-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HSig2sv957/O0RATKGxMcYwFYr6C5c1Y7RcvBsXUVjf4t+q6D70Hbq3aNcpZ6Q3Y gGaXR3EGOt9WkSccDkJ/AQ== 0000950112-96-002893.txt : 19960816 0000950112-96-002893.hdr.sgml : 19960816 ACCESSION NUMBER: 0000950112-96-002893 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNAPIX ENTERTAINMENT INC CENTRAL INDEX KEY: 0000902787 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MOTION PICTURE & VIDEO TAPE DISTRIBUTION [7822] IRS NUMBER: 954404537 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 001-11976 FILM NUMBER: 96615443 BUSINESS ADDRESS: STREET 1: 500 FIFTH AVENUE CITY: NEW YORK STATE: NY ZIP: 10110 BUSINESS PHONE: 2125757070 MAIL ADDRESS: STREET 1: 500 FIFTH AVENUE STREET 2: 46TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10110 FORMER COMPANY: FORMER CONFORMED NAME: UPX ENTERTAINMENT INC DATE OF NAME CHANGE: 19930429 10QSB 1 UNAPIX ENTERTAINMENT, INC. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1996 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ---- ---- Commission File Number 1-11976 ------- UNAPIX ENTERTAINMENT, INC. -------------------------- (Exact name of small business issuer as specified in charter) Delaware 95-4404537 -------- ---------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification number) 200 Madison Avenue New York, NY 10016 ------------------ (Address of principal executive offices) 212-252-7600 ------------ (Issuer's Telephone number) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- As of August 7, 1996 there were 5,306,000 shares of the Company's common stock outstanding. Exhibits begin on page 16 UNAPIX ENTERTAINMENT, INC. Consolidated Balance Sheet (In thousands, except per share amounts) June 30, 1996 -------- ASSETS Cash and equivalents $ 531 Accounts receivable- trade, net of allowances of $762, including related party receivables of $217 7,938 Film costs, net 17,561 Property and equipment, net 391 Deferred income taxes 66 Other assets 1,577 -------- Total Assets $ 28,064 ======== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities : Accounts payable and accrued expenses, including related party payables of $18 $ 7,565 Film acquisition and royalty payable 4,347 Bank line of credit 100 Variable rate notes 3,365 Acquisition fund payable 897 -------- Total Liabilities $ 16,274 -------- Stockholders' Equity : Common stock $.01 par value per share; 20,000 authorized; 5,283 shares issued and outstanding 53 Cumulative convertible series A 8% preferred stock, $.01 par value per share; 3,000 authorized; 546 issued and outstanding (aggregate liquidation preference of $1,838) 5 Additional paid-in capital 15,657 Notes receivable from equity sales (2,016) Accumulated deficit (1,909) -------- Total Stockholders' Equity $ 11,790 -------- Total Liabilities and Stockholders' Equity $ 28,064 ======== See accompanying notes to consolidated financial statements Page 2 UNAPIX ENTERTAINMENT, INC. Consolidated Statements of Operations (In thousands, except per share amounts) For the Three Months Ended June 30 1996 1995 ------- ------- Revenues: Licensing and distribution $ 2,304 $ 1,498 Home video 3,049 3,004 ------- ------- 5,353 4,502 ------- ------- Operating costs: Licensing and distribution 1,610 915 Home video 2,121 2,070 General and administrative expenses 1,583 1,231 ------- ------- 5,314 4,216 ------- ------- Income from operations 39 286 Interest expense and financing expense, net (9) (61) ------- ------- Income before taxes $ 30 $ 225 ------- ------- Provision for income taxes 12 84 ------- ------- Net income $ 18 $ 141 ======= ======= Net income per share (Note 6) $ -- $ .04 ======= ======= Average number of common shares and common equivalent shares outstanding (Note 6) 5,227 2,893 ======= ======= See accompanying notes to consolidated financial statements Page 3 UNAPIX ENTERTAINMENT, INC. Consolidated Statements of Operations (In thousands, except per share amounts)
For the Six Months Ended June 30 1996 1995 -------- -------- Revenues: Licensing and distribution $ 3,498 $ 2,792 Home video 7,087 5,907 -------- -------- 10,585 8,699 -------- -------- Operating costs: Licensing and distribution 2,322 1,687 Home video 4,663 4,153 General and administrative expenses 3,156 2,239 -------- -------- 10,141 8,079 -------- -------- Income from operations 444 620 Interest expense and financing expense, net (23) (73) -------- -------- Income before taxes $ 421 $ 547 -------- -------- Income taxes: Provision for income taxes 174 214 Benefit from net operating loss utilization -- (400) -------- -------- Total 174 (186) -------- -------- Net income $ 247 $ 733 ======== ======== Net income per share (Note 6) $ .03 $ .14 ======== ======== Average number of common shares and common equivalent shares outstanding (Note 6) 5,224 7,048 ======== ========
See accompanying notes to consolidated financial statements Page 4 UNAPIX ENTERTAINMENT, INC. Consolidated Statements of Cash Flows (In thousands)
For the Six Months Ended June 30, 1996 1995 ------- ------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 247 $ 733 Adjustments to reconcile net income to net cash used by operating activities: Amortization and depreciation 4,102 4,031 Deferred income taxes 164 (207) Accretion of debentures discount 18 -- Loss on disposal of assets 2 -- Decrease (increase) in accounts receivable, net 450 (1,207) Film cost expenditures (8,080) (8,163) Increase in other assets (530) (236) Increase in accounts payable and accrued expenses 317 2,694 Increase in film acquisition and royalties payable 1,327 510 ------- ------- Total cash flows used by operating activities (1,983) (1,845) ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (153) (79) ------- ------- Total cash flows used by investing activities (153) (79) ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from employee notes receivable 49 -- Proceeds from warrant and option exercises -- 475 Private placement expenditures (50) (17) Proceeds from variable rate notes private placement -- 400 Proceeds from 10% convertible notes private placement 563 -- Borrowings under bank line of credit 100 -- Preferred stock dividend (23) (17) ------- ------- Total cash flows used by financing activities $ 639 $ 841 ------- -------
See accompanying notes to consolidated financial statements Page 5 UNAPIX ENTERTAINMENT, INC. Consolidated Statements of Cash Flows (continued) (In thousands)
For the Six Months Ended June 30 1996 1995 ------- ------- NET DECREASE IN CASH AND EQUIVALENTS $(1,497) $(1,083) CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 2,028 2,270 ------- ------- CASH AND EQUIVALENTS AT END OF PERIOD $ 531 $ 1,187 ======= ======= SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES: Conversion of accrued liability to acquisition fund payable 143 -- Preferred stock dividend paid in common stock 51 62 Warrants issued -- 61 Conversion of debt to equity -- 17 ------- ------- $ 194 $ 140 ======= ======= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for interest $ 303 $ 18 ======= ======= Cash paid for taxes $ 17 $ 22 ======= =======
See accompanying notes to consolidated financial statements Page 6 UNAPIX ENTERTAINMENT, INC. Notes to Consolidated Financial Statements June 30, 1996 1. BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements of Unapix Entertainment, Inc. (the "Company") have been prepared in accordance with generally accepted accounting principles for interim financial information and with instructions to Form 10-QSB. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six-month period ended June 30, 1996 are not necessarily indicative of the results that may be expected for the year ended December 31, 1996. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Form 10-KSB for the year ended December 31, 1995. 2. FINANCING In August 1996, the Company completed a private offering of Units, each consisting of: (i) a $250,000 principal amount 10% Convertible Subordinated Note due June 30, 2003 convertible into the Company's common stock, par value $.01 per share ("Common Stock") at a price of $4.50 per share (a "Note"); and (ii) Warrants to purchase 25,000 shares of the Common Stock, at an exercise price of $6.00 per share ("Warrant"), expiring June 30, 2003. The Warrants and Notes are redeemable by the Company under certain circumstances. The Units and the securities comprising the Units were offered in a private placement and have not been registered under the Securities Act of 1933 and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements. The shares of Common Stock issuable upon exercise and conversion of the Notes and Warrants have certain registration rights. As of June 30, 1996, the Company had received $563,000 in connection with such offering. In July the Company received an additional $1,000,000 bringing the debentures issued to a total of $1,563,000. A total of 158,750 Warrants were issued in this offering. 3. EQUITY In April 1996, the Company declared a special 5 percent stock dividend, payable on May 6, 1996 to stockholders of record of its common stock on April 22, 1996. The company issued 249,000 shares of common stock pursuant to the declared stock dividend. In June 1996, the Company entered into an agreement with an investor relations firm, pursuant to which the Company issued 300,000 common stock purchase options. Each option entitles the holder to purchase one share of Common Stock at a price of $3.875, which was the market price as of the date of the Agreement. The options have a term of five years. The Company is also obligated to issue an additional 100,000 options which will expire within one year unless all of the Company's Class B Warrants have been exercised prior to that time. If all the Class B Warrants are exercised during the one year period, the 100,000 options will have the same term as the other 300,000 options. Page 7 UNAPIX ENTERTAINMENT, INC. Notes to Consolidated Financial Statements June 30, 1996 4. FILM COSTS The Company's film costs include: June 30, 1996 -------- (In thousands) Films released $ 29,727 Films completed but not released 2,821 Films in process 4,944 -------- 37,492 Accumulated amortization (19,931) -------- $ 17,561 ======== 5. DEFERRED INCOME TAXES There is a full provision for taxes on income for the first six months of 1996. The provision for income taxes of $186,000 for the first six months of 1995 reflects a deferred tax benefit of $400,000, attributable to the reduction of the deferred tax allowance. 6. NET INCOME (LOSS) PER COMMON SHARE Net income (loss) per common share ("EPS") is based upon the weighted average number of common shares and common share equivalents outstanding during each period. For the quarters ended June 30, 1996 and 1995 and for the six months ended June 30, 1996 the weighted average shares consist of common shares outstanding. This amount does not include the assumed conversion of any warrants, options or other convertible securities as the impact of such conversions on the EPS calculation would be immaterial. For the six months ended June 30, 1995, the earnings per share calculation is based on the weighted average number of outstanding shares of common stock during the period, including common equivalent shares applicable to the assumed exercise of dilutive stock options and warrants. The number of shares and net income per share for the quarter and six months ended June 30, 1995 have been restated to reflect the 5% stock dividend paid in the second quarter of 1996. Page 8 UNAPIX ENTERTAINMENT, INC. Notes to Consolidated Financial Statements June 30, 1996 6. NET INCOME (LOSS) PER COMMON SHARE (CONTINUED) Earnings per share was determined by dividing net income, as adjusted below, by applicable shares outstanding (in thousands):
Three Months Ended June 30, Six Months Ended June 30, --------------------------- ------------------------- 1996 1995 1996 1995 ---- ---- ---- ---- Net income as reported $ 18 $ 141 $ 247 $ 733 Preferred stock dividends (37) (39) (74) (78) ----- ----- ----- ----- (19) 102 173 655 Interest, after taxes, accrued on proceeds from assumed exercise of options and warrants -- -- -- 330 ----- ----- ----- ----- Total income used for earnings per share $ (19) $ 102 $ 173 $ 985 ===== ===== ===== ===== Weighted average number of common and common equivalent shares 5,227 2,893 5,224 7,048 ===== ===== ===== =====
