<PAGE>
Registration No. 333-
=============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
KATMANDU ENTERTAINMENT CORP.
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C> <C>
Delaware 5812 23-2851964
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Classification Code Number) Identification Number)
Organization)
</TABLE>
415 N. Columbus Blvd., Philadelphia, Pennsylvania 19123
(215) 629-7400
(Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrant's Executive Offices)
-----------
S. LANCE SILVER and STUART N. HARTING
Co-Chairmen and Co-Presidents
KatManDu Entertainment Corp.
415 N. Columbus Blvd.
Philadelphia, PA 19123
(215) 629-7400
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code of Agent for Service)
-----------
with a copy to:
STEPHEN A. ZELNICK, Esq. LAWRENCE B. FISHER, Esq.
Morse, Zelnick, Rose & Lander, LLP Orrick, Herrington & Sutcliffe
450 Park Avenue 666 Fifth Avenue - 18th Floor
New York, New York 10022 New York, NY 10103
(212) 838-8040 (212) 506-5000
(212) 838-9190 (FAX) (212) 506-5151 (FAX)
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the Registration Statement becomes effective.
-----------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462 (b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434
under the Securities Act, please check the following box. / /
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=======================================================================================================================
Title of Each Class of Amount Being Proposed Maximum Proposed Maximum Amount of
Securities to be Registered Registered Offering Price Aggregate Registration
Per Share (1) Offering Price (1) Fee
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.001 per
share, (2) 1,981,666 $6.00 $11,889,996 $4,100.00
- ---------------------------------------------------------------------------------------------------------------------
Redeemable Common Stock Purchase Warrants
to purchase Common Stock (3) (5) 1,840,000 $.10 $184,000 (4)
- ---------------------------------------------------------------------------------------------------------------------
Common Stock issuable upon exercise of
Redeemable Common Stock Purchase
Warrants 1,840,000 $7.20 $13,248,000 $4,568.27
- ---------------------------------------------------------------------------------------------------------------------
Representative's Warrants 160,000 $.001 $160 (4)
- ---------------------------------------------------------------------------------------------------------------------
Common Stock issuable upon exercise of
Representative's Warrants (5) 160,000 $7.20 $1,152,000 $397.24
- ---------------------------------------------------------------------------------------------------------------------
Redeemable Common Stock Purchase Warrants
issuable upon exercise of
Representative's Warrants 160,000 $.12 $19,200 $6.62
- ---------------------------------------------------------------------------------------------------------------------
Common Stock issuable upon exercise of
Redeemable Common Stock Purchase
Warrants issuable upon exercise
of Representative's Warrants (5) 160,000 $7.20 $1,152,000 $397.24
- ---------------------------------------------------------------------------------------------------------------------
Total Registration Fee $9,469.53
=====================================================================================================================
</TABLE>
(1) Estimated solely for purposes of determining the registration fee pursuant
to Rule 457 under the Securities Act.
(2) Includes (a) 240,000 shares of Common Stock issuable upon exercise of the
Representative's Over-Allotment Option and (b) 141,666 shares of Common
Stock which may be offered for sale by selling stockholders pursuant to the
attached selling stockholder Prospectus.
(3) Includes 240,000 Redeemable Common Stock Purchase Warrants issuable upon
exercise of the Representative's Over-Allotment Option.
(4) No registration fee required pursuant to Rule 457 under the Securities Act.
(5) Pursuant to Rule 416 of the Securities Act, there are also being registered
hereby such additional indeterminate number of Common Shares as may become
issuable pursuant to the anti-dilution provisions of the Redeemable Common
Stock Purchase Warrants and the Representative's Warrants.
-----------
The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until this Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
===============================================================================
<PAGE>
KATMANDU ENTERTAINMENT CORP.
CROSS-REFERENCE SHEET
(Showing Location in the Prospectus of Information
Required by Items 1 through 23, Part I of Form SB-2)
<TABLE>
<CAPTION>
Item and Caption in Form SB-2 Location in Prospectus
----------------------------- ----------------------
<S> <C> <C>
1. Front of SB-2 Registration Statement and
Outside Cover Page of Prospectus.................. Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus........................................ Inside Front Cover Page; Outside Back Cover Page
3. Summary Information and Risk Factors.............. Prospectus Summary; Risk Factors
4. Use of Proceeds................................... Prospectus Summary; Use of Proceeds
5. Determination of Offering Price................... Outside Front Cover Page of Prospectus; Risk Factors;
Underwriting
6. Dilution.......................................... Risk Factors; Dilution
7. Selling Security-Holders.......................... Not Applicable
8. Plan of Distribution.............................. Outside Front Cover Page; Inside Front Cover Page;
Underwriting
9. Legal Proceedings................................. Business
10. Directors, Executive Officers, Promoters and
Control Persons................................... Risk Factors; Management
11. Security Ownership of Certain Beneficial Owners
and Management.................................... Risk Factors; Management; Principal Stockholders
12. Description of Securities......................... Description of Securities; Underwriting
13. Interests of Named Experts and Counsel............ Legal Matters
14. Disclosure of Commission Position of
Indemnification for Securities Act Liabilities.... Risk Factors; Management
15. Organization within Last Five Years............... The Company; Reorganization and Final Partnership
and S Corporation Distributions; Certain Transactions
16. Description of Business........................... Summary; Management's Discussion and Analysis of
Financial Condition and Plan of Operations; Business
17. Management's Discussion and Analysis of Plan
of Operation...................................... Management's Discussion and Analysis of Financial
Condition and Plan of Operations
18. Description of Property........................... Prospectus Summary; Management's
Discussion and Analysis of Financial Condition and
Plan of Operations; Business
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Item and Caption in Form SB-2 Location in Prospectus
----------------------------- ----------------------
<S> <C> <C>
19. Certain Relationships and Related Party
Transactions...................................... The Company; Reorganization and Final Partnership
and S Corporation Distributions; Certain Transactions
20. Market for Common Equity and Related
Stockholder Matters............................... Outside Front Cover Page; Prospectus
Summary; Risk Factors; Dividend Policy; Underwriting
21. Executive Compensation............................ Management
22. Financial Statements.............................. Financial Statements
23. Changes and Disagreements with Accountants
on Accounting and Financial Disclosure............ Not Applicable
</TABLE>
<PAGE>
EXPLANATORY NOTE
This registration statement (the "Registration Statement") contains two
prospectuses: one relating to this Offering of 1,600,000 shares of Common Stock
and 1,600,000 Redeemable Common Stock Purchase Warrants by KatManDu
Entertainment Corp. (the "Company"), plus 240,000 shares of Common Stock and
240,000 Redeemable Common Stock Purchase Warrants to cover over-allotments, if
any (the "Prospectus"), and one relating to the Offering of 141,666 shares of
Common Stock (the "Selling Securityholder Shares"), which were issued to those
certain securityholders of the Company who participated in the Company's recent
June 1996 Financing (as hereinafter defined) (the "Selling Securityholder
Prospectus"). Following the Prospectus are certain substitute pages of the
Selling Securityholder Prospectus, including alternate front outside and back
cover pages, an alternate "The Offering" section of the "Prospectus Summary" and
sections entitled "Concurrent Offering" and "Plan of Distribution." Each of the
alternate pages for the Selling Securityholder Prospectus included herein is
labeled "Alternate Page for Selling Securityholder Prospectus." All other
sections of the Prospectus, other than "Underwriting", are to be used in the
Selling Securityholder Prospectus. In addition, cross-references in the
Prospectus will be adjusted in the Selling Securityholder Prospectus to refer to
the appropriate sections.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These Securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED ___________, 1996
PROSPECTUS
KATMANDU ENTERTAINMENT CORP.
[LOGO]
1,600,000 SHARES OF COMMON STOCK AND
1,600,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
This Prospectus relates to the offering (the "Offering") of 1,600,000
shares (the "Shares") of common stock, $0.001 par value per share (the "Common
Stock"), and 1,600,000 Redeemable Common Stock Purchase Warrants (the
"Warrants") of KatManDu Entertainment Corp., a Delaware corporation (the
"Company"). The Shares and Warrants are sometimes hereinafter collectively
referred to as the "Securities." Until the completion of this Offering, the
Shares and Warrants may only be purchased together on the basis of one Share and
one Warrant. Each Warrant entitles the registered holder thereof to purchase one
share of Common Stock at an initial exercise price equal to 120% of the initial
public offering price per Share at any time during the period commencing the
date of this Prospectus and terminating five (5) years thereafter. The Warrant
exercise price is subject to adjustment under certain circumstances. Commencing
eighteen (18) months after the date of this Prospectus, the Company may redeem
all, but not less than all, of the Warrants at $0.10 per Warrant on thirty (30)
days prior written notice to the warrantholders if the per share closing bid
price of the Common Stock as reported on the Nasdaq SmallCap Market ("Nasdaq")
equals or exceeds 200% of the initial public offering price per Share for any
twenty (20) trading days within a period of thirty (30) consecutive trading days
ending on the fifth trading day prior to the notice of redemption.
Prior to this Offering, there has been no public market for the Common
Stock or the Warrants, and there can be no assurance that such a market will
develop after the completion of this Offering or, if developed, that it will be
sustained. It is presently anticipated that the initial public offering prices
per Share and per Warrant will be $6.00 and $0.10, respectively. For information
regarding the factors considered in determining the initial public offering
prices of the Shares and Warrants and the terms of the Warrants, see "Risk
Factors" and "Underwriting." It is anticipated that upon consummation of this
Offering the Shares and Warrants will be included for quotation on Nasdaq and
will trade separately immediately after the Offering under the symbols KATX and
KATXW, respectively.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK
AND IMMEDIATE SUBSTANTIAL DILUTION. SEE "RISK FACTORS"
COMMENCING ON PAGE ___ AND "DILUTION."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<PAGE>
<TABLE>
===================================================================================================================
Price to Public Underwriting Discount(1) Proceeds to Company(2)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share.................... $ $ $
- --------------------------------------------------------------------------------------------------------------------
Per Warrant.................. $ $ $
- --------------------------------------------------------------------------------------------------------------------
Total(3)..................... $ $ $
===================================================================================================================
</TABLE>
(1) Does not include additional compensation payable to National Securities
Corporation, the representative of the several Underwriters (the
"Representative"), in the form of a non-accountable expense allowance.
In addition, see "Underwriting" for information concerning
indemnification and contribution arrangements with the Underwriters and
other compensation payable to the Representative.
(2) Before deducting estimated expenses of $500,000 payable by the Company,
excluding the non-accountable expense allowance payable to the
Representative.
(3) The Company has granted to the Underwriters an option exercisable
within 45 days after the date of this Prospectus to purchase up to an
aggregate of 240,000 additional shares of Common Stock and/or 240,000
additional Warrants upon the same terms and conditions as set forth
above, solely to cover over-allotments, if any. If such over-allotment
option is exercised in full, the total Price to Public, Underwriting
Discount and Proceeds to Company will be $_____________, $____________
and $______________, respectively. See "Underwriting."
The Securities are being offered by the Underwriters, subject to prior
sale, when, as and if delivered to and accepted by the Underwriters, and subject
to approval of certain legal matters by their counsel and subject to certain
other conditions. The Underwriters reserve the right to withdraw, cancel or
modify this Offering and to reject any order in whole or in part. It is expected
that delivery of the Securities offered hereby will be made against payment at
the offices of National Securities Corporation, Seattle, Washington on or about
_______________, 1996.
NATIONAL SECURITIES CORPORATION
The date of this Prospectus is _______________, 1996.
<PAGE>
[PHOTOGRAPHS AND CAPTIONS]
[This page contains five graphics and a caption for the entire page.
The largest graphic is a photograph of the entrance to KatManDu-Philadelphia: a
wooden walkway covered by a yellow awning with a large "KatManDu" sign above it
written in the style of the KatManDu logo. There is a motorcycle parked in the
front and foliage around the entrance. The picture covers approximately
two-thirds of the page. A second graphic is a picture of a three man musical
group: one is playing the bass, one is playing the kettle drums and one is
playing the guitar. The other graphics consist of pictures of a flower and a
pineapple superimposed in the bottom left corner and along the lower left
border of the page and a picture of coconuts in the lower right corner. The
caption for the page reads as follows: "Welcome to the Mythical Port of
KatManDu!".]
The Company intends to furnish its stockholders with annual reports
containing financial statements audited by its independent certified public
accountants.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
SECURITIES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE BOSTON STOCK EXCHANGE, NASDAQ,
THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY
BE DISCONTINUED AT ANY TIME.
<PAGE>
[This page contains six graphics, four of which have their own individual
captions, and a caption for the entire page. The caption for the entire page,
which appears at the top center/right, reads "Think globally..." In the upper
left corner and along the top half of the left border a picture of a flower and
a pineapple are superimposed. In the bottom left corner is a picture of a
turbaned dancer wearing a skirt, beaded necklaces, an armband, ankle bracelets
and carrying a flaming torch. In the bottom right corner is a picture of
KatManDu promotional merchandise bearing the KatManDu logo and a salesperson.
The caption under the picture reads: "Promotional merchandise and accessories."
Above that picture, along the right border, is a picture of a five person
musical group performing on a stage with a sign that reads "Live @ KatManDu".
"KatManDu" is written in the style of the KatManDu logo. The stage is decorated
with flowers and foliage. The picture has a caption which reads "Musical
Entertainment". Immediately to the left of that picture, in the top portion of
the center of the page is a picture of a crowd on the dance floor of KatManDu
with the stage in the background. The picture was shot during the daytime hours.
The caption reads "Let the sun shine..." Immediately beneath that picture is
another picture showing the inside of the entrance to the KatManDu with its wood
decking and tropical foliage. People are shown walking into the restaurant. The
caption reads "Kat Alley...your adventure begins!"]
<PAGE>
[This page contains six graphics, three of which have their own individual
captions, and a caption for the entire page. The top half of the page contains a
photograph of a crowd scene on the dance floor with a band playing on the stage.
Superimposed in the upper right corner is a smaller picture of a five-person
band and immediately to the left of that picture is a picture of a four man
singing group. Underneath the left corner of the larger picture is a caption
that reads "An evening at KatManDu..." In the bottom right corner is a picture
of a crowd on the dance floor with the KatManDu stage in the background. The
caption under this picture reads "Party on the Pier Deck..." To the left of that
picture is a picture of a crowd scene at the Main Bar. It has a caption which
reads "At the Main Bar..." Attached to the bottom left corner of this picture is
a picture of coconuts. The caption for the entire page, which appears below the
large picture, reads "...party locally!"]
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information and Financial Statements, including the notes thereto,
appearing elsewhere in this Prospectus. Except as otherwise specified, all
information in this Prospectus assumes no exercise of the Warrants offered
hereby, the Representative's Warrants (as defined) or the Over-Allotment Option.
As used herein the term "Company" refers to KatManDu Entertainment Corp., its
predecessors and its subsidiaries. Investors should carefully consider the
information set forth under the captions "Risk Factors" and "Dilution."
The Company
The Company owns and operates a casual dining, outdoor, theme
restaurant named "KatManDu" (referred to herein as "KatManDu-Philadelphia).
KatManDu-Philadelphia is located on the Delaware River waterfront in central
Philadelphia and operates from mid-April through mid-September.
KatManDu-Philadelphia, with its waterfront setting, casual atmosphere, live
musical entertainment and dancing, is designed to replicate a mythical "tropical
island paradise" vacation setting.
The Company has commenced development of a second KatManDu
restaurant/nightclub ("KatManDu-Trenton"), presently scheduled to open in
January 1997. The Company has entered into a 30-year lease for a 21,500 square
foot site which includes a 10,000 square foot historic landmark building on the
Delaware River waterfront in Trenton, New Jersey. KatManDu-Trenton is located
adjacent to an office park and the new Trenton Thunder baseball stadium. With a
portion of the net proceeds of this Offering and the proceeds of a construction
loan for which the Company has already received a commitment, the Company
intends to develop this site into an indoor/outdoor KatManDu
restaurant/nightclub which will operate year round.
KatManDu-Philadelphia has attracted a culturally diverse, multi-aged
customer base, including both local and regional residents and tourists.
KatManDu-Philadelphia seats up to 180 persons for dinner and Sunday brunch, and
can accommodate an additional 250 persons for cocktails at its "Main Bar" area
(which includes a 100-linear foot bar) and up to 1,200 persons on its dance
floor and adjoining full-service "Tiki" bar. After dinner and on Saturday and
Sunday afternoons and evenings, when live music is featured,
KatManDu-Philadelphia attracts young adults and active older adults drawn by its
music filled environment and dancing. At other times, KatManDu-Philadelphia
provides a more relaxed atmosphere appealing to business people and families.
The Company also sells a variety of merchandise, such as T-shirts, sweatshirts,
caps, jackets and novelty items, featuring the KatManDu logo.
Key to the success of KatManDu has been the targeting of a different
class of restaurant/nightclub patrons. Whereas the typical dance club targets
primarily a younger audience, KatManDu offers an alternative for a
socioeconomically and culturally diverse audiences with a median age in the
25-55 year-old bracket. The largest population segment in the United States is
the so-called Baby-Boomers, persons between the ages of 30 and 50. KatManDu
believes that it appeals to that group because it offers the right combination
of quality dining and sophisticated entertainment in a comfortable tropical
island paradise vacation environment.
