prepayment penalty thereon of $285,000 for 1,857,000 shares of
the Company's common stock at a price of $2.52, the market value at the date
of conversion.
Outstanding 10% Convertible Subordinated Notes (in thousands):
<TABLE>
<S> <C> <C> <C> <C>
December 31,
Conversion Price ----------------
Issued Due at December 31, 1999 1999 1998
- -------- ------------- -------------------- ------- -------
1996-1997 June 30, 2003 $3.94 $ 4,535 $ 7,223
1997 June 30, 2004 4.30 250 1,300
1998 June 30, 2003 - 5,250
------- -------
4,785 13,773
Less debt discount 199 430
------- -------
$ 4,586 $13,343
======= =======
</TABLE>
Acquisition Fund:
In December 1993, an acquisition fund was created for the purpose of funding
the acquisition of the distribution rights to independently produced films.
The initial investors in the fund were the Chairman, Secretary and an
investor who is a customer of an investment advisory firm, of which a
director of the Company is an Executive Vice President, and a partnership of
which the same Director is a general partner. As of December 31, 1997, the
Company owed the acquisition fund $1,035,000, representing advances and
related film profits earned. In February 1998, the fund was terminated and
the Company issued $900,000 principal amount of 10% convertible subordinated
notes due June 30, 2003 and a $200,000 promissory demand note with interest
at 10% (which was subsequently repaid) in exchange for the obligations to the
acquisition fund.
Other:
Short term loans of $1,000,000 were obtained, of which $300,000 was received
in December 1997 and $700,000 in January 1998. Loans were extended by
Mezzanine Financial Corp. ($750,000), the Chairman ($150,000) and the
Secretary ($100,000) in order to enable the Company to fund program
acquisitions in accordance with its expansion plans pending the completion of
the private offering of 10% convertible notes. The Chairman and Secretary are
also officers and directors of Mezzanine Financial Corp. Upon completion of
the offering of Notes, proceeds of $250,000 were used to repay the loans from
the Chairman and the Secretary, and proceeds of $650,000 were used to repay
Mezzanine Financial Corp. The remaining $100,000 of the Mezzanine loan was
exchanged for an equivalent amount of Notes.
F-20
<PAGE>
Maturities of debt subsequent to December 31, 1999, in thousands, are as
follows:
<TABLE>
<S> <C> <C> <C> <C>
Revolving Variable Convertible
Total Credit Rate Notes Notes
------- --------- ---------- -----------
2000 $ 1,000 $ 1,000 $ - $ -
2001 3,720 3,000 720 -
2002 6,000 6,000 - -
2003 14,535 10,000 - 4,535
2004 10,891 10,641 - 250
------ ------ ------ ------
36,146 30,641 720 $ 4,785
Less debt discount (218) - (19) (199)
------ ------ ------ ------
$35,928 $30,641 $ 701 $ 4,586
====== ====== ====== ======
5. Stockholders' Equity
Notes Receivable from Equity Sales:
In September 1995, the Company completed the placements 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
F-21
<PAGE>
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.
Cumulative Convertible Series A Preferred Stock:
As of December 31, 1999 there are 488,000 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. 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. The Company may redeem the shares at a
premium of 3% 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 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
dividends of $115,000 for the year ended December 31, 1999 and $121,000 for
each of the years ended December 31, 1998 and 1997. 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 $74,000, $73,000 and $82,000 of the dividends
being paid in shares of common stock for the years ended December 31, 1999,
1998 and 1997, respectively, and the remainder in cash.
Non-Voting Convertible Series B Preferred Stock:
On July 15, 1998, the Company completed a private placement of 300 shares of
its non-voting Series B preferred stock and a three-year warrant to purchase
200,000 shares of common stock at $5.16 per share for a gross purchase price
of $3,000,000. Each share of Series B preferred stock has a stated value of
$10,000 and provides for dividends cumulatively at 6% per annum payable
quarterly in cash , or, at the Company's option, under certain circumstances,
in common stock. For 1999 and 1998 the Company declared dividends of $180,000
and $82,000 of which $-0- and $36,000 was paid in cash and the remainder was
paid in common stock, respectively. The Series B preferred is convertible, on
or after January 16, 1999 into common stock at the lesser of $5.16 or the
average closing sales price for any two trading days during the ten trading
day period prior to conversion but not less than 80% of the average closing
sales price over the five trading days preceding July 16, 1998 subject to
antidilution adjustments. Prior to January 16,1999, conversions are only
permitted at a conversion price greater than 101% of the average closing
price. Any remaining Series B preferred stock is automatically converted into
common stock on June 15, 2000.
The holders have registration rights and are entitled to certain specified
remedies and, under certain circumstances controllable solely by the Company,
are entitled to require the Company to redeem their shares of Series B
preferred stock at a premium, if the Company does not timely comply with its
obligations with respect to the preferred stock. The Company incurred as a
F-22
<PAGE>
placement fee, $150,000 in cash and a three-year common stock purchase
warrant to purchase 50,000 shares of common stock at an exercise price of
$5.16 per share.
Cumulative Convertible Series C Preferred Stock:
In December 1998 the Company initiated a private placement of up to 2,500
shares of Series C 8% cumulative convertible preferred stock each of which
has a stated value of $1,000 per share and is convertible into common stock
at a conversion price of $2.50 per share. The offering price is $1,000 per
share. The Series C preferred stock provides for cumulative cash dividends at
an annual rate of 8% of the stated value per share. At the Company's option,
dividends that accrue through December 31, 2000 may be paid in common stock.
The Company may redeem the Series C preferred stock beginning in 2002 at a
premium of $60 per share which declines to zero in 2008 and thereafter.
Holders of Series C are entitled to the number of votes that equals the
number of common shares issuable on conversion. So long as shares of Series B
preferred stock are outstanding, the Company cannot redeem Series C preferred
stock without the prior written consent of the holders of Series B. Proceeds
of $1,175,000 were received through December 31, 1999 of which $400,000 was
received from two officers and directors of the Company. In 1999, the Company
declared dividends of $80,000 which was paid in common stock.
Warrants:
A summary of the status of the Company's warrants as of December 31, 1999,
1998 and 1997, and changes during the years ended on those dates is presented
below:
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
1999 1998 1997
---------------- ---------------- -----------------
Weighted Weighted Weighted
Average Average Average
Shares Exercise Shares Exercise Shares Exercise
(000) Price (000) Price (000) Price
----- -------- ----- -------- ----- --------
Outstanding at
beginning of year 2,270 $ 6.92 3,947 $ 8.76 3,593 $ 9.07
Granted 336 3.47 380 5.20 354 5.61
Exercised (1,399) (4.26) - -
Forfeited (658) (22.69) - -
----- ----- -----
Outstanding at
end of year 2,606 6.45 2,270 6.92 3,947 8.76
===== ===== ===== ==== ===== ====
Weighted-average
fair value of warrants
granted during the year $1.43 $1.83 $ .65
===== ===== =====
</TABLE>
F-23
<PAGE>
The following table summarizes information relating to warrants outstanding
at December 31, 1999:
<TABLE>
<S> <C> <C> <C> <C> <C>
Warrants Outstanding Warrants Exercisable
--------------------------- -----------------------
Number Weighted- Weighted- Number Weighted-
Range Outstanding Average Average Exercisable Average
Exercise at 12/31/99 Contractual Exercise at 12/31/99 Exercise
Prices Life Price Price
-------- ----------- --------- -------- ----------- ---------
$ 2.77 - $ 4.50 1,098 2 $ 3.87 1,098 $ 3.87
$ 4.75 - $ 6.00 1,277 3 5.53 1,277 5.53
$19.05 - $28.47 231 1 23.81 231 23.81
----- -----
2,606 2 6.45 2,606 6.45
===== ===== ====== ===== ======
</TABLE>
In 1998 class B warrants were exercised for the purchase of 1,359,000 shares
of common stock. The Company received net cash proceeds of $4,725,000 and
promissory notes of $778,000 (including $632,000 of notes from directors and
other related parties. Principal payments of 10% are due each year for four
years with the balance due at the end of the fifth year with interest at 5.8%
per annum).
Employee Stock Option Plan:
The 1993 Option Plan, as amended, (the "Plan") authorizes the grant of
options to purchase up to an aggregate of 1,600,000 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. 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.
F-24
<PAGE>
A summary of the status of the Company's employee stock options as of
December 31, 1999, 1998 and 1997, and changes during the years ending on
those dates is presented below:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
1999 1998 1997
------------- ------------- -------------
Weighted Weighted Weighted
Average Average Average
Shares Exercise Shares Exercise Shares Exercise
(000) Price (000) Price (000) Price
------ -------- ------ -------- ------ --------
Outstanding at
beginning of year 927 $ 2.75 398 $ 3.77 419 $ 3.52
Granted 712 2.09 584 2.69 71 4.59
Exercised - - (68) (2.86)
Forfeited (173) (2.86) (55) (2.86) (24) (4.40)
----- ---- ----
Outstanding at
end of year 1,466 $ 2.42 927 $ 2.75 398 $ 3.77
===== ===== ==== ====== ==== ======
Options exercisable
at year-end 536 $ 2.79 472 $ 2.84 381 $ 3.76
===== ===== ==== ====== ==== ======
Weighted-average
fair value of
options granted
during the year $ 1.30 $ 1.41 $ 1.91
====== ====== ======
</TABLE>
On December 9, 1998, the exercise price for 559,750 employee stock options
held by non-director employees was restated to $2.86. The original exercise
prices for these options, a substantial portion of which was granted in 1998,
range from $3.93 to $6.38.
F-25
<PAGE>
Other Options:
A summary of the status of the Company's other stock options as of December
31, 1999, 1998 and 1997, and changes during the years ending on those dates
is presented below:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
1999 1998 1997
---------------- ---------------- ----------------
Weighted Weighted Weighted
Average Average Average
Shares Exercise Shares Exercise Shares Exercise
(000) Price (000) Price (000) Price
------ --------- ------ --------- ------ ---------
Outstanding at
beginning of year 2,152 $ 2.99 1,987 $ 3.37 1,536 $ 2.98
Granted 568 2.58 320 2.80 491 4.45
Exercised (96) (1.10) - - (40) (1.79)
Forfeited (413) (3.07) (155) (2.86) - -
----- ----- -----
Outstanding at
end of year 2,211 $ 2.95 2,152 $ 2.99 1,987 $ 3.37
===== ===== ===== ====== ===== ======
Options exercisable
at year-end 1,335 $ 3.09 1,228 $ 3.03 1,224 $ 3.34
===== ===== ===== ====== ===== ======
Weighted-average
fair value of
options granted
during the year $1.61 $1.37 $1.85
===== ===== =====
</TABLE>
On December 9, 1998, the exercise price for 560,200 other stock options held
by non-director employees was restated to $2.86. The original exercise prices
for these options range from $4.00 to $4.81.
F-26
<PAGE>
The following table summarizes information related to options outstanding at
December 31, 1999:
<TABLE>
<S> <C> <C> <C> <C> <C>
Options Outstanding Options Exercisable
------------------- -------------------
Number Weighted- Weighted- Number Weighted-
Range Outstanding Average Average Exercisable Average
Exercise at 12/31/99 Remaining Exercise at 12/31/99 Exercise
Prices Contractual Price Price
Life
-------- ----------- --------- -------- ----------- ---------
$1.88 - $2.86 3,329 6 $ 2.61 1,546 $ 2.81
$4.50 - $4.57 348 2 3.97 325 3.93
----------- -------- -----------
$1.10 - $4.57 3,677 6 $ 2.74 1,871 $ 3.01
=========== ========= ======== =========== =========
</TABLE>
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
assumptions:
<TABLE>
<S> <C> <C> <C>
1999 1998 1997
---- ---- ----
Risk free interest rate 5.15% - 6.03% 4.21% - 6.49% 4.95% - 6.49%
Expected life of option
in years 3-10 3-10 3-10
Expected dividend yield 0% 0% 0%
Expected volatility 70% 47% 37%
</TABLE>
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 1999, 1998
and 1997 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 been reduced to the pro forma
amounts indicated below (in thousands except per share data.)
<TABLE>
<S> <C> <C> <C>
1999 1998 1997
---- ---- ----
Net income (loss) As reported $(1,666) $ 110 $ 1,347
Pro forma (2,226) (156) 718
Net income (loss) per
basic common share As reported (0.25) (0.01) .21
Pro forma (0.27) (0.05) .10
Net income (loss) per
diluted common share As reported (0.25) (0.01) .19
Pro forma (0.27) (0.05) .10
</TABLE>
F-27
<PAGE>
Capital shares reserved for future issuance include the following (in
thousands):
<TABLE>
<S> <C>
Exercise of options granted 3,677
Exercise of warrants issued 2,606
Options available for grant under the Plan 134
Issuable upon conversion of convertible notes 1,209
Issuable upon conversion of Preferred Stock 1,938
-----
9,564
=====
</TABLE>
6. Financial Instruments
Other than cash and cash equivalents the Company's financial instruments
consist of the revolving credit, 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. 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.
7. Income Taxes
The provision for income taxes for 1999 consists of current Federal and State
income taxes of $-0- and $70,000, respectively, and deferred taxes of
$155,000. The provision for income taxes for 1998 consists of current federal
and state taxes of $-0- and $59,000, respectively and deferred taxes of
$107,000. The provision for income taxes for 1997 consists of current federal
and state taxes of $22,000 and $57,000, and deferred taxes of $867,000.
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 the net operating loss carryover.
The deferred tax assets (liabilities) as of December 31, 1999 and 1998, in
thousands, are as follows:
<TABLE>
<S> <C> <C>
1999 1998
------ ------
Accounts receivable and general reserves $ 759 $ 248
Film inventory amortization (4,239) (2,702)
Net operating loss carryforwards 1,681 1,053
Other items 540 297
------ ------
Net $(1,259) $(1,104)
====== ======
</TABLE>
F-28
<PAGE>
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:
<TABLE>
<S> <C> <C> <C>
1999 1998 1997
---- ---- ----
Computed at federal
statutory rate of 34% $ (490) $ 94 $ 780
Permanent differences 675 61 65
State taxes, net of
federal benefit 40 7 94
Other - 4 7
------ ------ ------
$ 225 $ 166 $ 946
====== ====== ======
</TABLE>
The 1999 provision includes a tax provision of $545,000 on income before
extraordinary items and a tax benefit of $320,000 related to the
extraordinary item.
At December 31, 1999, net operating loss carryforwards available to reduce
future federal taxable income amounted to approximately $4,200,000, expiring
at various dates through 2019.
8. Operating Leases
The Company leases office facilities and certain equipment under
non-cancelable operating lease agreements expiring through January 2007.
Total lease expense for the years ended December 31, 1999, 1998 and 1997 were
$957,000, $571,000 and $506,000. The Company also has various equipment under
capital leases.
Minimum future payments, in thousands, as of December 31, 1999 are:
<TABLE>
<S> <C> <C>
Operating Capital
2000 ......................................... $ 1,097 $ 98
2001 ......................................... 944 92
2002 ......................................... 769 16
2003 ......................................... 636
2004 ......................................... 321
2005 and later ............................... 776
------- -------
Total lease payments ..... ................... $ 4,543 206
-------
Amount representing interest.................. $ (21)
-------
$ 185
=======
</TABLE>
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. The capital lease obligation of
$185,000 is included in accrued expenses.
F-29
<PAGE>
9. Commitments and Other Matters
Credit risk exists with respect to accounts receivable which are primarily
due from video distributors, television stations and pay cable channels. One
customer in 1999 and 1998 accounted for 10% of revenues and one customer in
1997 accounted for 12% of revenues.
As of December 31, 1999, commitments for advances and guaranteed royalties
amounted to $3,352,000.
The Company is involved in legal proceedings which it considers to be
incidental to its business. The Company believes that any liability which may
arise as a result of any such proceedings will not have a material adverse
effect on its financial condition.
The Company has a 401(K) defined contribution plan which covers substantially
all employees. Participants may contribute up to 15% of compensation, as
defined, subject to limitations. Company matching contributions are
discretionary. The Company's contributions amounted to $15,000 in 1997.
10. Related Party Transactions
General and administrative costs include $124,000, $133,000 and $132,000 for
services rendered by an affiliate for the years ended December 31, 1999, 1998
and 1997.
11. Acquisitions
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 313,500
shares of the Company's common stock valued at $1,400,000 and by assuming
certain obligations of $964,000 and $736,000 of other costs. The acquisition
of Miramar was accounted for as a purchase and the Company recorded
$3,100,000 of excess cost over fair value of net assets in connection with
the acquisition which is being amortized over 20 years. The operating results
of Miramar have been included in the consolidated statement of operations
from the date of acquisition.
In connection with the acquisition, the Company entered into a four-year
employment agreement with the then 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 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
F-30
<PAGE>
(including the current president). Each option entitles the holder to
purchase one share of the Company's common stock at an original 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. 170,000 options were subsequently
restated to $2.86. 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.
Assuming the acquisition of Miramar had taken place on January 1, 1997, the
proforma revenue and net income for the Company for 1997 would have been as
follows (in thousands, except per share amounts):
<TABLE>
<S> <C>
Revenues $32,561
=======
Net income $ 1,159
=======
Net income (loss) per common share:
Basic $ .18
-------
Diluted $ .16
-------
</TABLE>
During 1998 the Company increased its ownership in The Jazz Store, Inc. to
90% through the conversion of $300,000 in outstanding convertible notes and
the issuance of 75,000 shares of common stock valued at $176,000. The
acquisition was accounted for as a purchase and accordingly the results of
operations of the acquired entity were included in the consolidated
statements of operations from the date of acquisition. The pro forma results
of operations for 1998 and 1997 assuming the acquisition had been made at the
beginning of 1997 would not be materially different from reported results.
12. Export Sales
<TABLE>
<S> <C> <C> <C>
1999 1998 1997
------- ------- -------
Europe $ 3,719 $ 2,833 $ 3,260
Asia 873 1,377 1,070
Latin America 828 979 968
Africa 366 167 356
Middle East 285 403 329
Other 450 554 375
------- ------- -------
$ 6,521 $ 6,313 $ 6,358
======= ======= =======
</TABLE>
Export sale contracts are generally denominated in US dollars. For the three
years ended December 31, 1999, there were no significant foreign exchange
gains or losses.
F-31
<PAGE>
13. Other expenses
Non recurring costs of $333,000 in 1998 represent costs incurred primarily
for termination and relocation expenses.
14. Cost of settlement of litigation
On March 28, 2000 the Company entered into a Settlement Agreement with
respect to a lawsuit regarding the "Great Minds" trademark. In connection
with the settlement, the Company incurred a charge for 1999 of $510,000,
which reflects the amount the Company was required to pay to the plaintiff in
the case (net of insurance proceeds) together with related legal expenses
(net of insurance proceeds).
F-32
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Unapix Entertainment, Inc.