Page 9 UNAPIX ENTERTAINMENT, INC. Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS THREE MONTHS ENDED JUNE 30, 1996 COMPARED WITH THREE MONTHS ENDED JUNE 30, 1995 ------------- ------------- Revenues for the three months ended June 30, 1996 increased by $851,000 or 19%, to $5,353,000 as compared to the same three month period in 1995. This increase in revenues is primarily a result of the increase in licensing revenues of $806,000 or 54% to $2,304,000. This increase reflects the Company's increased emphasis on the licensing business. Management is expecting that improvements in revenues will continue throughout 1996. Licensing and distribution costs for the three months ended June 30, 1996 increased by $695,000, or 76%, to $1,610,000 as compared to the corresponding period in 1995. This increase reflects increased royalty, amortization and other film expenses associated with the higher levels of revenues described above. General and administrative costs were $1,583,000 for the three months ended June 30, 1996, as compared to $1,231,000 in the same period in 1995. This increase is chiefly attributable to costs related to the infrastructure required to support the Company's continued expansion and diversification. Included in these costs are start-up costs related to the Company's new direct marketing operations, which began in the second quarter of 1996 as well as efforts to market niche product overseas. These costs mainly consisted of increased staffing and office costs to support the increased sales activity described above, as well as the start up operations. The Company had income before taxes of $30,000 for the three months ended June 30, 1996 as compared to income before taxes of $225,000 for the corresponding three month period in 1995. This $195,000 decrease in results is due to the costs of the implementation of the Company's plan of expansion and diversification which the Company expects to affect results positively in future. Management anticipates that as the expansion into new niches, such as the "Direct Marketing" niche, and as the number of higher quality releases to the video rental market and the licensing and distribution markets increases in 1996, the impact on operations should be favorable. In the 1996 and 1995 quarters there is a full provision for taxes on income. Page 10 UNAPIX ENTERTAINMENT, INC. Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS SIX MONTHS ENDED JUNE 30, 1996 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1995 ------------- ------------- Revenues for the six months ended June 30, 1996 increased by $1,886,000 or 22%, to $10,585,000 as compared to the same six month period in 1995. This increase in revenues is primarily a result of the increase in home video revenue of $1,180,000 or 20% to $7,087,000 due to the success of the Company's sell-through operations which generated revenues of $1,614,000 in the second quarter of 1996 as compared to $516,000 in the same period of 1995 during which the sell-through operations were in their start up stage. Licensing and distribution revenues also showed a strong increase of $706,000 or 25% to $3,498,000 for the six months ended June 30, 1996. The improvement is attributable to the increased emphasis on the Company's licensing business. Management is expecting that improvements in revenues will continue throughout 1996. Licensing and distribution costs for the six months ended June 30, 1996 increased by $635,000, or 38%, to $2,322,000 as compared to the corresponding period in 1995. In addition, home video costs for the six month period ended June 30, 1996 increased by $510,000, or 12%, to $4,663,000 as compared to the corresponding period in 1995. These increases reflect increased royalty, amortization and other film expenses associated with the higher levels of revenues described above. General and administrative costs were $3,156,000 for the six months ended June 30, 1996, as compared to $2,239,000 in the same period in 1995. This increase is chiefly attributable to costs related to the infrastructure required to support the Company's continued expansion and diversification. Included in these costs are start-up costs related to the Company's new direct marketing operations which began in the second quarter of 1996. These costs mainly consisted of increased staffing and office costs to support the increased sales activity described above, as well as the start up operations. The Company had income before taxes of $421,000 for the six months ended June 30, 1996 as compared to income before taxes of $547,000 for the corresponding six month period in 1995. This $126,000 decrease in results is due to the costs of the implementation of the Company's plan of expansion and diversification, which the Company expects to benefit future periods. Management anticipates that as the expansion into new niches, such as the "Direct Marketing" niche, and as the number of higher quality releases to the video rental market and the licensing and distribution markets increases in 1996, the impact on operations should be favorable. For the six months ended June 30, 1996 there is a full provision for taxes on income. In 1996 there was a net income tax benefit, as a $400,000 net operating loss benefit recognized more than offset the six month tax provision of $214,000. Page 11 UNAPIX ENTERTAINMENT, INC. Management's Discussion and Analysis of Financial Condition and Results of Operations LIQUIDITY AND CAPITAL RESOURCES For the six months ended June 30, 1996, the Company utilized net cash for operating activities of $1,983,000, primarily as a result of the $8,080,000 incurred in acquiring and promoting new properties for the home video rental and the licensing and distribution markets. Operating cash requirements were primarily met by cash inflows from operations, cash on hand and the utilization of the Company's credit facility. In the normal course of business the Company makes certain guarantees to producers and other third parties as to the minimum amount such parties will receive from the Company's distribution of their products. The Company has committed to pay film acquisition advances and guarantees of approximately $1,217,000 as of June 30, 1996, which amounts are payable upon delivery of the films. The Company also expects to incur significant additional costs relating to its continued expansion. In order to meet its future funding needs the Company will utilize cash on-hand, operating cash flows, its line of credit and other financings, including the financing described below. In July 1996, the Company completed a private offering of Units, each consisting of: (i) a $250,000 principal amount 10% Convertible Subordinated Note due June 30, 2003 convertible into the Company's common stock, par value $.01 per share ("Common Stock") at a price of $4.50 per share (a "Note"); and (ii) Warrants to purchase 25,000 shares of the Common Stock, at an exercise price of $6.00 per share ("Warrant"), expiring June 30, 2003. The offering generated proceeds of $1,563,000, of which $563,000 was received in the second quarter of 1996, and the remainder in July 1996 (for further details concerning this private placement see footnote 2). The Company's credit facility with Atlantic Bank of New York (the "Bank") provides for borrowings of up to $2,500,000. Loans are extended and required to be repaid based upon the Company's outstanding accounts receivable and other contractual rights to payment. Interest on the outstanding loan balance accrues at a rate of 1.5% per annum in excess of the Bank's publicly announced benchmark rate. The term of the facility expires on May 31, 1997, and may be terminated by either party upon 60 days notice after such date. The Bank may also terminate the facility upon 60 days notice at any time throughout the term. Outstanding amounts under the facility are secured by substantially all of the Company's assets. The facility contains restrictive covenants that require minimum (i) tangible net worth, (ii) liquidity and (iii) earnings to interest expense ratios. The covenants prohibit the payment of cash dividends on common stock or a change in control of the Company. The covenants also, among other things, limit the Company's ratio of debt to net worth and the amount of loan proceeds which can be utilized to acquire film rights or finance film productions. As of June 30, 1996 the Company had borrowed $100,000 and had remaining availability of $1,456,000. Page 12 UNAPIX ENTERTAINMENT, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES (CONTINUED): The feature film and television licensing and distribution industries require significant expenditures of funds to establish and expand a library of films and programs from which revenues may be generated. The Company could be dependent upon future financing to continue its long term plans of expansion and growth. The Company anticipates that as its asset base grows it will secure 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 financing. Page 13 UNAPIX ENTERTAINMENT, INC. PART II - OTHER INFORMATION ITEMS 1 THROUGH 4 ARE NOT APPLICABLE. ITEM 5. OTHER INFORMATION NONE ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits Exhibit Number Description 4.1 Form of 10% Convertible Subordinated Note due June 30, 2003 4.2 Form of Common Stock Purchase Warrant Certificate, entitling the holder to purchase shares of Common Stock at $6.00 per share and expiring on June 30, 2003 10.1 Agreement under which Strategic Growth International will serve as Investor Relations Consultant to the Company 27 Financial Data Schedule b) Reports on Form 8-K None. Page 14 SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. UNAPIX ENTERTAINMENT, INC. /s/ Daniel T. Murphy Chief Financial Officer August 12, 1996 - ---------------------- Daniel T. Murphy Page 15 EXHIBITS Page 16 EX-4.1 2 EXHIBIT 4.1 Page 17 THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") NOR UNDER ANY STATE SECURITIES LAW AND MAY NOT BE PLEDGED, SOLD, ASSIGNED, HYPOTHECATED OR OTHERWISE TRANSFERRED UNTIL (1) A REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAW OR (2) THE COMPANY RECEIVES AN OPINION OF COUNSEL TO THE COMPANY OR OTHER COUNSEL TO THE HOLDER OF SUCH NOTE, THAT SUCH NOTE AND/OR COMMON STOCK MAY BE PLEDGED, SOLD, ASSIGNED, HYPOTHECATED OR TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR APPLICABLE STATE SECURITIES LAWS. UNAPIX ENTERTAINMENT, INC. 10% Convertible Subordinated Note Due June 30, 2003 THIS NOTE WAS ISSUED WITH ORIGINAL ISSUE DISCOUNT ------------------------------------------------- To obtain information Regarding Original Issue Discount Contact Steven P. Low, Chief Accounting Officer of Unapix Entertainment, Inc., Telephone number: 212-575-7070 $________________ NO. CS- ________________, 1996 Unapix Entertainment, Inc., a Delaware corporation (the "Company"), for value received, hereby promises to pay to ________________, with an address located at ___________, or his registered assigns (the "Payee" or "Holder"), the principal amount of ____________________ DOLLARS ($___________) and accrued interest thereon in accordance with the terms and provisions hereof. This Note was issued by the Company in a private placement pursuant to a Private Placement Memorandum, dated April 30 , 1996, and was issued as part of a Unit or Units, each of which consisted of: (i) a Note in the principal amount of $250,000; and (ii) Warrants to purchase 25,000 shares of the common stock of the Company, par value $.01 per share ("Common Stock"), at an exercise price of $6.00 per share and expiring June 30, 2003. The series of Notes issued in connection with said private placement are referred to hereafter as the "Notes". 1. PAYMENT OF PRINCIPAL AND INTEREST; METHOD OF PAYMENT. ----------------------------------------------------- 1.1 METHOD OF PAYMENT. Payment of the principal of and accrued interest on this Note shall be made in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts. The Company will pay or cause to be paid all sums becoming due hereon for principal and interest by check sent to the Holder's above address or to such other address as Holder may designate for such purpose from time to time by written notice to the Company, without any requirement for the presentation of this Note or making any notation thereon except that the Holder hereof agrees that payment of the final amount due shall be made only upon surrender of this Note to the Company for cancellation. Prior to any sale or other disposition of this instrument, the Holder hereof agrees to endorse hereon the amount of principal paid hereon and the last date to which interest has been paid hereon and to notify the Company of the name and address of the transferee. 