With the proceeds of this Offering and other forms of site specific
financing, the Company plans to develop one to two additional
restaurant/nightclubs in 1997 and two more in 1998. The Company will target
waterfront locations, in urban areas with favorable demographics, such as
Atlantic City, the New York City metropolitan area, Washington D.C., Los
Angeles, Las Vegas, Vancouver, Orlando and Miami.
The Company's executive offices are located at 415 North Columbus
Boulevard, Philadelphia, Pennsylvania 19123 and its telephone number is (215)
629-7400.
<PAGE>
The Offering
Securities offered hereby.................1,600,000 Shares of Common Stock and
1,600,000 Warrants at an assumed
initial public offering price of
$6.00 per Share of Common Stock and
$0.10 per Warrant. The Shares of
Common Stock and the Warrants may
only be purchased together on the
basis of one Share of Common Stock
and one Warrant and are separately
tradable upon issuance. Each Warrant
entitles the registered holder
thereof to purchase at any time
until five years after the Effective
Date, one share of Common Stock at
an exercise price per share equal to
120% of the initial public offering
price. The Warrants are subject to
redemption by the Company for $0.10
per warrant at any time commencing
18 months after the Effective Date,
on 30 days written notice, provided
that the closing bid price of the
Common Stock equals or exceeds 200%
of the initial public offering price
per share of Common Stock for any 20
trading days within a period of 30
consecutive trading days ending on
the fifth trading day prior to the
date of the notice of redemption to
the holders of the Warrants.
Outstanding Securities before this Offering:
Common Stock (1) (2).................2,400,000 shares
Outstanding Securities after this Offering:
Common Stock (1) (2) ................4,000,000 shares
Warrants.............................1,600,000 warrants
Proposed Nasdaq Symbols
Common Stock.........................KATX
Warrants.............................KATXW
------------------
(1) Excludes 500,000 shares of Common Stock reserved for issuance under the
Company's 1996 Stock Option Plan, of which 175,176 shares are issuable upon
exercise of outstanding options granted to certain officers, directors and
employees of the Company, at an exercise price equal to the initial public
offering price per share. See "Management" and "Principal Stockholders."
(2) Includes 141,666 shares of Common Stock issuable, in connection with the
June 1996 Financing (as defined). See "Management's Discussion and Analysis
of Financial Condition and Plan of Operations - Liquidity and Capital
Resources."
<PAGE>
Use of Proceeds......................... To finance the development and
opening of KatManDu-Trenton and one
to two additional KatManDu
restaurant/nightclubs in 1997 and
two more in 1998, to repay the June
1996 Financing (as defined) and
certain other funded debt, to make
the Final Distribution (as defined),
and to provide working capital. See
"Use of Proceeds."
Risk Factors............................. An investment in the Securities
offered hereby is speculative and
involves a high degree of risk. This
Prospectus contains forward-looking
information which involves risks and
uncertainties. The Company's actual
results could differ materially from
those anticipated by such
forward-looking information as a
result of various factors, including
those discussed under "Risk Factors"
in this Prospectus. In addition,
purchasers of Shares of Common Stock
offered hereby will experience
immediate and substantial dilution
with respect to their investment.
See "Risk Factors."
<PAGE>
Summary Financial Information(1)
The summary financial information set forth below is derived from the
more detailed financial statements appearing elsewhere in this Prospectus. This
information should be read in conjunction with such financial statements,
including the notes thereto. See "Management's Discussion and Analysis of
Financial Condition and Plan of Operations."
<TABLE>
<CAPTION>
For the Years ended For The Three Months ended
December 31, March 31,(2)
(Unaudited)
1994 1995 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Statements of Income Data:
Net revenue $2,773,042 $2,865,751 $ -- $ --
Food and beverage, promotional
merchandise 633,117 620,099 $ -- $ --
General and administrative, rent
expense to related party 1,845,632 1,907,526 136,811 130,234
Compensation expense -- -- -- 378,048
Other income (expense) net (67,119) (65,612) (17,807) (15,466)
---------- ------------- ------------ ------------
Income (loss) before income taxes $227,174 $272,514 ($154,618) ($523,748)
Income tax provision -- -- -- --
---------- ------------- ------------ ------------
Net income (loss) $227,174 $272,514 ($154,618) ($523,748)
========== ========== ========== ==========
Net income (loss) per common share $0.09 $0.11 ($0.06) ($0.22)
========== ========== ========== ==========
Weighted average number of shares
outstanding(3) 2,400,000 2,400,000 2,400,000 2,400,000
Pro forma for income taxes(4) 92,800 111,500 -- --
Pro forma net income (loss) before
cumulative effect of accounting
change(4) $134,374 $161,014 ($154,618) ($523,748)
Cumulative effect of accounting change
for income taxes(4) (22,100) -- -- --
---------- ------------- ------------ ------------
Pro forma net income (loss)(4) $156,474 $161,014 ($154,618) ($523,748)
========== ============ =========== ===========
Pro forma net income (loss) per common
share(4) $0.07 $0.07 ($0.06) ($0.22)
========== ============ ============ ============
Pro forma weighted average number
of shares outstanding(3) 2,400,000 2,400,000 2,400,000 2,400,000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
As at March 31, 1996
--------------------
(Unaudited)
-----------
Balance Sheet Data Pro Forma
Actual Pro Forma(5) As Adjusted(6)
------------ ------------ --------------
<S> <C> <C> <C>
Cash ............................................. $ 15,317 $ 837,508 $ 7,701,208
Property and equipment, net ...................... $ 493,368 $ 493,368 $ 493,368
Total assets ..................................... $ 1,588,552 $ 3,288,243 $ 8,445,531
Loan payable to related parties .................. $ 403,491 $ -- $ --
Interest payable ................................. $ 43,106 $ 27,500 $ --
Total current liabilities ........................ $ 1,230,374 $ 1,911,277 $ 783,777
Stockholders' equity ............................. $ 358,178 $ 1,376,966 $ 7,661,751
Working capital (deficiency) ..................... ($1,097,237) ($ 955,949) $ 7,035,251
</TABLE>
- ----------------
(1) The Summary Financial Information gives effect to the Reorganization
described under "Reorganization and Final Partnership and S Corporation
Distributions" and sets forth on a consolidated basis the operations of
KatManDu Investment Partners ("KIP"), a Pennsylvania limited partnership
formed in 1991, KatManDu Corp. ("Kat Corp."), a Pennsylvania corporation
formed in 1990 and T-Kat Corp. ("T-Kat"), a New Jersey corporation formed in
1995. See "The Company" and "Reorganization and Final Partnership and S
Corporation Distributions."
(2) KatManDu-Philadelphia is only open from mid-April through mid-September.
Accordingly, it has no revenues for the Company's first and fourth calendar
quarters. See "Management's Discussion and Analysis of Financial Condition
and Plan of Operation - Results of Operations for the Three Months Ended
March 31, 1995 and 1996."
(3) Weighted average number of shares outstanding for both historical and pro
forma amounts, gives effect to the Reorganization and the issuance of
141,666 shares in connection with the June 1996 Financing described below.
See "Reorganization and Final Partnership and S Corporation Distributions."
(4) Prior to the consummation of the Reorganization, the Company has not been
subject to income taxes since KIP is a partnership and Kat Corp. and T-Kat
are S corporations. (T-Kat's election to be taxed as an S corporation was
effective as of January 1, 1996. However, T-Kat did not have any income in
1995.) Upon consummation of the Reorganization, the Company will be subject
to federal corporate income taxes and Pennsylvania and New Jersey corporate
income taxes. Accordingly, pro forma net income and pro forma net income per
share for all periods presented reflects a provision for income taxes as if
the Company had been subject to federal and state income taxes. See "The
Company" and "Reorganization and Final Partnership and S Corporation
Distributions."
(5) The Pro Forma Balance Sheet Data reflects (i) the proceeds from the sale in
June 1996 by the Company of its 10% promissory notes in the aggregate
principal amount of $1.1 million (the "June 1996 Financing"); (ii) the
repayment of certain liabilities to related parties; (iii) the purchase of a
minority stockholder's interest in Chinatown, KIP and Kat Corp. in
connection with the settlement of a lawsuit brought by such stockholder
against the Company and the other principal stockholders (the "Preefer
Litigation"); and (iv) a capital contribution of approximately $305,000 by
certain principal stockholders of the Company, all of which occurred in
June 1996. See "Management Discussion and Analysis of Financial Condition
and Plan of Operation - Liquidity and Capital Resources" and "Certain
Transactions."
(6) Adjusted to reflect (i) the sale of 1,600,000 Shares of Common Stock and
1,600,000 Warrants offered by the Company at an assumed initial public
offering price of $6.00 per Share and $0.10 per Warrant and the initial
application of the proceeds therefrom, after deducting estimated expenses of
this Offering, (ii) the non-recurring, non-cash deferred financing cost of
approximately $830,000 relating to this Offering and (iii) the remaining,
non-recurring charges relating to the June 1996 Financing in the amounts of
(x) $27,500 for accrued interest through August 31, 1996 and (y) $850,000
for the original issue discount relating to the June 1996 Financing. See
"Management Discussion and Analysis of Financial Condition and Plan of
Operation - Liquidity and Capital Resources" and "Certain Transactions."
<PAGE>
THE COMPANY
The Company was founded in 1990 as KatManDu Corp., a Pennsylvania
corporation and Katmandu Investment Partnership, a Pennsylvania limited
partnership. KIP holds the lease for the premises occupied by
KatManDu-Philadelphia and all of the assets used in its business, and Kat Corp.
holds the liquor license for KatManDu-Philadelphia and operated
KatManDu-Philadelphia. T-Kat Corp., a New Jersey corporation, was organized in
1995 to develop, own and operate KatManDu-Trenton. In March 1996, KatManDu
Entertainment Corp. was organized under the laws of the State of Delaware to
serve as a holding company for the ownership interests in Kat Corp., KIP and
T-Kat. Accordingly, the three entities are presented as wholly owned
subsidiaries. See "Reorganization and Final Partnership and S Corporation
Distributions."
Unless the context otherwise requires, as used herein the "Company"
refers to KatManDu Entertainment Corp., its predecessors and affiliates.
REORGANIZATION AND FINAL PARTNERSHIP AND S CORPORATION DISTRIBUTIONS
Immediately prior to the consummation of this Offering, the
stockholders of Kat Corp., T-Kat and Chinatown Convention Center Hotel
Corporation ("Chinatown"), the corporate general partner of KIP, and the limited
partners of KIP will transfer their ownership interests in those entities to the
Company in a tax-free exchange pursuant to which the transferors will receive an
aggregate of 1,606,884 shares of Common Stock of the Company. Immediately
thereafter, KIP and Chinatown will be liquidated and Kat Corp. and T-Kat will
become wholly-owned subsidiaries of the Company with Kat Corp. owning and
operating KatManDu-Philadelphia and T-Kat owning and operating KatManDu-Trenton
(collectively, the "Reorganization.") See "Principal Stockholders."
As KIP is a partnership and each of Kat Corp., Chinatown and T-Kat has
elected to be taxed as an S corporation for federal and state income tax
purposes, none of such entities is subject to federal income taxes or state
corporate income taxes. Rather, the partners of KIP and the stockholders of Kat
Corp., T-Kat and Chinatown, respectively, include their proportionate share of
such entities' taxable income in their personal taxable income without regard to
whether such entities made distributions to them, and have been subject to
federal and state income taxes on such income. (While T-Kat made the election to
be taxed as an S corporation with respect to years beginning on and after
January 1, 1996, it did not have any taxable income in 1995.) The partners of
KIP and the shareholders of Kat Corp., T-Kat and Chinatown will continue to be
taxable on the income of those entities until consummation of the
Reorganization. Accordingly, the Company has declared a special distribution to
such partners and stockholders in an amount equal to the aggregate undistributed
taxable income of each of such entities through the date of the Reorganization
(the "Final Distribution"). The Company intends to make the Final Distribution
promptly after the determination of taxable net income for each of KIP,
Chinatown, Kat Corp. and T-Kat, respectively, for the period ending on the date
the Reorganization is consummated. The Company anticipates and has agreed that
the Final Distribution will not exceed $450,000. Purchasers of Common Stock in
this Offering will not receive any part of the Final Distribution. See "Use of
Proceeds."
The Company is not an S corporation and, accordingly, following this
Offering the Company will be subject to federal and state income taxes.
<PAGE>
RISK FACTORS
An investment in the Securities offered hereby is speculative and
involves a high degree of risk. In addition to the other information contained
in this Prospectus, the following risk factors should be considered carefully in
evaluating the Company and its business before purchasing the Securities offered
hereby. Prospective investors should be in a position to risk the loss of their
entire investment. This Prospectus contains forward-looking information which
involve risks and uncertainties. The Company's actual results could differ
materially from those anticipated by such forward-looking information as a
result of various factors, including those set forth in the following risk
factors and elsewhere in this Prospectus.
Limited Operating History. The Company opened KatManDu-Philadelphia in
1991. All historical financial results for the Company are derived solely from
KatManDu-Philadelphia. The Company was in default with respect to various
obligations to related parties in 1994 and 1995. All of such loans have since
been repaid. In addition, since KatManDu-Philadelphia is operational from
mid-April to mid-September only, it generates no revenues in the first and
fourth quarters of each calendar year. The Company's ability to generate net
income in the future will depend upon the success of KatManDu-Philadelphia and
the successful implementation of the Company's expansion strategy. In order to
effect the Company's expansion strategy, the Company's cash requirements will be
significant. The Company presently believes that it will cost approximately
$3.75 million to develop and construct KatManDu-Trenton. The Company expects
that the cost of developing and opening future restaurant/nightclubs will range
between $3.5 million and $5.0 million. The significant investment associated
with each new restaurant/nightclub may cause the operating results of the
Company to fluctuate significantly and adversely affect the profitability of the
Company. In addition, the Company expects to incur a non-recurring, non-cash
interest charge of $850,000 in the third and fourth quarter of 1996 attributable
to original issue discount arising from the issuance of 141,666 shares of Common
Stock in connection with the June 1996 Financing. Poor operating results at any
one of the Company's current or planned restaurant/nightclubs or a delay in a
planned opening of a restaurant/nightclub could have a material adverse effect
on the profitability of the Company. See "Management's Discussion and Analysis
of Financial Condition and Plan of Operations."
Quarterly Fluctuations In Results of Operation; Seasonality. The
restaurant business in general is subject to seasonal fluctuations.
KatManDu-Philadelphia is only open for 5 months out of the year (mid-April
through mid-September). For the rest of the year KatManDu-Philadelphia has no
revenues even though it has expenses. Therefore, after consummation of this
Offering the Company will not generate any significant revenues until
KatManDu-Trenton becomes operational, anticipated to be in January 1997, or the
new season begins for KatManDu-Philadelphia in April 1997. In addition, because
it is outdoors, KatManDu-Philadelphia's results of operations are directly
affected by weather conditions. KatManDu-Trenton has been designed to operate
year-round, having separate, fully equipped indoor and outdoor areas.
Nevertheless, there can be no assurance that its revenues will be consistent
throughout the year, nor that other restaurant/nightclubs can be developed on a
similar or more profitable basis. Moreover, the Company's results of operations
may also fluctuate from quarter to quarter in the future as a result of the
amount and timing of start-up expenses and revenues contributed by new
restaurant/nightclubs and the integration of such new restaurant/nightclubs into
the operations of the Company as well as other factors. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business - Seasonality."
Possible Need For Additional Financing; Financing Risks. The Company's
ability to execute its expansion plans depends to a significant degree on its
ability to finance the development of new restaurant/nightclubs. The capital
resources required to develop each new KatManDu restaurant/nightclub are
significant. The Company presently expects that the estimated net proceeds from
this Offering, together with cash flow from operations and other types of site
specific financing (i.e., landlord contributions, capital leases, mortgage
financings) will be sufficient to develop KatManDu-Trenton, one to two
additional KatManDu restaurant/nightclubs in 1997 and an additional two
restaurant/nightclubs in 1998. However, there can be no assurance that any
additional restaurant/nightclubs will be successfully developed. The Company
currently estimates the total cost of developing and opening a new KatManDu
restaurant/nightclub, including development costs, construction costs,
equipment, furniture, fixtures and pre-opening expenses, will range from $3.5
million to $5 million, depending upon site conditions, construction costs and
other relevant factors. However, there can be no assurance that the Company will
be able to develop and open a new restaurant/nightclub at such costs or that the
Company will have sufficient cash flow from operations, or be able to secure
site specific financing on such terms and conditions which will enable the
Company to achieve its expansion goals. The Company may be required to seek
other forms of financing (including the sale of debt and equity securities) to
achieve its expansion goals. If the Company is unable to secure additional
sources of financing on terms and conditions acceptable to the Company or at
all, the Company's expansion strategy could be materially adversely affected.
<PAGE>
The Company has received a commitment from Equity National Bank for a
$2.5 million construction loan (the "Construction Loan") to be used in
connection with the development of KatManDu-Trenton. The Construction Loan will
be secured by the assets of T-Kat and a leasehold mortgage on KatManDu-Trenton
and will be guaranteed by the Company and by Messrs. Silver and Harting
personally. In addition, the New Jersey Economic Development Authority (the
"NJEDA") has passed a resolution approving the Company's application to borrow
$2.5 million (the "NJEDA Loan") upon completion of KatManDu-Trenton and the
issuance of a certificate of occupancy with respect thereto. The proceeds of the
NJEDA Loan will be used to repay the Construction Loan. It is anticipated that
the NJEDA Loan will be payable over a term of 20 years. Debt service on the
NJEDA Loan will be determined at the time such loan is funded. In any event,
there can be no assurance that the Company will have sufficient cash to make the
requisite payments on the NJEDA Loan or that it will be able to obtain other
financing on acceptable terms, if at all. If the Company is unable to make the
requisite payments on the NJEDA Loan, the lender may have the right to seize
some or all of the Company's assets.