The audits referred to in our report dated March 17, 2000 (with respect to
Note 14 March 28, 2000 and with respect to Note 4, April 12, 2000) on the
consolidated financial statements of Unapix Entertainment, Inc. and
subsidiaries, which appear in Part II, also include Schedule II for the years
ended December 31, 1999, 1998 and 1997. This schedule is the responsibility
of the Company's management. Our responsibility is to express an opinion
based on our audits. In our opinion, the financial statement schedule
referred to above, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein, in compliance with the applicable accounting
regulations of the Securities and Exchange Commission.
/s/ Richard A. Eisner & Company, LLP
New York, New York
March 17, 2000.
F-33
<PAGE>
UNAPIX ENTERTAINMENT, INC.
Valuation and Qualifying Accounts
(In thousands)
<TABLE>
<S> <C> <C> <C> <C>
Beginning Closing
Balance Increase Decrease Balance
--------- -------- -------- -------
Year end December 31, 1999
Allowance for doubtful
accounts receivables 2,314 761 3,075
Year end December 31, 1998
Allowance for doubtful
accounts receivables 1,610 704 2,314
Year end December 31, 1997
Allowance for doubtful
accounts receivables 1,004 606 1,610
F-34
<PAGE>
EXHIBIT INDEX
</TABLE>
<TABLE>
<S> <C> <C>
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,
merging A-Pix Entertainment, Inc. into the Company
[incorporated herein by reference to Exhibit 3.1.7 to the
Company's Annual Report on Form 10-KSB for 1996 (the "1996
Form 10-KSB")]
3.1.8 Certificate of Amendment of the Company's Certificate of
Incorporation, dated October 7, 1997, increasing the number
of authorized shares of common stock [incorporated herein by
reference to Exhibit 3 to the Company's Quarterly Report on
Form 10-QSB for the Quarterly Period ended September 30, 1997]
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE LOCATION
- ------- ----------- -------------
3.1.9 Certificate of Designation, Powers, Preferences and
Rights of the 6% Series B Convertible Preferred Stock
[incorporated herein by reference to Exhibit 3.1 to the
Company's Current Report on Form 8-K for Event of July
16, 1998 (the "July 1998 Form 8-K")]
3.1.10 Certificate of Designations, Preferences and Rights of
Series C 8% Cumulative Convertible Preferred Stock
[incorporated herein by reference to Exhibit 3.1.10 to
the Company's Annual Report on Form 10-KSB for 1998
(the "1998 Form 10-KSB")]
3.2 By-Laws of the Company [incorporated herein by reference
to Exhibit 3.2 to the 1998 Form 10-KSB]
4.1 Form of Common Stock Certificate [incorporated herein by
reference to Exhibit 4.1 to the Registration Statement]
4.2 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]
4.3 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]
4.4 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]
4.5 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")]
4.6 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]
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE LOCATION
- ------- ----------- -------------
4.7 Form of 10% Convertible Subordinated Note due June 30,
2003 having an original conversion price of $4.50 per
share [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")]
4.8 Form of Common Stock Purchase Warrant Certificate,
entitling the holder to purchase shares of Common Stock at
an original exercise price of $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]
4.9 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
[incorporated herein by reference to Exhibit 4.15 of the
1996 Form 10-KSB]
4.10 Form of 10% Convertible Subordinated Note due June 30,
2003 having an original conversion price of $4.75 per share
[incorporated herein by reference to Exhibit 4.13 of the
Company's Annual Report on Form 10-KSB for 1997 (the "1997
Form 10-KSB")]
4.11 Form of 10% Convertible Subordinated Note due June 30,
2004 having an original conversion price of $5.00 per share
[incorporated herein by reference to Exhibit 4.14 to the
1997 Form 10-KSB]
4.12 Form of Common Stock Purchase Warrant Certificate,
entitling the holder to purchase shares of Common Stock at
an original exercise price of $6.00 per share and expiring
on June 30, 2004 [incorporated herein by reference to
Exhibit 4.15 to the 1997 Form 10-KSB]
4.13 Form of Common Stock Purchase Warrant Certificate,
entitling the holder to purchase shares of Common Stock at
$5.00 per share and expiring December 31, 2002
[incorporated herein by reference to Exhibit 4.16 to the
1997 Form 10-KSB]
4.14 Form of Common Stock Purchase Warrant dated July 16, 1998
in favor of KA Investments with respect to 200,000 shares
of underlying common stock [incorporated herein by reference
to Exhibit 10.3 to the July 1998 Form 8-K]
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE LOCATION
- ------- ----------- -------------
*10.1 Employment Agreement between the Company and Scott
Hanock [incorporated herein by reference to Exhibit
10.2 to the Registration Statement]
*10.1.1 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]
*10.1.2 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]
*10.2 1993 Stock Option Plan, as amended (1)
10.3 Form of Lease Agreement for 537 Steamboat Road, Greenwich,
Connecticut offices [incorporated herein by reference
to Exhibit 10.9 to the 1994 Form 10-KSB]
10.4 Lease Agreement for 200 Madison Avenue Location
[incorporated herein by reference to Exhibit 10.9 to the
1995 Form 10-KSB]
*10.5 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]
10.6 Schedule of omitted documents in the form of Exhibit 10.9,
including material detail in which such documents differ
from Exhibit 10.9 [incorporated herein by reference to Exhibit
10.18.1 to the Registration Statement]
*10.7 Amended and Restated Employment Agreement between the
Company and Robert Baruc (1)
*10.8 Employment Agreement between the Company and David A.
Dreilinger, as amended (1)
*10.9 Employment Agreement between the Company and Cheryl Freeman (1)
*10.10 Employment Agreement between the Company and Michael Epps (1)
*10.11 Separation Agreement, dated January 31, 1999, between
the Company and David M. Fox (1)
10.12 Lease Agreement, as amended to date, for Miramar's
offices at 200 Second Avenue West, Seattle, Washington
[incorporated herein by reference to Exhibit 10.29 to
the 1996 Form 10-KSB]
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE LOCATION
- ------- ----------- -------------
10.13 Lease Agreement for Miramar's offices located at the
Fourth and Vine Building, 2601 Fourth Avenue, Seattle,
Washington 98121 (1)
10.14 Convertible Preferred Stock Purchase Agreement, dated
as of July 15, 1998, between KA Investments LDC and
the Company [incorporated herein by reference to Exhibit
10.1 to the July 1997 Form 8-K]
10.15 Registration Rights Agreement, dated as of July 15, 1998,
between KA Investments LDC and the Company [incorporated
herein by reference to Exhibit 10.2 to the July 1998 Form 8-K]
10.16 Lease Agreement for Unapix Production West's office space
located at 10950 West Washington Boulevard, Culver City,
California 90232 [incorporated herein by reference to Exhibit
10.21 to the 1998 Form 10-KSB]
10.17 Lease Agreement for The Jazz Store's offices located at 427
Bloomfield Avenue, Montclair, New Jersey 07042
[incorporated herein by reference to Exhibit 10.22 to the
1998 Form 10-KSB]
10.18 Sublease Agreement for Unapix International's Office space
located at 15910 Ventura Boulevard, Encino, California
[incorporated herein by reference to Exhibit 10.23 to the
1998 Form 10-KSB]
10.19 Credit and Security Agreement, dated as of September 28,
1999, among Unapix Entertainment, Inc. and its subsidiaries
and General Electric Capital Corporation [incorporated
herein by reference to Exhibit 10.1 to the Company's Current
Report on Form 8-K for event of September 28, 1999]
10.20 Amendment No. 1 to Credit and Security Agreement and
Waiver, dated as of April 12, 2000, among Unapix
Entertainment, Inc. and its subsidiaries and General Electric
Capital Corporation (1)
21.1 Subsidiaries (1)
23.1 Consent of Richard A. Eisner & Company, LLP. (1)
27.1 Financial Data Schedules (1)
</TABLE>
- --------------------------
(1) Filed herewith.
* Management contract or compensatory plan or arrangement.
<PAGE>
EXHIBIT 10.2
<PAGE>
UNAPIX ENTERTAINMENT, INC.
1993 Stock Option Plan
Section 1. Purpose; Definitions.
1.1 Purpose. The purpose of the Unapix Entertainment, Inc. (the "Company")
1993 Stock Option Plan (the "Plan") is to enable the Company to offer 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 Unapix 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 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 an 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.
<PAGE>
(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.
(1) "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 Unapix 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" of "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 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).
<PAGE>
(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 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 1,600,000 share s.
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.
<PAGE>
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.
4.2 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) Non-Qualified 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:
<PAGE>
(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 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.
<PAGE>
(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 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 a Holder upon the
exercise of an award shall be deemed forfeited and the Holder shall return
the Stock to the Company.
<PAGE>
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 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.
<PAGE>
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.
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 an 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.
<PAGE>
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.
<PAGE>
EXHIBIT 10.7
<PAGE>
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
Amended and Restated Employment Agreement, effective as of January 1, 1999,
between Unapix Entertainment, Inc., a Delaware corporation (the "Company"),
and Robert Baruc, an individual with an address at 66 Emery Drive, Stamford,
CT 06902 ("Employee").
WHEREAS, Employee and the Company originally entered into an employment
agreement, dated as of August 9, 1993 (the "Original Employment Agreement"),
which was subsequently amended by Amendment No. 1 thereto effective as of
January 1, 1996 (the Original Employment Agreement as subsequently amended
being referred to as the "Prior Employment Agreement").
WHEREAS, the Prior 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 Prior Employment Agreement provides for Employee's serving as
President and Chief Executive Officer of A-Pix Entertainment ("A-Pix"), the
Company's division that produces, promotes, markets, advertises, distributes
and exploits feature films for the home video rental market and the
theatrical market in the United States, and as Executive Vice President of
the Company (the term "A-Pix" shall include the operations of Unapix Films);
WHEREAS, Employee has been serving as Co-President of the Company; and
WHEREAS, the parties desire to amend and restate the Prior Employment
Agreement to (i) reflect Employee's serving as Co-President of the Company,
(ii) effect certain changes to the compensation which is to be paid to
Employee, (iii) extend the term of employment, and (iv) to effect certain
other changes to the terms and conditions of Employee's employment;
NOW THEREFORE, in consideration of the foregoing premises and the mutual
covenants hereinafter set forth, the parties agree as follows:
1. EMPLOYMENT:
The Company hereby employs the Employee, and the Employee hereby accepts
continued 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 January 1, 1999, and shall terminate on
December 31, 2003 (being five years after the commencement date); provided,
however, that such term will be automatically renewed for successive one year
periods, unless either the Company or Employee gives written notice to the
other of its election not to so renew the term at least 90 days prior to the
end of the then current term; provided, further, however, that if the Company
gives written 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."
<PAGE>
3. COMPENSATION:
(a) For all services rendered by the Employee under this Agreement, the
Company shall pay the Employee an annual salary (the "Base Salary") of
$257,000 for 1999. Commencing January 1, 2000 and for each year thereafter
that this agreement is in effect, Employee's Base Salary will be increased by
five percent (5%).
Employee's Base Salary shall be payable in equal installments in conformity
with the regular payroll policy of the Company.
(b) Employee will receive from the Company the following bonus compensation
for the year 1999 and for each year thereafter during the Employment Period:
(i) two percent (2%) of the Company's annual earnings before taxes ("Company
EBT") for such year;
(ii) two percent (2%) of A-Pix's annual earnings before taxes ("A-Pix EBT")
for such year; and
(iii) two percent (2%) of "Unapix Program Enterprises' A-Pix related Profits"
(as hereinafter defined).
Notwithstanding anything else to the contrary contained herein: (x) subject
to clause (y) below, the Company shall pay Employee for each year of the
Employment Period an annual non-returnable but recoupable (in the manner set
forth in this paragraph) advance of $100,000 of his bonus hereunder (such
advance, as adjusted from time to time pursuant to the provisions hereof, the
"Bonus Advance"), which Bonus Advance shall be paid at the rate of $25,000
per calendar quarter (i.e. quarterly periods ending March 31, June 30,
September 30 and December 31), within fifteen days of the end of each such
quarter, and which Bonus Advance shall be setoff against and recouped from
all bonus amounts that would otherwise be due to Employee hereunder whether
for the year in which such advance is paid or for subsequent periods; (y) to
the extent the Bonus Advance paid pursuant to this Section 3(b) with respect
to any particular year exceeds the bonus that was earned for that year
pursuant to clauses 3(b)(i), 3(b)(ii) and 3(b) (iii) above and that would
have been payable had an advance not have been paid, the advance to be paid
for the next succeeding year shall be reduced by such excess; and (z) to the
extent the bonus earned with respect to any particular year pursuant to
clauses 3(b)(i), 3(b)(ii) and 3(b)(iii) exceeds the Bonus Advance paid with
respect to such year, the Bonus Advance for the next succeeding year shall be
increased by the amount of such excess; provided, however, that the amount of
the Bonus Advance shall not in any event exceed $100,000 with respect to any
year. As an example, if the Bonus Advance paid for 1999 is $100,000 but the
amount of the bonus compensation earned by Employee for 1999 pursuant to
clauses 3(b)(i), 3(b)(ii) and 3(b)(iii) is only $75,000, then the amount of
the Bonus Advance for the year 2000 will be reduced to $75,000 (which shall
be paid in equal quarterly installments); if the bonus compensation earned by
Employee for 2000 pursuant to said clauses 3(b)(i), 3(b)(ii) and 3(b)(iii) is
$100,000, then the Bonus Advance for 2001 will be increased to $100,000.
For purposes of this Section 3(b):
<PAGE>
(i) "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");
(ii) "A-Pix EBT" for a particular year shall (A) consist of A-Pix's earnings
before payment of all local, state and federal income taxes, but after
deduction of all expenses for such year, (B) be determined in accordance with
GAAP, and (C) be consistent with A-Pix's earnings reflected in the Company's
audited consolidated financial statements for such year; provided, however,
that for purposes of calculating A-Pix EBT, A-Pix's operations shall not in
any event include: the licensing of feature films or television programming
to the domestic television market; the licensing or distribution of feature
films or television programming for the international market; the
distribution of feature films or television programming via web-sites that
the Company owns, controls or operates ("Company Web-Sites") or through
catalogues that the Company circulates or controls ("Company Catalogues");
provided, further, however, that A-Pix's operations shall be deemed to
include the distribution of feature films via the following means, if, but
only if, such distribution is effectuated by Company employees who devote
substantially all of their time to the operations of A-Pix (including Unapix
Films) and are not considered to be employees of another of the Company's
divisions, (x) the distribution of feature films via wholesalers or rack-
jobbers for sale to retail stores, or the distribution directly to retail
stores, (y) the distribution of feature films via the Internet (other than
via Company Web-Sites which shall be deemed to be a distribution by other
divisions as aforesaid), or (z) the distribution of feature films via
catalogues (other than via Company Catalogues which shall be deemed to be a
distribution by other divisions as aforesaid).
(iii) "Unapix Program Enterprises' A-Pix Related Profits" for a particular
year shall mean ninety-five percent (95%) of the gross profit, determined in
accordance with GAAP and as reflected in the Company's audited consolidated
financial statements for such year, obtained by the Company's Unapix Program
Enterprises' division from licenses for exhibition on all forms of domestic
television, including domestic cable (including basic, pay and pay per view)
or domestic network broadcast television stations (but specifically excluding
licenses for exhibition granted to individual domestic television stations,
or television station groups, through syndication) of feature films that were
originally acquired due directly to the efforts of Employee or produced under
Employee's supervision.
Notwithstanding the foregoing or anything else to the contrary contained
herein, in calculating "A-Pix EBT" for a particular year, (x) all selling,
general and administrative expenses that are directly attributable to the
operations of A-Pix shall be deducted, (y) there shall be no deduction for
general corporate overhead expenses (e.g. legal and accounting personnel who
devote substantial time to matters other than the operations of such
division), and (z) there shall be a charge of 12% on all cash provided by the
Company in order to fund such division's operations, which amount of cash
shall be determined based upon A-Pix's negative cash flow, if any, from
operations for each calendar quarter during such year.
<PAGE>
The Company will remit payment of any bonus to which Employee is entitled
pursuant to this Section 3(b) within thirty (30) days of the date the
Company'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.
(c) The Employee shall also receive, for each year of his employment
hereunder, an annual non-refundable and non-recoupable advance of $50,000
(the "Executive Producer Fee Advance") of the executive producer fees payable
to the Company with respect to productions of feature films intended for
distribution, at least in part, to the domestic home video rental market or
the domestic theatrical market (such executive producer fees being referred
to as "Domestic Feature Film Executive Producer Fees"). The Executive
Producer Fee Advance shall be paid in equal monthly installments of $4,166.67
each. Other than the Executive Producer Fee Advance, Employee shall have no
right, title or interest in or to any executive producer fees payable to the
Company or any employee of the Company nor shall he be entitled to any bonus
based upon such fee (other than to the extent the bonuses set forth in
Sections 3(b)(i) and 3(b)(ii) take such fees into account in calculating
earnings before taxes). Employee understands and agrees that he shall not be
entitled to be paid an executive producers fee with respect to any work he
does on behalf of the Company (other than the Executive Producer Fee Advance
expressly provided for herein) and that all such fees shall be payable to the
Company.
4. DUTIES:
The Employee is employed as Chief Executive Officer of A-Pix and as Co-
President of the Company. Employee shall perform such activities related to
such offices as are assigned to him by the Company's Chairman of the Board,
Chief Executive Officer, or its Board of Directors. Subject to reasonable
travel requirements on behalf of the Company and A-Pix, 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.
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.
6. VACATION:
The Employee shall be entitled each year to a vacation of three weeks, 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:
<PAGE>
The Employee shall be entitled to participate on the same basis, and subject
to the same qualifications as the most senior executives of the Company, in
any pension, profit sharing, insurance, stock purchase, savings,
hospitalization, sick leave and other fringe benefit plans in effect from
time to time with respect to executives of the Company (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, upon presentation of a
voucher indicating the amount and purpose, for reasonable expenses incurred
on behalf of the Company, including all reasonable travel and entertainment
expenses paid or incurred by Employee in connection with the performance of
his duties; provided, however, that with respect to certain de minimus
expenses the Company will not require a receipt, except to the extent the
Company would be required upon audit to present such receipt in order to
justify a deduction for income tax purposes.
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 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) and the Executive Producer Fee Advance pursuant to Section 3(c)
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 one hundred twenty (120) 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 thirty (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
6 month period immediately following such termination, and (iii) the pro-rata
amount of bonus pursuant to Section 3(b) and the Executive Producer Fee
Advance pursuant to Section 3(c) and Fringe Benefits as if the Employment
Period had 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.
<PAGE>
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.
(c) Termination for Employee's Breach. The Company shall have the right to
terminate this Agreement and the employment hereunder if Employee materially
violates his material obligations under this Agreement and Employee fails to
cure such violation to the satisfaction of the Company's Board of Directors
within thirty (30) days after Employee's receipt of written notice setting
forth the specific nature of such violation. The Company may immediately
terminate this Agreement upon (i) the good-faith determination, based upon
reasonable evidence, by the Company's Board of Directors that there has been
an embezzlement of the Company's funds by Employee, (ii) conviction of
Employee on a felony charge or conviction of a crime involving an act of
moral turpitude; or (iii) subject to Section 11 below, upon the good-faith
determination, based upon reasonable evidence by the Company's Board of
Directors, that the Employee has continued to have unauthorized discussions
of the Company's business activities, or continued to improperly disclose
trade secrets or confidential information, concerning the Company'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 whatsoever pursuant to Section 3(b)
or any further Executive Producer Fee Advance payments pursuant to Section
3(c). For purposes of this Agreement and any option agreements between the
Company and Employee, a termination of employment pursuant to this Section
9(c) shall be deemed a termination for "cause."