1.2 PAYMENT OF PRINCIPAL. The entire outstanding principal balance of this Note shall be due and payable on June 30, 2003 (the "Maturity Date"). 1.3 PAYMENT OF INTEREST. Interest (computed on the basis of a 360-day year of twelve 30-day months) on the unpaid portion of the principal amount from time to time outstanding hereunder shall be paid by the Company to the Payee at the rate of ten percent (10%) per annum (the "Stated Interest Rate"). Said interest to be paid semi-annually on each June 30 and December 31 (commencing December 31, 1996) and on the Maturity Date. Page 18 2. SUBORDINATION PROVISIONS. 2.1 PRINCIPAL AND INTEREST. The Company, for itself, its successors and assigns, covenants and agrees, and the Payee and each successive Holder by acceptance of this Note, likewise cove-nants and agrees that payment of the principal of and interest on this Note is subordinated in right of payment to the payment of all existing and future "Senior Debt" (as hereinafter defined) of the Company. The term "Senior Debt" shall mean the principal of, premium, if any, and interest on: (i) all Indebtedness of the Company to any bank or other financial institution (including, without limitation, to Atlantic Bank of New York) whether such indebtedness is heretofore or hereafter created, incurred or entered into (or acquired by assignment) and any deferrals, renewals, modifications or extensions of any such indebtedness, unless under the express provisions of the instrument creating or evidencing any such indebtedness, or pursuant to which the same is outstanding, such indebtedness is not superior in right of payment to this Note; and (ii) all Indebtedness of the Company owed with respect to its Variable Rate Senior Subordinated Notes due December 31, 2001. "Indebtedness" for all purposes herein means and includes without duplication, as of any date as of which the amount thereof is to be determined (whether or not secured by lien, pledge or deposit), all direct obligations to repay money borrowed (including without limitation, amounts borrowed under revolving credit facilities, either now existing or hereafter created (including any increase in existing facilities), all notes payable and drafts accepted representing extensions of credit, and all obligations evidenced by bonds, debentures, notes or other similar instruments) and all interest accrued and unpaid thereon. 2.2 DEFAULT. No payment or prepayment, directly or indirectly, on account of the principal of or interest on this Note shall be made, and no holder of this Note shall be entitled to demand or receive any such payment or prepayment if, at the time of such payment or prepayment or immediately after giving effect thereto, there shall have occurred any event or default under such Senior Debt or under any agreement pursuant to which any such Senior Debt has been or will be issued which default has not been waived or cured as of the date on which such payment or prepayment is due. 2.3 LIQUIDATION, DISSOLUTION, ETC. In the event of any insolvency or bankruptcy proceeding, and any receivership, total liquidation, reorganization or other similar proceedings in connection therewith, relative to the Company, or to its property, or in the event of any proceedings for voluntary liquidation, dissolution or other winding up of the Company, whether or not involving insolvency or bankruptcy, then the holders of Senior Debt shall be entitled to receive payment in full of all principal (and premium, if any) and interest on all such Senior Debt before the holders of this Note shall be entitled to receive any payment on account of principal or interest of this Note, and to that end (but subject to the power of a court of competent jurisdiction to make other equitable provisions reflecting the rights conferred by these provisions upon such Senior Debt and the holders thereof with respect to this Note and the Holder hereof by a lawful plan or reorganization under applicable bankruptcy law) the holders of Senior Debt (until payment in full of all principal, premium (if any) and interest on all such Senior Debt, including interest thereon accruing before or in respect of periods subsequent to the commencement of any such proceedings) shall be entitled to receive for application in payment thereof any payment or distribution of any kind or character, whether in cash or property, or by set-off or otherwise, which may be payable or deliverable in any such proceedings in respect of this Note (including any such payment or distribution which may be payable or deliverable by reason of the provisions of any indebtedness of the Company which is subordinate and junior in right to this Note), except securities issued in such proceedings which are the subordinate and junior in right of payment to the payment of Senior Debt. 2.4 SUBROGATION. Subject to the payment in full of Senior Debt, the holders of this Note shall be subrogated to the rights of the holders of such Senior Debt to receive payment or distributions of assets of the Company applicable to such Senior Debt until this Note shall be paid in full, and no payment or distributions to the holders of such Senior Debt by or on behalf of the Company from the proceeds that would otherwise be payable to the holder of this Note shall, as between the Company and the holder of this Note, be deemed to be a payment by the Company to or on account of this Note. 2.5 AMENDMENT. These provisions with respect to subordination cannot be amended, modified or waived without the prior written consent of the holder or holders of all Senior Debt at the time outstanding; and the subordination effected hereby shall not be affected by any amendment or modification of, or addition or supplement to, any such Senior Debt or any instrument or agreement relating thereto, without the prior written consent of the holder or holders of all such Senior Debt at the time outstanding. No present or future holder of Senior Debt shall be prejudiced in his right to enforce subordination of this Note by any act or failure to act on the part of the Company. 2.6 BENEFIT OF SENIOR DEBT. The foregoing subordination provisions shall be for the benefit of the holders of Senior Debt and may be enforced directly by such holders against the holder of this Note. Upon any payment or distribution of assets of the Company referred to above, the holder of this Note shall be entitled to rely upon a certificate of the receiver, trustee in bankruptcy, liquidating trustee, agent or other person making such payment or distribution, delivered to the holder of this Note, for the purpose of ascertaining the persons entitled to participate in such distribution, the holders of Senior Debt and other Page 19 indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertaining thereto or hereto. 2.7 OBLIGATION TO PAY PRINCIPAL AND INTEREST ABSOLUTE. The foregoing provisions as to subordination are solely for the purpose of defining the relative rights of the holders of such Senior Debt, on the one hand, and the holder of this Note on the other hand. Nothing contained herein is intended to or shall impair as between the Company, its creditors, other than the holders of Senior Debt, and the holder of this Note, the obligation of the Company, which shall be absolute and unconditional, to pay the holder of this Note the principal and interest on this Note as and when the same shall become due and payable in accordance with the terms hereof or affect the relative rights of the holder of this Note and the creditors of the Company other than holders of Senior Debt, nor shall anything herein prevent the Holder hereof from exercising all remedies otherwise permitted by applicable law upon default hereunder subject to the rights of holders of Senior Debt, if any, in respect of cash, properties or securities of the Company received upon the exercise of any such remedy. The Holder of this Note by acceptance hereof acknowledges and agrees that the subordination provisions of this Section 2 are, and/or are intended to be, an inducement and a consideration to each holder of any Senior Debt, whether such Senior Debt was created or acquired before or after the issuance of this Note, to acquire and continue to hold, or to continue to hold, such Senior Debt and each holder of Senior Debt shall be deemed conclusively to have relied on such subordination provisions in acquiring and continuing to hold, or in continuing to hold, such Senior Debt. Nothing contained herein or elsewhere in this Note shall prevent the Company from making payment of the principal of or interest on this Note at any time except under the conditions described above. 2.8 FURTHER INSTRUMENTS. The Holder of this Note covenants and agrees to execute such further instruments and waivers as may be necessary in the opinion of a lender or creditor, or reasonably requested by the Company, to facilitate the issuance or the continued holding of Senior Debt. 3. EVENTS OF DEFAULT. It shall be an Event of Default with respect to this Note upon the occurrence and continuation uncured of any of the following events: 3.1 THIS NOTE. (a) a default in the payment of any principal payment on this Note, when and as the same shall become due and payable, and such default shall continue uncured for thirty (30) days after the day fixed for the making of such principal payment; or (b) a default in the payment of any interest payments on this Note, and such default shall continue uncured for thirty (30) days after the date fixed for the making of such interest payment; or (c) a material default in the performance, or material breach, of any covenant of the Company in this Note (other than a covenant or a default which is elsewhere herein specifically dealt with as an Event or Default), and continuance of such default or breach uncured for a period of ninety (90) days after notice has been given to the Company of such default. 3.2 BANKRUPTCY. The entry of a decree or order by a court having jurisdiction adjudging the Company as bankrupt or insolvent, or approving a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Company, under Federal bankruptcy law, as now or hereafter constituted, or any other applicable Federal or state bankruptcy, insolvency or other similar law, or appointing a receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or of any substantial part of its assets, and the continuance of any such decree or order unstayed and in effect for a period of ninety (90) days; or the commencement by the Company of a voluntary case under Federal bankruptcy law, as now or hereafter constituted, or any other applicable Federal or state bankruptcy, insolvency, or other similar law, or the consent by it to the institution of bankruptcy or insolvency proceedings against it, or the filing by it of a petition or answer or consent seeking reorganization or relief under Federal bankruptcy law or any other applicable Federal or state bankruptcy, insolvency, or other similar law, or the consent by it to the filing of such petition or to the appointment of a receiver, liquidator, assignee, trustee, sequestrator or similar official of the Company or of any substantial part of its property, or the making by it of an assignment for the benefit of creditors, or the admission by it in writing of its inability to pay its debts generally as they become due. 3.3 LIMITATIONS ON CLAIMS IN BANKRUPTCY OR ON ACCELERATION UPON AN EVENT OF DEFAULT. Should an acceleration of the maturity of this Note be declared as a result of the occurrence and continuation of an Event of Default, absent bankruptcy, the claim of the Holder would be for the unpaid principal amount and accrued interest of the Note. The amount that Page 20 the Holder would be able to recover from the Company under a bankruptcy or an Event of Default, may, however, be limited by applicable law to the issued price of this Note plus that portion of any original issue discount which has been amortized. 4. REMEDIES UPON DEFAULT. 4.1 ACCELERATION. Upon each occurrence of an Event of Default and at any time during the continuation thereof (unless the principal of this Note shall already have become due and payable), the Holder, by notice in writing given to the Company, may declare the principal of and accrued interest on this Note then outstanding to be due and payable immediately, and upon any such declaration the same shall become and be due and payable immediately, anything herein to the contrary notwithstanding. 