Exhibit 3.1
CERTIFICATE OF DESIGNATION, POWERS, PREFERENCES AND RIGHTS OF
THE 6% SERIES B CONVERTIBLE PREFERRED STOCK OF
UNAPIX ENTERTAINMENT, INC.
Unapix Entertainment, Inc., a Delaware Corporation (the "Company"),
pursuant to Section 151 of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
That pursuant to the authority conferred upon the Board of Directors by the
Certificate of Incorporation of the Company, the Board of Directors of the
Company at a meeting thereof duly called and held on July 9, 1998, at which a
quorum was present and acting throughout, duly adopted the resolutions attached
as EXHIBIT 1 creating a series of 300 shares of Preferred Stock with a par value
of $0.01 each and a stated value of $10,000 each to be designated "6% Series B
Preferred Stock."
IN WITNESS WHEREOF, Unapix Entertainment, Inc. has caused this certificate
to be signed by its duly authorized officer this tenth day of July, 1998.
UNAPIX ENTERTAINMENT, INC.
By:
------------------------------------------
David M. Fox, Chief Executive Officer
EXHIBIT 1
July 9, 1998 Board of Directors Resolutions Excerpt
RESOLVED, that the officers of the Company be, and each of them
hereby is, authorized and empowered, acting for, on behalf of and in
the name of the Company, to effect a private placement (the "Private
Placement") of its Preferred Stock, substantially on the terms set
forth on Exhibit A annexed hereto (the "Term Sheet"), with such
changes thereto (including, without limitation, reductions in the
conversion or exercise prices or modifications of the reset provisions
relating thereto) as the officers shall determine to be necessary,
desirable or appropriate, their execution or delivery of any
documents, instruments or agreements with respect thereto to be
conclusive evidence of such determination; and be it further
RESOLVED, that the certificate attached hereto as Exhibit B1
representing the statements of rights preferences and designations of
the Company's Series B Preferred Stock to be issued in connection with
the Private Placement is hereby adopted in substantially the form as
attached with such changes thereto as one or more officers of the
Company may deem immaterial, desirable and appropriate to consummate
the Private Placement (the "Certificate of Designation").
EXHIBIT B1
TERMS OF PREFERRED STOCK
Section 1. DESIGNATION, AMOUNT AND PAR VALUE. The series of
preferred stock shall be designated as 6% Series B Convertible Preferred Stock
(the "PREFERRED STOCK") and the number of shares so designated shall be 300
(which shall not be subject to increase without the consent of the holders of
the Preferred Stock (each, a "HOLDER" and collectively, the "HOLDERS")); Each
share of Preferred Stock shall have a par value of $.01 and a stated value of
$10,000 (the "STATED VALUE").
Section 2. DIVIDENDS.
(a) Holders of Preferred Stock shall be entitled to receive, when and
as declared by the Board of Directors out of funds legally available therefor,
and the Company shall pay, cumulative dividends at the rate per share (as a
percentage of the Stated Value per share) equal to 6% per annum, payable on a
quarterly basis on March 31, June 30, September 30 and December 31 of each year
during the term hereof (each a "DIVIDEND PAYMENT DATE"), commencing on June 30,
1998, in cash or shares of Common Stock (as defined in Section 7) at, subject to
the terms and conditions set forth herein, the option of the Company. Dividends
on the Preferred Stock shall be calculated on the basis of a 360-day year, shall
accrue daily commencing on the Original Issue Date (as defined in Section 7),
and shall be deemed to accrue from such date whether or not earned or declared
and whether or not there are profits, surplus or other funds of the Company
legally available for the payment of dividends. Any dividends not paid on any
Dividend Payment Date shall continue to accrue and shall be due and payable upon
conversion of the Preferred Stock. A party that holds shares of Preferred Stock
on a Dividend Payment Date will be entitled to receive such dividend payment and
any other accrued and unpaid dividends which accrued prior to such Dividend
Payment Date, without regard to any sale or disposition of such Preferred Stock
subsequent to the applicable record date. All overdue accrued and unpaid
dividends and other amounts due herewith shall entail a late fee at the rate of
15% per annum (to accrue daily, from the date such dividend is due hereunder
through and including the date of payment). Except as otherwise provided
herein, if at any time the Company pays less than the total amount of dividends
then accrued on account of the Preferred Stock, such payment shall be
distributed ratably among the Holders based upon the number of shares held by
each Holder. Payment of dividends on the Preferred Stock is further subject to
the provisions of Section 5(c)(i). The Company shall provide the Holders notice
of its intention to pay dividends in cash or shares of Common Stock not less
than 10 Trading Days prior to the Dividend Payment Date for so long as shares of
Preferred Stock are outstanding. If dividends are paid in shares of Common
Stock, the number of shares of Common Stock issuable on account of such
dividend shall equal the cash amount of such dividend on such Dividend Payment
Date divided by the Conversion Price (as defined below) on such date.
(b) Notwithstanding anything to the contrary contained herein, the
Company may not issue shares of Common Stock in payment of dividends (and must
deliver cash in respect thereof) on the Preferred Stock if:
(i) the number of shares of Common Stock at the time authorized,
unissued and unreserved for all purposes is insufficient to pay such dividends
in shares of Common Stock;
(ii)such shares are not registered for resale pursuant to an
effective registration statement that names the recipient of such dividend as a
selling stockholder thereunder and may not be sold without volume restrictions
pursuant to Rule 144 promulgated under the Securities Act of 1933, as amended
(the "SECURITIES ACT"), as determined by counsel to the Company pursuant to a
written opinion letter, addressed to the Company's transfer agent in the form
and substance acceptable to the Holders and such transfer agent;
(iii)the Common Stock is not then listed on the American Stock
Exchange (the "AMEX") or on the New York Stock Exchange, Nasdaq SmallCap Market
or Nasdaq National Market (each, a "SUBSEQUENT MARKET");
(iv) the Company has failed to timely satisfy its conversion
obligations hereunder (which failure shall not have been cured prior to the date
of payment of such dividend); or
(v) the issuance of such shares would result in the recipient
thereof beneficially owning, as determined in accordance with Rule 13d-3
promulgated under the Securities Exchange Act of 1934, as amended (the 'EXCHANGE
ACT"), more than 4.999% of the then issued and outstanding shares of Common
Stock.