(d) Termination for Company's Breach. Employee shall have the right to
terminate his employment if the Company materially breaches any of the
provisions hereof and such breach is not cured within thirty (30) days after
the Company receives written notice from Employee thereof. If Employee
terminates his employment pursuant to this Section 9(d), he shall be entitled
to pursue all other remedies with respect to such breach to which he is
entitled at law or in equity, subject to the provisions of this Agreement;
such termination shall not be deemed an election of remedy.
(e) No Mitigation of Damages. In the event of termination of employment
pursuant to Section 9(d) or the termination of Employee's employment other
than pursuant to Section 9(c) (i.e. a termination "without cause"), Employee
shall be entitled to full payment of his Base Salary, Bonus Advance and
Executive Producer Fee Advance and Fringe Benefits, all pursuant to this
Agreement, through the expiration of the then current Employment Period
(without giving effect to any renewal of the Employment Period pursuant to
Section 2 or otherwise) calculated and payable in accordance with, and at the
times provided in, this Agreement as if this Agreement had not been
terminated, and Employee shall not be required to mitigate any damages he may
sustain by accepting any executive position or other employment whether or
not consistent with his present level of responsibility and his education,
background and experience. Employee shall also be entitled to (i) the amount
of any unpaid Bonus to which Employee is entitled, pursuant to Section 3(b),
<PAGE>
with respect to the Company's last complete fiscal year preceding the date of
such termination (the "Preceding Termination Fiscal Year"), and (ii) the
amount of any Bonus to which Employee is entitled, pursuant to Section 3(b),
for the Company's fiscal year in which such termination occurs (the
"Termination Fiscal Year"), determined on a pro rata basis in accordance with
Section 3(b)(based upon the number of days during the Termination Fiscal Year
preceding such termination). The Bonus payments described in clauses (i) and
(ii) of this Section 9(e) shall be paid when such Bonus payments would
otherwise have been required to be made pursuant to Section 3(b) had this
Agreement not been terminated. For purposes of determining the amount of the
Bonus Advance to be paid to Employee pursuant to this Section 9(e), the Bonus
Advance to be paid for each year of the Employment Period following
termination shall be equal to the amount of the Bonus Advance to which
Employee is entitled for the Termination Fiscal Year. Any income earned by
the Employee in any other employment or consulting obtained or rendered by
him after termination and during the Employment Period (without giving effect
to such termination) shall be offset against and reduce amounts due to him
hereunder or otherwise. Employee shall not be entitled to any damages other
than those expressly provided for in this Section 9(e) as a result of the
Company's breach of this Agreement and Employee's termination pursuant to
Section 9(d) or the Company's termination of Employee without cause.
(f) Termination for Change of Control. Employee shall be entitled to elect
to terminate this Agreement, by delivering a written notice to the Company,
within sixty days of the occurrence of a "Change of Control" (as hereinafter
defined). Such termination shall be effective 10 days after delivery of such
written notice. For purposes of this Agreement, "Change of Control" means
the occurrence of any of the following events after the effective date of
this Agreement: (i) the Company consolidates with or merges into any other
unaffiliated entity and the Company is not the surviving entity; (ii) the
sale, not in the ordinary course of business, of all or substantially all of
the collective assets of the Company and its subsidiaries, to any
unaffiliated entity; or (iii) at any time "Continuing Directors" (as defined
hereinafter) cease to constitute a majority of the Board of Directors of the
Company then in office. "Continuing Director" means, at any date, a member of
the Company's Board of Directors (x) who was a member of such Board on the
effective date of this Agreement or (y) who was nominated or elected by the
majority of the directors who were Continuing Directors at the time of such
nomination or election or whose election to the Company's Board of Directors
was recommended or endorsed by the majority of the directors who were
Continuing Directors at the time of such election. Notwithstanding the
foregoing or anything else to the contrary contained herein, if the surviving
entity in a merger or consolidation is not the Company, but a majority of its
directors are individuals who were Continuing Directors immediately prior to
the merger or consolidation, then the foregoing provisions shall not apply
and Employee shall not be entitled to terminate this Agreement.
10. CUSTOMER LISTS AND TRADE SECRETS:
During the Employment Period and for a two year period thereafter, 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 sources of financing, the
Company's estimating and costing procedures and the cost of 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
<PAGE>
suppliers; and the Company's sales and promotional policies. Employee shall
not reveal said trade secrets to others except in the proper exercise of his
duties and authorities for the Company, nor 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 or communication of information shall
not be a breach of this Section 10 to the extent that such information was
(a) previously known by the party to which it is provided or (b) already in
the public domain or otherwise publicly available or known generally within
the entertainment industry, 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. For purposes of this Section 10, the term
"Suppliers" shall include, without limitation, all persons or entities
producing or otherwise rendering services with respect to (x) the production
of a film produced by Unapix Films or otherwise intended to be distributed by
A-Pix or (y) a promotional campaign with respect to such a film.
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 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 employment 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; provided, however,
that the foregoing shall not prevent Employee (or any entity in which
Employee has an interest) from employing or soliciting for employment a
former employee of the Company who was employed by the Company on a temporary
basis and solely for the purpose of rendering creative services with respect
to a particular production of a feature film, so long as such services have
been fully completed and such person is no longer employed by the Company at
the time he or she is so solicited or employed by Employee or an entity in
which Employee has an interest. Other than as provided in this Paragraph 11,
nothing in this Agreement shall prohibit or restrict Employee in any way from
seeking other employment or starting a business at any time that Employee is
no longer employed by the Company (except as a result of Employee's breach of
this Agreement) regardless of whether or not such employment or business is
competitive or similar to the business of the Company or A-Pix.
12. INJUNCTION:
Notwithstanding any other provision of this Agreement, Employee acknowledges
and agrees that in the event of a violation or threatened violation of any of
the provisions of Sections 11 or 12, the Company 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.
Employee acknowledges that the time period and other types of restrictions
imposed by Section 10 and 11 are reasonably required for the protection of
the Company. If any part or parts of Section 10 or 11 shall be held to be
unenforceable or invalid, then the remaining parts shall nevertheless
<PAGE>
continue to be valid and enforceable as though the invalid portion or
portions were not a part hereof. If any of the provisions of Section 10 or
11 relating to the time period or other types of restrictions shall be deemed
to exceed the maximum period of time or otherwise be deemed by a court of
competent jurisdiction unenforceable, then the time and other types of
restrictions shall, for purposes of Section 10 and 11, be deemed to be the
maximum time period and/or such restriction which a court of competent
jurisdiction would deem valid and enforceable in any state in which such
court of competent jurisdiction shall be convened.
For purposes of Section 10 and 11, the term "Company" shall include, in
addition to Unapix Entertainment, Inc. ("Unapix"), all of Unapix's
subsidiaries and affiliates, including, without limitation, A-Pix and Unapix
Films.
13. OPTIONS TO PURCHASE COMMON STOCK:
The Company shall issue Employee 350,000 common stock purchase options (the
"Options"), each entitling the Employee to purchase one share of Unapix's
common stock, $.01 par value per share ("Common Stock"), at an exercise price
equal to $1.875 per share. 100,000 of the Options shall be exercisable
immediately upon execution of this Agreement. On January 1, 2000 another
100,000 such Options shall become exercisable and on each of January 1, 2001,
January 1, 2002 and January 1, 2003 another 50,000 Options shall become
exercisable. The Options shall be evidenced by a Stock Option Agreement
substantially in the form annexed hereto as Exhibit A.
14. MISCELLANEOUS PROVISIONS:
(a) Notice and Communications - 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. Any notice sent to the Company shall be
sent to the attention of its Chief Executive Officer with a copy to its
General Counsel.
(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 with respect to all periods from and after the effective
date of this Agreement, and this Agreement constitutes the entire
understanding between the parties with respect to employment of the Employee
by the Company from and after the effective date of this Agreement. 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 or purchase of all or
substantially all of the assets, business and goodwill of the Company and the
written assignment and assumption of this Agreement by the Company and the
purchaser, or upon the merger of the Company into or consolidation thereof
with another corporation, this Agreement, subject to the provisions of
Section 9(f), 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.
<PAGE>
(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) 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.
(h) Binding Effect. This Agreement shall be binding upon and inure to the
benefit of Employee, the Company, and the Company's successors and assigns.
(i) Cooperation in Connection with Obtaining Key Man Life Insurance.
Employee agrees to cooperate with the Company in the Company's obtaining "Key
Man" life insurance, which insures his life and names the Company as
beneficiary. Without limiting the generality of the foregoing, Employee
agrees to submit to such medical examinations, and take such other reasonable
actions, as may be reasonably requested by the Company in obtaining such
insurance.
(j) Work for Hire: Employee shall ensure that all the results and proceeds of
Employee's work on films and other entertainment programming during the
Employment Period shall be owned by the Company, including the copyright
thereto; it being understood that all such work by Employee on films and
entertainment programs during the Employment Period, and at all other times
Employee has been or shall be employed by Company, is being done on a "work
for hire" basis. In the event, for any reason, such results and proceeds are
not deemed work for hire, Employee shall be deemed hereby to have assigned to
the Company all of his right, title and interest in such results and
proceeds.
<PAGE>
(k) Staffing. The Company shall provide Employee with such secretarial or
administrative assistance as is reasonably required by Employee to
effectively perform his duties hereunder.
(l) Arbitration. Any controversy or claim arising out of or relating to this
agreement shall be settled by arbitration administered by the American
Arbitration Association, located in New York, New York, in accordance with
its Commercial Arbitration Rules. The arbitrator in any such proceeding shall
have the authority to award to the prevailing party in such proceeding its
reasonable costs, including attorneys' fees and disbursements, from the
losing party. Judgement on the award rendered by the arbitrators may be
entered in any court having jurisdiction thereof.
<PAGE>
IN WITNESS WHEREOF, the parties hereto execute this Amended and Restated
Agreement and intend to be hereby bound, effective as of the date first above
written.
ATTEST: UNAPIX ENTERTAINMENT, INC.
By:
Name:
Title:
WITNESS:
Robert Baruc
<PAGE>
EXHIBIT A
UNAPIX ENTERTAINMENT, INC.
STOCK OPTION
Date of Grant: April 23, 1999
Unapix Entertainment, Inc. (the "Company"), a Delaware corporation, pursuant
to its 1993 Stock Option Plan, a copy of which is attached to this option
(the "Plan"), hereby grants to Robert Baruc (the "Option"), an option to
purchase a total of 350,000 shares of common stock (par value $.01 per share)
of the Company at an option price of $1.875 a share on the terms and
conditions set forth in this option and in the Plan.
1. Subject to the provisions of paragraph 4 below, the Optionee may exercise
this Option with respect to 100,000 of the shares on and after the date
hereof, an additional 100,000 of the shares on and after January 1, 2000, and
an additional 50,000 shares on and after each of January 1, 2001, January 1,
2002 and January 1, 2003, provided that in no event may this Option be
exercised later than April 22, 2009 (the "Termination Date").
2. This Option shall not be transferable by the Optionee otherwise than by
will or by the laws of descent and distribution. This Option shall not be
subject to execution, attachment or other process. During the lifetime of
the Optionee, this Option shall be exercisable only by the Optionee.
3. (a) This Option is exercisable with respect to all, or from time to time
with respect to any portion, of the shares then subject to exercise, by
delivering written notice of the exercise to the Treasurer of the Company at
its principal office. Each notice of exercise shall specify the number of
shares with respect to which the Option is being exercised (which number, if
fewer than all the shares subject to exercise at that time, shall be 100 or
an integral multiple of 100), and shall be accompanied by payment of the full
purchase price of those shares.
(b) If at any time the Company shall determine that the listing, registration
or qualification of the shares subject to this Option upon any securities
exchange or under any State or Federal law, or the consent or approval of a
governmental of regulatory body, is necessary or desirable in connection with
the issue or purchase of the shares subject to this Option, this Option may
not be exercised in whole or in part unless the listing, registration,
qualification, consent or approval shall have been effected or obtained free
of any conditions not acceptable to the Company (and the Company shall have
no obligation to effect the listing, registration of qualification or to
obtain the consent or approval and the Optionee shall have no rights against
the Company if it determines not to do so). If a registration statement
under the Securities Act of 1933 (the "Act") is not then in effect with
respect to the shares issuable upon the exercise of this option, and the
Company believes that the shares may be issued pursuant to an exemption from
registration, it shall be a condition precedent to the effective exercise of
this option that the person exercising this option give the Company a written
representation and undertaking, satisfactory in form and substance to the
Company, regarding compliance with the provisions of the Act and any other
applicable legal requirements (including, without limitation, that the
shares, are being acquired for investment only and without a view to the
resale or distribution thereof). The Company may place upon the face of any
stock certificate or certificates representing shares issued upon exercise of
this option an appropriate legend to assure compliance with the Act. The
Company may also issue "stop transfer" instructions with respect to such
shares acquired by exercise of the Option.
<PAGE>
4. This Option shall be exercisable only during the time Optionee continues
to be an employee of the Company, except that:
(a) If the Optionee's employment is terminated for any reason (other than as
a result of his death, disability or for cause or as a result of Optionee's
or the Company's breach of an employment agreement between the Company and
Optionee), this option may be exercised by him, to the extent that it was
exercisable at the date of termination, at any time within ninety days after
the date he ceases to be employed by the Company, but not later than the
Termination Date, except that, in case of his death within that ninety day
period, this option may be exercised as provided in subparagraph (b) below;
(b) If the Optionee dies while he is employed by the Company or within the
ninety day period referred to in subparagraph (a) above, this Option may be
exercised, to the extent that it was exercisable by the Optionee at the date
of his death, by the person or persons to whom his rights under this Option
pass by will or by the laws of descent and distribution, at any time within
one year after the date of his death, but not later than the Termination
Date;
(c) If the Optionee ceases to be employed by the Company as a result of his
becoming disabled, this Option may be exercised, to the extent that it was
exercisable by the Optionee at the date of his ceasing to be employed by the
Company, at any time within one year after the date of his termination of
employment, but not later than the Termination Date;
(d) If the Optionee's employment by the Company is terminated for cause or as
a result of Optionee's breach of an employment agreement between the Company
and Optionee, this Option and all rights under this Option, to the extent
those rights have not been exercised, shall thereupon terminate; and
(e) If the Optionee's employment by the Company is terminated as a result of
the Company's breach of a currently effective written employment agreement
between the Company and Optionee, then this Option shall continue in full
force and effect and shall continue to be exercisable (to the extent it was
exercisable on the date of termination), and shall become exercisable in
accordance with Paragraph 1 hereof, as if Optionee continued to be employed
by the Company until the expiration of the then current employment term
(without giving effect to any renewal or extension period). For purposes of
clarification, this would mean that this Option would be exercisable until
the earlier of (i) the 90th day after the end of the employment term in which
the termination occurred (without giving effect to any renewal or extension
thereof) or (ii) the Termination Date.
5. (a) If there is any stock dividend, stock split or combination of shares
of common stock of the Company, the number and kind of shares then subject to
this Option shall be proportionately and appropriately adjusted; no change
shall be made in the aggregate purchase price to be paid for all shares
subject to this Option, but the aggregate purchase price shall be allocated
among all shares subject to this Option after giving effect to the
adjustment.
<PAGE>
(b) If the Company is merged into, or consolidated with, any other
corporation, the Company shall (i) cause provision to be made for the
continuance of this Option after that event, or for the substitution for this
Option of another option covering the number and class of securities that the
Optionee would have been entitled to receive in the merger or consolidation
if the Optionee had been the holder of record of a number of shares of common
stock of the Company equal to the number of shares covered by the then
unexercised portion of this Option (but such substitute option otherwise
containing substantially the same terms, provisions and conditions as those
contained herein), or (ii) give to the Optionee written notice of its
election not to cause such provision to be made and this Option shall become
exercisable in full (or, at the election of the Optionee, in part) upon or
immediately prior to the effectiveness of the merger or consolidation, in
which case this Option shall not be exercisable to any extent after the
merger or consolidation. In no event, however, shall this Option be
exercisable after the Termination Date.
(c) If there is any other change in the capital stock of the Company
including as a result of a recapitalization, reorganization, exchange of
shares, or a merger of consolidation in which the Company is the surviving
corporation, such adjustment, if any, shall be made in the shares then
subject to this Option as the "Committee" (as defined in the Plan) or the
Company's Board of Directors may deem equitable. Failure of the Committee or
the Company's Board of Directors to provide for an adjustment pursuant to
this subparagraph prior to the effective date of any Company action referred
to in this subparagraph shall be conclusive evidence that no adjustment is
required as a consequence of that action.
7. Nothing in the Option or in the Plan shall confer on the Optionee any
right to continue to be employed by the Company or to serve as a director or
interfere in any way with the right of the Company to terminate the Optionee
as a director or an officer or other employee at any time. The Optionee
shall not, by virtue of holding this Option, be entitled to any rights as a
stockholder in the Company.
8. This Option shall be exercised in accordance with such administrative
regulations as the Committee or the Company's Board of Directors may from
time to time adopt. All decisions of the Committee or the Company's Board of
Directors, upon any question arising under the Plan or under this instrument,
shall be conclusive and binding upon the Optionee and any person or persons
to whom rights under this Option may have been transferred by will or by the
laws of descent and distribution.
9. The acceptance by the Optionee of this Option shall constitute acceptance
of, and agreement to, all the terms and conditions contained in this Option
and in the Plan.
10. This Option and the Plan contain a complete statement of all the terms of
this Option, cannot be changed or terminated orally, and shall be governed by
the laws of the State of New York applicable to agreements made and to be
performed wholly within the State of New York.
UNAPIX ENTERTAINMENT, INC.
By:
Name:
Title:
ACCEPTED:
Robert Baruc
<PAGE>
EXHIBIT 10.8
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made effective as of May 18, 1998, 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 David A. Dreilinger, an individual with a residence located at 49
Stornowaye, Chappaqua, New York 10514 (hereinafter called the "Employee").
WHEREAS, Employer desires to employ, on the terms and subject to the
conditions set forth herein, the Employee as Chief Operating Officer; 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
Employee's employment by the Company shall begin on the effective date of
this Agreement (the "Commencement Date") and shall terminate on the third
anniversary of the Commencement Date (the "Initial Term"); provided, however,
that this Agreement shall be automatically renewed on the terms hereof on the
last day of the Initial Term and thereafter on the last day of each
successive one-year period (a "Renewal Period") on a year to year basis,
unless either the Company or Employee shall give notice of non-renewal to the
other party at least twelve months prior to the end of the Initial Term or
such successive Renewal Period, whereupon such termination shall be effective
as of the last day of such Initial Term or Renewal Period, as the case may
be. The term of Employee's employment by Employer under this Agreement
(including the Initial Term and Renewal Periods, if any), is hereinafter
sometimes referred to as the "Employment Period".