4.2 PROCEEDINGS AND ACTIONS. During the continuation of any one or more Events of Default, the Holder may institute such actions or proceedings in law or equity as it shall deem expedient for the protection of its rights, and may prosecute and enforce its claims, against all assets of the Company and shall be entitled to receive therefrom payment on such claims up to an amount not exceeding the principal amount of this Note then outstanding plus accrued interest to the date of payment plus reasonable expenses of collection, including, without limitation, attorney's fees and expenses. Page 21 5. REDEMPTION The Notes may be redeemed at the option of the Company, in whole or in part, from time to time at any time after July 1, 1998, on not less than 30 nor more than 60 days written notice. Any such redemptions shall be made at the following prices, expressed as percentages of the principal amount being redeemed, during the respective periods set forth below, plus accrued and unpaid interest thereon to the redemption date. If redeemed during the 12-month period beginning July 1: Year Percentage ---- ---------- 1998 106.0% 1999 104.5% 2000 103.0% 2001 101.5% 2002 100.0% If less than the entire principal amount of the Series of Notes is to be redeemed at one time, the Notes may be redeemed on a pro rata basis or the Notes to be redeemed may be selected by lot, such manner to be determined by the Board of Directors of the Company in its sole discretion. 6. CONVERSION 6.1 CONVERSION PRIVILEGE. At any time and from time to time commencing with the date hereof until the earlier of (i) the Maturity Date or (ii) the date set for redemption in accordance with the provisions of Section 5 hereof, the outstanding amount of debt of this Note is convertible at the Holder's option into the Company's shares of common stock, $.01 par value per share (the "Common Stock"), upon surrender of this Note, at the Office of the Company, accompanied by a written notice of conversion in form annexed hereto duly executed by the registered holder or its duly authorized attorney. The outstanding indebtedness of this Note is convertible at the option of the Holder from time to time at any time on or after the date hereof into shares of Common Stock at a price of $4.50 per share of Common Stock (the "Conversion Price"). No fractional shares or scrip representing fractional shares will be issued upon any conversion, but an adjustment in cash will be made, in respect of any fraction of a share which would otherwise be issuable upon the surrender of this Note for conversion. The Conversion Price is subject to adjustment as provided in Section 6.3 hereof. 6.2 REGISTRATION OF TRANSFER. Subject to the terms of this Note, at any time after the date hereof, upon surrender of this Note for conversion, the Company shall issue and deliver with all reasonable dispatch to or upon the written order of the Holder of this Note and in such name or names as such Holder may designate, a certificate or certificates for the number of full shares of Common Stock due to such Holder upon the conversion of this Note (the "Shares"). Such certificate or certificates shall be deemed to have been issued and any person so designated to be named therein shall be deemed to have become the Holder of record of such Shares as of the date of the surrender of this Note; provided, however, that if, at the date of surrender the transfer books of the Common Stock shall be closed, the certificates for the Shares shall be issuable as of the date on which such books shall be opened and until such date the Company shall be under no duty to deliver any certificate for such Shares; provided, further, however, that such transfer books, unless otherwise required by law or by applicable rule of any national securities exchange, shall not be closed at any one time for a period longer than 20 days. 6.3 ADJUSTMENTS FOR DIVIDENDS, RECLASSIFICATIONS, STOCK ISSUANCES, ETC. Subject to the provisions of this Section 6.3, the Conversion Price in effect, and accordingly, the number of shares of Common stock into which this Note may be converted, shall be subject to adjustment from time to time as follows: (a) In case the Company shall declare a dividend or make any other distribution upon any stock of the Company payable in Common Stock, then the Conversion Price shall be proportionately decreased as of the close of business on the date of record of said dividend. (b) If the Company shall at any time subdivide its outstanding Common Stock by recapitalization, reclassification or split-up thereof, the Conversion Price immediately prior to such subdivision shall be proportionately decreased, and if the Company shall at any time combine the outstanding Common Stock by recapitalization, reclassification or combination thereof, the Conversion Price immediately prior to such combination shall be proportionately increased. Any such Page 22 adjustment to the Conversion Price shall become effective at the close of business on the record date for such subdivision or combination. (c) In case the Company after the date hereof shall distribute to all of the holders of outstanding shares of Common Stock any securities or other assets (other than a cash distribu- tion made as a dividend payable out of earnings), the Board of Directors shall be required to make such equitable adjustment in the Conversion Price, as in effect immediately prior to the record date for such distribution, as may be necessary to preserve for the Holder rights substantially proportionate to those enjoyed here- under by the Holder immediately prior to the happening of such distribution. Any such adjustment to the Conversion Price shall become effective at the close of business on the record date for such distribution. (d) If any capital reorganization or reclassification of the capital stock of the Company, or consolidation or merger of the Company with another corporation, or the sale of all or substantially all of its assets to another corporation, shall be effected in such a way that holders of Common Stock shall be entitled to receive stock, securities, cash, or assets with respect to or in exchange for Common Stock, then, as a condition of such reorganization, reclassification, consolidation, merger or sale, the Company or such successor or purchasing corporation, as the case may be, shall make such appropriate provision so that the Holder shall have the right thereafter and until the Maturity Date to convert this Note for the kind and amount of stock, securities, cash or assets receivable upon such reorganization, reclassification, consolidation, merger or sale by a holder of the number of shares of Common Stock into which this Note might have been converted immediately prior to such reorganization, reclassification, consolidation, merger or sale, subject to further adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 6.3. (e) If at any time after the date of issuance hereof the Company shall grant or issue any shares of Common Stock, or grant or issue any rights or options for the purchase of, or stock or other securities convertible into, Common Stock (such convertible stock or securities being herein collectively referred to as "Convertible Securities") other than: (i) shares issued in a transaction described in subparagraph (f) of this Section 6.3; or (ii) shares issued, subdivided or combined in transactions described in subparagraphs (a),(b),(c), or (d) of this Section 6.3; for a consideration per share which is less than the Conversion Price, then the Conversion Price in effect immediately prior to such issuance or sale (the "Applicable Conversion Price") shall, and thereafter upon each issuance or sale, the Applicable Conversion Price shall, simultaneously with such issuance or sale, be adjusted, so that such Applicable Conversion Price shall equal a price determined by multiplying the Applicable Conversion Price by a fraction, the numerator of which shall be: (A) the sum of (x) the total number of shares of Common Stock outstanding immediately prior to such issuance plus (y) the number of shares of Common Stock which the aggregate consideration received, as determined in accordance with subparagraph (g) below for the issuance or sale of such additional Common Stock or Convertible Securities deemed to be an issuance of Common Stock as provided in subparagraph (h) below, would purchase (including any consideration received by the Company upon the issuance of any shares of Common Stock or Convertible Securities since the date the Applicable Conversion Price became effective not previously included in any computation resulting in an adjustment pursuant to this subparagraph (e)) at the Applicable Conversion Price; and the denominator of which shall be (B) the total number of shares of Common Stock outstanding (or deemed to be outstanding as provided in subparagraph (g)) immediately after the issuance or sale of such additional shares. If, however, the Applicable Conversion Price thus obtained would result in the issuance of a lesser number of shares upon exercise than would be issued at the initial Conversion Price specified in the first paragraph hereof, the Applicable Price shall be such initial Conversion Price. (f) Anything in this Paragraph 6.3 to contrary notwithstanding, no adjustment in the Conversion Price shall be made in connection with: (i) the grant, issuance or exercise of any Convertible Securities pursuant to the Company's qualified or non-qualified Employee Stock Option Plans or any other bona fide employee benefit plan or incentive arrangement (including, without limitation, pursuant to individual employment agreements), previously adopted, authorized or entered into or as may hereafter be adopted, authorized or entered into by the Page 23 Company's Board of Directors or its officers, for the benefit of the Company's employees, consultants or directors, as any such plans, agreements or arrangements may hereafter be amended from time to time; and (ii) the issuance of any shares of Common Stock pursuant to the grant or exercise of Convertible Securities outstanding as of the date hereof. (g) For the purpose of subparagraph (e) above, the following provisions shall also be applied: (i) In case of the issuance or sale of additional shares of Common Stock for cash, the consideration received by the Company therefor shall be deemed to be the amount of cash received by the Company for such shares, before deducting therefrom any commissions, compensation or other expenses paid or incurred by the Company for any underwriting of, or otherwise in connection with, the issuance or sale of such shares. (ii) In case of the issuance of Convertible Securities, the consideration received by the Company therefor shall be deemed to be the amount of cash, if any, received by the Company for the issuance of such rights or Convertible Securities, plus the minimum amounts of cash and fair value of other consideration, if any, payable to the Company upon the exercise of such rights or options or payable to the Company on conversion of such Convertible Securities. (iii) In the case of the issuance of shares of Common Stock or Convertible Securities for a consideration in whole or in part, other than cash, the consideration other than cash shall be deemed to be the fair market value thereof as reasonably determined in good faith by the Board of Directors of the Company (irrespective of accounting treatment thereof); provided, however, that if such consideration consists of the cancellation of debt issued by the Company, the consideration shall be deemed to be the amount the Company received upon issuance of such debt (gross proceeds) plus accrued interest and, in the case of original issue discount or zero coupon indebtedness, accreted value to the date of such cancellation, but not including any premium or discount at which the debt may then be trading or which might otherwise be appropriate for such class of debt. (iv) In case of the issuance of additional shares of Common Stock upon the conversion or exchange of any obligations (other than Convertible Securities), the amount of the consideration received by the Company for such Common Stock shall be deemed to be the consideration received by the Company for such obligation or shares so converted or exchanged, before deducting from such consideration so received by the Company any expenses or commissions or compensations incurred or paid by the Company for any underwriting of, or otherwise in connection with, the issuance or sale of such obligations or shares, plus any consideration received by the Company in adjustment of interest and