Payment of dividends hereunder in shares of Common Stock shall
also be subject to the provisions of Section 5(a)(iii).
(c) So long as any Preferred Stock shall remain outstanding, neither
the Company nor any subsidiary thereof shall redeem, purchase or otherwise
acquire directly or indirectly any Junior Securities (as defined in Section 7),
nor shall the Company directly or indirectly pay or declare any dividend or make
any distribution (other than a dividend or distribution described in Section 5)
upon, nor shall any distribution be made in respect of, any Junior Securities,
nor shall any monies be set aside for or applied to the purchase or redemption
(through a sinking fund or otherwise) of any Junior Securities or shares pari
passu with the Preferred Stock, except for repurchases effected by the Company
on the open market, pursuant to a direct stock purchase plan or repurchase or
redemption at an aggregate price for all such redemptions and repurchases of not
more than $75,000 and/or up to 250,000 shares of Common Stock issued (in the
case of redemption shares) to redeem Company warrants outstanding on the
Original Issue Date, and except that the Company may make regularly scheduled
dividend payments in respect of classes of preferred stock of the Company if the
Company shall be in
compliance with provisions of this Certificate of Designation and shall be
current with respect to the payment of dividends hereunder.
Section 3. VOTING RIGHTS. Except as otherwise provided herein
and as otherwise required by law, the Preferred Stock shall have no voting
rights. However, so long as any shares of Preferred Stock are outstanding, the
Company shall not and shall cause its subsidiaries not to, without the
affirmative vote of the Holders of all of the shares of the Preferred Stock then
outstanding,(a) alter or change adversely the powers, preferences or rights
given to the Preferred Stock, (b) alter or amend this Certificate of
Designation, (c) authorize or create any class of stock ranking as to dividends
or distribution of assets upon a Liquidation (as defined in Section 4) senior to
or otherwise PARI PASSU with or senior to the Preferred Stock, except for any
series of Preferred Stock issued and sold in accordance with the Purchase
Agreement, (d) amend its Certificate of Incorporation, bylaws or other charter
documents so as to affect adversely any rights of any Holders, (e) increase the
authorized number of shares of Preferred Stock, or (f) enter into any agreement
with respect to the foregoing.
Section 4. LIQUIDATION. Upon any liquidation, dissolution or
winding-up of the Company, whether voluntary or involuntary (a "LIQUIDATION"),
the Holders shall be entitled to receive out of the assets of the Company,
whether such assets are capital or surplus, for each share of Preferred Stock an
amount equal to the Stated Value plus all due but unpaid dividends per share,
whether declared or not, before any distribution or payment shall be made to the
holders of any Junior Securities, and if the assets of the Company shall be
insufficient to pay in full such amounts, then the entire assets to be
distributed to the Holders of Preferred Stock shall be distributed among the
Holders of Preferred Stock ratably in accordance with the respective amounts
that would be payable on such shares if all amounts payable thereon were paid in
full. A sale, conveyance or disposition of all or substantially all of the
assets of the Company or the effectuation by the Company of a transaction or
series of related transactions in which more than 50% of the voting power of the
Company is disposed of, or a consolidation or merger of the Company with or into
any other company or companies shall not be treated as a Liquidation, but
instead shall be subject to the provisions of Section 5. The Company shall mail
written notice of any such Liquidation, not less than 45 days prior to the
payment date stated therein, to each record Holder of Preferred Stock.
Section 5. CONVERSION.
(a)(i) Each share of Preferred Stock shall be convertible into shares
of Common Stock (subject to reduction pursuant to Section 5(a)(iii) hereof and
Section 3.8 of the Purchase Agreement) at the Conversion Ratio (as defined in
Section 7) at the option of the Holder at any time and from time to time after
the Original Issue Date, PROVIDED, that prior to the 180th day following the
Original Issue Date conversions at the option of the Holder shall only be
permitted at a Conversion Price greater than 101% of the Closing Price (as
defined in Section 7). Holders shall effect conversions by surrendering the
certificate or certificates representing the shares of Preferred Stock to be
converted to the Company, together with the form of conversion notice attached
hereto as EXHIBIT A (a "CONVERSION NOTICE"). Each Conversion Notice shall
specify the
number of shares of Preferred Stock to be converted and the date on which such
conversion is to be effected, which date may not be prior to the date the Holder
delivers such Conversion Notice by facsimile (the "CONVERSION DATE"). If no
Conversion Date is specified in a Conversion Notice, the Conversion Date shall
be the date that the Conversion Notice is deemed delivered hereunder. If the
Holder is converting less than all shares of Preferred Stock represented by the
certificate or certificates tendered by the Holder with the Conversion Notice,
or if a conversion hereunder cannot be effected in full for any reason, the
Company shall promptly deliver to such Holder (in the manner and within the time
set forth in Section 5(b)) a certificate for such number of shares as have not
been converted.
(ii) Any outstanding shares of Preferred Stock not theretofore
converted or redeemed on the second anniversary of the Original Issue Date (the
"TERM") shall automatically be converted into shares of Common Stock at the
Conversion Price then in effect; PROVIDED, that notwithstanding the foregoing,
no such conversion shall occur unless (a) the Underlying Shares that would then
be issuable upon such conversion could either be resold by the applicable Holder
without volume restrictions pursuant to Rule 144(k) promulgated under the
Securities Act or there is then an effective Underlying Securities Registration
Statement (as defined in Section 7) covering such shares of Common Stock and (b)
the Company has a sufficient number of authorized and unreserved shares of
Common Stock to issue upon such conversion. Further, the number of shares of
Preferred Stock that are subject to conversion pursuant to this section shall be
limited to the number of Underlying Shares which may be issued upon such
conversion at the prevailing Conversion Price in accordance with Rule 713
promulgated under the rules of the AMEX (or any successor provisions of same
effect). Any shares of Preferred Stock which cannot be converted at the then
Conversion Price as a result of such rule shall be subject to the provisions of
Section 5(a)(iii). Notwithstanding the foregoing or anything to the contrary
contained herein, (x) if there shall have occurred a Triggering Event (as
defined in Section 6) and the Holder shall not have required the Company to
redeem all of the Preferred Stock held by such Holder, the Term shall be deemed
extended by a number of days as equals the product of 1.5 and the number of days
that such Triggering Event shall exist, and (x) if the Holder is requested to
refrain from disposing of Underlying Shares under an Underlying Securities
Registration Statement (which restriction the Company may not impose for a
period of more than 90 days) following the execution by the Company after one
year of the Original Issue Date of an underwriting agreement which provides for
a firm commitment primary underwritten offering by the Company of Common Stock
in excess of $10,000,000 (a "STANDSTILL"), the Term shall be deemed extended for
a number days equal to the duration of the Standstill (which shall be in
addition to any extension of the Term pursuant to clause (y) above). A Holder
shall be under no obligation to Standstill as a result of underwriting
arrangements entered into by the Company prior to the expiration of one year
from the Original Issue Date.
