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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) FEBRUARY 18, 1997
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GRAPHIX ZONE, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 0-28676 33-067932
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
42 CORPORATE PARK, SUITE 200, IRVINE, CALIFORNIA 92606
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (714) 833-3838
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Not Applicable
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(Former name or former address, if changed since last report)
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ITEM 9. SALES OF EQUITY SECURITIES PURSUANT TO REGULATION S.
On February 18, 1997, Graphix Zone, Inc., a Delaware
corporation (the "Company"), became obligated to issue 3,025 shares of Series
B Convertible Preferred Stock (the "Series B Shares") and accompanying
warrants (the "Series B Warrants") to purchase up to 221,204 shares of the
Company's Common Stock. The Series B Shares and Series B Warrants were
issued on February 24, 1997 in a private equity offering to six accredited
foreign investors (the "Investors") pursuant to Exchange Agreements entered
into between the Company and each of the Investors.
The Series B Shares and Series B Warrants were not
registered under the Securities Act of 1933 (the "Securities Act") in
reliance upon Regulation S under the Securities Act. The Exchange Agreements
contain representations and warranties by each Investor which state, among
other things, that the Investor is an "accredited investor" as that term is
defined in Rule 501 of the General Rules and Regulations of the Securities
Act by reason of Rule 501(a)(3), that the Investor is not a "U.S. person" as
that term is defined in Regulation S, that no offer to purchase the Series B
Shares or Series B Warrants was made by the Investor in the U.S. and that the
Investor has not entered into any prearranged transaction with any person in
the U.S. for the sale or other transfer of the Series B Shares or Series B
Warrants.
In addition, the Exchange Agreements provide for, among
other things, the issuance of the Series B Shares and Series B Warrants in
exchange for the cancellation of 3,025 shares of Series A Convertible
Preferred Stock (the "Series A Shares") and accompanying warrants (the
"Series A Warrants") to purchase up to 221,204 shares of the Company's Common
Stock, which Series A Shares and Series A Warrants previously were issued to
the Investors in a private equity offering made under Regulation D under the
Securities Act. The Series A Shares and Series A Warrants were issued by the
Company on September 25 and November 1, 1996 and on January 31, 1997 in
exchange for cash consideration, net of offering expenses, of $2,355,948.
Tanner Unman Securities acted as placement agent, was paid a commission of
11.5% of the gross proceeds and was reimbursed for certain expenses. The
proceeds from the sale of Series A Shares and Series A Warrants have been and
will be used as working capital to fund the development of future CD-ROM and
DVD-ROM products, and other costs associated with the growth and expansion of
the Company.
Holders of the Series B Shares have the right, at their
option, to convert their shares into shares of Common Stock at any time at
the conversion rate then in effect. If not previously converted, all Series B
Shares are automatically convertible into shares of Common Stock two years
after their issuance.
Each Series B Share is convertible into a number of
shares of Common Stock equal to $1,000 divided by the lesser of (a) 80% of
the average closing bid price of the Company's Common Stock on the five
trading days preceding the conversion or (b) $3.375. Based upon closing bid
prices as of February 28, 1997, each Series B Share is convertible into
approximately 595 shares of Common Stock. No fractional share or scrip will
be issued upon conversion of the Series B Shares. Rather, shares will be
rounded up to the nearest whole share.
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The conversion rate for Series B Shares will be
appropriately adjusted if the Company (a) pays a dividend or makes a
distribution on its shares of Common Stock (but not the Series B Shares)
which is paid or made in shares of Common Stock, (b) subdivides or
reclassifies its outstanding shares of Common Stock, (c) combines its
outstanding shares of Common Stock into a smaller number of shares of Common
Stock, (d) issues shares of Common Stock, or issues rights or warrants to all
holders of its Common Stock entitling them to subscribe for or purchase
shares of Common Stock (or securities convertible into Common Stock), or (e)
distributes to all holders of its Common Stock evidences of its indebtedness
or assets (excluding any dividend paid in cash out of legally available
funds) subject to the limitation that adjustments by reason of any of the
foregoing need not be made until they result in a cumulative change in the
conversion rate of at least five percent (5%). The conversion rate will not
be adjusted upon the conversion of shares of Series B Shares or exercise of
presently outstanding stock options or warrants.