The Company plans to obtain site specific financing arrangements to
fund, in part, the cost of developing future restaurant/nightclubs. In addition,
the Company intends to develop each new restaurant/nightclub through a separate
subsidiary. However, the lender in such case may require additional security
such as a lien on all of the assets of the Company or a guaranty by the Company
rather than a security interest only in the assets of the restaurant/nightclub
which is being developed. To the extent the Company's assets are mortgaged or
otherwise used to secure such financing, such financing will increase the risks
associated with a downturn in business which might result from new competition
or an adverse change in the economy and other factors which may negatively
impact the business. Among other factors, because debt service and the Company's
obligations under long-term leases will remain constant, decreases in revenues
from sales and/or increases in operating expenses from projected levels may
result in a substantial reduction in cash available for debt service. If the
revenues from a particular restaurant/nightclub are insufficient to service the
Company's debt, its lease obligations or its operating expenses, the Company
will be required to seek additional funds from other sources or suffer the risk
of loss of some or all of its restaurant/nightclubs. There can be no assurance
that the Company will be able to obtain such additional funds on terms
acceptable to it. See "Management's Discussion and Analysis of Financial
Condition and Plan of Operations."
Intellectual Property; Proprietary Marks. The Company's ability to
successfully implement its tropical island paradise theme will depend, in part,
upon its ability to protect its proprietary marks. In 1992, the Company's trade
name, KATMANDU(R), was registered as a service mark on the Principal Register in
the United States Patent and Trademark Office. The Company regards its
KATMANDU(R) service mark as having substantial value and being important in its
marketing program. Accordingly, the Company intends to protect its service mark
by taking appropriate legal action whenever necessary, although there can be no
assurance that the Company will be able to effectively enforce or protect its
rights and prevent others from using the same or similar marks. The Company's
inability or failure to establish its rights or to adequately protect any of its
intellectual property rights, may have a material adverse effect on the Company.
Although, the Company is aware of local restaurants in remote areas
which may be operating with trade names similar to "KatManDu" and a nightclub
operating as "Club Kat-Man-Du" on Hilton Head Island, South Carolina, the
Company is not aware of any infringing use of the KatManDu service mark that
could materially affect its business. In addition, the Company is aware that
"KATMANDU" is a registered mark for retail store services for the sale of
women's apparel and apparel accessories as well as for other products and
services and "KATMANDO" has been a registered mark for clothing. However, the
Company believes that its use of "KatManDu" with respect to the sale of
promotional merchandise sold at its restaurant/nightclub, such as T-shirts,
sweatshirts, caps, bags and other novelty items, is reasonable. Although there
can be no assurance that one or more of the owners of these prior marks will not
object to the extended use of "KatManDu", the Company intends to modify its mark
for such promotional merchandise to include, for example, the descriptive words
"restaurant/nightclub" and the geographic location to further reduce the risk of
a claim of infringement and to emphasize the promotional nature of such
merchandise. While promotional merchandise sales now account only for
approximately 2% of gross revenues, a determination that the Company's use of
its name and logo with respect to sales of its promotional merchandise infringes
the rights of other owners of "KATMANDU" and/or "KATMANDO" marks may cause the
Company to incur significant expense and may also have a material adverse effect
on the Company's growth prospects. See "Intellectual Property Rights."
Long-Term, Non-cancelable Leases; Affiliated Transactions. The premises
occupied by KatManDu-Philadelphia are subject to a long-term, non-cancelable
lease which terminates on November 15, 2005 (the "Philadelphia Lease").
Currently, rent under the Philadelphia Lease is $50,000 per annum. Beginning
March 1, 1997, the annual base rent will be the greater of (i) $50,000 increased
to reflect cost of living adjustments and (ii) 4% of the gross income from
KatManDu-Philadelphia. The lease for KatManDu-Trenton is for a term of 30 years.
The annual rent payable by T-Kat under such lease is an amount equal to 2% of
the gross revenues of KatManDu-Trenton with a minimum payment of $50,000 and a
maximum payment of $100,000 which amounts are adjusted every three years to
reflect increases in the consumer price index for the Philadelphia/New Jersey
region. In addition, T-Kat is obligated to pay as additional rent all real
estate taxes, assessments and utility charges applicable to such premises.
<PAGE>
Any future restaurant/nightclubs developed by the Company may be subject to
similar long-term leases which may provide for rent which is a percentage of
revenues. If an existing or future restaurant/nightclub does not perform at a
profitable level, and the decision is made to close such restaurant/nightclub,
the Company will nonetheless be committed to perform its obligations under the
applicable lease. See "Business - Properties."
The Company leases the premises occupied by KatManDu-Philadelphia from
Pier 25 North Associates, a Pennsylvania limited partnership ("Pier 25 North").
The general partners of Pier 25 North are S. Lance Silver and Stuart N. Harting,
the principal stockholders and senior executives of the Company, who each own
16.20% of Pier 25 North. In addition, the Company leases the entire second deck
of the restaurant ship, Elizabeth, which is located adjacent to
KatManDu-Philadelphia from Elizabeth Restaurant Partners ("ERP"), a Pennsylvania
limited partnership which the Company uses in connection with restaurant
operations and for its executive offices. The general partner of ERP is Lizzy
Management Corporation, a Pennsylvania corporation all of the stock of which is
owned by Messrs. Silver and Harting. The limited partners of ERP are the S.
Lance Silver Trust and the Stuart N. Harting Trust and Bruce Waugh, Executive
Vice President-Operations of the Company. The Company also leases storage space
from Powerhouse Associates ("Powerhouse"), a Pennsylvania limited partnership
controlled by Messrs. Silver and Harting, as well as the right to display a
KatManDu sign on the building owned by Powerhouse. The rent for the storage
space is $6,000 per annum under a lease that terminates December 31, 1999 and
the rent for the sign is $12,000 per year. Finally, T-Kat will lease the
premises to be occupied by KatManDu-Trenton from T-Kat Urban Renewal Corp., a
New Jersey corporation which, in turn, leases such premises from the Mercer
County Improvement Authority. The financial terms of the lease between T-Kat
Urban Renewal Corp. and T-Kat are identical to the financial terms of the lease
between T-Kat Urban Renewal Corp. and the Mercer Country Improvement Authority.
T-Kat Urban Renewal Corp. is owned by Messrs. Silver and Harting. See
"Business-Properties" and "Certain Transactions."
David Wallack, a director of the Company, is the owner of Mango's
Tropical Cafe, a theme restaurant in Miami Beach, Florida. Such ownership may
present a conflict of interest with the Company, particularly if the Company
seeks to open a restaurant in south Florida. See "Management." In connection
with this Offering, the Company has adopted a policy that any transactions
between the Company and any of its officers, directors and 5% stockholders or
their affiliates of the Company must be on terms no less favorable to the
Company than could be obtained from unaffiliated third parties and such
transactions will be approved by a majority of the independent outside members
of the Board of Directors of the Company who do not have an interest in the
transaction.
Expansion Risks. Future growth will depend to a substantial extent on
the Company's ability to increase the number of its restaurant/nightclubs. The
Company's ability to successfully develop, open and operate new
restaurant/nightclubs will largely be dependent upon a variety of factors, some
of which may be unknown or beyond the Company's control, including customer
acceptance of the KatManDu theme in new geographic areas; the ability of the
Company's management to identify suitable sites and to purchase or negotiate
leases for such sites; timely and economic development and construction of
restaurant/nightclubs; timely approval from local governmental authorities; the
hiring and training of skilled management and other personnel; the availability
of adequate financing; and the general state of the economy. In addition, the
Company expects that the opening of additional restaurant/nightclubs will give
rise to additional expenses associated with managing restaurant/nightclubs
located in multiple markets. Such expenses include advertising in more than one
market; lease rates and construction costs that may be higher in markets other
than Philadelphia and Trenton; travel costs; and other similar expenses. The
likelihood of success of the Company must be considered in light of the
problems, expenses, difficulties, complications and delays frequently
encountered in connection with the establishment and/or expansion of any new
business. Accordingly, there can be no assurance that the Company will be able
to open new restaurant/nightclubs or that, if opened, such restaurant/nightclubs
can be operated profitably. Furthermore, to the extent that the Company succeeds
in opening additional restaurant/nightclubs, the Company must manage the
transition to multiple site operations, higher volume operations, the control of
overhead expenses, the addition of necessary personnel, the maintenance of
effective quality food and service controls and the ability of the Company's
management to apply a list of standardized policies and procedures to a much
larger number of restaurant/nightclubs. See "Business - Expansion Plans and Site
Selection."
<PAGE>
Acceptance of KatManDu Theme in New Markets. Although the Company
intends future restaurant/nightclubs to have characteristics similar to
KatManDu-Philadelphia, the KatManDu prototype restaurant/nightclub is evolving
and a number of factors could change the tropical island paradise theme as
applied in different locations. These factors include demographic and regional
differences; traffic patterns; type of available floor space; and the
availability of specialty items and entertainment. Accordingly, future
restaurant/nightclubs could be larger or smaller than KatManDu-Philadelphia,
could vary in the mix of restaurant/nightclub operations, and could have
differences in the application of the tropical island paradise theme. There can
be no assurance that the Company will be able to predict accurately or on a
timely basis how to modify the KatManDu prototype restaurant/nightclub to
accommodate local tastes. Furthermore, the success of any restaurant based on a
particular theme is subject to shifting consumer tastes and interests and there
can be no assurance that the tropical island paradise theme will appeal in new
markets or that it will continue to have appeal in Philadelphia. Frequently,
restaurants, particularly theme-oriented restaurants, experience a decline of
revenue growth or of actual revenues as consumers tire of the related theme. See
"Business - The KatManDu 'Tropical Island Paradise' Vacation Theme."
Availability of Sites. The Company's primary strategy is to develop new
restaurant/nightclubs on or near waterfront sites, although it will consider
other locations. Because of the relatively large size of each KatManDu
restaurant/nightclub and the Company's site selection criteria, the availability
of desirable locations may be limited and the Company may be hindered in finding
suitable locations for the development of new restaurant/nightclubs.
Additionally, the Company's ability to open additional restaurant/nightclubs
will depend upon a number of other factors including the ability of the Company
to negotiate leases on acceptable terms. See "Business - Expansion Plans and
Site Selection."
Possible Development and Construction Delays. In connection with the
development and construction of the KatManDu restaurant/nightclubs, a number of
events over which the Company will have no control could occur which might
materially adversely affect the costs and completion time of such projects. Such
events include governmental regulatory approvals, shortages of or the inability
to obtain labor and/or materials, inability of the general contractor or
subcontractors to perform under their contracts, strikes, adverse weather
conditions and acts of God, availability and cost of needed debt or lease
financing, and changes in federal, state or local laws or regulations. In
addition, the Company will also be dependent on unaffiliated third parties to
complete the construction of a restaurant/nightclub. Accordingly, there can be
no assurance that the Company will be able to complete any restaurant/nightclub
in a timely manner or within its proposed budget. See "Business Expansion Plans
and Site Selection."
Interruption in Supplies. Although the Company will not be materially
dependent upon any one supplier, the Company will be dependent on frequent
deliveries of produce and food items. As a result, the Company is subject to the
risk of possible food shortages or interruptions in supply caused by adverse
weather or other conditions which could adversely affect the availability and
cost of such items. See "Business - Purchasing."
Competition. The restaurant business is highly competitive and, as a
result, there is a high failure rate. The Company will compete on a general
basis with a large variety of national and regional restaurant operations, as
well as locally owned restaurants, diners, and other establishments that offer
moderately priced food. There are numerous well established competitors,
including national, regional and local restaurant chains, possessing
substantially greater financial, marketing, personnel and other resources than
the Company. The Company will also compete with other entertainment venues, such
as nightclubs, bars and dance clubs.
<PAGE>
In the restaurant industry, competition is based primarily upon price,
service, food quality (including taste, freshness, healthfulness and nutritional
value) and location. In addition, success or failure in both the restaurant and
entertainment industries is also generally affected by changes in consumer
preferences, national, regional and local economic conditions and demographic
changes. Also, factors such as inflation, increased food, labor and employee
benefit costs, and the availability of experienced management and hourly
employees may also adversely affect the restaurant and entertainment industries
in general and the Company's restaurant/nightclubs in particular. Restaurant
operating costs are further affected by increases in the minimum hourly wage,
unemployment tax rates and similar matters over which the Company has no
control.
The Company will also compete with other theme restaurants in the
highly competitive and developing theme restaurant market. Theme restaurants,
such as KatManDu-Philadelphia, are more susceptible to shifts in consumer
preferences. Additionally, other restaurants and companies could utilize the
tropical island paradise or a related theme. There can be no assurance that the
Company will be able to respond to various competitive factors affecting the
restaurant industries. See "Business - Competition."
Government Regulation. The Company's business is subject to various
federal, state and local government regulations relating to the development and
operation of restaurants, bars and clubs, including those relating to building
and zoning requirements and the preparation and sale of food and alcoholic
beverages. While the Company has not yet experienced an inability to obtain or
maintain any necessary governmental licenses, permits or approvals, the failure
to obtain or maintain food and liquor licenses could have a material adverse
effect on the Company's operating results. Difficulties or failures in obtaining
required licenses and approvals will result in delays or cancellations of the
opening of new restaurant/nightclubs. The food and liquor licenses are also
subject to suspension or non-renewal if the granting authority determines that
the conduct of the holder does not meet the standards for initial grant or
renewal. Although the Company has satisfied restaurant and liquor licensing
requirements for KatManDu-Philadelphia and KatManDu-Trenton, no assurance can be
given that the Company will be able to maintain existing approvals or obtain
such further approvals at other locations.
<PAGE>
The Federal Americans With Disabilities Act (the "Disabilities Act")
prohibits discrimination on the basis of disability in public accommodations and
employment. The Company could be required to expend funds to modify its
restaurant/nightclubs in order to provide service to or make reasonable
accommodations for disabled persons. Although KatManDu-Philadelphia is designed
to satisfy the requirements of the Disabilities Act and KatManDu-Trenton will be
similarly designed, no assurance can be given that the Company will not be
required to make modifications to its restaurant/nightclubs to comply with
current and/or future laws, rules and regulations relating to accommodations for
the disabled. See "Business - Regulation."
Potential "Dram Shop" Liability. Restaurants in most states are subject
to "dram shop" laws and legislation, which impose liability on licensed
alcoholic beverage servers for injuries or damages caused by their negligent
service of alcoholic beverages to a visibly intoxicated person or to a minor, if
such service is the proximate cause of the injury or damage and such injury or
damage is reasonably foreseeable. While the Company maintains liquor liability
insurance as part of its comprehensive general liability insurance which
management believes is adequate to protect against such liability, there can be
no assurance that the Company will not be subject to a judgment in excess of
such insurance coverage or that it will be able to continue to maintain such
insurance coverage at reasonable costs or at all. The imposition of a judgment
substantially in excess of the Company's insurance coverage would have a
material adverse effect on the Company. The failure of the Company to obtain and
maintain insurance coverage could also materially and adversely affect the
Company. See "Business - Regulation."
Insurance. Although the Company will carry general liability and
commercial insurance, liquor insurance, property insurance and workers
compensation insurance, there can be no assurance that this insurance will be
adequate to protect the Company against any liability claims. Any claim that is
not covered by one of such policies or is in excess of the limits of liability
of the relevant policy would have a material adverse effect on the financial
condition of the Company. In addition there can be no assurance that the Company
will be able to maintain its insurance on reasonable terms. See "Business -
Insurance."
Dependence on Key Personnel. The Company's success is dependent upon
the personal efforts and abilities of the Company's senior corporate management,
particularly S. Lance Silver, and Stuart N. Harting, Co-Chairmen and Co-Chief
Executive Officers. The loss of the services of either of these individuals
could have a substantial adverse effect on the Company. The Company has entered
into three year employment agreements with Messrs. Silver and Harting commencing
on the date this Offering becomes effective and has agreed to obtain "key-man"
life insurance policies on the lives of Messrs. Silver and Harting in the amount
of $1 million each prior to the consummation of this Offering. The success of
the Company will also depend upon the ability to attract and retain a highly
qualified additional corporate and unit level management teams. The failure to
obtain, or delays in obtaining, other key employees could have a material
adverse effect on the Company. See "Management."
Control By Existing Management. Upon completion of this Offering,
Messrs. Silver and Harting will own and/or control, as trustees of certain
trusts for the benefit of their family members, approximately 50.16% of the
issued and outstanding shares of the Common Stock of the Company (47.33%
assuming the Over-Allotment Option is exercised). In addition, pursuant to a
shareholders agreement among Messrs. Silver and Harting and certain shareholders
(including the officers of the Company), Messrs. Silver and Harting will have
the right to vote an additional 6.29% of the issued and outstanding shares of
Common Stock (5.93% assuming the Over-Allotment Option is exercised).