dividends. If obligations or shares of the same class or series of a class as the obligations or shares so converted or exchanged have been originally issued for different amounts of consideration, then the amount of consideration received by the Company upon the original issuance of each of the obligations or shares so converted or exchanged shall be deemed to be the average amount of the consideration received by the Company upon the original issuance of all such obligations or shares. The amount of consideration received by the Company upon the original issuance of the obligations or shares so converted or exchanged and the amount of the consideration, if any, other than such obligations or shares received by the Company upon such conversion or exchange shall be determined in the same manner as provided in Paragraphs (i) through (iii) above with respect to the consideration received by the Company in case of the issuance of additional shares of Common Stock or Convertible Securities. (h) For purposes of the adjustments provided for in subparagraph (e) above, if at any time, the Company shall issue any Convertible Securities, the Company shall be deemed to have issued at the same time as the issuance of such Convertible Securities the maximum number of shares of Common Stock issuable upon conversion of the total amount of Convertible Securities. (i) On the expiration, cancellation or redemption of any Convertible Securities, the Conversion Price then in effect hereunder shall forthwith be readjusted to such Conversion Price as would have been obtained (a) had the adjustments made upon the issuance or sale of such expired, cancelled or redeemed Convertible Securities been made upon the basis of the issuance of only the number of shares of Common Stock theretofore actually delivered upon the exercise or conversion of such Convertible Securities (and the total consideration received therefor) and (b) had all subsequent adjustments been made only on the basis of the Conversion Price as readjusted under this subparagraph (i) for all transactions (which would have affected such adjusted Conversion Price) made after the issuance or sale of such Convertible Securities. Page 24 (j) Anything in this Section 6.3 to the contrary notwith- standing, no adjustment in the Conversion Price shall be required unless such adjustment would require an increase or decrease of at least 1% in such Conversion Price; provided, however, that any adjustments which by reason of this subparagraph (j) are not required to be made shall be carried forward and taken into account in making subsequent adjustments. All calculations under this Section shall be made to the nearest cent or to the nearest tenth of a share, as the case may be. (k) Upon any adjustment of any Conversion Price, then and in each such case the Company shall promptly deliver a notice to the registered Holder of this Note, which notice shall state the Conversion Price resulting from such an adjustment and the increase or decrease, if any, in the number of shares purchasable at such price upon the conversion hereof, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. (l) Upon any adjustment of the Conversion Price pursuant to any provisions contained in this Paragraph 6.3, the number of Shares issuable upon conversion of this Note shall be changed accordingly. 6.4 IN CASE AT ANY TIME: (i) The Company shall pay any dividend payable in stock upon the Common Stock or make any distribution (other than regular cash dividends) to the holders of the Common Stock; (ii) The Company shall offer for subscription pro-rata to the holders of the Common Stock any additional shares of stock of any class or other rights; (iii) There shall be any capital reorganization or reclassification of the capital stock of the Company, or consolidation or merger of the Company with, or sale of all or substantially all of its assets to, another corporation; or (iv) There shall be a voluntary or involuntary dissolution, liquidation, or winding-up of the Company; then, in any one or more of such cases, the Company shall give written notice to the Holder of the date on which (X) the books of the Company shall close or a record shall be taken for such dividend, distribution, or subscription rights, or (Y) such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding-up shall take place, as the case may be. Such notice shall also specify the date as of which the holders of Common Stock of record shall participate in such dividend, distribution, or subscription rights or shall be entitled to exchange their Common Stock for securities or other property deliverable upon such reorganization, reclassification, consolida- tion, merger, sale, dissolution, liquidation, or winding-up, as the case may be. Such notice shall be given at least ten (10) days prior to the record date or the date on which the Company's transfer books are closed in respect thereof. Failure to give such notice, or any defect therein, shall not affect the legality or validity of any of the matters set forth in this paragraph. 7. TRANSFER TO COMPLY WITH THE SECURITIES ACT OF 1933. The Holder of this Note, each transferee hereof and any Holder and transferee of any shares of Common Stock into which this Note is convertible (the "Shares"), by his acceptance thereof, agrees that (i) no public distribution of Note or Shares will be made in violation of the Securities Act of 1933, as amend (the "Act"), and (ii) during such period as the delivery of a prospectus with respect to the Shares may be required by the Act, no public distribution of the Shares will be made in a manner or on terms different from those set forth in, or without delivery of, a prospectus then meeting the requirements of Section 10 of the Act and in compliance with applicable state securities laws. The Holder of this Note and each transferee hereof further agrees that if any distribution of any Shares is proposed to be made by them otherwise than by delivery of a prospectus meeting the requirements of Section 10 of the Act, such action shall be taken only after submission to the Company of an opinion of counsel, reasonably satisfactory in form and substance to the Company's counsel, to the effect that the proposed distribution will not be in violation of the Act or of applicable state law. Furthermore, it shall be a condition to the transfer of this Note that any transferee thereof deliver to the Company his written agreement to accept and be bound by all of the terms and conditions contained in this Note. This Note or the Shares or any other security issued or issuable upon conversion of this Note may not be sold or otherwise disposed of except as follows: (1) To a person who, in the opinion of counsel for the Holder reasonably acceptable to the Company, is a person to whom this Note or Shares may legally be transferred without registration and without the delivery of a current prospectus under the Act with respect thereto and then only against receipt of an agreement of such person to comply with the provisions of Page 25 this Section with respect to any resale or other disposition of such securities which agreement shall be satisfactory in form and substance to the Company and its counsel; provided that the foregoing shall not apply to any such Note, shares or other security as to which such Holder shall have received an opinion letter from counsel to the Company as to the exemption thereof from the registration under the Act pursuant to Rule 144(k) under the Act; or (2) To any person upon delivery of a prospectus then meeting the requirements of the Act relating to such securities and the offering thereof for such sale or disposition. Each certificate for Shares issued upon conversion of this Note shall bear a legend relating to the non-registered status of such Shares under the Act, unless at the time of conversion of this Note such Shares are subject to a currently effective registration statement under the Act and the Holder is not otherwise an "affiliate," or could potentially be deemed an "affiliate," of the Company as such term is defined in the Act. 8. MISCELLANEOUS 8.1 Notices. All communications provided hereunder shall be in writing and, if to the Company, delivered or mailed by registered or certified mail addressed to Unapix Entertainment, Inc., ______________________________________, Attention: President, or, if to the Holder at the address shown for the Holder in the registration books, maintained by the Company. 8.2 LOST, STOLEN, OR MUTILATED NOTES. In case this Note shall be mutilated, lost, stolen or destroyed, the Company may, in its discretion, issue and deliver in exchange and substitution for and upon cancellation of the mutilated Note, or in lieu of and substitution for the Note, lost, stolen, or destroyed, a new Note of like tenor and representing an equivalent right or interest, but only upon receipt of evidence satisfactory to the Company of such loss, theft or destruction and an indemnity, if requested, also satisfactory to it. 8.3 STAMP TAX. The Company will pay any documentary stamp taxes attributable to the initial issuance of the Common Stock issuable upon conversion of this Note; provided, however, that the Company shall not be required to pay any tax or taxes which may be payable in respect of any transfer involved in the issuance or delivery of any certificates for the Common Stock in a name other than that of the Holder in respect of which this Note is issued, and in such case the Company shall not be required to issue or deliver any certificate for the Common Stock until the person requesting the same has paid to the Company the amount of such tax or has established to the Company's satisfaction that such tax has been paid. 8.4 SHARES VALIDLY ISSUED. The Company agrees that all shares issuable upon conversion of this Note shall be, at the time of delivery of certificates for such shares, validly issued and outstanding, fully paid and non-assessable and that the issuance of such shares will not give rise to preemptive rights in favor of existing stockholders. 8.6 GOVERNING LAW. This Note shall be construed in accordance with and governed by the laws of the State of New York, without giving effect to conflict of laws principles. 8.7 NO RECOURSE. No recourse whatsoever, either directly or through the Company or any trustee, receiver or assignee, shall be had in any event or in any manner against any past, present or future stockholder, director or officer of the Company for the payment of the redemption price, principal of or interest on this Note or for any claim based thereon or otherwise in respect this Note; this Note being a corporate obligation only. 8.8 REGISTRATION OF TRANSFER. The Company shall maintain books for the transfer and registration of Notes. The Company may treat the person in whose name this Note is registered as the owner and Holder of the Note for the purpose of receiving principal of or interest on this Note and for all other purposes whatsoever and the Company shall not be affected by any notice to the contrary. Upon the transfer of any Note in accordance with the provisions of Section 7 hereof, the Company shall issue and register the Note in the names of the new holders. The Notes shall be signed manually by the Chairman, Chief Executive Officer, President or any Vice President and the Secretary or Assistant Secretary of the Company. Subject to the terms of Sections 6 and 7 and Section 8.3, upon surrender of this Note, the Company shall issue and deliver with all reasonable dispatch to or upon the written order of the Holder of such Note, and in such name or names as such Holder may designate, a certificate or certificates for the number of full shares due to such Holder upon the conversion of this Note. Such certificate or certificates shall be deemed to have been issued and any person so designated to be named therein shall be deemed to have become the Holder of record of such Shares as of the date of the surrender of this Note pursuant to said sections; provided, however, that if, at the date of surrender the transfer books of the Common stock shall be closed, the certificates for the Shares shall be issuable as of the date on which such books shall be opened and until such date the Company shall be under no Page 26 duty to deliver any certificate for such Shares; provided, further, however, that such transfer books, unless otherwise required by law or by applicable rule of any national securities exchange, shall not be closed at any one time for a period longer