(iii) If on any Conversion Date (A) the Common Stock is listed
for trading on the AMEX, (B) the Conversion Price then in effect is such that
the aggregate number of shares of Common Stock that would then be issuable upon
conversion in full of all then outstanding shares of Preferred Stock, together
with any shares of the Common Stock previously issued upon conversion of the
shares of Preferred Stock and as payment of dividends thereon,
would equal or exceed 20% of the number of shares of the Common Stock
outstanding on the Original Issue Date (such number of shares as would not equal
or exceed such 20% limit, the "ISSUABLE MAXIMUM"), and (C) the Company shall not
have previously obtained the vote of shareholders (the "SHAREHOLDER APPROVAL"),
if any, as may be required by the rules and regulations of AMEX (or successor
entity) applicable to approve the issuance of Common Stock in excess of the
Issuable Maximum in a private placement whereby shares of Common Stock are
deemed to have been issued at a price that is less than the greater of book or
fair market value of the Common Stock, then the Company shall issue to the
Holder so requesting a conversion a number of shares of Common Stock equal to
the Issuable Maximum and, with respect to the remainder of the aggregate stated
value of the shares of Preferred Stock then held by such Holder for which a
conversion in accordance with the Conversion Price would result in an issuance
of Common Stock in excess of the Issuable Maximum, the Company shall have the
option, exercisable by written notice to the Holders delivered within seven (7)
days after the triggering Conversion Date, to perform under either of clause (2)
or clause (3) below, in which case the payment of the Discount Equivalent or
applicable Mandatory Redemption Amount, as the case may be, shall be made in
full within seven (7) days after the date of such notice by the Company. If the
Company fails to make an election pursuant to the immediately preceding sentence
within the time period permitted by such sentence or, if it shall have timely
elected to perform under either clause (2) or clause (3) and shall have failed
to pay the full Discount Equivalent or Mandatory Redemption Amount thereunder
within seven (7) days of such notice, then the converting Holder shall have the
option to declare any such notice void AB INITIO and require the Company to
either (1) use its best efforts to obtain the Shareholder Approval applicable to
such issuance as soon as is possible, but in any event not later than the 60th
day after such request, or (2)(i) issue and deliver to such Holder a number of
shares of Common Stock as equals (x) the aggregate Stated Value of the shares of
Preferred Stock tendered for conversion in respect of the Conversion Notice at
issue but for which a conversion in accordance with the other terms hereof would
result in an issuance of Common Stock in excess of the Issuable Maximum, divided
by (y) the Initial Conversion Price (as defined below), and (ii) cash in an
amount equal to the product of (x) the Per Share Market Value on the Conversion
Date and (y) the number of shares of Common Stock in excess of such Holder's pro
rata portion of the Issuable Maximum that would have otherwise been issuable to
the Holder in respect of such conversion but for the provisions of this Section
(such amount of cash being hereinafter referred to as the "DISCOUNT
EQUIVALENT"), or (3) pay cash to the converting Holder in an amount equal to the
Mandatory Redemption Amount (as defined in Section 7) for the number of
Underlying Shares in or issuable upon such conversion in excess of the Issuable
Maximum. If the Company fails to pay the Discount Equivalent or the Mandatory
Redemption Amount, as the case may be, in full pursuant to this Section within
seven (7) days after the date payable, the Company will pay interest thereon at
a rate of 15% per annum to the converting Holder, accruing daily from the
Conversion Date until such amount, plus all such interest thereon, is paid in
full.
(b) (i) Not later than the latest to occur of (x) the third (3rd)
Trading Day after any Conversion Date, (y) the second (2nd) Business Day after
delivery to the Company of the shares of Preferred Stock tendered for conversion
pursuant to a Conversion Notice or (z) the second (2nd) Business Day after
receipt by the Company of a notice by a converting Holder that
such certificates have been lost, stolen or destroyed which notice shall be
accompanied by a bond (or other adequate security) reasonably satisfactory to
the Company to indemnify the Company from any loss incurred by it in connection
therewith (such date, the "DUE DATE"), the Company will deliver to the Holder
(i) a certificate or certificates which shall be free of restrictive legends and
trading restrictions (other than those required by Section 3.1(b) of the
Purchase Agreement) representing the number of shares of Common Stock being
acquired upon the conversion of shares of Preferred Stock (subject to reduction
pursuant to Section 5(a)(iii) and Section 3.8 of the Purchase Agreement), (ii)
one or more certificates representing the number of shares of Preferred Stock
not converted, (iii) a bank check in the amount of accrued and unpaid dividends
(if the Company has elected to pay accrued dividends in cash), and (iv) if the
Company has elected and is permitted hereunder to pay accrued dividends in
shares of Common Stock, certificates, which shall be free of restrictive legends
and trading restrictions (other than those required by Section 3.1 (b) of the
Purchase Agreement), representing such shares of Common Stock. The Company
shall, upon request of the Holder, if available, use its best efforts to deliver
any certificate or certificates required to be delivered by the Company under
this Section electronically through the Depository Trust Corporation or another
established clearing corporation performing similar functions. If in the case
of any Conversion Notice such certificate or certificates, including for
purposes hereof, any shares of Common Stock to be issued on the Conversion Date
on account of accrued but unpaid dividends hereunder, are not delivered to or as
directed by the applicable Holder by the Due Date, the Holder shall be entitled
by written notice to the Company at any time on or before its receipt of such
certificate or certificates thereafter, to rescind such conversion, in which
event the Company shall immediately return the certificates representing the
shares of Preferred Stock tendered for conversion.