Accordingly, Messrs. Silver and Harting will be able to substantially control
the Company's affairs, including, without limitation, the sale of equity or debt
securities of the Company, the election of directors, the appointment of
officers, and the determination of officers' salaries. See "Management" and
"Principal Shareholders."
<PAGE>
Substantial Dilution. Purchasers of the Common Stock offered hereby
will experience immediate and substantial dilution in net tangible book value of
$4.22 per share of Common Stock from the initial public offering price. See
"Dilution."
Absence of Dividends. Although the Company made cash distributions
prior to this Offering and will make the Final Distribution soon after the
completion of this Offering, it does not expect to pay cash or stock dividends
on its Common Stock in the foreseeable future. To the extent, the Company has
earnings in the future, it intends to retain such earnings in the business
operations of the Company. See "Reorganization and Final Partnership and S
Corporation Distributions" and "Dividend Policy."
Broad Discretion In Application of Proceeds. Approximately $6.6 million
(83%) of the estimated net proceeds from this Offering has been allocated to
working capital and general corporate purposes. Accordingly, the Company will
have broad discretion as to the application of such proceeds. Pending the use of
proceeds as described above, the net proceeds will be invested in short-term,
interest bearing, investment grade government securities. See "Use of Proceeds."
Limitation of Director Liability. The Company's Certificate of
Incorporation provides that a director of the Company will not be personally
liable to the Company or its stockholders for monetary damages for breach of the
fiduciary duty of care as a director, including breaches which constitute gross
negligence, subject to certain limitations imposed by the Delaware General
Corporation Law (the "DGCL"). Thus, under certain circumstances, neither the
Company nor the stockholders will be able to recover damages even if directors
take actions which harm the Company. See "Management - Indemnification of
Directors and Officers and Related Matters."
Lack of Public Market; Determination of Offering Price; Volatility of
Prices of the Securities. Prior to this Offering, there has been no public
market for the Securities. Although the Company has applied for listing of each
of the Common Stock and the Warrants on Nasdaq, there can be no assurance that
an active public market for the Securities will be developed or be sustained
after this Offering. The offering price of the shares of Common Stock offered
hereby has been arbitrarily determined by negotiations between the Company and
the Representative and bears no relationship to the Company's current earnings,
book value, net worth or financial statement criteria of value. The factors
considered in determining the offering price included an evaluation by
management and the Representative of the history of and prospects for the
industry in which the Company competes and the prospects for earnings of the
Company. Furthermore, the trading prices of the Securities could be subject to
wide fluctuations in response to variations in the Company's operating results,
announcements by the Company or others, developments affecting the Company or
its competitors, suppliers or customers and other events or factors. In
addition, the stock market has experienced extreme price and volume fluctuations
in recent years. These fluctuations have had a substantial impact on the market
prices of many companies, often unrelated to their performance, and may
adversely affect the market prices for any or all of the Securities. See
"Underwriting."
Current Prospectus and State Registration Required to Exercise
Warrants; Possible Redemption of Warrants. The Company will be able to issue
shares of Common Stock upon exercise of the Warrants only if there is a current
prospectus relating to such Common Stock under an effective registration
statement filed with the Securities and Exchange Commission (the "Commission"),
and only if such shares of Common Stock are qualified for sale or exempt from
qualification under applicable state securities laws of the jurisdictions in
which the various holders of the Warrants reside. Although the Company has
agreed to use its best efforts to register such shares of Common Stock, there
can be no assurance that the Company will be able to do so. Although the
Warrants will not knowingly be sold to purchasers in jurisdictions in which the
Warrants are not registered or otherwise qualified for sale, purchasers may buy
Warrants in the aftermarket or may move to jurisdictions in which the shares of
Common Stock issuable upon exercise of the Warrants are not so registered or
qualified. In this event, the Company would be unable to issue shares of Common
Stock to those persons upon exercise of the Warrants unless and until the shares
of Common Stock issuable upon exercise of the Warrants are qualified for sale or
exempt from qualification in jurisdictions in which such persons reside. There
is no assurance that the Company will be able to effect any required
registration or qualification. The Warrants may be deprived of any value if a
then current prospectus covering the shares of Common Stock issuable upon
exercise of the Warrants are not effective pursuant to an effective registration
statement or if such shares of Common Stock are not qualified or exempt from
qualification in the jurisdictions in which the holders of the Warrants reside.
See "Description of Securities - Warrants."
<PAGE>
Potential Adverse Effect of Redemption of Warrants; Market Overhang.
The Warrants are redeemable by the Company in whole or in part, upon 30 days'
prior written notice, for $0.10 per Warrant, beginning 18 months after the date
of this Prospectus and provided the average bid price for the Warrants has
exceeded certain specified amounts during specified periods prior to sending a
notice of redemption and provided that the Warrants are covered by an effective
and current registration statement under the Securities Act of 1933, as amended
(the "Securities Act"). Redemption of the Warrants could force the holders to
exercise the Warrants and pay the exercise price at a time when it may be
disadvantageous for the holders to do so, to sell the Warrants at the then
current market price when they might otherwise wish to hold the Warrants for
possible additional appreciation, or to accept the redemption price, which is
likely to be substantially less than the market value of the Warrants at the
time of redemption. Any holder who does not exercise its Warrants prior to their
expiration or redemption, as the case may be, will forfeit his, her or its right
to purchase the shares of Common Stock underlying the Warrants. See "Description
of Securities - Warrants."
Issuance of Preferred Stock; Barriers to Takeover. The Company's
authorized capital consists of 30,000,000 shares of capital stock of which
25,000,000 shares are designated as Common Stock and 5,000,000 shares are
designated as Preferred Stock. No class other than the Common Stock is currently
designated and there is no current plan to designate or issue any such
securities. The Board of Directors, without any action by the Company's
shareholders, is authorized to designate and issue shares in such classes or
series (including classes or series of Preferred Stock) as it deems appropriate
and to establish the rights, preferences and privileges of such shares,
including dividends, liquidation and voting rights. The rights of holders of
Preferred Stock and other classes of common stock that may be issued may be
superior to the rights granted to the holders of the existing Common Stock.
Further, the ability of the Board of Directors to designate and issue such
undesignated shares could impede or deter an unsolicited tender offer or
takeover proposal regarding the Company and the issuance of additional shares
having preferential rights could adversely affect the voting power and other
rights of holders of Common Stock. Issuance of Preferred Stock, which may be
accomplished though a public offering or a private placement to parties
favorable to current management, may dilute the voting power of holders of
Common Stock (such as by issuing Preferred Stock with super voting rights) and
may render more difficult the removal of current management, even if such
removal may be in the stockholders' best interests. Any such issuance of
Preferred Stock could prevent the holders of Common Stock from realizing a
premium on their shares. See "Description of Securities - Preferred Stock."
Potential Adverse Impact on Market Price of Securities; Shares Eligible
for Future Sale; Additional Registered Securities. Sales of substantial amounts
of the Company's securities in the public market after this Offering or the
perception that such sales may occur could materially adversely affect the
market price of the Securities and may impair the Company's ability to raise
additional capital by the sale of its equity securities. Of the 4,000,000 shares
of Common Stock and the 1,600,000 Warrants to be outstanding upon completion of
this Offering, the 1,600,000 Shares of Common Stock and 1,600,000 Warrants
offered hereby (1,840,000 Shares and 1,840,000 Warrants if the Over-Allotment
Option is exercised in full) will be immediately freely tradable without
restriction under the Securities Act except for any Securities purchased by an
"affiliate" of the Company (as that term is defined under the rules and
regulations of the Securities Act), which will be subject to the resale
limitations of Rule 144 under the Securities Act. The remaining 2,400,000 shares
of Common Stock outstanding prior to consummation of this Offering are
"restricted" securities within the meaning of Rule 144 under the Securities Act
and may be sold under the conditions of such rule, including satisfaction of
certain holding period requirements. Holders of 2,261,554 of these shares of
Common Stock, including each officer, director and stockholders of the Company
have executed agreements ("Lock-Up Agreements") pursuant to which they have
agreed not to, directly or indirectly, issue, offer, agree to offer to sell,
sell or grant an option for the purchase or sale of, transfer, pledge, assign,
hypothecate, distribute or otherwise dispose of or encumber any shares of Common
Stock or options, rights, warrants or other securities convertible into,
exchangeable or exercisable for or evidencing any right to purchase or subscribe
for shares of Common Stock (whether or not beneficially owned by such person) or
any beneficial interest therein for a period of 13 months from the date of this
Prospectus without the prior written consent of the Representative and the
Company. Holders of 141,666 shares of Common Stock issued in connection with the
June 1996 Financing, including David Wallack, a Director of the Company who owns
3,220 of such shares of Common Stock, have entered into Lock-Up Agreements with
the same terms and conditions except that the lock-up period is 7 months from
the date of this Prospectus. Taking into consideration the restrictions of Rule
144 and the Lock-up Agreements, 141,666 of the restricted shares will become
eligible for sale beginning in March 1997 and 2,006,884 of the restricted shares
will become eligible for sale beginning in September 1997. In addition, upon
completion of this Offering, options to purchase an aggregate of 175,176 shares
of Common Stock will be outstanding. Such shares will also be subject to a
Lock-Up Agreement. It is not known what effect, if any, future sales of
additional securities or the availability of such securities for sale will have
on the market price of the Securities prevailing from time to time.
Nevertheless, the sale or availability for sale of significant quantities of
securities could materially adversely affect the market price of the Securities.
See "Shares Eligible for Future Sales."
<PAGE>
The Company has granted to the Representative a right of first refusal
for a period of three years after the effective date of this Offering to act as
underwriter or placement agent with respect to any public or private sale of
securities for cash to be made by the Company or any of its present or future
subsidiaries. In addition, the Company has agreed that the Representative will
act as the Company's exclusive agent with respect to the solicitation of the
Warrants and will receive from the Company a commission of 5% of the exercise
price of the Warrants commencing 12 months after the Effective Date payable upon
exercise. See "Underwriting" and "Description of the Securities."
Representative's Potential Influence on the Market. A significant
number of the Securities offered hereby may be sold to customers of the
Representative. Such customers may engage in transactions for the sale or
purchase of such Securities through or with the Representative. Although it has
no obligation to do so, the Representative intends to make a market in the
Securities and may otherwise effect transactions in such securities. If it
participates in such market, the Representative may influence the market, if one
develops, for the Securities. Such market-making activity may be discontinued at
any time. Moreover, if the Representative sells the securities issuable upon
exercise of the Representative's Warrants (as defined) or acts as warrant
solicitation agent for the Warrants, it may be required under the Securities
Exchange Act of 1934, as amended, to temporarily suspend its market-making
activities. The prices and liquidity of the Securities may be significantly
affected by the degree, it any, of the Representative's participation in such
market. See "Underwriting."
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Securities offered
hereby, after deducting underwriting discounts and commissions and estimated
offering expenses, are estimated to be approximately $7,991,200 (or
approximately $9,264,880 if the Over-Allotment Option is exercised in full). The
Company intends to apply the net proceeds approximately as follows:
<TABLE>
<CAPTION>
Amount Percentage
---------- -------------
<S> <C> <C>
Development of KatManDu restaurant/nightclubs:
Additional 3-4 KatManDu restaurant/nightclubs $5,300,000 66.32%
KatManDu-Trenton 840,000 10.51%
Repayment of Debt:
June 1996 Financing and Accrued Interest
Thereon 1,127,500 14.11%
Loans to Affiliates 125,000 1.56%
Loans to Non-Affiliates 105,000 1.31%
Working Capital 493,700 6.19%
Total $7,991,200 100%
========== ======
</TABLE>
In addition to KatManDu-Trenton, the Company plans to develop one to
two additional restaurant/nightclubs in 1997 and two more in 1998. Based on
current estimates of the cost of developing a KatManDu restaurant/nightclub and
the Company's site selection criteria, the Company is allocating approximately
$5.3 million to the development of such restaurant/nightclubs. The Company
estimates that the costs of developing and opening new restaurant/nightclubs
will range from $3.5 million to $5.0 million, depending upon location, site
conditions, construction costs, and size and type of the restaurant/nightclub.
This sum represents all costs relative to constructing, developing and opening a
new restaurant/nightclub, including but not limited to architectural and design
fees, permit costs, engineering costs, construction costs, initial food, liquor
and merchandise inventory, furniture and fixtures, initial staffing and employee
training costs, ground breaking and grand opening costs, and initial marketing
and promotional costs. The Company expects that it will incur approximately
$650,000 in preopening costs and purchase approximately $750,000 of inventory,
fixtures and equipment in connection with the opening of each
restaurant/nightclub. The Company may also utilize certain of the net proceeds
to acquire and develop restaurant operations with formats and concepts
complementary to those of the Company or to acquire existing restaurants for
conversion to the Company's existing concepts. The Company does not presently
have any agreements, commitments, plans or understandings concerning any
specific acquisition.
The Company has commenced the development of KatManDu-Trenton, which is
scheduled to open in January 1997. The Company is allocating approximately
$840,000 of the net proceeds of this Offering to complete the development of
KatManDu-Trenton. The Company currently estimates that the total cost of
developing and opening KatManDu-Trenton, including development costs,
construction costs, equipment, furniture, fixtures and pre-opening expenses,
will be approximately $3.75 million. The Company has obtained a commitment from
Equity National Bank for the Construction Loan, in the amount of $2.5 million,
to fund, in part, the development costs of KatManDu-Trenton. The Construction
Loan will be secured by the assets of T-Kat, a leasehold mortgage and will be
guaranteed by the Company and Messrs. Silver and Harting personally. Upon
completion of KatManDu-Trenton and the issuance of a certificate of occupancy
with respect thereto, the NJEDA is expected to provide permanent financing to
replace the Construction Loan. The balance of the development costs,
approximately $1.25 million, will be paid by the Company. The Company has
already paid or incurred approximately $412,000 of such expenses, of which
approximately $120,000 was paid out of the proceeds of the June 1996 Financing
and the balance was paid from the Company's cash flow from operations. No
assurance can be given that KatManDu-Trenton will be successfully developed or
that it will be developed at such costs.
<PAGE>
The Company will use $1.1 million of the proceeds from this Offering to
repay the principal of the June 1996 Financing and approximately $27,500 of such
proceeds to pay the accrued interest thereon through August 31, 1996. The
proceeds of the June 1996 Financing were used to purchase the interest of a
minority shareholder of the Company in connection with the settlement of the
Preefer Litigation and to pay certain obligations and expenses of the Company,
including expenses relating to this Offering. In addition, the Company has used
approximately $120,000 of such proceeds to pay expenses relating to the
development of KatManDu-Trenton. The balance of the June 1996 Financing
proceeds, approximately $470,000, is expected to be used in connection with the
development of KatManDu-Trenton. To the extent such funds are actually expended
for KatManDu-Trenton, the net proceeds of this Offering to be used for
KatManDu-Trenton will be reduced.
The Company will use approximately $125,000 of the proceeds of this
Offering to repay a short-term loan borrowed from 1809 Chestnut Associates
("1809 Chestnut"), a limited partnership in which S. Lance Silver and Stuart N.
Harting or persons or entities related and/or controlled by them own a majority
interest and approximately $105,000 to repay a short-term borrowing from Cherry
Associates ("Cherry"), incurred in April 1996. The proceeds of such loans were
used to pay preopening expenses relating to the 1996 season of
KatManDu-Philadelphia.
Working capital includes funds to be used for funding the anticipated
increase in inventories and accounts receivable, for general and administration
expenses and for other general corporate purposes.
The Company believes that the estimated net proceeds to be received by
the Company from this Offering, together with revenue from operations, will be
sufficient to meet the Company's cash requirements for a period of at least 12
months following the date of this Prospectus, including the further development
and completion of KatManDu-Trenton and the opening of at least one additional
restaurant/nightclub. Thereafter, if the Company has insufficient funds for its
needs, it may be required to seek additional funds from other sources. There can
be no assurance that additional funds can be obtained on acceptable terms, if at
all. If necessary funds are not available, the Company's business would be
materially adversely affected.
The foregoing represents the Company's best estimate of its expected
use of the net proceeds of this Offering. The amounts actually expended for
certain purposes described above may vary significantly depending on numerous
factors, including but not limited to, the development of KatManDu-Trenton. The
Company reserves the right to reallocate among the foregoing uses.
Any proceeds from the exercise of the Over-Allotment Option or the
Warrants, will be added to working capital.