In case of any consolidation or merger to which the
Company is a party other than a merger or consolidation in which the Company
is the surviving corporation, or in case of any sale or conveyance to another
corporation of the property of the Company as an entirety or substantially as
an entirety, or in case of any statutory exchange of securities with another
corporation, there will be no adjustment of the conversion rate of the Series
B Shares, but each holder of Series B Shares then outstanding will have the
right thereafter to convert such shares into the kind and amount of
securities, cash or other property which he would have owned or have been
entitled to receive immediately after such consolidation, merger, statutory
exchange, sale or conveyance had such shares been converted immediately prior
to the effective date of such consolidation, merger, statutory exchange, sale
or conveyance. In the case of a cash merger of the Company into another
corporation or any other cash transaction of the type mentioned above, the
effect of these provisions would be that the conversion features of the
Series B Shares would thereafter be limited to converting the Series B Shares
at the conversion rate in effect at such time into the same amount of cash
per share that such holder would have received had such holder converted the
Series B Shares into Common Stock immediately prior to the effective date of
such cash merger or transaction. Depending upon the terms of such cash merger
or transaction, the aggregate amount of cash so received in conversion could
be more or less than the liquidation preference of the Series B Shares.
The Series B Shares may be converted at any time upon
surrender of the stock certificate at the offices of the Company. Shares of
Common Stock issued upon conversion will be fully paid and non-assessable.
The Series B Warrants are exercisable in whole or in part
at any time prior to January 31, 2000 at an exercise price of $2.50 per
share, subject to adjustment for reorganization, consolidation, merger and
certain extraordinary events. Alternatively, a Series B Warrantholder may
elect to exercise the Series B Warrant in whole or in part by receiving
shares of Common Stock equal to the net issuance value of the Series B
Warrant, or any part thereof.
The number of shares of Common Stock to be issued to a
Series B Warrantholder based upon the net issuance value of a Series B
Warrant is equal to the number of shares of Common Stock as to which the
Series B Warrant is to be exercised, multiplied by the difference between (i)
the current fair market value of one share of Common Stock calculated as of
the last trading day
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immediately preceding the exercise of the Series B Warrant and (ii) the
exercise price, and divided by the current fair market value of one share of
Common Stock calculated as of the last trading day immediately preceding the
exercise of the Series B Warrant. The current fair market value of one share
of Common Stock as of a specified date is the average of the closing bid
prices of the Common Stock on the date of exercise of the Series B Warrant
and on the preceding four business days.
Notwithstanding the preceding discussions regarding the
conversion of the Series B Shares and the exercise of the Series B Warrants,
the Certificate of Designations of Series B Convertible Preferred Stock
provides that in no event shall a holder of Series B Shares or Series B
Warrants be entitled to convert the Series B Shares or exercise the Series B
Warrants to acquire a number of shares of Common Stock in excess of that
number which would result in the holder's beneficial ownership at any time of
more than 4.9% of the Company's Common Stock.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned hereunto duly authorized.
GRAPHIX ZONE, INC.
Date: March 5, 1997 By: /s/NORMAN H. BLOCK
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Norman H. Block, President
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EXHIBIT INDEX
Exhibit No. Description
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3.1 Certificate of Designations of Series B Convertible
Preferred Stock of the Company
10.1 Form of Stock Subscription Agreement among the
Company and each of six private placement investors (1)
10.2 Form of Common Stock Purchase Warrants for shares of
the Company's Common Stock among the Company and
each of six private placement investors (1)
10.3 Form of Registration Rights Agreement among the Company
and each of six private placement investors (1)
10.4 Form of Amendment No. 1 to Registration Rights Agreement
between the Company and each of six private placement
investors
10.5 Form of Amendment Agreement between the Company and
each of six private placement investors
10.6 Form of Exchange Agreement between the Company and each
of six private placement investors
10.7 Form of Escrow Agreement between the Company and each of
six private placement investors
10.8 Form of Common Stock purchase Warrants, Class B for shares
of the Company's Common Stock among the Company and
each of six private placement investors
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(1) Filed as an exhibit to the Company's Form 10-Q for the quarterly period
ended September 30, 1996, and incorporated herein by reference.
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