(ii) If the Company fails to deliver to the Holder such
certificate or certificates pursuant to Section 5(b)(i), including for purposes
hereof, any shares of Common Stock to be issued on the Conversion Date on
account of accrued but unpaid dividends hereunder, by the Trading Day after the
Due Date, the Company shall pay to such Holder, in cash, as liquidated damages
and not as a penalty, $5,000 for each day after such third Trading Day until
such certificates are delivered. Nothing herein shall limit a Holder's right to
pursue actual damages for the Company's failure to deliver certificates
representing shares of Common Stock upon conversion within the period specified
herein and such Holder shall have the right to pursue all remedies available to
it at law or in equity including, without limitation, a decree of specific
performance and/or injunctive relief. The exercise of any such rights shall not
prohibit the Holders from seeking to enforce damages pursuant to any other
Section hereof or under applicable law. Further, if the Company shall not have
delivered any cash due in respect of conversions of Preferred Stock or as
payment of dividends thereon by the third (3rd) Trading Day after the Conversion
Date, the Holder may, by notice to the Company, require the Company to issue
Underlying Shares pursuant to Section 5(c), except that for such purpose the
Conversion Price applicable thereto shall be the lesser of the Conversion Price
on the Conversion Date and the Conversion Price on the date of such Holder
demand. Any such Underlying Shares will be subject to the provision of this
Section.
(iii) In addition to any other rights available to the Holder,
if the Company fails to deliver to the Holder such certificate or certificates
pursuant to Section 5(b)(i), including for purposes hereof, any shares of Common
Stock to be issued on the Conversion Date on account of accrued but unpaid
dividends hereunder, by the Trading Day after the Due Date, and if after such
Trading Day the Holder purchases (in an open market transaction or otherwise)
shares of Common Stock to deliver in satisfaction of a sale by such Holder of
the Underlying Shares which the Holder anticipated receiving upon such
conversion (a "BUY-IN"), then the Company shall pay in cash to the Holder (in
addition to any remedies available to or elected by the Holder) the amount by
which (x) the Holder's total purchase price (including brokerage commissions, if
any) for the shares of Common Stock so purchased exceeds (y) the aggregate
stated value of the shares of Preferred Stock for which such conversion was not
timely honored. For example, if the Holder purchases shares of Common Stock
having a total purchase price of $11,000 to cover a Buy-In with respect to an
attempted conversion of $10,000 aggregate stated value of the shares of
Preferred Stock, the Company shall be required to pay the Holder $1,000. The
Holder shall provide the Company written notice indicating the amounts payable
to the Holder in respect of the Buy-In.
(c)(i) The conversion price for each share of Preferred Stock (the
"CONVERSION PRICE") in effect on any Conversion Date shall be the lesser of (a)
120% of the Closing Price (the "INITIAL CONVERSION PRICE") and (b) the average
of the Per Share Market Values for two (2) Trading Days (which need not be
consecutive Trading Days) during the ten (10) Trading Days prior to the date of
the applicable Conversion Notice, which Per Share Market Values shall be chosen
by the converting Holder, PROVIDED, that, except as otherwise set forth herein,
the Conversion Price shall not be less than the Floor (as defined in Section 7);
PROVIDED, HOWEVER, that, (a) if the Underlying Securities Registration Statement
is not filed on or prior to the Filing Date (as defined in the Registration
Rights Agreement), or (b) if the Company fails to file with the Commission a
request for acceleration in accordance with Rule 461 promulgated under the
Securities Act within five (5) days of the date that the Company is notified
(orally or in writing, whichever is earlier) by the Commission that an
Underlying Securities Registration Statement will not be "reviewed," or not
subject to further review, or (c) if the Underlying Securities Registration
Statement is not declared effective by the Commission on or prior to the 120th
day after the Original Issue Date, or (d) if such Underlying Securities
Registration Statement is filed with and declared effective by the Commission
but thereafter ceases to be effective as to all Registrable Securities (as such
term is defined in the Registration Rights Agreement) at any time prior to the
expiration of the "Effectiveness Period" (as such term is defined in the
Registration Rights Agreement), without being succeeded within 15 Trading Days
by a subsequent Underlying Securities Registration Statement or post-effective
amendment, as applicable, filed with and declared effective by the Commission,
or (e) if trading in the Common Stock shall be suspended for more than five (5)
consecutive Trading Days or seven (7) Trading Days in the aggregate, or (f) if
the conversion rights of the Holders are suspended for any reason, or (g) if the
Company is required to convene a shareholders meeting pursuant to Section
5(a)(iii) and fails to convene a meeting of shareholders within the time periods
specified in Section 5(a)(iii) or does so convene a meeting of shareholders
within such time period but fails to obtain Shareholder Approval at such meeting
(any such failure or breach being referred to as an "EVENT," and for
purposes of clauses (a) and (c) the date on which such Event occurs, or for
purposes of clause (b) the date on which such five (5) day period is exceeded,
or for purposes of clause (d) the date which such 15 Trading Day-period is
exceeded, or for purposes of clause (e) the date on which such five (5) Trading
Day period is exceeded, being referred to as "EVENT DATE"), the Company will pay
to the Holder, in cash, as liquidated damages and not as a penalty, on the Event
Date, 1.0% of the Stated Value of the shares of Preferred Stock then
outstanding, and, on the 30th day after the Event Date, and on each 30 day
anniversary of the Event Date thereafter, until the triggering Event is cured,
1.5% of the Stated Value of the shares of Preferred Stock then outstanding (for
example, the cumulative liquidated damages under this Section for an Event cured
on the 91st day following an Event Date shall equal 2.5% as of the 30th day
following the Event Date, 4.0% as of the 60th day following the Event Date and
5.5% as of the 90th day following the Event Date).