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1996 (i) on an actual basis, (ii) on a pro forma basis, giving effect
to the June 1996 Financing, the repayments of certain liabilities to affiliates,
the purchase of a minority stockholder's interest in the Company and a capital
contribution by the present stockholders of the Company, all of which occurred
subsequent to March 31, 1996 and (iii) pro forma, as adjusted, to give effect to
the receipt of the estimated net proceeds from the sale by the Company of the
Securities pursuant to this Offering and the initial application thereof and the
recognition of unamortized original issue discount of approximately $850,000
related to the June 1996 Financing. The table should be read in conjunction with
the Consolidated Financial Statements and notes thereto appearing elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
March 31, 1996
------------------------------------------------
(Unaudited)
Pro Forma,
Actual Pro Forma(2) As Adjusted(3)
-------- -------------- --------------
<S> <C> <C> <C>
Short term debt:
June 1996 Financing Notes $ -- $1,100,000 $ --
Loan Payable to related parties 403,491 -- --
-------- ------------ -----------
Total short-term debt $403,491 $1,100,000 $ --
Stockholders' equity (deficit):
Preferred Stock, par value $.001 per share;
5,000,000 shares authorized; no shares issued and
outstanding
Common Stock, par value $.001 per share;
25,000,000 shares authorized; 2,258,334 shares
issued and outstanding actual; 2,400,000 shares
issued and outstanding pro forma; 4,000,000
shares issued and outstanding pro forma, as
adjusted(1) 2,258 2,400 4,000
Additional paid-in capital 1,227,702 2,246,348 10,235,948
Accumulated deficit (871,782) (871,782) (2,578,194)
--------- --------- -----------
Total stockholders' equity 358,178 1,376,966 7,661,754
Total capitalization $761,669 $2,476,966 $7,661,754
======== ========== ==========
</TABLE>
- ----------------
(1) Excludes (i) 500,000 shares of Common Stock reserved for issuance under the
Company's 1996 Stock Option Plan, and (ii) 1,920,000 shares of Common Stock
issuable upon exercise of the Warrants and the Representative's Warrant.
See "Management" and "Principal Stockholders" and "Underwriting."
(2) Includes (i) the proceeds from the June 1996 Financing and the issuance of
141,666 shares of Common Stock in connection therewith; (ii) the repayment
of certain liabilities to related parties; (iii) the purchase of a minority
stockholder's interest in Chinatown, KIP and KAT Corp. in connection with
the settlement of the Preefer Litigation; and (iv) a capital contribution
to the Company of approximately $305,000 by certain principal stockholders
of the Company, all of which occurred in June 1996. See "Management
Discussion and Analysis of Financial Condition and Plan of Operation -
Liquidity and Capital Resources" and "Certain Transactions."
(3) Reflects the sale of 1,600,000 Shares of Common Stock and 1,600,000
Warrants pursuant to this Offering at an assumed price of $6.00 per Share
of Common Stock and $0.10 per Warrant, less offering expenses of
approximately $1,770,000 and the non-recurring, non-cash deferred financing
cost of approximately $830,000 relating to this Offering. In addition it
reflects repayment of the June 1996 Financing and accrued interest thereon
of $27,500 and related charge to operations for the total value of shares
issued as original issue discount of $850,000.
<PAGE>
DILUTION
After giving effect to the sale of 141,666 shares of Common Stock in
connection with the June 1996 Financing, the pro forma negative net tangible
book value of the Common Stock at March 31, 1996 was approximately ($456,526) or
($0.19) per share. Pro forma negative net tangible book value per share equals
the Company's total stockholders' equity, less the Company's intangible assets
of $1,833,492, divided by the number of shares of Common Stock outstanding after
the issuance subsequent to March 31, 1996 of shares of Common Stock in
connection with the June 1996 Financing. After giving effect to the sale by the
Company of the Securities in this Offering (and after deducting the underwriting
discount and the estimated offering expenses), the pro forma net tangible book
value at March 31, 1996 would have been $7,534,674, or $1.88 per share. This
represents an immediate increase in pro forma net tangible book value of $2.07
per share to current stockholders and an immediate dilution of $4.22 (69%) per
share to new investors purchasing Shares in this Offering. Dilution is
determined by subtracting (i) pro forma net tangible book value per share after
this Offering from (ii) the amount of cash paid by a new investor for a Share of
Common Stock. The following table illustrates the per Share dilution:
<TABLE>
<S> <C> <C>
Aggregate initial public offering price of one Share of Common Stock and one Warrant $6.10
Pro forma net tangible book value per share before this Offering(1) $(0.19)
Increase per share attributable to new investors $ 2.07
------
Pro forma net tangible book value per share after this Offering (2) $1.88
-----
Dilution per Share to new investors $4.22
=====
</TABLE>
- ------------
(1) Pro Forma net tangible book value reflects receipt the of the proceeds of
the June 1996 Financing and the related issuance of 141,666 shares of
common stock in connection therewith. In addition, it reflects (i) the
purchase of a minority shareholder interest, (ii) the payment of related
party loans and (iii) receipt of a capital settlement of the Preefer
Litigation in connection with the contribution from certain principal
stockholders. See "Certain Transactions" and "Management's Discussion and
Analysis of Financial Condition and Plan of Operation - Liquidity and
Capital Resources."
(2) If the Over-Allotment Option is exercised in full, the pro forma net
tangible book value would be $8,804,354 and dilution per Share to new
investors would be $3.90 (64%). The above table assumes no exercise of
outstanding options or warrants.
The following table sets forth as of March 31, 1996, on a pro forma
basis giving effect to the shares of Common Stock issued in connection with the
June 1996 Financing, the number and percentage of shares purchased, and the
amount and percentage of cash and other consideration paid by existing
stockholders for shares of Common Stock purchased from the Company and by new
investors (before deduction of the underwriting discount and other estimated
offering expenses):
<TABLE>
<CAPTION>
Shares Purchase Total Cash and Other Consideration
-------------------- ---------------------------------- Price
Number Percent Amount Percent Per Share
------ ------- ------ ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Existing Stockholders(1) 2,400,000 60% $2,079,960 18% $0.87
Public Investors 1,600,000 40% $9,760,000 82% $6.10(2)
--------- ----- ---------- ---
Total 4,000,000 100.00 $11,839,960 100.0%
</TABLE>
- ------------
(1) Includes a capital contribution of approximately $305,000 made by certain
stockholders in June 1996 and $850,000 attributable to the issuance of
141,666 shares of Common Stock in connection with the June 1996 Financing.
(2) Includes price of Warrant.
<PAGE>
DIVIDEND POLICY
Immediately prior to this Offering, the Company will declare the Final
Distribution in an amount equal to the accumulated undistributed taxable income
of each of KIP, Chinatown, Kat Corp. and T-Kat, respectively, through the date
of the Reorganization. The new investors in this Offering will not share in this
distribution which will be paid exclusively to the present partners and
stockholders of such entities. See "Reorganization and Final Partnership and S
Corporation Distributions."
The Board of Directors does not intend to pay out any other cash
dividends on the Company's Common Stock in the foreseeable future. The Board of
Directors presently intends to retain all earnings, if any, to finance the
development and opening of additional restaurant/nightclub units. The payment of
dividends in the future, if any, will be at the discretion of the Board of
Directors and will depend upon such factors as earnings levels, capital
requirements, the Company's financial condition and other factors deemed
relevant by the Board of Directors.
<PAGE>
SELECTED FINANCIAL DATA(1)
The selected financial data of the Company presented below have been
derived from the Consolidated Financial Statements of the Company, which have
been audited by Arthur Andersen, LLP, independent public accountants. The
selected financial data of the Company for the three months ended March 31,
1996, have been derived from financial statements which are not audited, but in
the opinion of management, such financial statements include all adjustments
necessary for a full presentation of the position and results of operations as
of such date and for such period. Results of operations for the three months
ended March 31, 1995 and March 31, 1996 are not necessarily indicative of
results for the full year. The following selected financial information should
be read in conjunction with the Consolidated Financial Statements and the
related Notes thereto and with "Management's Discussion and Analysis of
Financial Condition and Plan of Operations" included elsewhere in this
Prospectus.
Selected Financial Data:
<TABLE>
<CAPTION>
For the three
months ended
For the Years ended March 31,
December 31, (Unaudited)
--------------------- -------------------
1994 1995 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net revenue................................................... $2,773,042 $2,865,751 $ $ --
Food and beverage, promotional merchandise 633,117 620,099 -- --
General and administrative, rent expense to related
party.................................................... 1,845,632 1,907,526 136,811 130,234
Compensation expense -- -- -- 378,048
Other income (expense), net................................... (67,119) (65,612) (17,807) (15,466)
-------- -------- -------- --------
Income (loss) before income taxes............................. $227,174 $272,514 ($154,618) ($523,748)
Income tax provision -- -- -- --
----------- ---------- ----------- ------------
Net income (loss) $227,174 $272,514 ($154,618) ($523,748)
========= ========= ========== ==========
Net income (loss) per common share $0.09 $0.11 ($0.06) ($0.22)
========== ========== =========== ===========
Weighted average number of shares
outstanding(2) 2,400,000 2,400,000 2,400,000 2,400,000
Pro forma provision for income taxes(3)....................... 92,800 111,500 -- --
Pro forma net income (loss) before cumulative effect of
accounting change (3).................................... $134,374 $161,014 ($154,618) ($523,748)
Cumulative effect of accounting change for income
taxes(3)................................................. (22,100) -- -- --
--------- ---------- ---------- ----------
Pro forma net income (loss) (3)............................... $156,474 $ 161,014 ($154,618) ($523,748)
======== ========== ========== ==========
Pro forma net income (loss) per share $0.07 $0.07 ($0.06) ($0.22)
========== =========== =========== ============
Pro forma weighted average number of shares
outstanding(3)........................................... 2,400,000 2,400,000 2,400,000 2,400,000
</TABLE>
<PAGE>
Selected Balance Sheet Data:
<TABLE>
<CAPTION>
As of December 31 As of March 31, 1996
1994 1995 (Unaudited)
----------- ---------- --------------------
<S> <C> <C> <C>
Cash.......................................................... $ 92,838 $ 19,768 $ 15,317
Property and equipment, net................................... $ 628,972 $ 515,835 $ 493,368
Total assets.................................................. $ 797,212 $ 664,919 $ 1,588,552
Loan payable, related parties................................. $ 559,010 $ 405,158 $ 403,491
Interest payable.............................................. $ 100,028 $ 32,554 $ 43,106
Total current liabilities..................................... $ 989,148 $ 965,469 $ 1,230,374
Stockholders equity (deficit)................................. ($191,936) ($300,550) $ 358,178
Working capital (deficiency).................................. ($864,927) ($901,154) ($1,097,237)
</TABLE>
- -------------------------
(1) The Selected Financial Data gives effect to the Reorganization and sets
forth on a combined basis the operations of KIP, Kat Corp. and T-Kat. See
"The Company" and "Reorganization and Final Partnership and S Corporation
Distributions."
(2) Weighted average number of shares outstanding for both historical and pro
forma amounts, gives effect to the Reorganization and the issuance of
141,666 shares in connection with the June 1996 Financing. See
"Reorganization and Final Partnership and S Corporation Distributions."
(3) Prior to the consummation of this Offering, the Company has not been
subject to income taxes. Upon consummation of this Offering, the Company
will be subject to federal corporate income taxes and Pennsylvania and New
Jersey corporate income taxes. Accordingly, pro forma net income and pro
forma net income per share for all periods presented reflects a provision
for income taxes as if the Company had been subject to federal and state
income taxes. See "The Company and "Reorganization and Final Partnership
and S Corporation Distributions."
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND PLAN OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and
Plan of Operations and other parts of this Prospectus contain forward-looking
information that involve risks and uncertainties. The Company's actual results
could differ materially from those anticipated by such forward-looking
information. Factors that may cause such differences include, but are not
limited to, those discussed under "Risk Factors" and elsewhere in this
Prospectus. This Management's Discussion and Analysis of Financial Condition and
Plan of Operations should be read in conjunction with the Company's consolidated
financial statements and notes thereto, included elsewhere in this Prospectus.
Overview
The Company owns and operates a restaurant/nightclub featuring live
musical entertainment and dancing in a "tropical island paradise" setting.
KatManDu-Philadelphia, a 17,425 square foot restaurant/nightclub facility
located on the Delaware River waterfront in Philadelphia, Pennsylvania, opened
in May 1991. The total cost of developing, constructing and opening
KatManDu-Philadelphia was approximately $1.12 million, which included
approximately $630,000 for the design and construction $441,000 for equipment,
furniture and fixtures and $47,000 for other costs. The restaurant area of
KatManDu-Philadelphia has a seating capacity of 160 to 180 persons. In addition,
there is a 100 linear foot bar in an approximately 1,600 square foot main bar
area (the "Main Bar") that can accommodate up to 250 people and a 4,400 square
foot nightclub area that contains a dance floor, full-service "Tiki" bar,
performance stage and deejay booth that can accommodate another 1,200 persons.
Rental payments under the lease for the premises occupied by
KatManDu-Philadelphia (the "Philadelphia Lease") currently are $50,000 per year.
In March 1997 the annual rent under the Philadelphia Lease will increase to the
greater of (i) $50,000 increased by a cost of living adjustment and (ii) 4% of
KatManDu-Philadelphia's gross income. Because it is an outdoor facility,
KatManDu-Philadelphia is operational only 5 months a year from mid-April through
mid-September.
Revenue is generated primarily from the sale of food and beverages,
both alcoholic and non-alcoholic. In addition, there is a "gate charge"
collected from patrons as they enter the restaurant. The gate charge ranges from
$3.00 to $7.00 and is collected daily after 8:30 p.m. and beginning at 2:00 p.m.
on Saturdays and Sundays. Finally, the Company derives revenue from the sale of
merchandise (i.e., T-shirts, sweatshirts, caps, jackets, bags, etc.) featuring
the KatManDu name and logo.
General and administrative expenses include all corporate and
administrative functions that serve to support existing operations and provide
an infrastructure to support future growth. Management, supervisory and staff
salaries, employee benefits, travel, data processing, training, rent and office
supplies are major items of expense in this category. The majority of these
costs are variable and will increase with sales volume. Management projects that
when a new KatManDu restaurant/nightclub opens, it will incur higher than normal
levels of labor costs as new personnel complete training. Management believes,
however, that as the new staff gains experience, hourly labor schedules over the
ensuing 30-60 day period will be gradually adjusted to provide operating
efficiencies similar to those at KatManDu-Philadelphia.
KatManDu-Trenton. The Company plans to open a second
restaurant/nightclub, KatManDu-Trenton, in January 1997. The Company will incur
significant expenses during the next six months to complete the development of
KatManDu-Trenton. The Company estimates that the total cost of developing and
opening KatManDu-Trenton will be approximately $3.75 million which includes
approximately $2.25 million for construction costs, approximately $600,000 for
furniture, fixtures and equipment and the balance for other costs. The total
cost of developing KatManDu-Trenton will be financed with the proceeds of the
Construction Loan, anticipated to be in the amount of $2.5 million, and the net
proceeds of this Offering. Upon completion of KatManDu-Trenton and the issuance
of a certificate of occupancy with respect thereto, the Construction Loan is
expected to be repaid with permanent financing made available through the NJEDA.
<PAGE>
Plan of Operation. Immediately following this Offering and until such
time as KatManDu-Trenton is operational, the Company's sole source of revenue
will be KatManDu-Philadelphia. However, KatManDu-Philadelphia closes for the
season in mid-September and KatManDu-Trenton is not expected to commence
operations until January 1997. Future revenues and profits of the Company will
depend upon various factors, including the continued success of
KatManDu-Philadelphia, the success of KatManDu-Trenton, the opening of
additional restaurant/nightclubs, market acceptance of the KatManDu concept and
general economic conditions. In addition to the continued seasonal operation of
KatManDu-Philadelphia and the continued development and, ultimately, the
operation of KatManDu-Trenton, the Company's plan of operation for the next 12
months is to develop at least one additional restaurant/nightclub. The Company
believes that cash flow from operations, together with the proceeds from this
Offering will be sufficient to satisfy the Company's working capital
requirements for at least the next 12 months.
The Company believes that cash flow from operations, the proceeds of
this Offering and other forms of site specific financing (i.e., landlord
contributions, capital leases, and mortgage financing) should be sufficient to
develop one to two additional restaurant/nightclubs in 1997 another two in 1998.
The Company estimates that the costs of developing and opening new
restaurant/nightclubs will range from $3.5 million to $5.0 million, depending
upon location, site conditions, construction costs, and size and type of the
restaurant/nightclub. This sum represents all costs relative to constructing,
developing and opening a new restaurant/nightclub, including but not limited to
architectural and design fees, permit costs, engineering costs, construction
costs, initial food, liquor and merchandise inventory, furniture and fixtures,
initial staffing and employee training costs, ground breaking and grand opening
costs, and initial marketing and promotional costs. The Company expects that it
will incur approximately $650,000 in preopening costs and purchase approximately
$750,000 of inventory, fixtures and equipment in connection with the opening of
each restaurant/nightclub. However, the Company may require additional capital
in the future through securities offerings and debt financings to expand its
business operations if cash flow from operations is less than anticipated and/or
site specific financing is not available on terms acceptable to the Company.
Generally, the Company will capitalize the construction costs relating to the
construction of a new restaurant/nightclub, and will treat all preopening costs,
including the cost of hiring and training the initial workforce, travel,
promotion and advertising expenses, as period costs and expense them as
incurred.
There can be no assurance that the Company will successfully implement
its expansion plans, in which case the Company will continue to be dependent on
the revenues from KatManDu-Philadelphia and, eventually, KatManDu-Trenton as
well. The Company also faces all of the risks, expenses and difficulties
frequently encountered in connection with the expansion and development of a new
business. Furthermore, to the extent the Company's expansion strategy is
successful, it must manage the transition to multiple site operations, higher
volume operations, the control of overhead expenses and the addition of
necessary personnel.
To date, merchandise sales (i.e., T-shirts, sweatshirts, caps, jackets,
and other clothing and novelty items bearing the KatManDu logo) have constituted
only a small portion of total revenues. The Company will attempt to increase its
sale of promotional merchandise as a percentage of total revenues through more
aggressive marketing of the KatManDu concept and by increasing the amount of
floor space in each unit reserved for the display and sale of such merchandise.