3. COMPENSATION:
(a) For all services rendered by Employee pursuant to his employment by
Employer under this Agreement, the Employer shall pay the Employee the
following annual salary for the respective periods set forth below (the "Base
Salary"):
$175,000 for the one year period commencing on the Commencement Date and
terminating on the day preceding the first anniversary thereof (the "First
Anniversary");
$187,500 for the one year period commencing on the First Anniversary and
terminating on the day preceding the second anniversary of the Commencement
Date (the "Second Anniversary"); and
$200,000 for each one year period, if any, of the Employment Period
commencing with the Second Anniversary.
<PAGE>
Such compensation shall be payable in equal installments in conformity with
the regular payroll of Employer.
(b) Employee will receive from the Company the following bonus compensation
with respect to each calendar year during the Employment Period:
(i) 2% of the Company's first $7,500,000 annual earnings before taxes
("EBT")in excess of $2,293,000 of EBT, if any, for such year. For purposes
of illustration, if the Company has EBT equal to $9,793,000 for a particular
year, the bonus would equal $150,000 with respect to such year; and
(ii) 1% of all EBT for such year in excess of $9,793,000. For purposes of
illustration, if the Company has EBT equal to $10,793,000 for a particular
year, the total bonus would equal $160,000 with respect to such year
($150,000 with respect to the first $9,793,000 of EBT plus $10,000 with
respect to the next $1,000,000 of EBT).
For purposes of this Section 3(b), 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 for all expenses allocable to that
year, and shall be determined in accordance with generally accepted
accounting principles ("GAAP"). EBT for each year shall be as reflected in
the Company's audited financial statements for such year.
Employer will remit payment of any bonus to Employee within thirty (30) days
of the date that 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. For
purposes of illustration: if the Company has EBT equal to $9,793,000 for the
year 1998, Employee's bonus for such year will equal $93,699; and if the
Employment Period terminates at the end of the Initial Term, May 18, 2001,
and the Company has EBT for the year 2001 also equal to $9,793,000, then
Employee's bonus for such year will equal $56,301.
4. DUTIES:
The Employee is employed as the Company's Chief Operating Officer. 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,
<PAGE>
shall not be engaged in any other business activity during the Employment
Period. Notwithstanding the foregoing, Employee may devote a de minimus
amount of his time to the legal representation of Jennings Burch, subject to
the following conditions to which Employee expressly agrees: (i) Employee
shall make clear to Mr. Burch and all other parties with whom Employee
interacts in the course of such representation that Employee is acting in his
individual capacity and is not acting as an agent or representative of the
Company. Employee shall indemnify the Company for any loss, cost or expenses
(including, without limitation, reasonable attorneys fees it may incur as
result of such representation); (ii) Employee shall not represent Mr. Burch
with respect to any activities that are directly or indirectly competitive
with any of the Company's businesses; (iii) Employee shall not devote any of
his efforts during normal business hours to such representation and shall not
use the Company premises or resources in connection with such representation;
and (iv) such representation shall not interfere in any manner with
Employee's responsibilities and obligations to the Company.
6. VACATION:
The Employee shall be entitled each year to a vacation of three weeks during
the Initial Term and four weeks thereafter, 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. Notwithstanding the
foregoing, at Employee's option, for the period from the Commencement Date
through August 1998 the Company will either (i) pay the costs of maintaining
his and his family's current health insurance pursuant to COBRA, or (ii) will
pay for Employee's and his family's coverage under the group health insurance
plan that the Company maintains, subject to the same terms and conditions as
the Company's other employees. After August 1998 the Company shall only be
obligated to pay for Employee's and his family's coverage under the group
health insurance plan that the Company maintains, subject to the same terms
and conditions as the Company's other employees.
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:
<PAGE>
(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 120 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.
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 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 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; or (v) subject to Section 10 below, upon the good-faith
determination 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 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.
<PAGE>
(e) Termination Without Cause. Notwithstanding anything to the contrary
contained in this Agreement, Employer may terminate Employee's employment
under this Agreement without cause effective as of the 180th day following
the Commencement Date (the "180th Day"); provided, however, that Employer
must give Employee at least 10 days prior written notice if it intends to
terminate Employee's employment on such date. If Employee's employment
hereunder is terminated pursuant to this Section 9(e), then Employer will
pay: (i) to Employee an aggregate amount equal to $131,250, which shall be
payable in equal installments over the nine month period immediately
following the 180th Day (the "Termination Period") in conformity with the
regular payroll of Employer as if Employee were still employed during such
period; and (ii) the costs of continuing Employee's and his family's health
benefits under the Company's group health insurance plan for the Termination
Period under COBRA. Employee shall not be entitled to any other benefit or
compensation following termination of his employment pursuant to this Section
9(e).
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, licensors,
and suppliers and prospective customers, licensors 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 or rights; the prices or other consideration
charged to or required of the Company by any of its suppliers or licensors or
potential suppliers or licensors; 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 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, licensors and customers
and prospective customers, licensors and suppliers as confidential trade
secrets of such customers, licensors and suppliers and prospective customers,
licensors 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
<PAGE>
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 or employees or the
Company's licensors 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 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.
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 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 PURCHASES COMMON STOCK:
The Company will grant Employee 100,000 common stock purchase options (the
"Options"), each entitling Employee to purchase one share of the Company's
common stock at an exercise price equal to $4.31 per share. None of the
Options shall be exercisable until the first anniversary of the Commencement
Date. Commencing on such first anniversary and on each of the next two such
anniversaries during the Employment Period, one third of the Options shall
become exercisable (i.e. on the first anniversary 33,334 Options shall become
exercisable; on the second anniversary 33,333 Options shall become
exercisable; and on the third anniversary the remaining 33,333 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 sell 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 Options shall terminate ten years after the date of grant.
<PAGE>
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.
(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 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 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.
<PAGE>
(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.
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., David M. Fox, President
Name:
Title:
ATTEST:
David A. Dreilinger
WITNESS:
Name:
MEMORANDUM
TO: Herb Pearlman
FROM: David Dreilinger
DATE: May 3, 1999
Herb,
As we discussed, the following have been approved:
1.My salary increase will be $25,000 (for an annual salary of $200,000).
One-half of the increase, or $12,500, will be paid in a lump sum up front,
with the balance payable according to regular payroll practices.
2.The threshold for calculating my bonus from 1999 and thereafter will be
EBIT of $1,000,000 instead of the $2,293,000 currently provided for.
Many thanks again.
David
AGREED:
/s/ Herbert M. Pearlman
Herb Pearlman
<PAGE>
EXHIBIT 10.9
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made effective as of May 4, 1998, 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 Cheryl
Freeman, an individual with a residence located at 1970 Fullbroke
Drive, Thousand Oaks, California 91362 (hereinafter called the "Employee").
WHEREAS, Employer desires to employ, on the terms and subject to the
conditions set forth herein, the Employee as Vice President of Finance,
Accounting and Operations West Coast; 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
Employee's employment by the Company shall begin on the effective date of
this Agreement (the "Commencement Date") and shall terminate on the third
anniversary of the Commencement Date (the "Initial Term"); provided, however,
that this Agreement shall be automatically renewed on the terms hereof on the
last day of the Initial Term and thereafter on the last day of each
successive one-year period (a "Renewal Period") on a year to year basis,
unless either the Company or Employee shall give notice of non-renewal to the
other party at least six months prior to the end of the Initial Term or such
successive Renewal Period, whereupon such termination shall be effective as
of the last day of such Initial Term or Renewal Period, as the case may be.
The term of Employee's employment by Employer under this Agreement (including
the Initial Term and Renewal Periods, if any, is hereinafter sometimes
referred to as the "Employment Period").
3. COMPENSATION:
(a) For all services rendered by Employee pursuant to her employment by
Employer under this Agreement, the Employer shall pay the Employee an annual
salary of $101,800 (the "Base Salary"). Such compensation shall be payable in
equal installments in conformity with the regular payroll of Employer.
(b) Employee will receive from the Company the following bonus compensation
with respect to each of calendar years 1998, 1999 and 2000 during the
Employment Period:
(i) 1% of the Company's first $7,500,000 annual earnings before taxes
("EBT")in excess of $2,293,000 of EBT, if any, for such year (i.e. up to a
maximum bonus of $75,000 with respect to a particular year based upon 1% of
EBT if the Company has EBT at least equal to $9,793,000 for such year); and
<PAGE>
(ii) .5% of all EBT for such year in excess of $9,793,000.
For purposes of this Section 3(b), 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 for all expenses allocable to that
year, and shall be determined in accordance with generally accepted
accounting principles ("GAAP"). EBT for each year shall be as reflected in
the Company's audited financial statements for such year.
Employer will remit payment of any bonus to Employee within thirty (30) days
of the date that Employer's independent auditors complete their audit of the
financial statements of the Company for the year with respect to which such
bonus is being paid. Notwithstanding anything to the contrary contained
herein, if such bonus is being paid with respect to any 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.
Employee shall be entitled to such bonuses with respect to calendar years of
the Employment Period after December 31, 2000, as Employer and Employee shall
agree. Employer and Employee agree to negotiate in good-faith a bonus formula
for calendar years of the Employment Period after December 31, 2000.
4. DUTIES:
The Employee is employed as the Company's Vice President of Finance,
Accounting and Operations West Coast. Employee shall report to the Chief
Executive Officer, Chairman of the Board and Chief Operating Officer of the
Company, until otherwise directed by the Company's Board of Directors, and
shall perform such duties as are assigned to her by the Chief Executive
Officer, Chairman of the Board or Chief Operating Officer.
5. EXTENT OF SERVICES:
During the term of her employment, Employee will devote all of her business
related time to the performance of her 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; provided, however, that for the week commencing May 3, 1998 and the
week commencing May 10, 1998, Employee shall only be required to devote
sixteen hours per week to her responsibilities hereunder and her Base Salary
for such weeks shall be pro rated accordingly.
6. VACATION:
The Employee shall be entitled each year to a vacation of four weeks, during
which time her compensation shall be paid in full and her fringe benefits
shall not be suspended or diminished.
<PAGE>
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. Without limiting the
generality of the foregoing, Employee and her immediate family shall be
entitled to coverage under the Company's health insurance plan, if any, that
it may maintain from time to time for its employees located in California,
subject to the same terms and conditions (including, without limitation, the
obligation to make a co-payment) as are applicable to the Company's other
employees located in California.
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 her 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 her 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 her 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 her 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.
<PAGE>
For purposes of this Agreement, "Disability" shall mean the mental or
physical inability of the Employee to materially perform her 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 her 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 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 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; or (v) subject to Section 10 below, upon the good-faith
determination 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 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.
(e) Termination Without Cause. Notwithstanding anything to the contrary
contained in this Agreement, Employer or Employee by notice to the other may
terminate Employee's employment under this Agreement without cause effective
as of the 180th day following the Commencement Date (the "180th Day");
provided, however, that written notice must be given at least 30 days prior
to the 180th day. If Employee's employment hereunder is terminated by
Employer pursuant to this Section 9(e), then Employer will pay: (i) to
Employee an aggregate amount equal to $50,000, which shall be payable in
equal installments over the six month period immediately following the
effective date of termination (the "Termination Period") in conformity with
the regular payroll of Employer as if Employee were still employed during
such period; and (ii) the costs of continuing Employee's and her family's
health benefits under the Company's group health insurance plan for the
Termination Period under COBRA. Employee shall not be entitled to any other
benefit or compensation following termination of her employment pursuant to
this Section 9(e).
10. CUSTOMER LISTS AND TRADE SECRETS:
<PAGE>
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, licensors,
and suppliers and prospective customers, licensors 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 or rights; the prices or other consideration
charged to or required of the Company by any of its suppliers or licensors or
potential suppliers or licensors; 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 her duties and authorities for the Company, or use her 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 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, licensors and customers
and prospective customers, licensors and suppliers as confidential trade
secrets of such customers, licensors and suppliers and prospective customers,
licensors 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 or employees or the
Company's licensors 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 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:
<PAGE>
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 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 PURCHASES COMMON STOCK:
The Company will grant Employee 50,000 common stock purchase options (the
"Options"), each entitling the Employee to purchase one share of the
Company's common stock at an exercise price equal to $4.81 per share (which
was the closing sales price thereof, as reported by the American Stock
Exchange (the "AMEX"), on May 4, 1998, the effective date of this Agreement).
None of the Options shall be exercisable until the first anniversary of the
Commencement Date. Commencing on such first anniversary and on each of the
next two such anniversaries during the Employment Period, one third of the
Options shall become exercisable (i.e. on the first anniversary 16,667
Options shall become exercisable; on the second anniversary 16,667 Options
shall become exercisable; and on the third anniversary the remaining 16,666
Options shall become exercisable).
The Options shall terminate ten years after the date of grant.
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.
(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.
<PAGE>
(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 agreement, understanding or restriction relating to
her employment. Employee expressly represents, undertakes and agrees that
she has not done and will not do anything in furtherance of this Agreement or
her duties hereunder that will violate any obligations she may have to any
prior employer (or will impose upon Employer any liability to any prior
employer) and that she will comply with all requirements of notice applicable
to the termination of any prior employment or agreement before she commences
her 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.
(k) Automobile Allowance. During the Employment Period, Employee shall be
entitled to an automobile allowance paid by Employer to Employee or her
designee equal to $500 per month for the purpose of leasing an automobile.
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.
By:
Name: Herbert M. Pearlman
Title: Chairman of the Board
WITNESS:
Name:
Cheryl Freeman
<PAGE>
EXHIBIT 10.10
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made effective as of January 1, 1999, 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 Michael R. Epps, an individual with a residence located at 342 Buchanan
Boulevard, Red Bank, New Jersey 07701 (hereinafter called the "Employee").
WHEREAS, Employer desires to employ, on the terms and conditions set forth
herein, the Employee as General Counsel; 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 as of January 1, 1999, and shall terminate on
December 31, 2001 (being three years after the commencement date); provided,
however, that such term will be automatically renewed for successive one year
periods, unless either the Company 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 then current term; provided, further, however, that if the Company 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. COMPENSATION:
(a) For all services rendered by the Employee under this Agreement, the
Employer shall pay to the Employee an annual salary (the "Base Salary") equal
to $165,750 for 1999. Commencing January 1, 2000 and for each year
thereafter that this agreement is in effect, Employee's Base Salary will be
increased by five (5%) percent. Employee's Base Salary shall be payable in
equal installments in conformity with the regular payroll policy of the
Employer.
(b) Employee will receive from the Company for the year 1999 and for each
year thereafter that this Agreement is in effect bonus compensation of at
least $16,575, which bonus shall be paid in installments throughout the year
on the same dates that installments of the Base Salary are paid. Employee
shall be paid such additional bonuses as the Company's Board of Directors or
more senior executives shall award to him from time to time.
<PAGE>
4. DUTIES:
The Employee is employed as General Counsel of the Company. Employee shall
report to the Chief Executive Officer, Chief Operating Officer 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 any
such officer that are consistent with such position. Employee's duties shall
be performed in an office in midtown Manhattan or Spring Lake, New Jersey.
The Company shall consult with Employee regarding the location of such
office.
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 three weeks, 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, 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 six month period (the
"Six Month 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 Six Month Period, but without prejudice to
any other payments due in respect of Employee's death.
<PAGE>
(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, (ii) regular installments of the
Employee's Base Salary for the six month 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 written 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.
(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.
<PAGE>
(e) No Mitigation of Damages. In the event of termination of employment
pursuant to Section 9(d) or the termination of Employee's employment other
than pursuant to Section 9(c) (i.e. a termination "without cause"), Employee
shall be entitled to full payment of his Base Salary, the bonus compensation
set forth in Section 3(b) and Fringe Benefits, all pursuant to this
Agreement, through the expiration of the then current Employment Period
(without giving effect to any renewal of the Employment Period pursuant to
Section 2 or otherwise) calculated and payable in accordance with, and at the
times provided in, this Agreement as if this Agreement had not been
terminated, and Employee shall not be required to mitigate any damages he may
sustain by accepting any executive position or other employment whether or
not consistent with his present level of responsibility and his education,
background and experience. Any income earned by the Employee in any other
employment or consulting obtained or rendered by him after termination and
during the Employment Period (without giving effect to such termination)
shall be offset against and reduce amounts due to him hereunder or otherwise.
Employee shall not be entitled to any damages other than those expressly
provided for in this Section 9(e) as a result of the Company's breach of this
Agreement and Employee's termination pursuant to Section 9(d) or the
Company's termination of Employee without cause.
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:
<PAGE>
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.
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.
Employee acknowledges that the time period and other types of restrictions
imposed by Section 10 and 11 are reasonably required for the protection of
Company. If any part or parts of Section 10 or 11 shall be held to be
unenforceable or invalid, then the remaining parts shall nevertheless
continue to be valid and enforceable as though the invalid portion or
portions were not a part hereof. If any of the provisions of Section 10 or 11
relating to the time period or other types of restrictions shall be deemed to
exceed the maximum period of time or otherwise be deemed by a court of
competent jurisdiction unenforceable, then the time and other types of
restrictions shall, for purposes of Section 10 and 11, be deemed to be the
maximum time period and/or such restriction which a court of competent
jurisdiction would deem valid and enforceable in any state in which such
court of competent jurisdiction shall be convened.
For purposes of Section 10 and 11, the term "Company" shall include, in
addition to Unapix Entertainment, Inc. ("Unapix"), all of Unapix's
subsidiaries and affiliates.
13. 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.
<PAGE>
(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 any
prior employer).
(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) Exercisability of Options if there is a Change of Control. Employee has
been granted options to purchase shares of the Company's common stock from
time to time prior to the date hereof. Notwithstanding anything to the
contrary contained in any option agreements or other documents pertaining to
said options, all such 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.
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.
By:
Name:
Title:
ATTEST:
Michael R. Epps
WITNESS:
<PAGE>
EXHIBIT 10.11
<PAGE>
January 31, 1999
David M. Fox
969 Long Hill Road West
Briarcliff Manor, New York 10510
Re: Separation Agreement between Unapix Entertainment, Inc. (together, with
all of its subsidiaries and affiliated entities, the "Company") and David M.
Fox
Dear David:
This letter will confirm the agreement between the Company and you regarding
certain matters in connection with your termination of employment as follows:
1. The Company and David M. Fox ("Fox") agree that his employment by the
Company shall be terminated effective as of January 31, 1999 (the
"Termination Date") without the necessity of further action by the Company or
him. Fox agrees that he has no employment or other severance rights of any
kind or nature other than as expressly provided in this Agreement and that
any and all employment agreements between the Company and Fox are hereby
terminated and of no further force and effect. Fox waives any right of
reinstatement to or reemployment with the Company from and after the
Termination Date. Fox hereby resigns as Vice Chairman, Chief Executive
Officer and a Director of the Company and also resigns from all other offices
and Directorships he currently holds with the Company effective as of the
date hereof.