(ii) If the Company, at any time while any shares of Preferred
Stock are outstanding, shall (a) pay a stock dividend or otherwise make a
distribution or distributions on shares of its Junior Securities or pari passu
securities payable in shares of Common Stock (other than regularly scheduled
dividend payments made on classes of preferred stock of the Company when the
Company is in compliance with the provisions of this Certificate of Designation
and shall be current with respect to the payment of dividends hereunder), (b)
subdivide outstanding shares of Common Stock into a larger number of shares, (c)
combine outstanding shares of Common Stock into a smaller number of shares, or
(d) issue by reclassification of shares of Common Stock any shares of capital
stock of the Company, the Initial Conversion Price shall be multiplied by a
fraction of which the numerator shall be the number of shares of Common Stock
outstanding before such event and of which the denominator shall be the number
of shares of Common Stock outstanding after such event. Any adjustment made
pursuant to this Section 5(c)(ii) shall become effective immediately after the
record date for the determination of stockholders entitled to receive such
dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision, combination or re-classification.
(iii) If the Company, at any time while any shares of
Preferred Stock are outstanding, shall issue rights, warrants or options to all
holders of Common Stock entitling them to subscribe for or purchase shares of
Common Stock at a price per share less than the Per Share Market Value at the
record date mentioned below, then the Initial Conversion Price shall be
multiplied by a fraction, the numerator of which shall be the number of shares
of Common Stock outstanding immediately prior to the issuance of such rights,
warrants or options, plus the number of shares of Common Stock which the
aggregate offering price of the total number of shares so offered would purchase
at such Per Share Market Value, and the denominator of which shall be the sum of
the number of shares of Common Stock outstanding immediately prior to such
issuance plus the number of shares of Common Stock offered for subscription or
purchase. Such adjustment shall be made whenever such rights or warrants are
issued, and shall become effective immediately after the record date for the
determination of stockholders entitled to receive such rights or warrants.
However, upon the expiration of any right, warrant or option to
purchase shares of Common Stock the issuance of which resulted in an adjustment
in the Conversion Price pursuant to this Section 5(c)(iii), if any such right,
warrant or option shall expire and shall not have been exercised, the Conversion
Price shall immediately upon such expiration shall be recomputed and effective
immediately upon such expiration shall be increased to the price which it would
have been (but reflecting any other adjustments in the Conversion Price made
pursuant to the provisions of this Section 5 upon the issuance of other rights
or warrants) had the adjustment of the Conversion Price made upon the issuance
of such rights, warrants, or options been made on the basis of offering for
subscription or purchase only that number of shares of Common Stock actually
purchased upon the exercise of such rights, warrants or options actually
exercised.
(iv) If, other than pursuant to written obligations existing on
the Original Issued Date or transactions closed prior to the Original Issue
Date, (but not post-Original Issue Date amendments thereto) the Company or any
subsidiary thereof, as applicable with respect to Common Stock Equivalents (as
defined below), at any time while any shares of Preferred Stock are outstanding,
shall issue shares of Common Stock or rights, warrants, options or other
securities or debt that is convertible into or exchangeable for shares of Common
Stock ("COMMON STOCK EQUIVALENTS") entitling any Person (other than employees
and officers of the Company) to acquire shares of Common Stock at a price per
share less than the Conversion Price at such time, then the Conversion Price
(for so long as it exceeds such price) and the Initial Conversion Price shall
each be multiplied by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to the issuance of shares
of Common Stock or such Common Stock Equivalents plus the number of shares of
Common Stock which the offering price for such shares of Common Stock or Common
Stock Equivalents would purchase at the Conversion Price or Initial Conversion
Price (as applicable), and the denominator of which shall be the sum of the
number of shares of Common Stock outstanding immediately prior to such issuance
plus the number of shares of Common Stock so issued or issuable, provided, that
for purposes hereof, all shares of Common Stock that are issuable upon exercise
or exchange of Common Stock Equivalents shall be deemed outstanding immediately
after the issuance of such Common Stock Equivalents. Such adjustment shall be
made whenever such shares of Common Stock or Common Stock Equivalents are
issued. No adjustment under this Section 5(c)(iv) shall be made in respect of
Common Stock Equivalents (or derivative securities requiring the issuance
thereof) outstanding as of the Series B Closing Date. However, upon the
expiration of any right or warrant to purchase shares of the Common Stock the
issuance of which resulted in an adjustment in the Conversion Price or Initial
Conversion Price pursuant to this Section, if any such right or warrant shall
expire and shall not have been exercised, the Conversion Price and Initial
Conversion Price shall immediately upon such expiration be recomputed and
effective immediately upon such expiration be increased to the price which it
would have been (but reflecting any other adjustments in the Conversion Price or
Initial Conversion Price made pursuant to the provisions of this Section
5(c)(iv) after the issuance of such rights or warrants) had the adjustment of
the Conversion Price or Initial Conversion Price made upon the issuance of such
rights or warrants been made on the basis of offering for subscription or
purchase of only that number of shares of the Common Stock actually purchased
upon the exercise of such rights or warrants actually exercised.