than 20 days. IN WITNESS WHEREOF, Unapix Entertainment,Inc. has caused this Note to be signed in its corporate name by its President and to be dated the day and year first above written. UNAPIX ENTERTAINMENT, INC. By: Name: Title: Attest: - --------------------- Name: Title: Page 27 Assignment For value received I hereby assign to $ principal amount of the 10% Convertible Subordinated Note due June 30, 2003 evidenced hereby and hereby irrevocably appoint attorney to transfer the Note on the books of the within named corporation with full power of substitution in the premises. Dated: In the presence of: - ---------------------------- ---------------------------------- Page 28 CONVERSION NOTICE TO: UNAPIX ENTERTAINMENT, INC. The undersigned holder of this Note hereby irrevocably exercises the option to convert $_________ principal amount of such Note (which may be less than the stated principal amount thereof) into shares of common stock of Unapix Entertainment, Inc. ("Common Stock"), in accordance with the terms of such Note, and directs that the shares of Common Stock issuable and deliverable upon such conversion, together with a check (if applicable) in payment for any fractional shares as provided in such Note, be issued and delivered to the undersigned unless a different name has been indicated below. If shares of Common Stock are to be issued in the name of a person other than the undersigned holder of such Note, the undersigned will pay all transfer taxes payable with respect thereto. Name and Address of Holder Signature of Holder Principal amount converted $ If shares are to be issued otherwise than to the holder: Name of Transferee Name and SS# of Transferee Page 29 EX-4.2 3 EXHIBIT 4.2 Page 30 NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT MAY BE SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF IN WHOLE OR IN PART IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO THE COMPANY THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT EXISTS WITH RESPECT TO THE PROPOSED SALE, TRANSFER, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION. UNAPIX ENTERTAINMENT, INC. COMMON STOCK PURCHASE WARRANT CERTIFICATE TO PURCHASE ______ SHARES OF COMMON STOCK VOID AFTER 5:00 PM NEW YORK, NEW YORK LOCAL TIME ON JUNE 30, 2003 Cert. No. W-6- This Warrant Certificate certifies that _____________________, or registered assigns, is the registered holder ("Holder") of _______ Common Stock Purchase Warrants ("Warrants") to purchase shares of common stock, $.01 par value per share ("Common Stock"), of UNAPIX ENTERTAINMENT, INC., a Delaware corporation (the "Company"). Each Warrant enables the Holder to purchase from the Company at any time until 5:00 p.m. New York, New York local time on June 30, 2003 one fully paid and non-assessable share of Common Stock (individually, a "Share" and collectively the "Shares") upon presentation and surrender of this Warrant Certificate and upon payment of the purchase price of $6.00 per Share (the "Exercise Price"). Payment shall be made in lawful money of the United States of America by certified check payable to the Company. Such payment shall be made at the principal office of the Company at _________________ ___________________________. As hereinafter provided, the Exercise Price and number of Shares purchasable upon the exercise of the Warrants are subject to modification or adjustment upon the happening of certain events. The Warrants represented by this Warrant Certificate were issued as part of a Unit pursuant to a Private Placement Memo-randum, dated April 30,1996 (the "Memorandum"),each of which consisted of: (i) a $250,000 principal amount 10% Convertible Sub-ordinated Note of the Company due June 30, 2003; and 25,000 Warrants. 1. Upon surrender to the Company, this Warrant Certificate may be exchanged for another Warrant Certificate or Warrant Certificates evidencing a like aggregate number of Warrants. If this Warrant Certificate shall be exercised in part, the Holder shall be entitled to receive upon surrender hereof another Warrant Certificate or Warrant Certificates evidencing the number of Warrants not exercised. 2. No Holder shall be deemed to be the holder of Common Stock or any other securities of the Company that may at any time be issuable on the exercise hereof for any purpose nor shall anything contained herein be construed to confer upon the Holder any of the rights of a shareholder of the Company or any right to vote for the election of directors or upon any matter submitted to shareholders at any meeting thereof or to give or withhold consent to any corporate action (whether upon any reorganization, issuance of stock, reclassification or conversion of stock, change of par value, consolidation, merger, conveyance, or otherwise) or to receive notice of meetings or to receive dividends or subscription rights or otherwise until a Warrant shall have been exercised and the Common Stock purchasable upon the exercise thereof shall have become issuable. 3. Each Holder consents and agrees with the Company and any other Holder that: (a) this Warrant Certificate is exercisable by the Holder in person or by attorney duly authorized in writing at the principal office of the Company in whole or in part; Page 31 (b) anything herein to the contrary notwithstanding, in no event shall the Company be obligated to issue Warrant Certificates evidencing other than a whole number of Warrants or issue certificates evidencing other than a whole number of Shares upon the exercise of this Warrant Certificate; provided, however, that the Company shall pay with respect to any such fraction of a share an amount of cash based upon the current market value (or book value, if there shall be no public market value for shares purchasable upon exercise hereof); and (c) the Company may deem and treat the person in whose name this Warrant Certificate is registered as the absolute true and lawful owner hereof for all purposes whatsoever. 4. The Company shall maintain books for the transfer and registration of Warrants. Upon the transfer of any Warrants, the Company shall issue and register the Warrants in the names of the new Holders. The Warrants shall be signed manually by the Chairman, Chief Executive Officer, President or any Vice President and the Secretary (or Assistant Secretary) of the Company. Subject to Paragraph 10, the Company shall transfer, from time to time, any outstanding Warrants upon the books to be maintained by the Company for such purpose upon surrender thereof for transfer properly endorsed or accompanied by appropriate instruction for transfer. Upon any transfer, a new Warrant Certificate shall be issued to the transferee and the surrendered Warrants shall be cancelled by the Company. Warrants may be exchanged at the option of the Holder, when surrendered at the office of the Company, for another Warrant, or other Warrants of different denominations, of like tenor and representing in the aggregate the right to purchase a like number of Shares. Subject to the terms of this Warrant Certificate, upon such surrender and payment of the purchase price, the Company shall issue and deliver with all reasonable dispatch to or upon the written order of the Holder of such Warrants and in such name or names as such Holder may designate, a certificate or certificates for the number of full Shares so purchased upon the exercise of such Warrants. Such certificate or certificates shall be deemed to have been issued and any person so designated to be named therein shall be deemed to have become the holder of record of such Shares as of the date of the surrender of such Warrants and payment of the Exercise Price; provided, however, that if, at the date of surrender and payment, the transfer books of the Shares shall be closed, the certificates for the Shares shall be issuable as of the date on which such books shall be opened and until such date the Company shall be under no duty to deliver any certificate for such Shares; provided, further, however, that such transfer books, unless otherwise required by law or by applicable rule of any national securities exchange, shall not be closed at any one time for a period longer than 20 days. The rights of purchase represented by the Warrants shall be exercisable, at the election of the Holders, either in whole or from time to time in part (but in no event with respect to less than 100 Shares). 5. The Company will pay any documentary stamp taxes attributable to the initial issuance of the Shares issuable upon the exercise of the Warrants; provided, however, that the Company shall not be required to pay any tax or taxes which may be payable in respect of any transfer involved in the issuance or delivery of any certificates for Shares in a name other than that of the Holder in respect of which such Shares are issued, and in such case the Company shall not be required to issue or deliver any certificate for Shares or any Warrant until the person requesting the same has paid to the Company the amount of such tax or has established to the Company's satisfaction that such tax has been paid. 6. In case the Warrant Certificate shall be mutilated, lost stolen or destroyed, the Company may, in its discretion, issue and deliver in exchange and substitution for and upon cancellation of the mutilated Warrant Certificate, or in lieu of and substitution for the Warrant Certificate, lost, stolen or destroyed, a new Warrant Certificate of like tenor and representing an equivalent right or interest, but only upon receipt of evidence satisfactory to the Company of such loss, theft or destruction and an indemnity, if requested, also satisfactory to it. 7. There have been reserved, and the Company shall at all times keep reserved, out of the authorized and unissued Common Stock, a number of Shares sufficient to provide for the exercise of the rights of purchase represented by this Warrant Certificate. The Company agrees that all Shares issuable upon exercise of the Warrants shall be, at the time of delivery of the certificates for such Shares, validly issued and outstanding, fully paid and nonassessable. 8. Subject and pursuant to the provisions of this paragraph, the purchase price and number of Shares subject to this Warrant Certificate shall be adjusted from time to time as set forth hereinafter: (a) In case the Company shall declare a dividend or make any other distribution upon any stock of the Company payable in Common Stock, then the Exercise Price shall be proportionately decreased as of the close of business on the date of record of said dividend. (b) If the Company shall at any time subdivide its outstanding Common Stock by recapitalization, reclassification or split-up thereof, the Exercise Price immediately prior to such subdivision shall be proportionately decreased, and, if the Company shall at any time combine the outstanding Common Stock by recapitalization, reclassification or combination Page 32 thereof, the Exercise Price immediately prior to such combination shall be proportionately increased. Any such adjustment to the Exercise Price shall become effective at the close of business on the record date for such subdivision or combination. (c) In case the Company after the date hereof shall distribute to all of the holders of outstanding shares of Common Stock any securities or other assets (other than a cash distribution made as a dividend payable out of earnings or out of any earned surplus legally available for dividends under the laws of the State of Delaware), the Board of Directors shall be required to make such equitable adjustment in the Exercise Price, as in effect immediately prior to the record date for such distribution, as may be necessary to preserve for the Holder rights substantially proportionate to those enjoyed hereunder by the Holder immediately prior to the happening of such distribution. Any such adjustment to the Exercise Price shall become effective at the close of business on the record date for such distribution. (d) If any capital reorganization or reclassification of the capital stock of the Company, or consolidation or merger of the Company with another corporation, or the sale of all or substantially all of its assets to another corporation, shall be effected in such a way that holders of Common Stock shall be entitled to receive stock, securities, cash, or assets with respect to or in exchange for Common Stock, then, as a condition of such reorganization, reclassification, consolidation, merger or sale, the Company or such successor or purchasing corporation, as