2. The Company will pay Fox an aggregate of $145,833 (less withholding for
federal and state taxes, FICA and other amounts required to be withheld)(the
"Consulting Amount") for providing the consulting services described herein.
Subject to such withholding, the Consulting Amount shall be paid in
installments, commencing after the Termination Date, in conformity with the
regular payroll of the Company as if Fox were an employee of the Company for
the period February 1, 1999 through August 31, 1999 (the "Seven Month
Period"). In consideration of the Consulting Amount, Fox agrees: (i) during
the Seven Month Period to consult with the officers of the Company regarding
such matters and projects as any of them shall from time to time request; and
(ii) during the period from and after the end of the Seven Month Period
through January 31, 2000, Fox shall consult with the Company's Chairman of
the Board regarding such matters as the Chairman of the Board shall
reasonably request. The Company will also pay Fox an amount (the "Additional
Amount") equal to the bonus he would otherwise be entitled to from the
Company with respect to 1998, under his current employment arrangement with
the Company, as if he were still employed by the Company and such arrangement
were still in effect. It is understood and agreed that (i) the amount of such
bonus shall equal four percent of the Company's earnings before taxes for
1998 ("EBT"); and (ii) EBT for 1998 shall consist of the Company's earnings
for such year before payment of all local, state and federal income taxes
(but after deduction for all expenses allocable to that year), shall be
determined in accordance with generally accepted accounting principles, shall
be based solely upon such amount reflected in the Company's audited financial
statements for 1998 and shall be calculated in a manner consistent with the
calculation of Fox's bonus with respect to prior years (i.e. before deduction
of bonuses, to be paid to other employees, which are based upon the Company's
earnings for 1998). The Company will remit payment of such bonus, if any, to
Employee within 30 days of the date the Company's independent auditors
<PAGE>
complete their audit of the Company's financial statement for such year.
3. After the Termination Date, Fox will have all rights under COBRA to
continue under the Company's health insurance plan at his own expense;
provided, however, that the Company shall pay 80% of such cost and expense in
order to continue to provide such coverage for Fox and his family through
July 31, 1999; provided, further, however, that if Fox and his family become
covered by other health insurance prior to July 31, 1999, the Company's
obligation pursuant to the preceding provision shall immediately terminate.
4. Fox shall have the option (the "Surrender Option"), at any time within six
months of the date hereof (the "Surrender Option Period") to surrender to the
Company a total of 55,550 shares of the Company's common stock, $.01 par
value ("Common Stock"), and 13,123 shares of the Company's Series A 8%
Cumulative Convertible Preferred Stock ("Preferred Stock A") which secure a
total of $323,818 of indebtedness (including principal and interest that is
accrued and unpaid as of the date hereof), which indebtedness was incurred by
Fox in connection with his acquisition of such shares (the "Stock Purchase
Indebtedness"); such surrender to be applied to the payment of the Stock
Purchase Indebtedness as well as to the payment of $32,500 of indebtedness
that was incurred by Fox in connection with other loans advanced to him by
the Company and which indebtedness is still outstanding (the "Loan Debt";
collectively the Loan Debt and the Stock Purchase Indebtedness is referred to
as the "Fox Debt"). Such option may be exercised only by the surrender of all
such shares of Common Stock and Preferred Stock A, or such lesser number as
have an aggregate value, as hereinafter determined, equal to the total amount
of Fox Debt on the date of surrender. For purposes of determining the amount
of the Fox Debt that is being paid by Fox's surrender of shares of Common
Stock and Preferred Stock A, in the event that Fox exercises the Surrender
Option, each share of Common Stock shall be valued at the closing sales price
thereof, as reported by the American Stock Exchange (the "AMEX"), on the date
of surrender (or if there is no reported sale on such date, the average of
the bid and ask prices on such date) and each share of Preferred Stock A
shall be valued at 120% of the value ascribed to each share of Common Stock
so surrendered. Fox agrees to execute and deliver to the Company such
instruments and documents as the Company shall reasonably request in order to
properly reflect his exercise of the Surrender Option and the surrender of
his shares of Common Stock and Preferred Stock A in connection therewith. The
Fox Debt, if any, that remains unpaid after Fox's exercise of the Surrender
Option (the "Refinanced Indebtedness") shall be refinanced by Fox's execution
and delivery to the Company, simultaneously with his exercise of the
Surrender Option, of a non-recourse note (the "Note") for the principal
amount equal to the Refinanced Indebtedness and providing for interest
thereon at a rate equal to 6% per annum. Such note shall be in the form
annexed hereto as Exhibit A and shall be secured solely by the proceeds of
151,593 "Earnings Options" (as hereinafter defined) held by Fox, which are
currently exercisable. For purposes of this Agreement, the term "Earnings
Options" means those certain options having a current exercise price of $2.86
per share and expiring on December 23, 2003. The 151,593 Earnings Options
shall continue in full force and effect, subject to their terms.
Notwithstanding anything else to the contrary contained herein or in any
other instrument or document, (i) the full remaining outstanding balance of
the Fox Debt shall be immediately due and payable at any time, at the
Company's option upon notice to Fox, after the expiration of the Surrender
Option Period unless the Surrender Option has been exercised in accordance
herewith, and (ii) Fox shall not exercise the Earnings Options until the
earlier of (x) the date the Surrender Option is exercised or (y) the
expiration of the Surrender Option Period.
<PAGE>
Simultaneous with Fox's exercise of the Surrender Option, he shall execute
and deliver to the Company, in addition to the Note, the following: (A) a
duly executed security and pledge agreement, in the form annexed hereto as
Exhibit B, pursuant to which he pledges to the Company the proceeds from said
Earnings Options, including, without limitation, the proceeds from the sale
of any shares of capital stock issuable upon exercise of the Earnings
Options; (B) the executed original certificate evidencing the Earnings
Options; and (C) such other instruments and documents, including, without
limitation, UCC-1 Financing Statements, as the Company shall reasonably
request in order to perfect its security interest in the proceeds of the
Earnings Options. If Fox exercises the Surrender Option and there is any
amount of Refinanced Indebtedness, then at such time as the bid price of the
Company's Common Stock (as reported by the principal securities exchange on
which the Common Stock then trades or on NASDAQ) is at least the "Threshold
Price Per Share" (as hereinafter defined)(which price shall be appropriately
adjusted for any stock dividends, reverse stock splits or recapitalizations),
Fox agrees that, subject to his being able to under applicable securities
laws, he shall promptly exercise said Earnings Options, sell the underlying
shares of Common Stock and promptly pay, from the proceeds therefrom, the
principal amount of the Note, together with all accrued and unpaid interest
on the principal amount being paid; provided, however, that in no event shall
Fox be required on any particular day to exercise any amount of Earnings
Options entitling him to receive more than the number of shares of Common
Stock he could sell on such day in accordance with the provisions contained
herein; provided, further, however, that in no event shall Fox be required to
sell any shares of Common Stock for a price per share below the Threshold
Price Per Share. Notwithstanding anything to the contrary contained herein:
(x) unless the Company agrees otherwise, in no event shall Fox sell more than
an amount of shares of Common Stock in any one day that exceeds 50% of the
average daily trading volume of the Common Stock, as reported by the
principal securities exchange on which the Common Stock then trades or
NASDAQ, during the preceding week; and
(y) if Fox does not wish to exercise the Earnings Options when the bid price
equals or exceeds the Threshold Price Per Share, he may elect not to do so by
executing and delivering to the Company a recourse note for the entire
remaining unpaid principal amount of the Note, which recourse note shall have
a maturity date of the earlier of December 23, 2003 or two years after the
date of its delivery, but otherwise shall have identical terms to the Note,
except with respect to the limitation contained in the Note regarding Fox's
assets from which the Company may seek payment. Such recourse note shall
continue to be secured by a pledge of the proceeds from the Earnings Options.
At its option, to be exercised by delivery of written notice to Fox (each
such notice, an "Exercise Notice"), the Company may at any time and from time
to time after Fox's exercise of the Surrender Option (or in the event Fox
does not exercise such option, the expiration of the Surrender Option
Period), redeem all or a portion of the Earnings Options for a price per
option being redeemed equal to the "Fair Market Value" (as hereinafter
defined) minus (i) the exercise price for said option and minus (ii) the then
outstanding principal amount of the Note, if any, together with all accrued
and unpaid interest thereon, divided by the total number of the then
remaining unexercised Earnings Options. The closing with respect to any
<PAGE>
redemption specified in a Redemption Notice shall occur within thirty days of
the date such notice is delivered to Fox. For purposes of this agreement, the
term "Fair Market Value", in connection with the redemption of any Earnings
Options hereunder pursuant to a Redemption Notice, shall mean the average of
the closing sales prices (or the average of the closing bid and asked price
on any day on which the Common Stock does not trade) of the Common Stock, as
reported by the principal securities exchange on which the Common Stock
trades or as reported by NASDAQ, over the ten trading days immediately
preceding the date the Company delivers such Redemption Notice; provided,
however, that for purposes of calculating the redemption price, the Fair
Market Value shall in any event be deemed to be at least equal to the
Threshold Price Per Share in the event Fox has exercised the Surrender
Option.
Fox agrees to execute, and to cause the brokerage firm he plans to use in
connection with the sale of the shares he obtains upon exercise of the
Earnings Options to execute, such documents and instruments as the Company
shall reasonably request in order to effectuate Fox's obligations contained
in this Section 4 and in the Note. If Fox breaches any of his agreements
contained in this Section 4, the entire outstanding principal amount of the
Note, together with all accrued and unpaid interest thereon, shall become
immediately due and payable and the Company shall have full recourse against
Fox for the payment of such amount.
For purposes of this Agreement, the term "Threshold Price Per Share" shall
mean the sum of the following, as reasonably determined by the Company, which
shall be computed as of the date of the exercise of the Surrender Option and
appropriately adjusted, by the Company, for subsequent events (including,
without limitation, the accrual of interest on the Note): (i) the then
exercise price per share of the Earnings Options; (ii) the amount of the
Refinanced Indebtedness divided by the total number of Earnings Options; and
(iii) an amount sufficient to permit Fox to pay Federal and state income
taxes, at an assumed effective combined rate of 45%, on the income generated
from the exercise of each Earnings Option (which the parties agree to adjust
in good-faith to reflect the combined marginal effective Federal and state
tax rate that Fox can expect to pay on the income generated from the exercise
of the Earnings Options and the sale of the underlying shares to the extent
such rate is materially different than 45% at the time of exercise of the
options).
Notwithstanding the foregoing or anything else to the contrary contained
herein, to the extent the Earnings Options remain unexercised on June 30,
2003, the Company may thereafter require Fox to exercise such options and
sell the shares issuable upon exercise thereof in such amounts and on such
dates as the Company may from time to time request; provided, however, that
Fox shall not be obligated to exercise the Earnings Options to the extent he
cannot reasonably expect to receive proceeds (net of applicable brokerage
commissions) at least equal to the exercise price upon the sale of the shares
issuable upon exercise thereof. Fox shall promptly remit to the Company all
proceeds from the sale of the underlying shares of the Earnings Options he so
exercises to be applied to the payment of the outstanding balance of the Note
and all accrued and unpaid interest thereon; provided, however, that Fox
shall be permitted to retain up to 45% of the proceeds from the sale of such
underlying shares (net of applicable brokerage commission), after payment of
the aggregate exercise price therefor, to pay Federal and state income taxes
on the proceeds of his sale of such shares (which amount the parties agree to
adjust in good-faith if the combined marginal effective Federal and state
<PAGE>
income tax rate that Fox can expect to pay on the income and gain generated
from the exercise of the Earnings Options with respect to such underlying
shares, and the sale of such shares, is materially different than 45%);
provided, further, however, that Fox shall not be required to exercise any
such options or sell any shares issuable upon the exercise thereof, if and to
the extent Fox agrees to convert his obligation to repay the then outstanding
principal balance of the Note, and all accrued and unpaid interest thereon,
to a full recourse obligation; such obligation shall be evidenced by a
promissory note made by Fox payable to the Company having substantially the
same terms as the Note except with respect to the limitations contained in
the Note regarding the assets from which the Company may seek payment and
that the term of such promissory note shall be for one year. Fox agrees to
execute any and all documents and take all such actions as the Company shall
reasonably request in order to effectuate the intent and purpose of the
foregoing provisions.
5. The 95,537 options currently held by Fox, each entitling him to purchase
one share of Common Stock at $1.10 per share (the "Employment Agreement
Options"), shall be exercisable until July 31, 1999.
The Company agrees to advance Fox $25,000 (the "Initial Advance"), to be
applied solely to the exercise price of the Employment Agreement Options (the
options exercised by utilizing all or any portion of the Initial Advance are
referred to as the "Initial Advance Options"), which amount shall be advanced
at the rate of $1.00 per Employment Agreement Option as and when such options
are exercised. The Initial Advance shall be applied toward the exercise price
of the first 25,000 Employment Agreement Options exercised. Fox agrees that
he shall repay the Initial Advance to the Company by using $25,000 of the
proceeds from the sale of the shares obtained upon exercise of the Initial
Advance Options ("Initial Advance Proceeds") to pay expenses related to the
"Granite Virtual Store", and said $25,000 that is expended on the Granite
Virtual Store shall be deemed a capital contribution by the Company in the
entity operating same. Fox agrees to execute such documents and instruments
in connection with the Initial Advance as the Company shall reasonably
request, and upon request of the Company, shall itemize the expenses related
to the Granite Virtual Store with respect to which he has used Initial
Advance Proceeds.
In connection with Fox's exercise of Employment Agreement Options after the
first 25,000 such options have been exercised, the Company shall advance to
Fox up to $25,000 of the aggregate exercise price thereof (the "Additional
Advance"), which amount shall be advanced at the rate of $1.00 per Employment
Agreement Option as and when such options are exercised. Fox shall promptly
repay such advance from the proceeds derived from the sale of the shares
underlying such Employment Agreement Options (the "Underlying Shares"), on a
pro rata basis, as such shares are sold. Fox may reborrow all or a portion of
the Additional Advance (at the rate of $1.00 per Employment Agreement Option
as and when such options are exercised) so long as the aggregate amount of
the Additional Advance does not exceed $25,000 at any one time.
Notwithstanding anything to the contrary contained herein: (i) after Fox has
exercised a total of 50,000 Employment Agreement Options, the Company may
require as a condition to the exercise of additional Employment Agreement
Options utilizing all or any portion of the Additional Advance that Fox
execute and deliver to the Company a promissory note evidencing his
obligation to pay to the Company the full amount of the Additional Advance
that may be extended hereunder, which note shall be payable on demand and
shall provide for interest on the outstanding principal amount thereof at 15%
<PAGE>
if it is not timely paid; and (ii) the Company will not issue any shares of
Common Stock with respect to Employee's exercise of all or any portion of the
final 20,537 Employment Agreement Options (the "Final Options"), unless Fox
has repaid to the Company the total outstanding balance of the Additional
Advance and Fox pays the exercise price of the Final Options at the time he
exercises such options.
6. Other than expressly provided herein, all options and warrants held by Fox
as of the date hereof, including, without limitation, those set forth on
Schedule A, shall immediately expire. Fox hereby confirms that he has
previously surrendered to the Company 24,937 Common Stock Purchase Warrants,
each having an exercise price of $19.05 per share and expiring on December
23, 2000 ("$19.05 Warrants"), and 24,937 Common Stock Purchase Warrants, each
having an exercise price of $28.57 per share and expiring on December 23,
2000 ("$28.57 Warrants"). Such warrants were surrendered to the Company as
partial payment of the interest that was due on December 31, 1998 pursuant to
that certain promissory note, dated as of September 1, 1995, made by Fox
payable to the Company in the original principal amount of $90,000. Each
$19.05 Warrant was ascribed a value of $0.025 and each $28.57 Warrant was
ascribed a value of $0.015 for this purpose.
7. Unless otherwise notified by the Company, Fox shall have the non-exclusive
right to arrange for offers to purchase the Company's Docere and Inner
Dimension operations. Fox shall be entitled to be paid in cash a finder's fee
of five percent of the purchase price paid to the Company pursuant to any
such offer arranged by Fox that is accepted by the Company. Such fee shall be
payable upon the closing of the purchase and shall be inclusive of all
expenses incurred by Fox in connection therewith. Notwithstanding anything to
the contrary contained herein, the Company shall have no liability for any
failure to consummate a sale pursuant to any offer arranged by Fox, and no
fee or expense shall be payable to Fox if the Docere or Inner Dimension
operations are not sold pursuant to an offer arranged by him. For purposes of
the above calculation, "purchase price" shall mean the value of all cash,
securities and other property paid or issued to the Company in connection
with such purchase (including the assumption of Company indebtedness). The
value of any such securities (whether debt or equity) or other property shall
be determined as follows: (i) the value of securities for which there is an
established public market will be determined on the basis of the average of
the closing sales prices therefor over the twenty consecutive trading days
immediately prior to the closing of such purchase; and (ii) the value of
securities for which there is no established public market, or the value of
other property if the purchase price consists of property other than
securities, shall be the fair market value thereof (as determined by mutual
agreement of the Company and Fox or by an independent appraiser jointly
selected by the Company and Fox). Notwithstanding anything to the contrary
contained herein, if part of the consideration is not determinable at closing
because it is an earnout, the fee on that consideration will be paid when the
earnout is paid to the Company. The cost of the appraiser, if any, retained
to determine the value of securities or other property shall be borne equally
by the Company and Fox.
8. Fox shall vacate his office at 200 Madison Avenue, New York, New York by
February 1, 1999.
9. The Company and Fox agree that they will each have an equity interest in
any joint venture, corporation, partnership, limited liability corporation or
any other entity that is subsequently formed in which WEEK-TV, Granite
<PAGE>
Broadcasting ("Granite"), or any affiliate of Granite has an interest and in
which Fox, any of Fox's affiliates or any of Fox's family members also has an
interest (the "Granite Virtual Store Entity") which will operate a Web site
or Web sites (the "Granite Virtual Store") to which viewers of WEEK-TV or any
other cable or television station controlled directly or indirectly by
Granite, any of Granite's affiliates, or any other person or entity are
referred in order to purchase products relating to programming (in particular
the programming appearing on the cable or television station) or current
events or any other products. Fox's and the Company's equity interests in the
Granite Virtual Store Entity shall be in such proportion so that of the total
equity interests owned by the Company and Fox, the Company will own 49% of
such interests and Fox will own 51%. Without the consent of the other party,
neither the Company nor Fox shall extend any loans to the Granite Virtual
Store Entity or permit the Granite Virtual Store Entity to incur any
indebtedness to him.