For example, in KatManDu-Philadelphia the retail area occupies approximately 80
square feet. In KatManDu-Trenton, the retail area has been allocated
approximately 260 square feet. However, there can be no assurance that an
increase in the amount of retail area will result in higher sales. See "Risk
Factors - Intellectual Property; Proprietary Marks."
Results of Operations for the Three Months Ended March 31, 1996 and 1995
KatManDu-Philadelphia is not open for business during the first
calendar quarter of the year because it is exclusively an outdoor facility.
Accordingly, the Company had no revenues for the three months ending March 31,
1996 and 1995. However, the Company did have general administrative expenses of
$130,234 for the three months ended March 31, 1996 and $136,811 for the three
months ended March 31, 1995. These expenses consisted primarily of amortization
and depreciation, interest, payroll, rent and employee benefits.
<PAGE>
Results of Operations for the Years Ended December 31, 1995 and 1994
Revenue. The Company's revenues consist of food and beverage revenues,
gate revenues, banquet revenues and merchandise revenues. Total revenues
increased 3.3% to $2,953,301 in 1995 from $2,860,223 in 1994. This was primarily
due to a more successful advertising and promotion strategy as well as more
favorable weather conditions in the latter half of the season. Food and beverage
revenues were $2,487,085 in 1995, representing 84.2% of gross revenues versus
$2,451,992, or 85.7%, in 1994. This percentage decline reflects increases in
revenues from other sources, such as gate charges and sales of promotional
merchandise. Sales of promotional merchandise increased 24.7% to $45,793 in 1995
from $36,713 in 1994 as a result of a broader selection, better quality goods
and a more concerted selling effort. One of the Company's business goals is to
increase sales of promotional merchandise as a percentage of total revenues.
Accordingly, the selection offered has been expanded in the current year as well
as the amount of floor space devoted to selling such merchandise.
Costs and Expenses. Costs and expenses, as a percentage of net revenues
was approximately 88.2% in 1995 and 89.4% in 1994. This primarily resulted from
improved operating efficiencies and cost controls. Food and beverage costs
decreased by $27,280 to $585,115 in 1995 from $612,395 in 1994. Thus, as a
percentage of revenues, food and beverage costs decreased to 20.42% in 1995 from
22.08% in 1994. Payroll for management and operations personnel, not including
employee benefits and officers' payroll, totaled $438,795 or 15.31% of net
revenues in 1995 and $499,409 or 18.01% of net revenues in 1994. Advertising and
promotion declined to 4.4% of net revenues in 1995, from 6.4% of net revenues in
1994. The cost for bands and musicians also decreased in 1995 to 7.6% of net
revenues from 10.1% of net revenues in 1994.
Liquidity and Capital Resources
Since inception, the principal capital requirement of the Company has
been funding KatManDu-Philadelphia (including furniture, fixtures and equipment
therein). The Company has been able to meet its capital requirements through
cash flow generated by KatManDu-Philadelphia and by borrowing funds from various
sources, including related parties. As of December 31, 1995, the Company had
cash on hand of $19,768, a working capital deficiency of $901,154 and had total
liabilities of $965,469 of which $405,138 was owed to related parties. As of
March 31, 1996, cash on hand was $15,317, the working capital deficiency was
$970,937 and total liabilities were $1,104,074 of which $403,491 was owed to
related parties.
Since 1994, the Company has also been funding the development of
KatManDu-Trenton. The Company has recently entered into a lease (the "Trenton
Lease") pursuant to which it has the right to occupy a 21,500 square foot site
which includes a 10,000 square foot landmark building on the Delaware River
waterfront in Trenton, New Jersey, and to develop and operate therein a KatManDu
restaurant/nightclub. The Trenton Lease is a 30-year lease. Rent payable under
the Trenton Lease is 2% of revenues derived from KatManDu-Trenton but may not be
less than $50,000 nor more than $100,000 per year, which amount will increase
every three years to reflect the increase in the consumer price index for the
Philadelphia/New Jersey region over such period. In addition, The Company is
responsible for all real estate taxes and operating expense attributable to the
property. The Company anticipates that KatManDu-Trenton will be complete and
open to the public in the last quarter of 1996.
As of July 17, 1996, the Company has expended approximately $412,000 in
connection with the development of KatManDu-Trenton. It is anticipated that the
total cost of developing and opening KatManDu-Trenton will be $3.75 million
which amount includes all pre-opening expenses as well as the cost of furniture,
fixtures and equipment. The Company will borrow approximately $2.5 million from
Equity National Bank in the form of a construction loan to develop
KatManDu-Trenton. The balance of the development costs will be paid out of the
proceeds of this Offering. Accordingly, the Company is dependent on the proceeds
of this Offering to complete the development of KatManDu-Trenton. Upon
completion of the development of KatManDu-Trenton and the issuance of a
certificate of occupancy with respect thereto, it is anticipated that the NJEDA
will provide permanent financing to replace the Construction Loan.
<PAGE>
In June 1996, the Company closed the June 1996 Financing pursuant to
which it sold its 10% promissory notes in the aggregate principal amount of $1.1
million (the "Notes") to accredited investors. The Notes bear interest at 10%
per annum, payable monthly in arrears. In addition, the Company issued 141,666
shares of Common Stock to the purchasers of the Notes. The Notes and accrued
interest thereon, are due upon the earlier of (i) the day following the day of
the closing with respect to this Offering and (ii) May 31, 1998. In the event a
closing with respect to this Offering has not occurred prior to February 28,
1997, the Company has the option to redeem the shares of Common Stock issued to
the purchasers of the Notes at a fixed price which increases over time. Said
option may be exercised by the Company only if it has repaid the entire
principal balance of and accrued interest on the Notes.
To date, the Company has expended approximately $600,000 of the
proceeds of the June 1996 Financing. Of such amount, $225,000 was used to
purchase the minority interest of a stockholder of the Company in connection
with the settlement of the Preefer Litigation and approximately $120,000 was
used to pay expenses related to the development of KatManDu-Trenton. The balance
was used to pay other obligations and expenses of the Company, including
expenses relating to this Offering. The Company intends to use the balance of
the proceeds of the June 1996 Financing in connection with the development of
KatManDu-Trenton. The repayment of the June 1996 Financing will result in a
non-recurring, non-cash charge to earnings of $850,000 representing original
issue discount attributable to the issuance of 141,666 shares of Common Stock to
the purchasers of the Notes. The June 1996 Financing, and accrued interest
thereon, will be repaid out of the proceeds of the Offering. See "Use of
Proceeds" and "Certain Transactions."
Shortly after the consummation of this Offering, the Company will
determine the exact amount of and make the Final Distribution. The Company has
agreed that the Final Distribution will not exceed $450,000.
Future KatManDu restaurant/nightclubs will be financed, in part, with
the proceeds of this Offering remaining after completion of KatManDu-Trenton,
cash flow from operations and other forms of site specific financing, such as
landlord concessions, mortgage financings and capital leases. In the event cash
flow from operations and/or site specific finance is insufficient for the
Company to meet its expansion plans, the Company will be required to seek other
forms of financing, including, possibly, the sale of equity (including,
potentially, Common Stock issued in connection with the Warrants offered hereby)
and debt securities. There are no assurances that such financing will be
available or if available, that the terms of such financing will be acceptable
or favorable to the Company.
It is not anticipated that the Company's business will require
substantial working capital to meet its operating requirements. Virtually all of
the Company's revenues are collected in cash or pursuant to credit card
processing.
Food and beverage inventories are expected to increase in relation to
trade accounts payable.
<PAGE>
Financial Reporting
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long Lived Assets and for Long Lived Assets to Be Disposed Of"
("SFAS 121") This statement establishes financial accounting and reporting
standards for the impairment of long lived assets, certain identifiable
intangibles, and goodwill related to those assets to be held and used, and for
long lived assets and certain identifiable intangibles to be disposed of. This
statement is effective for financial statements for fiscal years beginning after
December 15, 1995, although earlier application is encouraged. The Company does
not expect that the adoption of SFAS 121 will have a material effect on its
consolidated financial statements.
The FASB issued Statement of Financial Accounting Standards No. 123,
"Accounting for Stock Based Compensation" ("SFAS 123"), which will require
companies either to reflect in their financial statements or reflect as
supplemental disclosure the impact on earnings and earnings per share of the
fair value of stock based compensation using certain pricing models for the
option component of stock option plans. It is the Company's intention to
continue to account in its basic financial statements under the general
philosophy of Accounting Principles Board Opinion No. 25, as allowed under the
new standard, which measures only the intrinsic option value as compensation.
Disclosure, as required by SFAS 123, will be made commencing with the Company's
financial statements for the year ending December 31, 1996 and will reflect the
impact of the compensation for options issued in 1996 in the Notes to the
Consolidated Financial Statements. Accordingly, SFAS 123 has no impact on the
financial position and results of operations for any period described herein.
Quarterly Fluctuations in Revenues, Seasonality and Inflation
As a result of the substantial revenues associated with each new
KatManDu restaurant/nightclub, the timing of new restaurant/nightclub openings
will result in significant fluctuations in quarterly results. It is expected
that revenues will be greatest in the third quarter as a result of seasonal
traffic increases. KatManDu-Philadelphia is solely an outdoor facility.
Accordingly, the performance of KatManDu-Philadelphia is further subject to
weather conditions. KatManDu-Trenton and, it is anticipated, most subsequent
restaurant/nightclubs will have both indoor and outdoor restaurant/nightclubs.
Accordingly, they will have revenues all year-round and the weather will not be
as much of a factor.
The primary inflationary factors affecting the Company's operations
include food and beverage and labor costs. In addition, the Company's leases
require the Company to pay taxes, maintenance, repairs and utilities, and these
costs are subject to inflationary increases. The Company believes low inflation
rates have contributed to relatively stable costs. There is no assurance,
however, that low inflation rates will continue.
<PAGE>
BUSINESS
The Company owns and operates, under the name "KatManDu", a casual
dining, outdoor restaurant/nightclub, located on the Delaware River waterfront
in Philadelphia, Pennsylvania. KatManDu is designed to replicate a mythical
tropical island paradise vacation setting by featuring quality food, friendly
service, live musical entertainment and dancing. It is an outdoor
restaurant/nightclub and is therefore open only from mid-April until
mid-September. KatManDu-Philadelphia has a total area of approximately 17,425
feet. The dining area has a seating capacity of 160-180 persons. The nightclub
area, approximately 4,400 square feet, can accommodate up to 1,200 persons and
includes a stage for live performances, a sound booth for recorded music, a
dance floor and a full service "Tiki" bar. In addition there is also a 1,600
square foot "Main Bar" area which includes a 100 linear foot bar and which can
accommodate an additional 250 people.
The Company is planning to open a second restaurant/nightclub in
January 1997 on a 21,500 square foot site on the Delaware River waterfront in
Trenton, New Jersey ("KatManDu-Trenton"). The Company has entered into a 30-year
lease for the site which includes a 10,000 square foot historic landmark
building. KatManDu-Trenton is designed to operate year round, having separate
indoor and outdoor restaurant/nightclubs, each with its own separate restaurant
and nightclub areas and Main Bar. The outdoor restaurant/nightclub, which will
only be used from mid-April through mid-September, will have a 2,400 square foot
dining area with a seating capacity of 160-180 persons, a 800 square foot "Main
Bar" area which includes an 80 linear foot bar which can accommodate
approximately 200 people and a 4,100 square foot nightclub area, which includes
a stage, a deejay booth, a dance floor and a full-service "Tiki" bar which can
accommodate up to 900 persons. The indoor restaurant/nightclub will be open year
round. In the summer season (mid-April through mid-September), weather
permitting, the indoor stage will be disassembled and the nightclub area of the
indoor restaurant/nightclub will be used as additional restaurant seating. It
will have a total of approximately 5,000 square feet and will accommodate up to
350 people for dinner and cocktails or 100 people for dinner and up to 650
people in the nightclub area.
The Company estimates that the total cost to develop, construct and
open KatManDu-Trenton will be $3.75 million. The Company will finance this cost
with the proceeds of a $2.5 million construction loan, for which the Company has
already received a commitment from Equity National Bank, and the proceeds of
this Offering. In addition, the Company's application to the NJEDA for a $2.5
million loan to repay the Equity National Bank upon completion of
KatManDu-Trenton has been approved.
The Company believes that the popularity of theme restaurants in
general, when combined with its high-quality, moderately-priced food, live
musical entertainment and dancing will make KatManDu restaurant/nightclubs a
destination restaurant for residents and tourists that will be able to compete
with other theme restaurants. Management believes that the Company has refined
its menu and overall restaurant operations and successfully demonstrated
consumer acceptance of the KatManDu concept. KatManDu-Philadelphia has attracted
a culturally diverse, multi-aged customer base. After dinner and on Saturday and
Sunday afternoons and evenings, when live music is featured, KatManDu attracts
young adults and active older adults drawn to its music-filled, environment. At
other times KatManDu provides a more relaxed atmosphere appealing to business
people and families. The Company's strategy is to develop and operate additional
restaurant/nightclubs on waterfront and other locations in cities with favorable
demographics where the KatManDu theme will have broad appeal to local residents
and tourists. In addition to KatManDu-Trenton, the Company anticipates
developing one to two other KatManDu restaurant/nightclubs in 1997 and two more
in 1998 with the proceeds of this Offering, cash flow from operations and other
site specific financing, such as landlord concessions, mortgages and capital
leases.
<PAGE>
Industry Overview: Theme Restaurants
In recent years theme restaurants have gained increasing popularity, as
a number of such restaurants featuring a variety of different themes have
opened. The two most popular and well known restaurants of this genre are Planet
Hollywood(R) and Hard Rock Cafe(R), both of which combine an entertainment
component with a casual dining atmosphere. Aside from enhancing the dining
experience, the entertainment component also provides an additional revenue
stream, predominantly from merchandise sales. Patrons of theme restaurants have
evidenced a willingness to purchase souvenir T-shirts, hats, mugs, and other
times bearing the logo and reflecting the lifestyle of the particular theme
restaurant. These retail sales are typically at higher profit margins than food
and beverage sales, inclusive of labor costs.
It is estimated that the theme casual dining segment of the restaurant
industry, which is considered an emerging segment of the industry, in 1996 will
have revenues of $1 billion and $5 billion by the year 2000. The Company
believes that it has successfully demonstrated consumer acceptance of its
tropical island paradise theme and, therefore, is will positioned to take
advantage of the growth of this segment of the restaurant industry.
The KatManDu "Tropical Island Paradise" Vacation Theme
Each KatManDu restaurant/nightclub will be modeled on
KatManDu-Philadelphia in terms of decor, menu, entertainment and ambiance.
"Tropical Island Paradise Theme." Each KatManDu restaurant/nightclub
will be designed to simulate a tropical island paradise setting through use of
multi-level natural wood decking, tenting, tropical foliage and large aquariums
filled with exotic coral reef fish. Each KatManDu restaurant/nightclub will
either be situated in a waterfront setting or in a setting simulating a
waterfront location. In addition, the focal point for each KatManDu
restaurant/nightclub will be a large centrally located, tent covered Main Bar
serving a complete array of alcoholic and non-alcoholic drinks, many of them
using tropical fruit juices and extracts with descriptive names evoking the
tropical island paradise theme. By replicating the outdoor island environment in
temperate-zone, well populated urban and suburban locations, KatManDu attempts
to provide a short vacation-break feeling for its patrons.
Menu. Following its tropical island theme, KatManDu has created a
menu which draws on diverse culinary influences such as the Caribbean, the
Middle East, Central America and traditional American. The menu features an
eclectic array of regional specialties, such as Caribbean Black Bean Chile, Crab
Quesadilla, Grilled Jamaican Chops, Thai Chicken, Shrimp Dim Sum, Crab Cakes,
Mushroom Lasagna, Santa Fe Salad, Jambalaya, Grilled Salmon, Roasted Eggplant
and Olive Hummus, sorbets served in natural lemon, coconut, peach and other
casings, Chocolate Pecan Pie, Cheesecake and Key Lime Pie but also includes a
wide variety of appetizers, soups, pastas, sandwiches, salads, burgers and
full-platter entrees and deserts. Menu items are prepared on-site using fresh,
quality ingredients. A children's menu is also available. The price range of
salads and appetizers is $3.75 to $11.95. Lunch and dinner entrees range in
price from $6.95 to $16.95 with daily specials which add a diverse and more
expensive alternative. Portions are generous and significant attention is placed
on presentation and preparation. Because the menu is not tied to any particular
type of food or beverage, the Company can introduce and eliminate items based on
local or current consumer trends without altering its tropical island paradise
theme. The Company endeavors to hire experienced chefs and invests substantial
time training kitchen employees to maintain consistent food preparation. Since
the Company considers its extensive menu selection to be an important factor in
its appeal, continuous attention is devoted to the development of new menu
items.
<PAGE>
Nightclub Operations. Each KatManDu restaurant will include a large
dance area and adjoining full-service "Tiki" bar, a stage for live musical
entertainment and a deejay booth. The mood of the nightclub will be casual and
informal. Musical entertainment is continuous, alternating between live shows
and pre-recorded music. The entertainment format draws on an eclectic mix of
musical styles generally referred to as World Music, which is designed to have
universal appeal. Under this "World Music" banner, KatManDu-Philadelphia has
established itself as a major venue for Reggae, Soca, Calypso and other
Caribbean music, as well as Brazilian, Latin, Afro-Pop, traditional American
Rhythm & Blues, Rock and Roll, and the latest in Modern Rock and New Music from
around the globe. KatManDu-Philadelphia has demonstrated the strong appeal of
this music to people of all ages, cultures and nationalities.