the case may be, shall execute a supplemental Warrant Certificate providing that each Holder shall have the right thereafter and until the expiration date to exercise a Warrant for the kind and amount of stock, securities, cash or assets receivable upon such reorganization, reclassification, consolidation, merger or sale by a holder of the number of shares of Common Stock for the purchase of which such Warrant might have been exercised immediately prior to such reorganization, reclassification, consolidation, merger or sale, subject to further adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 8. (e) If at any time after the date of issuance hereof the Company shall grant or issue any shares of Common Stock, or grant or issue any rights or options for the purchase of, or stock or other securities convertible into, Common Stock (such convertible stock or securities being herein collectively referred to as "Convertible Securities") other than: (i) shares issued in a transaction described in subparagraph (f) of this Paragraph 8; or (ii) shares issued, subdivided or combined in transactions described in subparagraphs (a),(b),(c), or (d) of this Paragraph 8; for a consideration per share which is less than the Exercise Price, then the Exercise Price in effect immediately prior to such issuance or sale (the "Applicable Exercise Price") shall, and thereafter upon each issuance or sale, the Applicable Exercise Price shall, simultaneously with such issuance or sale, be adjusted, so that such Applicable Exercise Price shall equal a price determined by multiplying the Applicable Exercise Price by a fraction, the numerator of which shall be: (A) the sum of (x) the total number of shares of Common Stock outstanding immediately prior to such issuance plus (y) the number of shares of Common Stock which the aggregate consideration received, as determined in accordance with subparagraph (g) below for the issuance or sale of such additional Common Stock or Convertible Securities deemed to be an issuance of Common Stock as provided in subparagraph (h) below, would purchase (including any consideration received by the Company upon the issuance of any shares of Common Stock or Convertible Securities since the date the Applicable Exercise Price became effective not previously included in any computation resulting in an adjustment pursuant to this subparagraph (e)) at the Applicable Exercise Price; and the denominator of which shall be (B) the total number of shares of Common Stock outstanding (or deemed to be outstanding as provided in subparagraph (g)) immediately after the issuance or sale of such additional shares. If, however, the Applicable Exercise Price thus obtained would result in the issuance of a lesser number of shares upon exercise than would be issued at the initial Exercise Price specified in the first paragraph hereof, the Applicable Price shall be such initial Exercise Price. (f) Anything in this Paragraph 8 to contrary notwithstanding, no adjustment in the Exercise Price shall be made in connection with: (i) the grant, issuance or exercise of any Convertible Securities pursuant to the Company's qualified or non-qualified Employee Stock Option Plans or any other bona fide employee benefit plan or incentive arrangement, (including, without limitation, any issuances pursuant to individual employment Page 33 agreements) previously adopted or entered into, or as may hereafter be adopted or entered into, by the Company's Board of Directors or its officers, for the benefit of the Company's employees, consultants or directors, as any such plans, agreements or arrangements may hereafter be amended from time to time; and (ii) the issuance of any shares of Common Stock pursuant to the grant or exercise of Convertible Securities outstanding as of the date hereof. (g) For the purpose of subparagraph (e) above, the following provisions shall also be applied: (i) In case of the issuance or sale of additional shares of Common Stock for cash, the consideration received by the Company therefor shall be deemed to be the amount of cash received by the Company for such shares, before deducting therefrom any commissions, compensation or other expenses paid or incurred by the Company for any underwriting of, or otherwise in connection with, the issuance or sale of such shares. (ii) In case of the issuance of Convertible Securities, the consideration received by the Company therefor shall be deemed to be the amount of cash, if any, received by the Company for the issuance of such rights or Convertible Securities, plus the minimum amounts of cash and fair value of other consideration, if any, payable to the Company upon the exercise of such rights or options or payable to the Company on conversion of such Convertible Securities. (iii) In the case of the issuance of shares of Common Stock or Convertible Securities for a consideration in whole or in part, other than cash, the consideration other than cash shall be deemed to be the fair market value thereof as reasonably determined in good faith by the Board of Directors of the Company (irrespective of accounting treatment thereof); provided, however, that if such consideration consists of the cancellation of debt issued by the Company, the consideration shall be deemed to be the amount the Company received upon issuance of such debt (gross proceeds) plus accrued interest and, in the case of original issue discount or zero coupon indebtedness, accreted value to the date of such cancellation, but not including any premium or discount at which the debt may then be trading or which might otherwise be appropriate for such class of debt. (iv) In case of the issuance of additional shares of Common Stock upon the conversion or exchange of any obligations (other than Convertible Securities), the amount of the consideration received by the Company for such Common Stock shall be deemed to be the consideration received by the Company for such obligation or shares so converted or exchanged, before deducting from such consideration so received by the Company any expenses or commissions or compensations incurred or paid by the Company for any underwriting of, or otherwise in connection with, the issuance or sale of such obligations or shares, plus any consideration received by the Company in adjustment of interest and dividends. If obligations or shares of the same class or series of a class as the obligations or shares so converted or exchanged have been originally issued for different amounts of consideration, then the amount of consideration received by the Company upon the original issuance of each of the obligations or shares so converted or exchanged shall be deemed to be the average amount of the consideration received by the Company upon the original issuance of all such obligations or shares. The amount of consideration received by the Company upon the original issuance of the obligations or shares so converted or exchanged and the amount of the consideration, if any, other than such obligations or shares received by the Company upon such conversion or exchange shall be determined in the same manner as provided in Paragraphs (i) through (iii) above with respect to the consideration received by the Company in case of the issuance of additional shares of Common Stock or Convertible Securities. (h) For purposes of the adjustments provided for in subparagraph (e) above, if at any time, the Company shall issue any Convertible Securities, the Company shall be deemed to have issued at the same time as the issuance of such Convertible Securities the maximum number of shares of Common Stock issuable upon conversion of the total amount of Convertible Securities. (i) On the expiration, cancellation or redemption of any Convertible Securities, the Exercise Price then in effect hereunder shall forthwith be readjusted to such Exercise Price as would have been obtained (a) had the adjustments made upon the issuance or sale of such expired, cancelled or redeemed Convertible Securities been made upon the basis of the issuance of only the number of shares of Common Stock theretofore actually delivered upon the exercise or conversion of such Page 34 Convertible Securities (and the total consideration received therefor) and (b) had all subsequent adjustments been made only on the basis of the Exercise Price as readjusted under this subparagraph (i) for all transactions (which would have affected such adjusted Exercise Price) made after the issuance or sale of such Convertible Securities. (j) Anything in this Paragraph 8 to the contrary notwith- standing, no adjustment in the Exercise Price shall be required unless such adjustment would require an increase or decrease of at least 1% in such Exercise Price; provided, however, that any adjustments which by reason of this subparagraph (j) are not required to be made shall be carried forward and taken into account in making subsequent adjustments. All calculations under this Paragraph shall be made to the nearest cent or to the nearest tenth of a share, as the case may be. (k) Upon any adjustment of any Exercise Price, then and in each such case the Company shall promptly deliver a notice to the registered Holder of this Warrant, which notice shall state the Exercise Price resulting from such adjustment and the increase or decrease, if any, in the number of shares purchasable at such price upon the exercise hereof, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. (l) Upon any adjustment of the Exercise Price pursuant to any provisions contained in this Paragraph 8, the number of Shares issuable upon exercise of this Warrant shall be changed to the number of shares determined by dividing (i) the aggregate Exercise Price payable for the purchase of all Shares issuable upon exercise of the Warrant immediately prior to such adjustment by (ii) the Exercise Price per Share in effect immediately after such adjustment. 9. In case at any time: (i) The Company shall pay any dividend payable in stock upon the Common Stock or make any distribution (other than regular cash dividends) to the holders of the Common Stock; (ii) The Company shall offer for subscription pro-rata to the holders of the Common Stock any additional shares of stock of any class or other rights; (iii) There shall be any capital reorganization or reclassi- fication of the capital stock of the Company, or consolidation or merger of the Company with, or sale of all or substantially all of its assets to, another corporation; or (iv) There shall be a voluntary or involuntary dissolution, liquidation, or winding up of the Company; then, in any one or more of such cases, the Company shall give written notice to the Holder of the date on which (X) the books of the Company shall close or a record shall be taken for such dividend, distribution, or subscription rights, or (Y) such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up shall take place, as the case may be. Such notice shall also specify the date as of which the holders of Common Stock of record shall participate in such dividend, distribution, or subscription rights or shall be entitled to exchange their Common Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation, or winding up, as the case may be. Such notice shall be given at least 20 days prior to the record date or the date on which the Company's transfer books are closed in respect thereof. Failure to give such notice, or any defect therein, shall not affect the legality or validity of any of the matters set forth in this paragraph. 