Fox and the Company understand and agree as follows: (i) as of the date
hereof, the Company has already expended $25,000 on the Granite Virtual
Store; (ii) the Company has agreed to expend another $25,000 on the Granite
Virtual Store (the aggregate $50,000 described in this clause (ii) and in
clause (i) are referred to as the "$50,000 Advance"); and (iii) the Company
will pay the reasonable fees of Jennifer Kohl to devote up to 15% of her
total business related time to the Granite Virtual Store, from and after the
effective date of this Agreement through March 31, 1999. The parties hereto
agree that the Initial Advance, the $50,000 Advance and the fees of Jennifer
Kohl which the Company pays pursuant to the foregoing provision shall be
deemed a capital contribution by the Company to the Granite Virtual Store
Entity, and that no additional consideration shall be paid in exchange for
the Company's interest therein. The parties hereto shall cause any agreement
to which Granite or any of its affiliates is a party relating to the Granite
Virtual Store to reflect and effectuate the provisions contained in this
Section 6. In addition, Fox agrees to use his best efforts to cause Unapix
Syndication, Inc. ("Syndication") to be the sole and exclusive syndicator of
the Granite Virtual Store, pursuant to which Syndication, in exchange for an
agreed upon commission or distribution fee, licenses or otherwise sells to
broadcasters or local cable stations the right to refer its viewers to either
a Granite Virtual Store or another Web site that is customized for such
broadcaster or local cable station and in which the Granite Virtual Store
Entity has an interest.
Notwithstanding anything to the contrary contained herein, if Fox without
Granite or any affiliate of Granite, after the date hereof, plans to enter
into an agreement with any person or entity, with respect to the operation of
a Web site or Web sites to which viewers of a non-network broadcaster or
local or regional cable station or network are directly or indirectly
referred in order to purchase products relating to programming or current
events or other products (a "Virtual Store"), then, Fox shall immediately
provide written notice (a "Virtual Store Notice") to the Company describing
such arrangement and Fox's interest in the Virtual Store or the joint
venture, partnership or other entity or entities operating such Web sites
(the "Virtual Store Entity") including, without limitation, the amount of
consideration (other than his services) Fox is paying for such interest(the
"Fox Consideration"). The Company shall have the option, which must be
exercised within 15 business days of the Company's receipt of the Virtual
Store Notice (the "Virtual Option Period"), to acquire up to 49% of Fox's
interest in the Virtual Store or the Virtual Store Entity, as applicable,
described in the Virtual Store Notice without the payment of any additional
<PAGE>
consideration to Fox other than its agreeing to pay a pro rata amount of the
Fox Consideration on the same terms as Fox. The Company may exercise such
option by its delivery to Fox of a written notice during the Virtual Option
Period that it is electing to so acquire a percentage of Fox's interest in
the Virtual Store Entity; such notice shall specify the percentage of Fox's
interest that the Company is electing to acquire (the "Company Percentage").
If the Company provides written notice to Fox within said period that it is
exercising such option, then upon Fox's acquiring any interest in the Virtual
Store or Virtual Store Entity described in his notice, he shall
simultaneously assign the Company Percentage thereof to the Company, subject
to the Company's paying a pro rata portion of the Fox Consideration to the
Virtual Store or Virtual Store Entity, as applicable, or executing and
delivering such documents and instruments as the Virtual Store Entity shall
require in order to evidence the Company's obligation to pay its share of the
Fox Consideration, which instruments and documents shall contain
substantially similar terms and conditions as those executed and delivered by
Fox with respect to his interest in the Virtual Store or Virtual Store
Entity. In the event the Company exercises such option, Fox agrees to use his
best efforts to cause Syndication to be the sole and exclusive syndicator of
the Virtual Store described in such notice, pursuant to which Syndication, in
exchange for an agreed upon commission or distribution fee, licenses or
otherwise sells to broadcasters or local cable stations the right to refer
its viewers to either such Virtual Store or another web site that is
customized for such broadcaster or local cable station and in which the
applicable Virtual Store Entity has an interest. If the Company declines to
exercise its option with respect to a Virtual Store or Virtual Store Entity
described in a Virtual Store Notice, then Fox need not assign any of his
interest therein to the Company, but only if the Virtual Store and Virtual
Store Entity and his interest therein are identical to the description
provided in the Virtual Store Notice relating thereto. If the arrangement
relating to a Virtual Store or Virtual Store Entity is modified from the
description contained in the applicable Virtual Store Notice, then Fox shall
deliver to the Company a new Virtual Store Notice describing the modified
arrangement and the Company shall again have the option of acquiring up to
49% of Fox's interest therein.
Fox understands and agrees that the concept for the Virtual Store was
developed by him during the period he was employed by the Company and that,
accordingly, the Company is entitled to benefit from the utilization of that
concept. Since the Company's participation in, and benefitting from, the
Virtual Store concept is a material provision of this Agreement, Fox
covenants and agrees that, for a period of two years after the date hereof he
shall not, without the Company's prior written consent, directly or
indirectly, engage in any activity that is similar to a Virtual Store or be
financially interested in, or represent or render any advice or services to
any other person or entity that engages in a business similar to a Virtual
Store, unless Fox has a material equity interest in such Virtual Store and
has offered the Company 49% of such interest pursuant to the foregoing
provisions.
10. Each of Fox and the Company agrees that he will refrain from making any
disparaging or false statements, whether oral or written, regarding the other
(including, without limitation, regarding any of the Company's or its
affiliates' operations, or any of their directors, officers, employees or
agents) to any individual or entity whatsoever.
<PAGE>
11. In consideration of the agreements and covenants of the Company in this
Agreement, and for other good and valuable consideration, the receipt of
which is hereby acknowledged, Fox (for himself, and his heirs, legal
representatives and assigns) hereby releases and forever discharges the
Company, its officers, directors, employees, agents, successors in interest
and affiliates and any officers, directors, employees or agents of such
affiliates (collectively, all such individuals and entities are referred to
as "Released Parties") from any and all claims, demands, liabilities or
causes of action whatsoever, arising by reason of any facts or circumstances
from the beginning of time to the date of this Agreement (regardless of
whether such claims are presently existing or arise at any time after the
execution of this Agreement, whether they are based upon statutory,
administrative, legal, equitable, contractual, or common law grounds, whether
they involve judicial or administrative remedies, whether they are of a
personal or non-personal nature and whether such claims are known or
unknown); provided, however, that such release shall not be applicable to
claims specifically arising with respect to this Agreement. Without limiting
the generality of the foregoing, Fox understands that this release applies to
all claims and actions in any way connected with or relating to his
employment by the Company or the termination thereof, including, but not
limited to, breach of contract, impairment of economic opportunity,
intentional infliction of emotional harm or other tort, or violation of the
Civil Rights Act of 1866, as amended, the Civil Rights Act of 1964, as
amended, the Civil Rights Act of 1991, the Age Discrimination in Employment
Act of 1967, as amended, the Americans with Disability Act, the New York
Human Rights Laws, the New York Civil Rights Laws or any other Federal,
state or municipal statute, ordinance, rule or regulation or the common law
relating to employment or employment discrimination, or claims growing out of
any legal restrictions on the rights of employers to discharge its employees,
that Fox now has or claims to have, or which he heretofore had, or which he
may have or claims to have at any time hereafter, and he expressly waives any
and all remedies that may be available thereunder.
Also without limiting the generality of the foregoing, Fox covenants and
agrees to forever refrain from instituting, pursuing, or in any way
whatsoever aiding any claim, demand, action or cause of action or other
matter released and discharged herein by Fox arising out of or in any way
related to Fox's employment with any of the Released Parties and the rights
to recovery for any damages or compensation awarded as a result of any
lawsuit brought by any third party or governmental agency on Fox's behalf.
Fox further agrees to indemnify all Released Parties from any and all losses,
liabilities, damages, claims, suits, judgements, attorneys' fees and other
costs and expenses of whatsoever kind they may sustain or incur as a result
of his breach of the covenants, agreements, representations and warranties
contained in this Agreement. Fox warrants that he has not filed any lawsuits,
charges, complaints, petitions, or accusatory pleadings against any of the
Released Parties with any governmental agency or in any court, based upon,
arising out of or related in any way to any event or events occurring prior
to the signing of this Agreement, including, without limitation, his
employment with any of the Released Parties or the termination thereof.
12. In consideration of Fox's execution of this Agreement, and for other good
and valuable consideration, the receipt of which is hereby acknowledged, the
Company hereby releases and forever discharges Fox, his heirs, successors and
estate, from any and all claims, demands, liabilities or causes of action
<PAGE>
whatsoever from the beginning of time to the date of this Agreement, to the
full extent authorized or permitted by the provisions of the Delaware General
Corporation Law (the "State Statute"), or by any amendment thereto, Federal
Securities laws and any other applicable law; provided, however, that in any
event such release shall not be applicable to acts of Fox which breached
Fox's duty of loyalty to the Company or claims with respect to which Fox
would not be entitled to indemnification pursuant to this Section 12;
provided, further, however, that such release shall not be applicable to
claims specifically arising with respect to this Agreement.
Subject to the exclusions set forth in the next succeeding paragraph hereof
and prohibition or limitation by applicable state or Federal laws now or
hereinafter in effect, the Company agrees to hold harmless and indemnify Fox,
his heirs, successors and estate:
Against any and all expenses (including reasonable attorneys' fees and the
costs of investigation), judgements, fines and amounts paid in settlement
actually and reasonably incurred by Fox, his heirs, successors and estate in
connection with any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative
(including an action by or in the right of the Company) to which Fox is, was
or at any time becomes, or his heirs, successors and estate are, were, or at
any time become, a party, or is threatened to be made a party, by reason of
the fact that Fox, was a director, officer, employee or agent of the Company,
or was serving at the request of the Company as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interest of the Company, and with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful.
Notwithstanding anything to the contrary contained in this Agreement, no
indemnity pursuant to this Section 12 shall be paid by the Company:
(a) In respect of the amount of such losses for which Fox is indemnified
pursuant to any D & O Insurance purchased and maintained by the Corporation;
(b) In respect to remuneration paid to Fox if it shall be determined by a
final judgement or other final adjudication that such remuneration was in
violation of law;
(c) On account of any suit in which judgement is rendered against Fox for an
accounting of profits made from the purchase or sale by Fox of securities of
the Company pursuant to the provisions of Section 16(b) of the Securities
Exchange Act of 1934 and its amendments or similar provisions of any federal,
state or local statutory law;
(d) For any breach of Fox's duty of loyalty to the Company or its
stockholders;
(e) For acts or omissions of Fox not in good faith or which involve
intentional misconduct or a knowing violation of law;
(f) For any transaction from which Fox derived improper personal benefit;
(g) For any unlawful payment of dividends or unlawful stock purchase or
redemption as provided pursuant to the State Statute;
<PAGE>
(h) With respect to any claim, issue or matter as to which Fox shall have
been adjudged to be liable to the Company, unless and to the extent that a
court of competent jurisdiction deems Fox to be entitled to indemnification
despite such adjudication of liability; or
(i) If a final decision by a Court having jurisdiction in the matter shall
determine that such indemnification is not lawful.
Promptly after receipt by Fox of notice of the commencement of any action,
suit or proceeding, Fox will, if a claim in respect thereof is to be made
against the Company under this Agreement, notify the Company of such
commencement. With respect to any such action, suit or proceeding as to which
Fox notifies the Company of its commencement:
(a) The Company will be entitled to participate in it at its own expense;
(b) To the extent that it may wish, the Company jointly with any other
indemnifying party similarly notified will be entitled to assume the defense
of it. After notice from the Company to Fox of its election so to assume the
defense of it, the Company will not be liable to Fox under this Agreement for
any legal or other expenses subsequently incurred by Fox in connection with
the defense thereof. Fox shall have the right to employ his counsel in such
action, suit or proceeding but the fees and expenses of such counsel incurred
after notice from the Company of its assumption of the defense thereof shall
be at the expense of Fox unless (i) the employment of counsel by Fox has been
authorized by the Company; (ii) the Company shall not in fact have employed
counsel to assume the defense of such action; or (iii) Fox shall have
reasonably concluded, after consultation with legal counsel to Fox, that a
conflict of interest exists which makes representation by counsel chosen by
the Company not advisable, in each of which cases the fees and expenses of
one additional counsel shall be at the expense of the Company.
(c) The Company shall not be liable to indemnify Fox under this Agreement for
any amounts paid in settlement of any action or claim effected without its
written consent.
Fox agrees that Fox will reimburse the Company for all reasonable expenses
paid by the Company in defending any civil or criminal action, suit or
proceeding against Fox in the event and only to the extent that it shall be
ultimately determined that Fox is not entitled to be indemnified by the
Company for such expenses under the provisions of the State Statute, the
Company's Certificate of Incorporation and By-laws, this Agreement or
otherwise.
13. It is hereby agreed that Fox will not retain or remove from the Company's
premises (or the premises of any of the Company's affiliates) any property of
the Company, or any of its affiliates, whether same is physical or
electronically stored, without the prior express written consent of the
Company or the other entity owning such property. Fox shall promptly return
all property of the Company or its affiliates in his possession,
including, without limitation, all lap top and personal computers of the
Company in his possession.
<PAGE>
14. It is understood and agreed by and among the parties hereto that this
Agreement is entirely voluntary, and constitutes the entirety of the
agreements between the parties, that no prior or contemporaneous agreements
are of effect with regard to the subject matter of this Agreement, and that
any future agreements between the parties which in any way modify this
Agreement must be in writing, and signed by the parties hereto. Fox also
acknowledges that he has relied on no representations, oral or written, that
are not set forth in this Agreement and that no representations have been
made, other than those set forth in this Agreement.
15. This Agreement does not create, and is not intended by either party to
create, any third party beneficiaries hereto, other than the officers,
directors, employees, agents, and affiliates of the Company (including,
without limitation, the Company's subsidiaries) and such affiliates'
officers, directors, employees and agents, and Fox's heirs, executors,
administrators and personal representatives.
16. Fox agrees to maintain in confidence and not publish, release or in any
manner disseminate or disclose this Agreement, the terms of this Agreement,
or any communications relating to the negotiations which led to the execution
of this Agreement, except to his attorney and/or tax advisor to whom this
Agreement shall be exhibited only upon the previously exacted condition that
its contents will be held confidential by them. In addition, Fox agrees to
keep confidential all business-related information about the Company, its
affiliates, and each of them, including without limitation, contracts,
transactions, finances, personnel, customers or corporate affairs of which
Fox became aware during the tenure of his employment with the Company, or any
of its affiliates, or of which he becomes otherwise aware, whether or not
relating to the consulting services he renders hereunder, except such
information which: (a) is or becomes publicly available or public domain
information through no fault of Fox; (b) is disclosed pursuant to law or the
order, requirement, or request of a court or governmental authority; or (c)
relates exclusively to the Granite Virtual Store or another Virtual Store.
17. Fox agrees to cooperate with the Company and provide the Company with any
and all information requested by it, including but not limited to,
information about the Company's clients, accounts, transactions and other
information which he became aware of during the tenure of his employment.
Without limiting the generality of the foregoing, Fox specifically agrees to
cooperate with respect to any pending or future litigation to which the
Company is, or may in the future be, a party. The Company agrees to reimburse
Fox for the reasonable out-of-pocket expenses he incurs in fulfilling his
obligations pursuant to this Section 17.
18. By signing below Fox acknowledges that he has thoroughly read this
Agreement, has been advised to consult with an attorney prior to signing this
Agreement, understands that he has 21 days in which to consider this
Agreement and an additional seven days after signing it to revoke it, has
full knowledge and understanding of the terms and conditions of his release
contained herein, knows that, seven days after he signs this Agreement, it
becomes effective and its terms will be complete, final and binding upon him
and the Company, and is signing this Agreement voluntarily. Any such
revocation should be by hand delivery via certified or registered mail,
postage prepaid to Michael R. Epps, Esq., at the following address: Michael
R. Epps, Esq., c/o Unapix Entertainment, Inc., 200 Madison Avenue, New York,
NY 10016.
<PAGE>
19. Nothing contained herein shall be construed as an admission of the merits
of either party's claims. When the context in which words are used in this
Agreement indicates that such is the intent, singular words shall include the
plural and vice versa and masculine words shall include the feminine and
neuter genders and vice versa.
20. All provisions of this Agreement shall be binding upon, inure to the
benefit of, and be enforceable by and against the respective heirs,
executors, administrators, personal representatives, successors and assignees
of the parties.
21. Any controversy or claim arising out of or relating to this Agreement and
the subject matter addressed herein shall be settled by arbitration before a
single arbitrator and administered by the American Arbitration Association,
located in New York, New York, in accordance with the rules thereof.
22. Any and all notices or other communications or deliveries required or
permitted to be provided hereunder shall be in writing and shall be deemed
given and effective on the earliest of (i) the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile telephone
number specified in this Section prior to 5:00 p.m. (New York City time) on a
business day, (ii) the business day after the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile telephone
number specified herein later than 5:00 p.m. (New York City time) on any date
and earlier than 11:59 p.m. (New York City time) on such date, (iii) the
business day following the date of mailing, if sent by nationally recognized
overnight courier service, or (iv) upon actual receipt by the party to whom
such notice is required to be given. The address for such notices and
communications shall be as follows:
If to the Company:
Unapix Entertainment, Inc.
200 Madison Avenue, 24 Floor
New York, New York 10016
Facsimile: (212) 252-7640
Attention: Herbert M. Pearlman
With copies to:
Unapix Entertainment, Inc.
200 Madison Avenue, 24 Floor
New York, New York 10016
Facsimile: (212) 252-7637
Attention: Michael R. Epps
If to Fox:
969 Long Hill Road West
Briarcliff Manor, New York 10510
23. This Agreement may be executed in one or more counterparts, each of which
shall be deemed an original.
Please confirm the foregoing terms by signing this letter (which is delivered
in several counterparts) in the place provided below.
Very truly yours,
UNAPIX ENTERTAINMENT, INC.
By:
Name:
Title:
Accepted and Agreed to as of this 31st
day of January, 1999
David M. Fox
<PAGE>
EXHIBIT 10.13
<PAGE>
FOURTH AND VINE
OFFICE LEASE
THIS LEASE, made the 17 day of June, 1999, by and between SELIG REAL ESTATE
HOLDINGS SEVEN, a Washington general partnership, whose address is 1000
Second Avenue, Suite 1800, Seattle, Washington, 98104-1046, hereinafter
referred to as "Lessor" and Unapix Entertainment Inc., whose address is 2601
Fourth Avenue, Suite 320, Seattle, Washington, 98121, 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 the agreed upon square footage of
3,880 (hereinafter referred to as "Premises") situated on the 3rd floor level
of the Fourth & Vine Building, the "Building", 2601 Fourth Avenue, City of
Seattle, State of Washington 98121, the legal description of which is:
Lots 5, 6, 7 and 8, Block 33 Bell and Denny's Second Addition to City of
Seattle, heretofore laid off by A. A. Denny and William N. Bell according to
plat recorded in Volume 1 of plats, page 137 in King County Washington.
Suite 320
2. TERM, The term of this lease shall be for a period of 36 months,
commencing the date of occupancy or substantial completion whichever occurs
first, which shall be no later than the 1st day of August, 1999, and ending
36 months thereafter.
3. RENT, Lessee covenants and agrees to pay Lessor rent each month in advance
on the first day of each calendar month. Rent shall be computed at the annual
base rental rate of $19.5Q per square foot. Rent for any fractional calendar
month' at the beginning or end of the term, shall be the pro rated portion of
the rent computed on an annual basis.