(v) If the Company, at any time while shares of Preferred Stock
are outstanding, shall distribute to all holders of Common Stock (and not to
Holders of Preferred Stock) evidences of its indebtedness or assets or rights or
warrants to subscribe for or purchase any security (excluding those referred to
in Sections 5(c)(ii)-(iv) above), then in each such case the Initial Conversion
Price at which each share of Preferred Stock shall thereafter be convertible
shall be determined by multiplying the Initial Conversion Price in effect
immediately prior to the record date fixed for determination of stockholders
entitled to receive such distribution by a fraction of which the denominator
shall be the Per Share Market Value of Common Stock determined as of the record
date mentioned above, and of which the numerator shall be such Per Share Market
Value of the Common Stock on such record date less the then fair market value at
such record date of the portion of such assets or evidence of indebtedness so
distributed applicable to one outstanding share of Common Stock as determined by
the Board of Directors in good faith; PROVIDED, HOWEVER, that in the event of a
distribution exceeding ten percent (10%) of the net assets of the Company, if
the Holders of a majority in interest of the Preferred Stock dispute such
valuation, such fair market value shall be determined by a nationally recognized
or major regional investment banking firm or firm of independent certified
public accountants of recognized standing (which may be the firm that regularly
examines the financial statements of the Company) (an "APPRAISER") selected in
good faith by the Holders of a majority in interest of the shares of Preferred
Stock then outstanding; and PROVIDED, FURTHER, that the Company, after receipt
of the determination by such Appraiser shall have the right to select an
additional Appraiser, in good faith, in which case the fair market value shall
be equal to the average of the determinations by each such Appraiser. In either
case the adjustments shall be described in a statement provided to the Holders
of Preferred Stock of the portion of assets or evidences of indebtedness so
distributed or such subscription rights applicable to one share of Common Stock.
Such adjustment shall be made whenever any such distribution is made and shall
become effective immediately after the record date mentioned above.
(vi) All calculations under this Section 5 shall be made to the
nearest cent or the nearest 1/100th of a share, as the case may be.
(vii) Whenever the Conversion Price is adjusted pursuant to
Section 5(c)(i),(ii),(iii),(iv), or (v) the Company shall promptly mail to each
Holder, a notice setting forth the Conversion Price after such adjustment and
setting forth a brief statement of the facts requiring such adjustment.
(viii) In case of any reclassification of the Common Stock, or
any compulsory share exchange pursuant to which the Common Stock is converted
into other securities, cash or property (other than compulsory share exchanges
which constitute Change of Control Transactions), the Holders of the Preferred
Stock then outstanding shall have the right thereafter to convert such shares
only into the shares of stock and other securities, cash and property receivable
upon or deemed to be held by holders of Common Stock following such
reclassification or share exchange, and the Holders of the Preferred Stock shall
be entitled upon conversion to receive such amount of securities, cash or
property as a holder of the number of
shares of the Common Stock of the Company into which such shares of Preferred
Stock could have been converted immediately prior to such reclassification or
share exchange would have been entitled. This provision shall similarly apply
to successive reclassifications or share exchanges.
(ix) If (a) the Company shall declare a dividend (or any other
distribution) on its Common Stock, (b) the Company shall declare a special
nonrecurring cash dividend on or a redemption of its Common Stock, (c) the
Company shall authorize the granting to all holders of the Common Stock rights
or warrants to subscribe for or purchase any shares of capital stock of any
class or of any rights, (d) the approval of any stockholders of the Company
shall be required in connection with any reclassification of the Common Stock of
the Company, any consolidation or merger to which the Company is a party, any
sale or transfer of all or substantially all of the assets of the Company, of
any compulsory share of exchange whereby the Common Stock is converted into
other securities, cash or property, or (e) the Company shall authorize the
voluntary or involuntary dissolution, liquidation or winding up of the affairs
of the Company; then the Company shall cause to be filed at each office or
agency maintained for the purpose of conversion of Preferred Stock, and shall
cause to be mailed to the Holders of Preferred Stock at their last addresses as
they shall appear upon the stock books of the Company, at least 20 calendar days
prior to the applicable record or effective date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the purpose of such
dividend, distribution, redemption, rights or warrants, or if a record is not to
be taken, the date as of which the holders of Common Stock of record to be
entitled to such dividend, distributions, redemption, rights or warrants are to
be determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of Common Stock of
record shall be entitled to exchange their shares of Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange; PROVIDED, HOWEVER, that
the failure to mail such notice or any defect therein or in the mailing thereof
shall not affect the validity of the corporate action required to be specified
in such notice. Holders are entitled to convert shares of Preferred Stock
during the 20-day period commencing the date of such notice to the effective
date of the event triggering such notice.
(d) The Company covenants that it will at all times reserve and keep
available out of its authorized and unissued Common Stock solely for the purpose
of issuance upon conversion of Preferred Stock and payment of dividends on
Preferred Stock, each as herein provided, free from preemptive rights or any
other actual contingent purchase rights of persons other than the Holders of
Preferred Stock, not less than such number of shares of Common Stock as shall
(subject to any additional requirements of the Company as to reservation of such
shares set forth in the Purchase Agreement) be issuable (taking into account the
adjustments and restrictions of Section 5(a) and Section 5(c)) upon the
conversion of all outstanding shares of Preferred Stock and payment of dividends
hereunder. The Company covenants that all shares of Common Stock that shall be
so issuable shall, upon issue, be duly and validly authorized, issued and fully
paid, nonassessable and freely tradeable, subject to the legend requirements of
Section 3.1(b) of the Purchase Agreement.
(e) Upon a conversion hereunder the Company shall not be required to
issue stock certificates representing fractions of shares of Common Stock, but
may if otherwise permitted, make a cash payment in respect of any final fraction
of a share based on the Per Share Market Value at such time. If the Company
elects not, or is unable, to make such a cash payment, the Holder of a share of
Preferred Stock shall be entitled to receive, in lieu of the final fraction of a
share, one whole share of Common Stock.
(f) The issuance of certificates for shares of Common Stock on
conversion of Preferred Stock shall be made without charge to the Holders
thereof for any documentary stamp or similar taxes that may be payable in
respect of the issue or delivery of such certificate, provided that the Company
shall not be required to pay any tax that may be payable in respect of any
transfer involved in the issuance and delivery of any such certificate upon
conversion in a name other than that of the Holder of such shares of Preferred
Stock so converted and the Company shall not be required to issue or deliver
such certificates unless or until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid.
(g) Shares of Preferred Stock converted into Common Stock shall be
canceled. The Company may not reissue any shares of Preferred Stock.