10. (a) The Holder of this Warrant Certificate, each transferee hereof and any holder and transferee of any Shares, by his or its acceptance thereof, agrees that (i) no public distribution of Warrants or Shares will be made in violation of the Securities Act of 1933 (the "Act"), and (ii) during such period as the delivery of a prospectus with respect to Warrants or Shares may be required by the Act, no public distribution of Warrants or Shares will be made in a manner or on terms different from those set forth in, or without delivery of, a prospectus then meeting the requirements of Section 10 of the Act and in compliance with all applicable state securities laws. The Holder of this Warrant Certificate and each transferee hereof further agrees that if any distribution of any of the Warrants or Shares is proposed to be made by them otherwise than by delivery of a prospectus meeting the requirements of Section 10 of the Act, such action shall be taken only after submission to the Company of an opinion of counsel, reasonably satisfactory in form and substance to the Company's counsel, to the effect that the proposed distribution will not be in violation of the Act or of applicable state law. Furthermore, it shall be a condition to the transfer of the Warrants that any transferee thereof deliver to the Company his or its written agreement to accept and be bound by all of the terms and conditions contained in this Warrant Certificate. (b) This Warrant or the Shares or any other security issued or issuable upon exercise of this Warrant may not be sold or otherwise disposed of except as follows: Page 35 (1) To a person who, in the opinion of counsel for the Holder reasonably acceptable to the Company, is a person to whom this Warrant or Shares may legally be transferred without registration and without the delivery of a current prospectus under the Act with respect thereto and then only against receipt of an agreement of such person to comply with the provisions of this Section (1) with respect to any resale or other disposition of such securities which agreement shall be satisfactory in form and substance to the Company and its counsel; provided that the foregoing shall not apply to any such Warrant, Shares or other security as to which such Holder shall have received an opinion letter from counsel to the Company as to the exemption thereof from the registration under the Act pursuant to Rule 144(k) under the Act; or (2) To any person upon delivery of a prospectus then meeting the requirements of the Act relating to such securities and the offering thereof for such sale or disposition. (c) Each certificate for Shares issued upon exercise of this Warrant shall bear a legend relating to the non-registered status of such Shares under the Act, unless at the time of exercise of this Warrant such Shares are subject to a currently effective registration statement under the Act. 11. (a) The Warrants represented by this Certificate may be redeemed (as a whole at any time or in part from time to time) on not less than thirty (30) days' notice, at any time after June 30, 1998, at a redemption price of $.025 per Warrant, provided the average "Market Price" (as hereinafter defined) of the Common Stock, receivable upon exercise of such Warrants, over 20 consecutive trading days has been at least 150% of the then effective Exercise Price (the 20 consecutive trading day period referred to as the "Measurement Period"). Notwithstanding the foregoing, the Company shall not be entitled to redeem any of the Warrants represented by this Certificate, unless the Shares into which the Warrants are exercisable have been registered under the Act, at all times during the applicable Measurement Period and shall continue to be so registered at all times between the date on which the notice of redemption is given and the "Redemption Date" (as hereinafter defined). For purposes hereof, "Market Price" shall mean with respect to each trading day the greater of (i) the closing sales price of the Common Stock reported on the American Stock Exchange, or if different, the primary securities exchange on which the Common Stock is traded, or for any day on which there is no closing sales price so reported, then the closing bid price for such day; and (ii) the closing sales price of the Common Stock as reported by the National Association of Securities Dealers, Inc. Automated Quotation System, if any, or for any day on which there is no closing sales price so reported, then the closing bid price for such day, if any. (b) In the event the Company shall elect to redeem all or any part of the Warrants, the Company shall fix a date for redemption (the "Redemption Date"). Notice of redemption shall be mailed by first class mail, postage prepaid, by the Company not less than 30 days from the date fixed for redemption to the registered holder of this Warrant Certificate at its last address as it shall appear on the Company's Warrant registry books. Any notice mailed in the manner herein shall be conclusively presumed to have been duly given whether or not the Holder receives such notice. Any right to exercise a Warrant being redeemed shall terminate at 5:00 P.M. (New York time) on the business day immediately preceding the Redemption Date. (c) From and after the date specified for redemption, the Company shall, at the place specified in the notice of redemption, upon presentation and surrender of this certificate to the Company by or on behalf of the Holder thereof, deliver or cause to be delivered to or upon the written order of the Holder a sum in cash equal to the redemption price of each Warrant being redeemed. From and after the date fixed for redemption, such Warrants shall expire and become void and all rights hereunder with respect thereto, except the right to receive payment of the redemption price, shall cease. (d) If less than all of the Common Stock purchase warrants sold in the private placement pursuant to the Memorandum are called for redemption by the Company, the particular Common Stock purchase warrants to be redeemed shall be selected at random by the Company in such manner as the Company in its discretion may deem fair and appropriate. If there shall be drawn for redemption less than all of the Warrants represented by this Warrant Certificate, the Company shall execute and deliver, upon surrender of this Warrant Certificate, without charge to the Holder, a new Warrant Certificate representing the number of Warrants not being redeemed. 12. (a) This Warrant shall be governed by and construed in accordance with the substantive laws of the State of New York, without giving effect to conflict of laws principles. (b) This Warrant Certificate constitutes and expresses the entire understanding between the parties hereto with respect to the subject matter hereof, and supersedes all prior and contemporaneous agreements and understandings, inducements or conditions whether express or implied, oral or written. Neither this Warrant Certificate nor any portion or provision hereof may be changed, waived or amended orally or any manner other than by an agreement in writing signed by the Holder and the Company. Page 36 (c) Except as otherwise provided in this Warrant Certificate, all notices, requests, demands and other communications required or permitted under this Warrant Certificate or by law shall be in writing and shall be deemed to have been duly given, made and received only when delivered against receipt or when deposited in the United States mails, certified or registered mail, return receipt requested, postage prepaid, addressed as follows: Company: Unapix Entertainment, Inc. Holder: At the address shown for the Holder in the registration books maintained by the Company. (d) If any provision of this Warrant Certificate is prohibited by or is unlawful or unenforceable under any applicable law of any jurisdiction, such provision shall, as to such jurisdiction, be in effect to the extent of such prohibition without invalidating the remaining provisions hereof; provided, however, that any such prohibition in any jurisdiction shall not invalidate such provision in any other jurisdiction; and provided, further that where the provisions of any such applicable law may be waived, that they hereby are waived by the Company and the Holder to the full extent permitted by law and to the end that this Warrant instrument shall be deemed to be a valid and binding agreement in accordance with its terms. Page 37 IN WITNESS WHEREOF, Unapix Entertainment, Inc. has caused this Warrant Certificate to be signed by its duly authorized officers as of the __________ day of __________ , 1996. UNAPIX ENTERTAINMENT, INC. By: ------------------------------ Name: ---------------------------- Title: --------------------------- Attest: Name: Title: [SEAL] Page 38 PURCHASE FORM To: Unapix Entertainment, Inc. The undersigned hereby irrevocably elects to exercise the attached Warrant Certificate, No.W-6-_____ , to the extent of _____ shares of Common Stock, $.01 par value per share, of UNAPIX ENTERTAINMENT, INC., and hereby makes payment of $_____ in payment of the aggregate exercise price thereof. INSTRUCTIONS FOR REGISTRATION OF SECURITIES Name:________________________ (Please typewrite or print in block letters) Address: By: Page 39 EX-10.1 4 EXHIBIT 10.1 Page 40 June 4, 1996 Mr. Herbert Pearlman Chairman Unapix Entertainment, Inc. 200 Madison Avenue New York, NY 10016 Dear Mr. Pearlman: This letter is to confirm and summarize the agreement under which Strategic Growth International will serve as Investor Relations Consultant to Unapix Entertainment, Inc. ("the Company"). DUTIES: - ------- As Investor Relations Consultant, we will: a) Consult with the management of the Company on Investor Relations aspects of shareholder communications, including how to arrange and conduct meetings with professional investment community and investor groups; how to communicate the corporate message to specified audiences, and how to enhance relations with security analysts and the financial press. b) Help develop and implement a comprehensive Investor Relations program. Each plan will be designed to achieve results-oriented quantified goals and objectives. c) Provide professional staff services as may be reasonably required to help the Company carry out its programs and objectives. The scope of SGI's services shall not include any consulting activities related to or regarding the raising of funds, including warrant conversions or private placements. Such activities shall be subject to a separate agreement. LIABILITY: - ---------- The Company agrees to indemnify and hold harmless SGI from and against any and all losses, claims, damages, expenses or liabilities which SGI may incur based upon information, representations, reports or data furnished by the Company to the extent that such material is furnished, prepared and approved by Unapix Entertainment, Inc. for use by SGI. OUT OF POCKET EXPENSES: - ----------------------- The Company will reimburse SGI for all reasonable out-of-pocket disbursements, including travel expenses, made in the performance of its duties under this agreement. Items, such as luncheons with the professional investment community, graphic design and printing, postage, long distance telephone calls, etc., will be billed as incurred. Page 41 Mr. Herbert Pearlman Unapix Entertainment, Inc. Page 2 RECORDS AND RECORD KEEPING: - --------------------------- SGI will maintain accurate records of all out-of-pocket expenditures incurred on behalf of the Company. Authorization for projects and operating activities will be obtained in advance before commitments are made. TERMS OF PAYMENT: - ----------------- Billing will be done monthly for the coming month. Expenses and charges will be included in the following month's bill. Payment is due within the (10) days upon receipt of invoice. SERVICE FEES: - ------------- The Company will pay SGI a monthly retainer fee of $8,000 for services under this agreement. The monthly retainer shall commence on June 4, 1996. In addition, immediately upon execution of this agreement, the Company will issue 400,000 options on the Company's outstanding shares. Such options shall be exercisable at $3 7/8. Such options will be of a five year duration, and will have piggy-back registration rights for one year with respect to shares underlying the options with demand registration rights after one year, and will be subject to non-dilution provisions and may be transferred in whole or in part to one or more officers of the Company. The Company shall have the right to rescind 100,000 of such options on June 4, 1997 if the Company was not successful in converting all B Warrants exercisable at $4.50. TERMS OF AGREEMENT: - ------------------- This agreement is to extend from June 4, 1996 for one year. This agreement shall be governed by and subject to the jurisdiction of and law of New York State. Please confirm agreement to the above by endorsing all three (3) copies and returning two (2) copies to SGI. AGREED TO AND ACCEPTED BY: - -------------------------- - --------------------------------- ------------------------------------ Unapix Entertainment, Inc. Strategic Growth International, Inc. Page 42 EX-27 5
5 6-MOS DEC-31-1996 JUN-30-1996 531 0 8,700 762 440 27,673 509 118 28,064 12,012 4,262 0 5 53 11,732 28,064 7,087 10,585 4,663 6,985 0 762 174 421 174 247 0 0 0 247 0.03 0 Earnings per share was presented on a simple basis for financial statement presentation.
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