The KatManDu music program is formulated and implemented by a house
booking agent. The house booking agent maintains contacts with record company
representatives, tour packages and booking agencies throughout the country and
the world. Much of the information regarding new and exciting acts is gleaned
from trade publications such as Billboard Magazine and general interest music
publications such as Rolling Stone, Pulse, Spin, Reggae Report, and others.
On-going involvement in talent booking and event promotion, has introduced
KatManDu into the network of professional entertainment artists and agents.
Through its reputation for major live music event presentations, KatManDu has
developed its own stable talent, including regional, national and international
performers.
Sound/Lighting/Ambiance. Sound and lights adjust through the afternoon
and evening hours to create the desired level of energy and excitement within
the dining environment. The ambiance of the restaurant is enhanced both by the
display and exhibition of items intended to evoke a tropical paradise island
theme and by the use of lighting and audio techniques.
Restaurant Operations.
KatManDu-Philadelphia operates seven days per week, from 11.30 a.m.
until 2.00 a.m. from mid-April through mid-September. It is closed the rest of
the year. There is a small retail area of approximately 80 square feet that
offers promotional merchandise featuring the Company's logo.
KatManDu-Trenton has been designed as two separate, fully functional
restaurant/nightclubs, one indoor and one outdoor. The outdoor area will be
closed from mid-September through mid-April but the indoor area will be
available for year-round use. KatManDu-Trenton will have a retail area of
approximately 260 square feet for sales of the Company's promotional
merchandise.
The configuration of future KatManDu restaurant/nightclubs will
generally follow the format of KatManDu-Philadelphia and KatManDu-Trenton,
depending on whether they will be solely outdoor or year-round facilities. In
addition, each restaurant/nightclub will take into account such factors as the
size and location of the unit, local tastes, demographics and other relevant
considerations.
<PAGE>
Expansion Plans and Site Selection.
The Company believes that the KatManDu concept has broader appeal than
other theme-based restaurants. KatManDu-Philadelphia has attracted a culturally
diverse, multi-aged customer base. After dinner and on Saturday and Sunday
afternoons and evenings, when live music is featured, KatManDu-Philadelphia
attracts young adults and active older adults drawn by its music filled
environment and dancing. At other times, KatManDu-Philadelphia provides a more
relaxed atmosphere appealing to business people and families. The Company's
business strategy is to use the "KatManDu" theme developed and refined at
KatManDu-Philadelphia in additional restaurant/nightclubs in other markets,
particularly on waterfront sites. The Company believes that the KatManDu
physical environment, ambiance, menu and live music and dance format can be
replicated in other markets. Expansion will be facilitated by food, beverage and
general managers trained at KatManDu-Philadelphia, a number of whom would be
available for employment at new sites Unlike KatManDu-Philadelphia, most new
restaurant/nightclubs are expected to operate on a year-round basis. While the
Company has not yet arranged to purchase or lease sites in the areas being
considered for future development other than Trenton, New Jersey, it currently
expects to develop one or two other KatManDu restaurant/nightclubs in 1997 and
two more in 1998. The Company will target waterfront locations, in urban areas
with favorable demographics, such as Atlantic City, New Jersey, the New York
metropolitan area, Washington, D.C., Baltimore, Maryland, Los Angeles,
California, Las Vegas, Nevada, Vancouver, British Columbia
and Miami and Orlando, Florida.
By expanding its operations and building additional KatManDu
restaurant/nightclubs, the Company is seeking to increase its name brand
recognition and establish a secondary meaning in the marketplace for "KatManDu."
The Company believes that this will have a favorable impact on the Company's
business operations, particularly with respect to merchandise sales. By
emphasizing the high quality of its food and offering an exciting entertainment
dining experience, the Company believes that it will be able to appeal to a
broad consumer base, and specifically those individuals who patronize theme
restaurants.
The Company plans to pursue a number of different expansion
possibilities. First, the Company will seek to establish KatManDu
restaurant/nightclubs in high profile, heavy-traffic, waterfront locations. The
waterfront locations enhance the tropical island paradise sensation. In
addition, by being in such locations, the Company believes its restaurants
appeal to both destination customers as well as passers-by who are drawn to its
visually and audibly exciting environment. The Company may acquire such sites
outright, lease them and build the facility itself or enter into an arrangement
where the owner of the property would develop the restaurant/nightclubs
(build-to-suit). Secondly, the Company will consider locating future restaurants
in malls and attempt to create the tropical island paradise setting through the
use of artificial pools, foliage etc. The Company will also consider non-mall,
high traffic entertainment complexes, such as multiscreen movie complexes,
stadium venues and similar sites and will further consider joint venture
arrangements with real estate developers or other theme restaurant companies.
Typical KatManDu restaurants are expected to be between 20,000 and
30,000 square feet and cost between $3.5 million and $5.0 million to develop
which includes the cost of furniture, fixtures and equipment and pre-opening
expenses. The Company will seek to secure landlord contributions towards the
development of new restaurant/nightclubs. However, the actual cost of developing
a KatManDu restaurant/nightclub will be dependent on several factors, including,
but not limited to, the Company's decision to lease or purchase the real
property and to renovate an existing building or construct a new facility and
the cost of labor and materials in the particular market.
<PAGE>
Successful expansion of the Company's operations will be largely
dependent upon a variety of factors, some of which are currently unknown or
beyond the Company's control, including: customer acceptance of the KatManDu
concept in new geographic areas; the ability of the Company to identify suitable
sites and to negotiate leases or purchases of such sites; timely and economic
development and construction of facilities; the hiring of skilled management and
other personnel; the ability of the Company to apply its standardized policies
and procedures to a much larger number of facilities; the availability of
adequate financing; the general ability to successfully manage growth (including
monitoring restaurants, controlling costs and maintaining effective quality food
and service controls); and the general state of the economy. The development of
future restaurant/nightclubs will be financed from cash flow from operations,
the proceeds of this Offering, mortgage and other site specific financing,
including landlord concessions, build-out allowances and capital leases. There
can be no assurance the Company will be able to open new restaurant/nightclubs
at the planned rate of expansion, or at all. In addition, further increases in
the number of restaurant/nightclubs, or opening restaurant/nightclubs at a
faster pace or cash flows at levels lower than currently anticipated will
require additional debt or equity financings. No assurance can be given that
cash flow from operations combined with these other financings, if any, will be
sufficient to fund the cost of developing a new restaurant/nightclub. The
Company may encounter difficulties obtaining adequate financing for expansion.
In addition, it is expected that the opening of new restaurant/nightclubs will
give rise to additional expenses associated with managing restaurants located in
multiple markets. There is no assurance that suitable sites for additional
restaurant/nightclubs will be obtained on desirable terms, that adequate
financing for the Company's expansion plans will be obtained or that any
additional restaurant/nightclub units, if developed, would be profitable.
Management and Employees
Management believes that an employee oriented culture creates a sense
of personal responsibility among all employees, and pride in the Company's
products, resulting in a higher level of customer service. By providing
extensive training and attractive compensation, the Company fosters a strong
corporate culture and encourages a sense of personal commitment from its
employees. The Company believes its compensation structure and positive
corporate culture enable it to attract and maintain quality employees. The
Company will place particular emphasis on the hiring of the General Manager of
each restaurant/nightclub unit, focusing on experience and management skills.
The Company's ability to manage a complex operation will be central to
its overall success. The Company believes that its management must include
skilled personnel at all levels. The Company's senior corporate management,
including the Company's Co-Chairmen and Co-Chief Executive Officers, S. Lance
Silver and Stuart N. Harting, has significant experience in the restaurant and
real estate industries. In addition, the Company's Executive Vice
President-Operations and Chief Operating Officer, Bruce Waugh, has almost 20
years experience in the restaurant industry. At the restaurant operational
level, the Company places specific emphasis on the position of General Manager,
seeking employees with significant experience and management expertise. The
General Manager of each restaurant/nightclub will report directly to the Chief
Operating Officer. The Company plans to monitor quality and consistency in each
of its restaurant/nighclub through the careful training and supervision of
personnel and the establishment of high standards relating to personnel
performance, food and beverage preparation, and maintenance of facilities. The
Company believes that it has been able to attract high quality, experienced
restaurant and management and personnel with its competitive compensation and
bonus programs. Staffing levels will vary according to the size of each KatManDu
restaurant/nightclub.
The Company presently has approximately 132 employees, most of whom are
part-time employees. Generally, the Company prefers to hire the same employees
from season to season. The Company estimates that KatManDu-Trenton will employ
140-150 employees, most of whom will be full-time. The Company believes that its
relationship with its employees is good.
Service and Training. The Company is committed to providing its
customers with prompt, friendly and attentive service by staffing each KatManDu
restaurant/nightclub with an experienced management team and a high ratio of
service personnel to customers. The Company's commitment to customer service and
satisfaction is further evidenced by several Company practices and policies,
including periodic visits by restaurant management to customers' tables, active
involvement of restaurant management in responding to customer comments and
assigning waitpersons to a limited number of tables, generally four for dinner
and five for lunch. Teamwork is emphasized through a runner system for
delivering food to the tables that is designed to serve customers in an
efficient and timely manner.
<PAGE>
The Company believes that the training and knowledge of its employees
and the consistency and quality of the service they deliver are central to the
Company's success. Accordingly, each new restaurant employee of the Company
participates in a training program during which the employee works under the
close supervision of a restaurant manager or experienced key employees who are
familiar with Company policies. Generally, such training program is three weeks
for staff and twelve weeks for managers. Once hired, employees undergo training
in food quality and preparation and beverage preparation, customer service and
sales skills and employee relations. This includes written training materials
relating to food and beverage quality and service standards, lectures,
observation and simulation exercises. The final stage is in-store training where
employees work for a two week period implementing their newly learned skills.
Management strives to instill enthusiasm and dedication in its employees and to
create a rewarding working environment where employees know what is expected of
them in measurable terms. Management continuously solicits employee feedback
concerning restaurant operations and attempts to be responsive to the employee's
concerns.
Purchasing
The Company attempts to obtain consistent quality items at competitive
prices from reliable sources. In order to maximize operating efficiencies and to
provide the freshest ingredients for its food products while obtaining the
lowest possible prices for the required quality, each restaurant/nightclub
management team will determine the daily quantities of food items needed and
will order such quantities from major suppliers at prices often negotiated
directly with the Company's corporate office. Food and supplies will be shipped
directly to the particular restaurant/nightclub. The Company purchases
perishable food products locally. The Company does not maintain a central food
product warehouse or commissary. The Company has not experienced any significant
delays in receiving restaurant supplies and equipment. The Company is not
dependent on any one supplier for its restaurant goods.
Management Information Systems Accounting.
The Company uses an integrated management information system that is
designed to be utilized in all future KatManDu restaurant/nightclubs. This
system includes a computerized point-of-sale system which facilitates the
movement of customer food and beverage orders between the customer areas and
kitchen operations, controls cash, handles credit card authorizations, keeps
track of revenues on a per employee basis and provides management with revenue
data. The point-of-sale system is accessed by service personnel who are assigned
individual identification keys and appropriate information is printed in the
kitchen and bar areas which eliminates the need to read handwritten tickets. The
point-of-sale system electronically transfers data nightly into the Company's
computer system. The Company's automated point-of-sale system also provides data
for posting directly to the Company's general ledger and to other accounting
subsystems. The automated general ledger system provides various management
reports comparing current and prior operating results as well as measuring
performance against predetermined operating budgets. The results are reported to
and reviewed with Company management by accounting personnel. Such reporting
includes (i) bi-weekly reports of revenues, cost of revenues and selected
controllable unit expenses, (ii) detailed quarterly performance reports of
revenues and expenses and (iii) quarterly reports of administrative expense
performance. Informal inventories are done on a daily basis and formal
inventories are taken every two weeks for accounting purposes.
<PAGE>
Liquor Control System
KatManDu-Philadelphia uses a liquor control system as an alternative to
free-pouring. The system consists of a series of manifold trays mounted on
multi-level heavy duty shelving, with each tray having four manifolds. Each
manifold tray has a pump which is activated when a bartender pushes the
appropriate button, a series of which are available at each bartender station.
The buttons are programmed either for single liquor pours, for house liquors and
the more popular premium and requested liquors, or for multiple liquor drinks.
(The system is not used for beer and wine.) The manifold trays, liquor bottles
and pumps are located in a remote location from the bars in a "pump room." The
pump room is typically checked by a manager at the end of each night, or every
two hours during times of peak operations, to assure that nothing is running
out. For security, the pump room is always kept locked; only the general manager
and four assistant managers have the key. Additional accessory equipment
consists of such items as a control unit with interface boards that allows for
the integration of the liquor control system with the point-of-sale computer
system.
The liquor control system permits management to control and account for
every drink poured. By virtue of its interface with the point of sale system,
drinks are immediately rung up when poured once the drink button is pressed,
the product name and its price are immediately displayed on a digital read-out
found on the register and the price is entered. The drink cannot be voided once
entered and rung in.
The liquor control system has many advantages: it improves customer
satisfaction by producing drinks that are consistent; it lowers the liquor cost
by eliminating waste and loss due to overpouring, broken liquor bottles (no
bottles to be handled) or unauthorized comp drinks; it minimizes the need to
free-pour liquor; it increases the speed and efficiency of the bar staff; it
cuts down on labor costs for bartenders because one bartender can serve more
customers; it allows the Company to purchase liquor in 1.75 liter bottles which
are more economical than the standard 750 ml; and provides for securely stocking
a valuable liquor inventory in a remote location. The liquor control system also
provides the flexibility of programming 3 different pour sizes and 3 different
price levels per brand of liquor Basic maintenance can be performed on-site by
Company trained personnel. Also, on-site personnel can calibrate the system
without the need for a service personnel visit.
Marketing and Promotion
To date, the Company has relied primarily upon "word of mouth"
referrals, and local radio and print advertising to attract customers to
KatManDu-Philadelphia. The Company does direct mail and advertising to target
"house VIP" customer lists. In addition, a color newsletter is mailed to
approximately 5,000 people to promote specific programs, events and activities.
KatManDu-Philadelphia has also received a significant amount of positive media
publicity, particularly, for its support of many civic and charitable efforts
and as host for successful events for such organizations as the Red Cross,
Variety Club, Muscular Dystrophy Association, Cerebral Palsy, Leukemia Society,
Action Aids, the Ronald McDonald House, Miss America Pageant and others.
The KatManDu-Philadelphia musical entertainment format has contributed
significantly to the media and publicity profile of the business. Featuring
daily live music presentations totaling approximately ten shows each week
provides KatManDu wide exposure in a variety of media including newspapers,
magazines, radio and TV outlets throughout the region. The presentation of such
musical events provides an ongoing stream of highly promotable "news-making"
opportunities. Finally, the Company uses its promotional merchandise,
comfortable, colorful, casual clothing with a pre-washed look, to promote its
image of a tropical island paradise.
<PAGE>
Competition
The restaurant and nightclub businesses are highly competitive. Many of
the Company's competitors have well established reputations and identities and
possess substantially greater financial, marketing, personnel and other
resources than the Company. The Company believes that the principal competitive
factors within the restaurant and entertainment industries generally include the
uniqueness and perceived quality of the restaurant or attraction, its proximity
to a densely populated area, the atmosphere and cleanliness of the establishment
and the quality of food, beverage and entertainment available. The Company
believes its attention to and emphasis on providing continuous entertainment in
the form of live performances and prerecorded music of the highest quality and
dancing distinguish it from other theme restaurants. In addition, the Company is
one of only a few restaurants to feature a tropical island paradise theme.
The Company is aware of several other individuals and entities, some of
which have or may have substantially greater financial and marketing resources
than the Company, that have announced, or are contemplating plans to open theme
related restaurants or have actually opened such restaurants in some of the
markets where future KatManDu restaurant/nightclubs may be located. These
restaurants, as well as additional restaurants that may open, will offer direct
competition to the Company. In addition, the restaurant industry is also
generally affected by changes in consumer preferences; national, regional and
local economic conditions; and demographic trends. The performance of an
individual restaurant/nightclub may also be affected by factors such as traffic
patterns, demographic considerations, and the type, number and location of
competing restaurants. In addition, factors such as inflation, increased food,
labor and employee benefit costs, and the availability of experienced management
and hourly employees may also adversely affect the restaurant and retail
industries in general, and the Company's restaurant/nightclubs in particular.
Restaurant operating costs are further affected by increases in the minimum
hourly wage, unemployment tax rates and similar matters over which the Company
has no control.
Finally, to the extent that the Company generates revenues from the
sale of promotional merchandise, it is competing with other retail
establishments. The retail business is highly speculative and has traditionally
involved a high degree of risk. The success of retail business is dependent on a
variety of factors, including public taste, inventory selection and the
popularity of other retail outlets in the area. As in the case of the restaurant
business, the retail business is often affected by changes in consumer taste,
national, regional or local economic conditions, demographic-trends, traffic
patterns and the type, number and location of competing retail outlets.