(h) Any and all notices or other communications or deliveries to be
provided by the Holders of the Preferred Stock hereunder, including, without
limitation, any Conversion Notice, shall be in writing and delivered personally,
by facsimile or sent by a nationally recognized overnight courier service,
addressed to the attention of the Chief Executive Officer and General Counsel of
the Company at the facsimile telephone number or address of the principal place
of business of the Company as set forth in the Purchase Agreement, which may be
altered as provided in the Purchase Agreement by notice to the Holders. Any and
all notices or other communications or deliveries to be provided by the Company
hereunder shall be in writing and delivered personally, by facsimile or sent by
a nationally recognized overnight courier service, addressed to each Holder of
Preferred Stock at the facsimile telephone number or address of such Holder
appearing on the books of the Company, or if no such facsimile telephone number
or address appears, at the principal place of business of the Holder. Any
notice or other communication or deliveries hereunder shall be deemed given and
effective on the earliest of (i) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone number
specified in this Section prior to 7:00 p.m. (New York City time), (ii) the date
after the date of transmission, if such notice or communication is delivered via
facsimile at the facsimile telephone number specified in this Section later than
7:00 p.m. (New York City time) on any date and earlier than 11:59 p.m. (New York
City time) on such date, (iii) upon receipt, if sent by a nationally recognized
overnight courier service, or (iv) upon actual receipt by the party to whom such
notice is required to be given.
Section 6. REDEMPTION UPON CERTAIN EVENTS.
(a) Upon the occurrence of a Triggering Event, each Holder shall (in
addition to all other rights it may have hereunder or under applicable law),
have the right, exercisable at the sole option of such Holder, to require the
Company to redeem all or a portion of the Preferred Stock then held by such
Holder for a redemption price, in cash, equal to the sum of (i) the Mandatory
Redemption Amount plus (ii) the product of (A) the number of Underlying Shares
issued in respect of conversions or as payment of dividends hereunder and then
held by the Holder and (B) the Per Share Market Value on the date such
redemption is demanded or the date that is one Business Day prior to the date
that the redemption price hereunder is paid in full, whichever is greater. If
the Company fails to pay the redemption price hereunder in full pursuant to
this Section within twenty (20) days after the date of a demand therefor, the
Company will pay interest thereon at a rate of 15% per annum, accruing daily
from such twentieth (20th) day until the redemption price, plus all such
interest thereon, is paid in full. For purposes of this Section, a share of
Preferred Stock is outstanding until such date as the Holder shall have received
Underlying Shares upon a conversion (or attempted conversion) thereof.
A "Triggering Event" means any one or more of the following events
(whatever the reason and whether it shall be voluntary or involuntary or
effected by operation of law or pursuant to any judgement, decree or order of
any court, or any order, rule or regulation of any administrative or
governmental body):
(i) the failure of an Underlying Securities Registration
Statement to be declared effective by the Commission on or prior to the 180th
day after the Original Issue Date;
(ii) if, during the Effectiveness Period, the effectiveness of
the Underlying Securities Registration Statement lapses for any reason such
that, for five (5) consecutive Trading Days, or the Holder shall not be
permitted to resell Registrable Securities under the Underlying Securities
Registration Statement (other than in connection with a Standstill not exceeding
90 days and other than a Blackout Period as permitted pursuant to the
Registration Rights Agreement);
(iii) the failure of the Common Stock to be listed on the
AMEX or on a Subsequent Market or the suspension of the Common Stock from the
AMEX or on a Subsequent Market for a period of five (5) consecutive Trading Days
or seven (7) Trading Days in the aggregate;
(iv) the Company shall fail for any reason to deliver
certificates representing Underlying Shares issuable upon a conversion hereunder
that comply with the provisions hereof prior to the 10th day after the
Conversion Date or the Company shall provide notice to any Holder, including by
way of public announcement, at any time, of its intention not to comply with
requests for conversion of any Preferred Stock in accordance with the terms
hereof;
(v) the Company shall be a party to any Change of Control
Transaction, shall agree to sell (in one or a series of related transactions)
all or substantially all of its assets (whether or not such sale would
constitute a Change of Control Transaction) or shall
redeem more than a de minimis number of shares of Common Stock or other Junior
Securities (other than redemptions of Underlying Shares and other than as
expressly permitted herein);
(vi) an Event shall not have been cured to the satisfaction of
the Holders prior to the expiration of thirty (30) days from the Event Date
relating thereto (other than an Event caused by the failure of an Underlying
Securities Registration Statement to be declared effective by the Effectiveness
Date);
(vii) the Company shall fail for any reason to deliver the
certificate or certificates required pursuant to Section 5(b)(iii) or the cash
pursuant to a Buy-In within seven (7) days after notice is deemed delivered
hereunder; or
(viii) the Company shall fail to have available a sufficient
number of authorized and unreserved shares of Common Stock to issue to such
Holder upon a conversion hereunder (in which case, notwithstanding anything
herein to the contrary, if such failure is the only reason for such Event of
Default, then the Company need not redeem Underlying Shares pursuant to clause
(ii) of the first sentence of Section 6(a) above).
(b) If the Company requires a Standstill prior to the one year
anniversary of the Original Issue Date, each Holder shall have the right to
require the Company to redeem the shares of Preferred Stock held by such Holder
at a redemption price equal to the sum of (i) 115% of the aggregate Stated
Values of such Holders shares of Preferred Stock, (ii) the product of (A) the
number of Underlying Shares issued in respect of conversions or as payment of
dividends hereunder and then held by the Holder and (B) the Per Share Market
Value on the date such redemption is demanded or the Trading Day prior to the
date the redemption price hereunder is paid in full, whichever is greater and
(iii) all other amounts, costs, expenses and liquidated damages due in respect
of such shares of Preferred Stock. If the Company fails to pay the redemption
price hereunder in full pursuant to this Section within twenty (20) days after
the date of a demand therefor, the Company will pay interest thereon at a rate
of 15% per annum, accruing daily from such seventh day until the redemption
price, plus all such interest thereon, is paid in full. For purposes of this
Section, a share of Preferred Stock is outstanding until such date as the Holder
shall have received Underlying Shares upon a conversion (or attempted
conversion) thereof.