CONSIDERATION, Lessee shall deposit with Lessor the sum of $6,305.00.
5. USES, Lessee agrees that Lessee will use and occupy said Premises for
general offices and related purposes and for no other purposes.
6. 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.
7. 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). Lessee shall be responsible
for removal of all personal property from the Premises, (excepting fixtures
being that which is attached to the Premises, and property of the Lessor)
<PAGE>
including, but not limited to, the removal of Lessee's communication cabling,
telephone equipment and signage Lessee shall be responsible for repairing any
damage to the Premises caused by such removal. If Lessee fails to remove and
restore the Premises at lease expiration, then Lessor shall have the right to
remove said property and restore the Premises and Lessee hall be responsible
for all costs associated therewith. Lessee shall also be responsible for
those costs incurred by Lessor for removing debris Lessee may discard in the
process of preparing to vacate the Premises and for a final cleaning of the
Premises, including, but not limited to, the cleaning, or replacement of
carpets if damage is not caused by reasonable wear, and removal and disposal
of Lessee's personal property remaining in the Premises.
8. ALTERATIONS, Lessee shall not make any alterations or improvements in, or
additions to said Premises without first obtaining the written consent of
Lessor, whose consent shall not be unreasonably withheld. 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.
9. 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 said 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.
10. 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, whose consent shall
not be unreasonably withheld, and Lessor shall have the right to locate the
position of any article of weight in said Premises if Lessor so desires.
11. 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.
12. 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.
13. KEY, Lessor, his janitor, engineer or other agents may retain a pass key
to said Premises to enable him to examine the Premises from time to time with
reference to any emergency or to the general maintenance of said Premises.
14. 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.
<PAGE>
15. 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 wrongful act of
Lessee.
Lessor shall furnish Premises with electricity for lighting and operation of
low power usage office machines, heat, normal office air-conditioning, and
elevator services, during the ordinary business hours of the building.
Air-conditioning units and electricity therefore for special air-conditioning
requirements, such as for computer centers, shall be at Lessee's expense.
Lessor shall also provide lighting replacement for Lessor furnished lighting,
toilet room supplies, 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. 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 dissatis-
faction with the service of the building, or any unreasonable annoyance of
any kind, Lessee is requested to make complaints at Lessor's building office
and not to Lessor's 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 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.
16. SOLICITORS, Lessor will make an effort to keep solicitors out of the
building, and Lessee will not oppose Lessor in his attempt to accomplish this
end.
17. FLOOR PLAN, The floor plan and specifications for Lessee's occupancy
shall be attached hereto and marked Exhibit "A" which shall be approved by
both Lessor and Lessee, both of whose approval shall not be unreasonably
withheld.
18. 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, whose consent
<PAGE>
shall not be unreasonably withheld. 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, whose consent shall not be
unreasonably withheld. In the event Lessee desires to assign or sublet said
Premises to a non-affiliate, or any part thereof, Lessor shall have the first
right, but not the obligation to terminate this lease as to that portion of
the Premises which Lessee desires to assign or sublet, in which event
Lessee's rent and proportionate share shall be equally reduced.
19. OPERATING SERVICES AND REAL ESTATE TAXES, The annual base rental rate per
rentable square foot in Paragraph 3 includes Lessee's proportionate share of
Operating Services and Real Estate Taxes for the first twelve months of the
lease term, "Base Year Costs". Only actual increases from these Base Year
Costs, if any, will be passed on to Lessee on a proportionate basis.
DEFINITIONS
Base Year
For computing the Base Year Costs, the base year shall be the calendar year
stated herein or if a specific calendar year is not stated herein then the
base year shall be the calendar year in which the lease term commences. The
base year shall be the calendar year 1999.
Comparison Year
The Comparison Year(s) shall be the calendar year(s) subsequent to the base
year.
Operating Services
"Operating Services" include, but are not limited to, the charges incurred by
Lessor for: building operation salaries, benefits, management fee of five
percent (5%) of gross income for the building, insurance, electricity,
janitorial, supplies, telephone, HVAC, non-capitalized repair and
maintenance, window washing, water and sewer, security, landscaping,
disposal, elevator, etc. Operating Services shall also include the
amortization cost of capital investment items and of the installation
thereof, which are primarily for the purpose of safety, saving energy or
reducing operating costs, or which may be required by governmental authority,
(all such costs shall be amortized over the reasonable life of the capital
investment item, with the reasonable life and amortization schedule being
determined in accordance with generally accepted accounting principles).
Notwithstanding anything to the contrary contained herein, Operating Services
shall not include any of the following:
(i) real estate taxes
(ii) legal fees, auditing fees, brokerage commissions, advertising costs, or
other related expenses incurred by Lessor in an effort to generate rental
income;
(iii) to rectify or correct any defect in the original design, materials or
workmanship of the building or common areas (but not including repairs,
alterations, additions, improvements or replacements made as a result of
ordinary wear and tear);
(iv) damage and repairs attributable to fire or other casualty;
<PAGE>
(v) damage and repairs necessitated by the negligence or willful misconduct
of Lessor, Lessor's employees, contractors or agents;
(vi) executive salaries to the extent that such services are not in
connection with the management, operation, repair or maintenance of the
building;
(vii) Lessor's general overhead expenses not related to the building;
(viii) legal fees, accountant's fees and other expenses incurred in
connection with disputes with tenants or other occupants of the building or
associated with the enforcement of the terms of any leases with tenants or
the defense of Lessor's title to or interest in the building or any part
thereof unless the outcome is to the financial benefit of all tenants;
(ix) costs (including permit, license and inspection fees) incurred in
renovating or otherwise improving, decorating, painting or altering (1)
vacant space (excluding common areas) in the building or (2) space for
tenants or other occupants in the building and costs incurred in supplying
any item or service to less than all of the tenants in the building;
(x) costs incurred due to a violation by Lessor or any other tenant of the
building of the terms and conditions of a lease;
(xi) cost of any specific service provided to Lessee or other occupants of
the building for which Lessor is reimbursed (but not including Operating
Services and Real Estate Tax increases above Base Year Costs to the extent
reimbursed Lessor) or any other expense for which Lessor is or will be
reimbursed by another source (i.e., expenses covered by insurance or
warranties);
(xii) costs and expenses which would be capitalized under generally accepted
accounting principles, with the exception of the capital investment items
specified hereinabove;
(xiii) building management fees in excess of the management fees specified
hereinabove;
(xiv) cost incurred with owning and/or operating the parking lot(s) serving
the building by independent parking operator(s).
(xv) fees paid to Lessor or any affiliate of Lessor for goods or services in
excess of the fees that would typically be charged by unrelated, independent
persons or entities for similar goods and services;
(xvi) rent called for under any ground lease or master lease;
(xvii) principal and/or interest payments called for under any debt secured
by a mortgage or deed of trust on the building; and
Operating Services shall be adjusted for the Base Year and all Comparison
Year(s) to reflect the greater of actual occupancy or 95% occupancy.
Real Estate Taxes
Real Estate Taxes shall be the taxes paid by Lessor in the base year and each
respective Comparison Year. Real Estate Taxes shall be a separate category
and shall be treated as such.
Proportionate Basis
Lessee's share of Base Year and Comparison Year(s) Costs shall be a fraction,
the numerator of which shall be the number of rentable square feet contained
in the leased Premises (see Paragraph 1) and the denominator of which shall
be the number of rentable square feet in the building in which the leased
Premises are located (117,299/RSF).
Computation of Adjustments to Base Year Costs
Any adjustment to Base Year Costs will commence to occur in Month 13 of the
lease term with subsequent adjustments commencing every twelve months of the
<PAGE>
lease term or in Months 25, 37, 49, etc. as appropriate under the lease term.
Lessee shall be responsible for any increase between Lessee's proportionate
share of Base Year Costs and Lessee's proportionate share of each respective
Comparison Year(s) Costs. The increase shall be the increase to each expense
individually. These costs shall be initially calculated based on estimated
(projected) costs with reconciliation to actual costs when annual audited
numbers are completed, not later than April 1 each year. For the purpose of
calculating projected increases to Base Year Costs, Lessor shall review
historical data to predict if any estimated increases would be anticipated in
a Comparison Year(s). If they are, then commencing in Month 13 and/or every
twelve month period thereafter, Lessor will assess a monthly charge to be
paid together with monthly base rent. Once actual cost data for Comparison
Year(s) Real Estate Taxes and Operating Services for the entire building is
formulated in accordance with generally accepted accounting principles and
adjusted to the greater of actual occupancy or 95% occupancy, then Lessee's
estimated passthrough costs shall be corrected with Lessee or Lessor, as
appropriate, reimbursing the other for the difference between the estimated
and actual costs, at that time in a lump sum payment.
Upon termination of this lease, the amount of any corrected amount between
estimated and actual costs with respect to the final comparison year shall
survive the termination of the lease and shall be paid to Lessee or Lessor as
appropriate within thirty (30) days after final reconciliation.
Computation of or adjustment to Operating Services and/or Real Estate Taxes
pursuant to this paragraph or to rent pursuant to Paragraph 3 shall be
computed based on a three hundred sixty-five (365) day year.
For an example, see Exhibit B attached hereto.
20. 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.
21. LATE PAYMENTS, Any payment, required to be made pursuant to this Lease,
not made on the date the same 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.
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
five (5) days late.
22. 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.
<PAGE>
23. INDEMNIFICATION, Lessee will defend, indemnify and 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 to the extent said damages or injury was
caused by the ordinary or gross negligence or wrongful intentional act of
Lessee and/or by Lessee's agents, employees or servants.
24. 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.
25. 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 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's 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 attorn to the
purchaser and recognize such purchaser as Lessor. Lessee agrees to execute,
at no expense to Lessor, any estoppel certificate deemed necessary or
desirable by Lessor to further effect the provisions of this paragraph.
26. 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 untenantable 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 not
to exceed Lessee's rental rate hereunder.
27. 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 Lessor's 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.
28. DEFAULT, If this lease is terminated in accordance with any of the terms
herein (with the exception of Paragraph 27), or if Lessee vacates or abandons
the Premises or if Lessee shall fail at any time to keep or perform any of
the covenants or conditions of this lease, i.e. specifically the covenant for
<PAGE>
the payment of monthly rent, then, and in any of such events Lessor may with
or without notice or demand, at Lessor's option, and 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, 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). This lease if not otherwise terminated may
immediately be declared by Lessor as terminated. 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
remain liable for all unpaid rental which has been earned plus late payment
charges pursuant to Paragraph 21 and 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, or if Lessor elects, Lessee shall be
immediately liable for all rent and additional rent (Paragraph 19) that would
be owing to the end of the term, less any rental loss Lessee proves could be
reasonably avoided, which amounts shall be discounted by the discount rate of
the Federal Reserve Bank, situated nearest to the Premises, plus one percent
(1%).
29. 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 18 of this lease.
It is also understood and 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 shall be construed to be a waiver of any
subsequent breach of the same or any other covenant or condition.
30. HOLDING OVER, If Lessee holds possession of the Premises 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.
31. ATTORNEY'S FEES, If any legal action is commenced to enforce any
provision of this lease, the prevailing party shall be entitled to an award
of reasonable attorney's fees and disbursements. The phrase "prevailing
Party" shall include a party who receives substantially the relief desired,
whether by dismissal, summary judgment, judgment or otherwise.
32. NO REPRESENTATIONS, The Lessor has made no representations or promises
except as contained herein or in some future writings signed by Lessor.
<PAGE>
33. 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.
34. 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.
35. 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.
36. GOVERNING LAW, This lease shall be governed by, construed and enforced in
accordance with the laws of the State of Washington.
37. OPTION TO RENEW, Provided that Lessee is not in default under any of the
terms and conditions of this lease, Lessee shall have the option to renew
this lease for one additional period of two (2) years. Base rent for the
renewal term shall be at the then market rate for comparable office space in
the CBD area of Seattle. Lessee agrees to give Lessor written notice of its
intent to renew at least 180 days prior to the expiration of the initial
lease term.
38. PARKING, Lessee shall be pro for two cars within the Fourth and Vine
parking garage and three (3) cars on outside surface lots. All parking shall
be paid for by Lessee. The cost shall be $75.00 per stall per month for the
first two years of the lease term, and shall increase to market rate
thereafter.
39. AS-IS, WHERE-IS, Except for Lessor re-keying the Premises, installing a
lock on the door to the adjacent space, repainting the Premises with one coat
of paint in a similar color as exists and shampooing the carpets, Lessor will
not be called on to make any alterations and/or additions to the Premises.
Lessee acknowledges Lessee has inspected the Premises and accepts them in an
as-is, where-is condition.
IN WITNESS WHEREOF, the parties hereof have executed this lease the day and
year first above written.
SELIG REAL ESTATE HOLDINGS SEVEN,
a Washington general partnership
By: Martin Selig
Its: General Partner
"Lessor"
UNAPIX ENTERTAINMENT, INC.
By: David A. Dreilinger
It's Chief Operating Officer
"Lessee"
<PAGE>
STATE OF WASHINGTON )
)ss.
COUNTY OF KING )
On this 17 day of June, 1999, before me, a Notary Public in and for the State
of Washington, personally appeared MARTIN SELIG, to me known to be the
Managing Member, respectively, of Selig Real Estate Holdings Seven, the
entity that executed the foregoing instrument, and acknowledged said
instrument to be the free and voluntary act and deed of said entity, for the
uses and purposes therein mentioned, and on oath stated that he/she/they
is/are authorized to execute said instrument on behalf of the entity.
/s/Jill M. Hayes
Notary Public in and for the State of Washington
Residing at: Fall City
My commission expires: 6/2/2002
(Corporation)
STATE OF NEW YORK )
)ss.
COUNTY OF NEW YORK)
On this 9 day of June, 1999, before me, a Notary Public in and for the State
of New York, personally appeared DAVID A. DREILINGER, to me known to be the
Chief Operating Officer, respectively, of Unapix Entertainment, Inc., the
corporation that executed the within foregoing instrument, and acknowledged
said instrument to be the free and voluntary act and deed of said
corporation, for the uses and purposes therein mentioned, and on oath stated
that he/she/they is/are authorized to execute said instrument and affixed is
the corporate seal of said corporation.
/s/Lawrence M. Sapadin
Notary Public in and for the State of New York
Residing at: Kings County
My commission expires: 1/31/2000
EXHIBIT B
EXAMPLE
The intent is to include Lessee's proportionate share of all Base Year Costs
in Lessee's Annual Base Rental Rate. It is further the intent to limit
adjustments to Lessee's Base Year Costs to actual increases in cost. The
Operating Services are adjusted to the greater of actual occupancy or 95%
occupancy for the base year to fairly establish the Base Year Costs at an
equitable standard for comparison purposes. Comparison Years are similarly
adjusted for purposes of fairness and equality. To prevent any confusion
regarding computation of Base Year Costs, Comparison Year Costs and the
adjustment of those costs to 95% occupancy, if necessary, we have set forth
the following example. It is important to note that if adjustment to 95%
occupancy is necessary, not all Operating Services are adjusted.
Expenses requiring adjustment are those which are 100% dependent upon the
change in footage and adjust with the change in occupied footage. This
category includes electricity, water/sewer, superintendent, disposal,
management, janitorial supplies, window washing, repair and maintenance, HVAC
maintenance, and janitorial labor.
<PAGE>
Other expenses do not require adjustment nor are they dependent upon occupied
footage change. These categories are the same whether the building is empty
or full. They are, insurance, security, elevator, landscaping and telephone.
Real Estate Taxes are dependent upon independent assessment. Real Estate
Taxes are not adjusted to 95%, but are established for each respective year
based on the actual tax paid whether for the respective Base Year or each
subsequent Comparison Year(s).
Please note the expenses noted below which are and are not adjusted and the
adjustment to each expense to achieve 95% occupancy, if necessary. The method
of adjusting expenses depicted in the example will be followed when adjusting
actual Operating Service Expenses for both the Base Year and Comparison
Year(s).
HYPOTHETICAL FACTS
<TABLE>
<S> <C>
Building Occupancy: 80%
Actual Base Year Costs: $375,000
Grossed Base Year Costs to 95%: $440,000
Actual Comparison Year Costs: (see below) $405,440
Grossed Comparison Year Costs to 95%: (see below) $463,080
Tenant Premises: 10,000 RSF
Building RSF: 125,000 RSF
Tenant Proportionate Basis: 10,000/125,000 = 8%
</TABLE>
EXAMPLE
-------
<TABLE>
<S> <C> <C> <C>
Actual Grossed
Description Expenses Expenses
- ----------- -------- --------
Percent Occupied 80.00% 95.00% Methodology
Real Estate Taxes $54,854 $54,854 Actual Cost
Operating Expenses
Insurance $26,595 $26,595 Actual Cost
Electricity $69,358 $82,363 Adjusts with occupancy
Water & Sewer $4,945 $5,872 Adjusts with occupancy
Security $5,000 $5,000 Actual Cost
Elevator $7,526 $7,526 Actual Cost
Superintendent $82,869 $98,407 Adjusts with occupancy
Landscaping $2,912 $2,912 Actual Cost
Disposal $15,502 $18,409 Adjusts with occupancy
Management $41,680 $49,495 Adjusts with occupancy
Supplies $4,339 $5,153 Adjusts with occupancy
Window Washing $1,527 $1,813 Adjusts with occupancy
Repairs & Maintenance $24,333 $28,895 Adjusts with occupancy
Telephone $1,144 $1,144 Actual Cost
HVAC Maintenance $6,208 $7,372 Adjusts with occupancy
Janitorial $56.648 $67 270 Adjusts with occupancy
------- --------
TOTALS: $405,440 $463,080
</TABLE>
<PAGE>
RIDER TO
FOURTH AND VINE OFFICE LEASE
This Rider to Fourth and Vine Office Lease supplements, amends and modifies
that Fourth and Vine Office Lease dated June 17, 1999 ("Lease") by and
between SELIG REAL ESTATE HOLDINGS SEVEN, a Washington general partnership
("Lessor") and UNAPIX ENTERTAINMENT, INC. ("Lessee"). The provisions of this
Rider supercede any inconsistent or conflicting provisions of the Lease.
Paragraph numbers and captions below correspond with the paragraph numbers
and captions of the Sections in the Lease which are modified by this Rider.
2. Term. Lessor agrees to complete its tenant improvement work on the
Premises no later then July 1, 1999.
4. Consideration. The deposit shall be a security deposit which Landlord may
apply to the extent necessary to cure any Lessee default under the Lease
provided Lessor has given Lessee notice of the default and Lessee has failed
to remedy the default within ten (10) days following such notice in regard to
monetary defaults or within thirty (30) days following such notice in regard
to non-monetary defaults. Lessor shall give Lessee written notice of any
amounts so applied. Any portion of the deposit not so applied shall be
credited in payment of the rental due for the last month of the Lease term.
6. Rules and Regulations. Any rules or regulations adopted by Lessor which
are not printed on this Lease may not materially increase Lessee's
obligations or materially decrease Lessee's rights as stated in this Lease.
8. Alterations. Lessor hereby consents to Lessee's construction and
installation of the alterations and improvements listed on Schedule A -
Lessee's Work. Lessee's Work may be completed at Lessee's convenience.
11. Sign Restriction. Lessor shall provide on or before commencement of the
Lease term signage identifying Lessee and its premises in the existing
Building Directory on the first floor and in the existing readerboard on the
3rd floor. Any additional signage requirements are listed on Schedule B -
Signage Requirements.
14. Telephone Service. Lessor shall provide direction to Lessee's
electricians promptly so as not to delay Lessee's work.
15. Services. At a minimum, Lessor's customary janitor service shall include
trash and refuse removal each business day, floor vacuuming each week and
dusting each week.
18. Assignment. Lessee may assign this Lease only with Lessor's consent which
shall not be unreasonably withheld.
19. Operating Services and Real Estate Taxes. Lessee may audit Lessor's
Operating Services and Real Estate Taxes not more than once per Lease year
and Lessor shall provide all information regarding Operating Services and
Real Estate Taxes which Lessee's auditors request. Such audit shall be
conducted in Lessor's office in Seattle, Washington during regular business
hours upon not less than twenty (20) days prior written notice from Lessee to
Lessor. In the event that the audit discloses errors in Lessor's calculation
of Lessee's share of charges for Operating Services and Real Estate Taxes,
<PAGE>
Lessee's payments for Operating Services and Real Estate Taxes shall be
equitably adjusted. In the event that the amount charged by Lessor to Lessee
during any Lease year which is audited by Lessee is five percent (5%) or
greater than Lessee's equitable share, Lessor shall reimburse Lessee for the
cost of Lessee's audit, not to exceed $500.00.
22. Risk. Nothing herein shall relieve Lessor from liability or damages
arising from or related to Lessor's negligence, breach of this Lease or
willful misconduct.
24. Waiver of Subrogation. The waivers stated herein apply only to the extent
the loss, damage, injury or liability is covered and paid by the waiving
party's insurance and to the extent the waiving party's applicable insurance
policy permits such waiver.
25. Subordination. Notwithstanding anything herein to the contrary, Lessee
shall not be required to execute any subordination agreement unless Lessee
receives a nondisturbance agreement and unless the subordination and
non-disturbance agreements do not materially reduce Lessee's rights or
materially increase Lessee's obligations under this Lease. Lessee shall be
permitted to modify any estoppel certificate presented by Lessor to provide
accurate information to Lessor's lender.
26. Casualty. In the event that the Premises or the Building suffer a
casualty loss which will materially interfere with Lessee's ability to use
and enjoy the Premises for more than ninety (90) days, Lessee by written
notice to Lessor may accelerate the expiration date of this Lease to a date
which is not more than one hundred eighty (180) days following the date of
such casualty loss.
28. Default. Lessor shall provide Lessee a minimum of ten (10) days prior
written notice of any monetary default under this Lease and a minimum of
twenty (20) days prior written notice of any non-monetary default under this
Lease and shall permit Lessee to cure its default during any such notice
period before Lessor is entitled to pursue its remedies. In the event of a
re-letting of the Premises following a default by Lessee, Lessee shall only
be obligated to pay a portion of re-letting costs equal to the amount of the
allowable re-letting costs multiplied by a fraction, the numerator of which
is the number of unexpired months of the Lease term at the time of such
re-letting and the denominator of which is the number of months for the
replacement lease term.
38. Parking. The outside surface lots shall not be more than one b1ock from
the Building.
39. As-Is, Where-Is. Nothing herein shall be construed as providing that
Lessee has consented to defects in the Premises which are latent and unknown
to Lessee as of the date Lessee executes this Lease.
40. Broker's Fees and Commissions. Lessor shall pay all brokers fees and
commissions incurred by Lessor or Lessee in regard to this Lease.
SELIG REAL ESTATE HOLDINGS SEVEN, a Washington general partnership
By:/s/Martin Selig, its general partner
UNAPIX ENTERTAINMENT, INC.
By: /s/David A. Dreilinger
It's: COO
<PAGE>
SCHEDULE A
Lessee's Work
SCHEDULE B
Signage Requirements
<PAGE>
EXHIBIT 10.20
<PAGE>
AMENDMENT NO. 1 TO CREDIT AND SECURITY AGREEMENT AND WAIVER
This Amendment No. 1 to Credit and Security Agreement and Waiver, dated as of
April 12, 2000 (the "Amendment"), is between UNAPIX ENTERTAINMENT, INC., a
Delaware corporation ("Unapix"), UNAPIX PRODUCTIONS WEST, a California
corporation ("UPW"), FRESH DEVELOPMENT, INC., a Delaware corporation ("FDI"),
UNAPIX DIRECT MEDIA, INC., a New Jersey corporation ("UDM"), GREEN LEAF
ADVERTISING COMPANY, INC., a New York corporation ("Green Leaf"), UNAPIX
SYNDICATION INC., a New York corporation ("USI") and THE JAZZ STORE, INC., a
New Jersey corporation ("JSI") (Unapix, UPW, FDI, UDM, Green Leaf, USI and
JSI are sometimes collectively referred to herein as the "Borrowers" and
individually as a "Borrower"); the other Credit Parties signatory hereto; and
GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation (in its
individual capacity, "GE Capital"), as the Lender.
A. The Borrowers, Miramar Images, Inc., a Washington corporation ("Miramar")
and the Lender have entered into a certain Credit and Security Agreement
dated as of September 28, 1999 (the "Credit Agreement").
B. Miramar has merged into Unapix, with Unapix being the surviving
corporation.
C. The Borrowers have requested that the Lender amend the Credit Agreement on
the terms and conditions herein contained.
D. The Borrowers have requested that the Lender waive compliance by the
Borrowers with certain provisions of the Credit Agreement, as more
particularly described in this Amendment.
E. The Lender has agreed to amend the Credit Agreement on the terms and
conditions herein contained. The Lender has agreed to waive compliance with
the provisions described in paragraph D above, but on the terms and
conditions herein contained.
NOW, THEREFORE, in consideration of the premises herein contained and for
other good and valuable consideration, the Borrowers and the Lender do hereby
mutually agree as follows:
AGREEMENT
1. Definitions. Capitalized terms used but not defined in this Amendment
shall have the meaning given to them in the Credit Agreement.
2. Amendment.
2.1 The Credit Agreement is amended by replacing Annex F thereto with the
revised version of Annex F attached to this Amendment.
2.2 The Credit Agreement is amended by adding the following to the Credit
Agreement as Section 1.7(d):
"(d) Borrowers shall pay to Lender, on the first Business Day of each month
prior to the Commitment Termination Date and on the Commitment Termination
Date, an administration fee in the amount of $8,333.33."
<PAGE>
3. Waiver.
3.1 Paragraph (b) of Annex F of the Credit Agreement requires the Borrowers
to maintain a minimum Fixed Charge Coverage Ratio on a consolidated basis for
certain 12-month periods more particularly described in that paragraph. The
Borrowers have failed to maintain a Fixed Charge Coverage Ratio in the amount
required under the Credit Agreement for the 12-month period ending on October
31, 1999. The Lender hereby waives compliance by the Borrowers with paragraph
(b) of Annex F of the Credit Agreement for the 12-month period ending on
October 31, 1999, provided that Borrowers have maintained on a consolidated
basis, for the 12-month period ending on October 31, 1999, a Fixed Charge
Coverage Ratio of not less than -2.27:1.0.
3.2 Paragraph (c) of Annex F of the Credit Agreement requires the Borrowers
to maintain minimum EBITDA on a consolidated basis for certain 12-month
periods more particularly described in that paragraph. The Borrowers have
failed to maintain minimum EBITDA as required under the Credit Agreement as
in effect prior to this Amendment for the five 12-month periods ending on
October 31, 1999, November 30, 1999, December 31, 1999, January 31, 2000 and
February 29, 2000, respectively. The Lender hereby waives compliance by the
Borrowers with paragraph (c) of Annex F of the Credit Agreement as in effect
prior to this Amendment for the five 12-month periods specified above,
provided that Borrowers have maintained on a consolidated basis, for each
such 12-month period ending on the date set forth below, EBITDA of not less
than the following:
<TABLE>
<S> <C>
Period End Date EBITDA
- --------------- ------
October 31, 1999 $16,687,000
November 30, 1999 $16,767,000
December 31, 1999 $19,783,000
January 31, 2000 $18,574,000
February 29, 2000 $18,068,000
</TABLE>
4. Representations and Warranties. When the Borrowers sign this Amendment,
each Borrower represents and warrants to the Lender that: (a) giving effect
to this Amendment, there exists no Default or Event of Default, (b) giving
effect to this Amendment, the representations and warranties of the Borrowers
in the Credit Agreement and in the other Loan Documents are each true on and
as of the date hereof as if made on and as of said date, (c) this Amendment
is within such Borrower's powers, (d) this Amendment been duly authorized by
all necessary or proper corporate and shareholder action, (e) this Amendment
does not contravene any provision of such Borrower's charter or bylaws, and
(f) this Amendment does not violate any law or regulation, or any order or
decree of any court or Governmental Authority.
5. Conditions. This Amendment will be effective upon the occurrence of the
following, in each case in a manner satisfactory to the Lender:
5.1 Receipt by the Lender of this Amendment executed by each party hereto.
5.2 Receipt by the Lender of an amendment fee in the amount of Twenty-Five
Thousand Dollars ($25,000).
<PAGE>
6. Effect of Amendment. Except as specifically amended above, the Credit
Agreement shall remain in full force and effect and is hereby ratified and
confirmed. The waiver contained above shall be limited precisely as written
and relate solely to the items and times above. Nothing in this Amendment
shall be deemed to (a) constitute a waiver of compliance by any Borrower with
respect to any other term, provision or condition of the Credit Agreement or
any other instrument or agreement referred to therein or (b) prejudice any
right or remedy that the Lender may now have or may have in the future under
applicable law or instrument or agreement referred to therein.
7. Counterparts. This Amendment may be executed in any number of
counterparts, each of which when so executed shall be deemed an original, and
all of said counterparts taken together shall be deemed to constitute but one
and the same instrument.
IN WITNESS WHEREOF, this Amendment has been executed by the parties hereto as
of the date first above written.
UNAPIX ENTERTAINMENT, INC.,
a Delaware corporation
By:
Title:
MIRAMAR IMAGES, INC.,
a Washington corporation
By:
Title:
UNAPIX PRODUCTIONS WEST,
a California corporation
By:
Title:
FRESH DEVELOPMENT, INC.,
a Delaware corporation
By:
Title:
UNAPIX DIRECT MEDIA, INC.,
a New Jersey corporation
By:
Title:
GREEN LEAF ADVERTISING COMPANY, INC.,
a New York corporation
By:
Title:
UNAPIX SYNDICATION INC.,
a New York corporation
By:
Title:
<PAGE>
THE JAZZ STORE, INC.,
a New Jersey corporation
By:
Title:
GENERAL ELECTRIC CAPITAL CORPORATION,
as Lender
By:
Title:
ANNEX F (Section 6.10) to CREDIT AND SECURITY AGREEMENT
FINANCIAL COVENANTS
Borrowers shall not breach or fail to comply with any of the following
financial covenants, each of which shall be calculated in accordance with
GAAP consistently applied:
(a) Maximum Capital Expenditures. Borrowers and their Subsidiaries on a
consolidated basis shall not make Capital Expenditures (i) in excess of
$500,000 for the Fiscal Year ending December 31, 1999, and (ii) in excess of
$250,000 during any Fiscal Year thereafter.
(b) Minimum Fixed Charge Coverage Ratio. Borrowers and their Subsidiaries
shall have on a consolidated basis, for each 12-month period ending on the
date set forth below, a Fixed Charge Coverage Ratio of not less than the
following:
<PAGE>
<TABLE>
<S> <C>
Period End Date Fixed Charge Coverage Ratio
- ------------------ ---------------------------
September 30, 1999 -2.70:1.0
October 31, 1999 -2.25:1.0
November 30, 1999 -2.00:1.0
December 31, 1999 -1.75:1.0
January 31, 2000 -1.50:1.0
February 29, 2000 -1.25:1.0
March 31, 2000 -1.25:1.0
April 30, 2000 -1.25:1.0
May 31, 2000 -1.25:1.0
June 30, 2000 -1.25:1.0
July 31, 2000 -1.00:1.0
August 31, 2000 -0.75:1.0
September 30, 2000 0.00:1.0
October 31, 2000 0.75:1.0
November 30, 2000 0.75:1.0
December 31, 2000 1.00:1.0
March 31, 2001 1.00:1.0
June 30, 2001 1.00:1.0
September 30, 2001 1.00:1.0
December 31, 2001 1.00:1.0
March 31, 2002 1.10:1.0
June 30, 2002 1.10:1.0
September 30, 2002 1.10:1.0
December 31, 2002 1.10:1.0
March 31, 2003 1.10:1.0
June 30, 2003 1.10:1.0
September 30, 2003 1.10:1.0
December 31, 2003 1.10:1.0
March 31, 2004 1.10:1.0
June 30, 2004 1.10:1.0
</TABLE>
(c) Minimum EBITDA. Borrowers and their Subsidiaries shall have on a
consolidated basis, for each 12-month period ending on the date set forth
below, EBITDA of not less than the following:
<PAGE>
<TABLE>
<S> <C>
Period End Date EBITDA
- --------------- ------
March 31, 2000 $16,400,000
April 30, 2000 $16,200,000
May 31, 2000 $15,800,000
June 30, 2000 $16,300,000
July 31, 2000 $17,000,000
August 31, 2000 $17,800,000
September 30, 2000 $18,300,000
October 31, 2000 $21,400,000
November 30, 2000 $23,400,000
December 31, 2000 $22,600,000
March 31, 2001 $27,000,000
June 30, 2001 $29,600,000
September 30, 2001 $28,800,000
December 31, 2001 $25,700,000
March 31, 2002 $26,400,000
June 30, 2002 $27,000,000
September 30, 2002 $27,700,000
December 31, 2002 $28,300,000
March 31, 2003 $29,000,000
June 30, 2003 $29,700,000
September 30, 2003 $30,400,000
December 31, 2003 $31,200,000
March 31, 2004 $31,200,000
June 30, 2004 $31,200,000
</TABLE>
(d) Minimum Film Library Ratio. Borrowers and their Subsidiaries shall have
on a consolidated basis at the end of each Fiscal Month, a Film Library
Coverage Ratio of not less than 5.0:1.0.
(e) Film Cost Expenditures. Borrowers and their Subsidiaries on a
consolidated basis shall not make Film Cost Expenditures in excess of the
following amounts during any Fiscal Year ending on the date set forth below:
<TABLE>
<S> <C>
Fiscal Year End Date Film Cost Expenditures
December 31, 1999 $26,500,000
December 31, 2000 $19,700,000
December 31, 2001 $17,700,000
December 31, 2002 $16,800,000
December 31, 2003 $15,200,000
</TABLE>
Unless otherwise specifically provided herein, any accounting term used in
the Agreement shall have the meaning customarily given such term in
accordance with GAAP, and all financial computations hereunder shall be
computed in accordance with GAAP consistently applied. That certain items or
computations are explicitly modified by the phrase "in accordance with GAAP"
shall in no way be construed to limit the foregoing.
<PAGE>
EXHIBIT 21.1
<PAGE>
<TABLE>
Name of Subsidiary State of Incorporation
- ------------------ ----------------------
<S> <C>
Green Leaf Advertising Company, Inc. New York
Abacus Films Ltd. New York
Unapix Films, Inc. New York
Unapix Productions West California
Unapix Syndication, Inc. New York
Fresh Development, Inc. Delaware
Unapix Direct Media, Inc. New Jersey
Pacific Surf Productions California
</TABLE>
<PAGE>
EXHIBIT 23.1
<PAGE>
INDEPENDENT AUDITORS' CONSENT
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) the Registration Statement on Form S-3, File No. 33-83186,
(iii) the Registration Statement on Form S-8, File No. 33-86080, (iv) the
Registration Statement on Form S-3, File No. 33-80019, (v) the Registration
Statement on Form S-3, File No. 333-29635, (vi) the Registration Statement on
Form S-3, File No. 333-51853; and (vii) the Registration Statement on Form S-
3, File No. 333-63235 of our report dated March 17, 2000 (with respect to
Note 14, March 28, 2000 and with respect to Note 4, April 12, 2000) on our
audit of the consolidated financial statements of Unapix Entertainment, Inc.
and subsidiaries included in its Annual Report on Form 10-K for the year
ended December 31, 1999, and to the reference to Richard A. Eisner & Company,
LLP under the heading "Experts" in the related Prospectuses.
Richard A. Eisner & Company, LLP
New York, New York
April 14, 2000
<PAGE>
EXHIBIT 27.1
<PAGE>
/END
FINANCIAL DATA SCHEDULE
ARTICLE 5
MULTIPLIER 1,000
PERIOD-TYPE YEAR
FISCAL-YEAR-END DEC-31-1999
PERIOD-START JAN-01-1999
PERIOD-END DEC-31-1999
CASH 301
SECURITIES 0
RECEIVABLES 17,921
ALLOWANCES 0
INVENTORY 3,917
CURRENT-ASSETS 0
PP&E 997
DEPRECIATION 0
TOTAL-ASSETS 76,806
CURRENT-LIABILITIES 0
BONDS 4,586
PREFERRED-MANDATORY 0
PREFERRED 5
COMMON 103
OTHER-SE 34,923
TOTAL-LIABILITY-AND-EQUITY 76,806
SALES 0
TOTAL-REVENUES 41,862
CGS 0
TOTAL-COSTS 39,456
OTHER-EXPENSES 0
LOSS-PROVISION 0
INTEREST-EXPENSE 1,395
INCOME-PRETAX (407)
INCOME-TAX 545
INCOME-CONTINUING 0
DISCONTINUED 0
EXTRAORDINARY 714
CHANGES 0
NET-INCOME (1,666)
EPS-PRIMARY (.25)
EPS-DILUTED (.25)
<TABLE> <S> <C>
<ARTICLE>5
<MULTIPLIER>1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 301
<SECURITIES> 0
<RECEIVABLES> 17,921
<ALLOWANCES> 0
<INVENTORY> 3,917
<CURRENT-ASSETS> 0
<PP&E> 997
<DEPRECIATION> 0
<TOTAL-ASSETS> 76,806
<CURRENT-LIABILITIES> 0
<BONDS> 4,586
0
5
<COMMON> 103
<OTHER-SE> 34,923
<TOTAL-LIABILITY-AND-EQUITY> 76,806
<SALES> 0
<TOTAL-REVENUES> 41,862
<CGS> 0
<TOTAL-COSTS> 39,456
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,395
<INCOME-PRETAX> (407)
<INCOME-TAX> 545
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 714
<CHANGES> 0
<NET-INCOME> (1,666)
<EPS-BASIC> (.25)
<EPS-DILUTED> (.25)
</TABLE>