Section 7. DEFINITIONS. For the purposes hereof, the following
terms shall have the following meanings:
"CHANGE OF CONTROL TRANSACTION" means the occurrence of any of (i) an
acquisition after the date hereof by an individual or legal entity or "group"
(as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of in
excess of 50% of the voting securities of the Company, (ii) a replacement of
more than one-half of the members of the Company's board of directors which is
not approved by those individuals who are members of the board of directors on
the date hereof in one or a series of related transactions, (iii) the merger of
the Company with
or into another entity, consolidation or sale of all or substantially all of the
assets of the Company in one or a series of related transactions, unless
following such transaction, the holders of the Company's securities continue to
hold at least 50% of such securities following such transaction or (iv) the
execution by the Company of an agreement to which the Company is a party or by
which it is bound, providing for any of the events set forth above in (i), (ii)
or (iii).
"CLOSING PRICE" means the average closing sales price of the Common
Stock as reported on the AMEX for the five (5) Trading Days immediately
preceding the Original Issue Date.
"COMMON STOCK" means the Company's common stock, $.01 par value, and
stock of any other class into which such shares may hereafter have been
reclassified or changed.
"CONVERSION RATIO" means, at any time, a fraction, of which the
numerator is Stated Value plus accrued but unpaid dividends (including any
accrued but unpaid late fees thereon) but only to the extent not paid in shares
of Common Stock in accordance with the terms hereof, and of which the
denominator is the Conversion Price at such time.
"FLOOR" mean 80% of the Closing Price, subject to adjustment pursuant
to Section 5(c).
"JUNIOR SECURITIES" means the Common Stock and all other equity
securities of the Company which are junior in rights and liquidation preference
to the Preferred Stock.
"MANDATORY REDEMPTION AMOUNT" for each share of Preferred Stock means
the sum of (i) the greater of (A) 130% of the Stated Value and all accrued
dividends with respect to such share, and (B) the product of (a) the Per Share
Market Value on the Trading Day immediately preceding (x) the date of the
Triggering Event or the Conversion Date, as the case may be, or (y) the date of
payment in full by the Company of the applicable redemption price, whichever is
greater, and (b) the Conversion Ratio calculated on the date of the Triggering
Event, and (ii) all other amounts, costs, expenses and liquidated damages due in
respect of such shares of Preferred Stock.
"ORIGINAL ISSUE DATE" shall mean the date of the first issuance of any
shares of the Preferred Stock regardless of the number of transfers of any
particular shares of Preferred Stock and regardless of the number of
certificates which may be issued to evidence such Preferred Stock.
"PER SHARE MARKET VALUE" means on any particular date (a) the closing
sales price per share of the Common Stock on such date on the AMEX or on such
Subsequent Market on which the Common Stock is then listed or traded, or if
there is no such price on such date, then the closing sales price on such
exchange or quotation system on the date nearest preceding such date, or (b) if
the Common Stock is not listed then on the AMEX or on a Subsequent Market, the
closing sales price for a share of Common Stock in the over-the-counter market,
as reported by the National Quotation Bureau Incorporated or similar
organization or agency succeeding to its
functions of reporting prices) at the close of business on such date, or (c) if
the Common Stock is not then reported by the National Quotation Bureau
Incorporated (or similar organization or agency succeeding to its functions of
reporting prices), then the average of the "Pink Sheet" quotes for the relevant
conversion period, as determined in good faith by the Holder, or (d) if the
Common Stock is not then publicly traded the fair market value of a share of
Common Stock as determined by an Appraiser selected in good faith by the Holders
of a majority in interest of the shares of the Preferred Stock; PROVIDED,
HOWEVER, that the Company, after receipt of the determination by such Appraiser,
shall have the right to select an additional Appraiser, in which case, the fair
market value shall be equal to the average of the determinations by each such
Appraiser; and PROVIDED, FURTHER that all determinations of the Per Share Market
Value shall be appropriately adjusted for any stock dividends, stock splits or
other similar transactions during such period.
"PERSON" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political subdivision
thereof or a governmental agency.
"PURCHASE AGREEMENT" means the Convertible Preferred Stock Purchase
Agreement, dated as of the Original Issue Date, among the Company and the
original Holder of the Preferred Stock.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement, dated as of the Original Issue Date, by and among the Company and the
original Holder of the Preferred Stock.
"TRADING DAY" means (a) a day on which the Common Stock is traded on
the AMEX or on a Subsequent Market, or (b) if the Common Stock is not listed on
the AMEX or on a Subsequent Market, a day on which the Common Stock is traded in
the over-the-counter market, as reported by the OTC Bulletin Board, or (c) if
the Common Stock is not quoted on the OTC Bulletin Board, a day on which the
Common Stock is quoted in the over-the-counter market as reported by the
National Quotation Bureau Incorporated (or any similar organization or agency
succeeding its functions of reporting prices); PROVIDED, HOWEVER, that in the
event that the Common Stock is not listed or quoted as set forth in (a), (b) and
(c) hereof, then Trading Day shall mean any day except Saturday, Sunday and any
day which shall be a legal holiday or a day on which banking institutions in the
State of New York are authorized or required by law or other government action
to close.
"UNDERLYING SECURITIES REGISTRATION STATEMENT" means a registration
statement that meets the requirement of the Registration Rights Agreement and
requires the resale of all Underlying Shares by the recipient thereof, who shall
be named as a "selling stockholder" thereunder.
"UNDERLYING SHARES" means, collectively, the shares of Common Stock
into which the Shares are convertible and the shares of Common Stock issuable
upon payment of dividends thereon in accordance with the terms hereof.
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert shares of Preferred Stock)
The undersigned hereby elects to convert the number of shares of 6% Series B
Convertible Preferred Stock indicated below, into shares of Common Stock, $.01
par value (the "COMMON STOCK"), of Unapix Entertainment, Inc. (the "COMPANY")
according to the conditions hereof, as of the date written below. If shares are
to be issued in the name of a person other than undersigned, the undersigned
will pay all transfer taxes payable with respect thereto and is delivering
herewith such certificates and opinions as reasonably requested by the Company
in accordance therewith. No fee will be charged to the Holder for any
conversion, except for such transfer taxes, if any.
Conversion calculations:
Date to Effect Conversion
Number of shares of Preferred Stock to be Converted
Number of shares of Common Stock to be Issued
Applicable Conversion Price
Signature
Address