Regulation
The Company is subject to federal, state and local laws affecting its
business, including various health, sanitation and safety standards, as well as
regulation of the sale of alcohol and beer. To date, the Company has not
experienced any difficulty in obtaining or maintaining the permits and licenses
necessary for the conduct of its business. However, the failure to receive or
retain, or delay in obtaining, a license to serve alcohol and beer in a
particular location could adversely affect the Company's operations in that
location and impair the Company's ability to obtain licenses elsewhere.
Restaurants in most states, including Pennsylvania and New Jersey, are subject
to dram shop laws and legislation which impose liability on licensed alcoholic
beverage servers for injuries or damages caused by their negligent service of
alcoholic beverages to a visibly intoxicated person or to a minor, if such
service is the proximate cause of the injury or damage and such injury or damage
is reasonably foreseeable. While the Company maintains liquor liability
insurance as part of its existing comprehensive general liability insurance,
which management believes is adequate to protect against such liability, there
can be no assurance that it will not be subject to a judgment in excess of such
insurance coverage or that it will be able to continue to maintain such
insurance coverage at reasonable costs. The imposition of a judgment
substantially in excess of the Company's insurance coverage would have a
material adverse effect on the Company. The failure or inability of the Company
to maintain insurance coverage could materially and adversely affect the
Company. The Disabilities Act prohibits discrimination on the basis of
disability in public accommodations and employment. The Company believes that
KatManDu-Philadelphia does and KatManDu-Trenton will be designed to comply with
the requirements of the Disabilities Act; however, the Company could be required
to further modify such restaurant/nightclubs to comply with the provisions of
the Disabilities Act. See "Risk Factors."
<PAGE>
Properties
The premises occupied by KatManDu-Philadelphia is leased by the Company
pursuant to a non-cancelable lease, (the "Philadelphia Lease"), expiring on
November 15, 2005, at a current rent of $50,000 per annum. Beginning March 1,
1997 the base rent under the Philadelphia Lease will be equal to the greater of
(i) $50,000 increased by a cost of living adjustment and (ii) 4% of
KatManDu-Philadelphia's gross income. The Company has also entered into a lease,
expiring September 30, 2001, (the "Elizabeth Lease") for the entire second deck
of the restaurant ship, Elizabeth, which is adjacent to KatManDu-Philadelphia.
The base rent under this lease is $50,000 per year. The Company uses such leased
premises as additional seating for its restaurant operations and for its
executive offices. The Philadelphia Lease and the Elizabeth Lease are with Pier
25 North and ERP, respectively, each an affiliate of the founders of the
Company. Finally, the Company leases approximately 4,500 square feet of storage
space from Powerhouse pursuant to a lease which expires on December 31, 1999 at
a rental of $6,000 per annum. In addition, the Company pays Powerhouse $12,000 a
year for the right to hang a sign on the building owned by Powerhouse.
Powerhouse is also an affiliate of the founders of the Company. See "Certain
Transactions."
The site leased by KatManDu-Trenton, consisting of approximately 21,500
square feet, is leased pursuant to a thirty-year non-cancelable lease (the
"Trenton Lease"), providing for annual rent equal to 2% of the gross revenues of
KatManDu-Trenton, but no less than $50,000 and no more than $100,000, subject to
adjustment every three years to reflect increases in the consumer price index
for the Philadelphia/New Jersey region during such period. In addition, the
Company is obligated pay all property taxes, assessments and utility charges
attributable to the premises covered by such lease.
Intellectual Property Rights
The Company's ability to successfully implement the KatManDu concept
will depend in part upon its ability to protect its proprietary marks. In 1992,
the Company's trade name KATMANDU(R) was registered as a service mark on the
Principal Register in the United States Patent and Trademark Office. The Company
regards its KATMANDU(R) service mark as having substantial value and being
important in its marketing program. Accordingly, the Company intends to protect
its service mark by appropriate legal action whenever necessary. The Company is
not aware of any infringing use of the KatManDu(R) service mark that could
materially affect its business. However, the Company is aware of local
restaurants which may be operating with tradenames including "KATMANDU" in a
number of remote areas which should not materially affect its business. The
Company is also aware of a nightclub operating as Club Kat-Man-Du on Hilton
Head Island, South Carolina.
In addition, the Company is aware that "KATMANDU" is a registered mark
for retail store services for the sale of women's apparel and apparel
accessories as well as for other products and services, and "KATMANDO" is a
registered mark for clothing. However, the Company believes that its use of
KatManDu with respect to the sale of merchandise in connection with its
restaurant/nightclub does not infringe on the rights of the owners of these
marks and accordingly, intends to continue to sell its promotional merchandise
for its restaurant/nightclubs.
Insurance
The Company maintains general liability and commercial insurance
(including liquor liability insurance) and product liability insurance to cover
customary risks inherent in the operation of its business in general. While the
Company believes that it maintains insurance policies which are adequate in
amount and coverage for its current operations, there can be no assurance that
coverage will continue to be available in adequate amounts or at a reasonable
cost.
Legal Proceedings
The Company is a named defendant in the case of Middleton v. Katmandu
Corp. et al, filed in the Court of Common Pleas, Philadelphia County. The action
arises out of an accident occurring on April 4, 1994 involving a pedestrian
struck by a drunk driver. Litigation counsel for the Company has advised that
the risk of an adverse judgment is minimal, in part because at the time of the
accident KatManDu-Philadelphia was closed for the season. The plaintiff sued the
Commonwealth of Pennsylvania, the city of Philadelphia and other land owners and
business owners around the site of the accident on North Columbus Boulevard,
alleging that the defendants had a duty to provide a safe passageway for
pedestrians. The case is currently at the discovery stage and has not yet been
scheduled for trial. The Company is not aware of any other threatened litigation
that would have a material adverse effect on its business.
<PAGE>
MANAGEMENT
Directors, Executive Officers and Key Employees of the Company
The following table sets forth certain information with respect to each
person who is a director or executive officer or key employee of the Company:
<TABLE>
<CAPTION>
Name Age Position
---- ----- ----------
<S> <C> <C>
S. Lance Silver..................... 53 Co-Chairman, Chief Executive Officer,
Co-President and Director
Stuart N. Harting................... 54 Co-Chairman, Co-President and Director
James R. Bergman.................... 51 Executive Vice President - Administration, Chief
Financial Officer, Secretary and Treasurer and Director
Bruce Waugh......................... 40 Executive Vice President - Operations and Director
David R. Gromacki................... 33 Senior Vice President-Executive Chef
Diane Thomsen....................... 29 Assistant Vice President and General Manager -
KatManDu-Philadelphia
David Wallack....................... 48 Director
Jill R. Felix....................... 52 Director
</TABLE>
S. LANCE SILVER co-founded the Company in 1990, and has served as its
Co-Chairman, Chief Executive Officer and Co-President since inception. Prior
to entering the restaurant business, Mr. Silver was a real estate developer and
a founder and principal of Silver & Harting, a real estate development and
mangement firm. Mr. Silver is an active member of the Philadelphia Waterfront
Business Association. Mr. Silver was a general partner of Hoopskirt Factory
Partners ("HFP"), a Pennsylvania limited partnership, which filed a petition for
relief under Chapter 11 of the U.S. Bankruptcy Code of 1978, as amended (the
"Bankruptcy Code"), in April 1993. The filing prevented the holder of the first
mortgage on the property owned by HFP from foreclosing. Alternative financing
was obtained and an order of dismissal was entered on November 1, 1994 and all
claims were paid in full. In addition, Mr. Silver was a principal stockholder
of a corporate general partner of Headhouse Associates, a Pennsylvania limited
partnership ("Headhouse"), which owned a leasehold and which filed for
protection under the Chapter 11 of the Bankruptcy Code in December 1991. Mr.
Silver received his degree in business administration and finance from Drexel
University.
<PAGE>
STUART N. HARTING co-founded the Company in 1990, and has served as its
Co-Chairman and Co-President since inception. Prior to entering the restaurant
business, Mr. Harting was a real estate developer and a founder and principal of
Silver & Harting, a real estate development and management firm. Mr. Harting is
an active member of the Philadelphia Waterfront Business Association, of which
he was President from 1992-1996. In addition, Mr. Harting is a Director of the
Delaware River Ferry Company. Mr. Harting was a general partner of HFP and a
principal stockholder of a corporate general partner of Headhouse. See
discussion above. Mr. Harting holds a business administration degree from Temple
University and has been a member of the Advisory Board of its business school
since 1990.
JAMES R. BERGMAN has served as a consultant to the Company since 1993.
He had been previously associated with Messrs. Silver and Harting from 1986
through 1990 when he joined their real estate development and management firm,
Silver and Harting. From 1990 to 1993 Mr. Bergman was a self-employed business
consultant. In January 1992, Mr. Bergman filed a petition for relief under
Chapter 7 of the Bankruptcy Code. On July 1, 1992, the Bankruptcy Court issued
an order of discharge under chapter 7 of the Bankruptcy Code. Mr. Bergman holds
a Masters in Business Administration, with concentrations in finance and
marketing, from the Harvard Business School and a Bachelor of Arts, with a major
in economics, from Columbia University.
BRUCE WAUGH, Executive Vice President-Operations of the Company, is a
restaurant and hospitality industry professional with 20 years experience in bar
and restaurant management. He joined the Company in March 1991. He performed a
vital role in planning and opening KatManDu-Philadelphia. He has been the
General Manager of KatManDu-Philadelphia since its inception. He has overseen
complete systems implementation, training and control. Mr. Waugh holds a
Bachelor of Science degree in business management from LaSalle University.
DAVID R. GROMACKI, Senior Vice President of the Company, has been the
Executive Chef of KatManDu-Philadelphia since its inception. From 1990 to 1991,
Mr. Gromacki was the Executive Chef at the Dock Street Restaurant, a micro
brewery pub & restaurant in Philadelphia. His prior positions were as the
Executive Chef and co-owner of the Main Street Bar and Grill, from 1984 through
1985, a fine dining restaurant/nightclub featuring jazz and blues in Lexington,
Kentucky and as Executive Chef at the Peppercorn Duck Club, from 1986 through
1988 a fine dining restaurant in the Hyatt Regency Hotel in Lexington, Kentucky.
Throughout this same period he was employed by Carmen Catering, a concert and
tour caterer. Mr. Gromacki served as Executive Chef of Woodstock 1994 and other
concert tours. Mr. Gromacki received in 1981 a Culinary Arts degree from Johnson
and Wales Culinary Institute in Providence, RI.
DIANE THOMSEN, Assistant Vice President of the Company since March
1996, has been employed by the Company since its inception. Ms. Thomsen is
currently the Assistant General Manager of KatManDu-Philadelphia with specific
responsibility as Beverage Director and, generally, overseeing all operations
while reporting to Mr. Waugh. Upon consummation of this Offering, the Company
intends to promote Ms. Thomsen to General Manager of KatManDu-Philadelphia. From
1988 to 1991, Ms. Thomsen was employed as Assistant Manager at Baci, a
Philadelphia-based fine dining restaurant/nightclub. She holds a marketing and
management degree from Temple University.
<PAGE>
DAVID WALLACK is the developer, owner and operator since 1991 of
Mango's Tropical Cafe, a restaurant/cabaret/nightclub situated in the center of
Ocean Drive in the heart of the famed Deco-District in Miami Beach, Florida. Mr.
Wallack received a B.A. from the University of Miami and a J.D. from Miami Law
School. He is a member of the Florida Bar Association and is Vice-Chairman of
the Ocean Drive Association, an organization which has helped to guide the
redevelopment and resurgence of the South Beach community.
JILL R. FELIX, a real-estate professional, has been associated with
Liberty Property Trust, formerly Rouse & Associates, Malvern, Pennsylvania,
since 1979. Since October 1995 she has served as the Senior Vice President, New
Business Development. Her previous positions with that company were President,
Rouse International France from 1993 through 1995 and Partner for International
Development from 1988 through 1993. Ms. Felix received a B.S. degree in
Sociology and Psychology from the University of Wisconsin in 1966 and a Masters
Degree in Social Work from Bryn Mawr College in 1968.
Each of the Company's directors has been elected to serve until the
next annual meeting of shareholders and until the election and qualification of
a successor. The Company's executive officers are elected annually by the
Company's Board of Directors and, serve at the discretion of the Board of
Directors.
Committees of the Board of Directors
The Board of Directors has an Audit Committee comprised of Ms. Felix
and Mr. Wallack. The Audit Committee recommends to the Board of Directors the
appointment of independent auditors, reviews and approves the scope of the
annual audit of the Company's financial statements, reviews and approves any
non-audit services performed by the independent auditors, reviews the findings
and recommendations of the internal and independent auditors and periodically
reviews and approves major accounting policies and significant internal
accounting control procedures.
The Board of Directors also has a Compensation Committee comprised of
Ms. Felix and Mr. Wallack. The Compensation Committee reviews and recommends
compensation of officers and directors, administers stock option plans and
reviews major personnel matters.
<PAGE>
Compensation of Executive Officers
No executive of the Company received more than $100,000 in compensation
in 1995. The following table sets forth certain summary information concerning
the aggregate total annual salary and bonus paid or accrued by the Company for
services rendered in 1995 to its chief executive officers. None of the below
named executive officers were granted options by the Company in 1995.
<TABLE>
<CAPTION>
Annual Compensation
All Other
Salary Bonus Compensation
Name and principal position Year ($) ($) ($)
--------------------------- ---- ------ ----- ------------
<S> <C> <C> <C> <C>
S. Lance Silver, Co-Chairman, Co-CEO & Co-President(1)(2) 1995 $54,000 -- --
Stuart N. Harting, Co-Chairman, Co-CEO & Co-President(1)(2) 1995 $54,000 -- --
</TABLE>
(1) Does not include distribution of his share of profits of Kat Corp. and KIP.
(2) Pursuant to their employment agreements with the Company, Messrs.
Silver and Harting will each begin drawing annual salaries of $150,000
commencing on the closing of this Offering.
Employment Agreements
In July 1996, the Company entered into a three-year employment
agreement with each of Messrs. Silver and Harting (to be effective as of the
closing of this Offering) pursuant to which they will each serve as co-Chief
Executive Officer and co-President of the Company at an annual base salary of
$150,000 and have the opportunity to earn performance-related bonuses, including
stock options issued pursuant to the Company's 1996 Stock Option Plan. Pursuant
to such agreement, they may not disclose confidential information about the
Company and they have agreed not to compete with the Company for a one-year
period after any termination of employment. If either Messrs. Silver or Harting
is terminated by the Company without "good cause," they are entitled to receive
their base salary and benefits for the remaining term of their employment
agreement or 24 months, whichever is shorter.
Stock Options
In April 1996, in order to attract and retain persons necessary for the
success of the Company, the Company adopted its 1996 Stock Option Plan (the
"Option Plan") covering up to 500,000 shares of Common Stock, pursuant to which
officers, directors and key employees of the Company and consultants to the
Company are eligible to receive incentive and/or non-incentive stock options.
The Option Plan, which expires in March 1, 2006, will be administered by the
Board of Directors or a committee designated by the Board of Directors. The
selection of participants, allotment of shares, determination of price and other
conditions relating to the purchase of options will be determined by the Board
of Directors, or a committee thereof, in its sole discretion. Incentive stock
options granted under the Option Plan are exercisable for a period of up to 10
years from the date of grant at an exercise price which is not less than the
fair market value of the Common Stock on the date of the grant, except that the
term of an incentive stock option granted under the Option Plan to a shareholder
owning more than 10% of the outstanding Common Stock may not exceed five years
and its exercise price may not be less than 110% of the fair market value of the
Common Stock on the date of the grant. Non-qualified stock options granted under
the Option Plan are exercisable for a period of up to 10 years from the date of
grant at an exercise price which may be less than the fair market value of the
Common Stock on the date of grant. As of the date hereof, the Company has not
granted any non-qualified stock pursuant to the Option Plan. However, the
Company has granted incentive stock options for an aggregate of 175,116 shares,
exercisable at a price of $6.00 per share over a five-year period, to 4 of its
officers. Options are generally exercisable for one-quarter of the shares
covered thereby as of first anniversary of the date of the grant and for an
additional one-quarter of the shares covered thereby each year thereafter.
Options granted to outside directors, however, are exercisable for 100% of the
shares covered immediately upon grant and certain options have different vesting
schedules pursuant to employment agreements or other arrangements.
<PAGE>
Indemnification of Directors and Officers and Related Matters
The Company's Certificate of Incorporation limits, to the maximum
extent permitted by the DGCL, the personal liability of directors and officers
for monetary damages for breach of their fiduciary duties as directors and
officers (other than liabilities arising from acts or omissions which involve
intentional misconduct, fraud or knowing violations of law or the payment of
distributions in violation of the DGCL). The Certificate of Incorporation
provides further that the Company shall indemnify to the fullest extent
permitted by the DGCL any person made a party to an action or proceeding by
reason of the fact that such person was director, officer, employee or agent or
the Company. Subject to the Company's Certificate of Incorporation, the By-laws
provide that the Company shall indemnify directors and officers for all costs
reasonably incurred in connection with any action, suit or proceeding in which
such director or officer is made a party by virtue of his being an officer or
director of the Company, except where such director or officer is finally
adjudged to have been derelict in the performance of his duties as such director
or officer.
The Company has not entered into indemnification agreements with any of
its directors. The Company expects to enter into separate indemnification
agreements with its officers and directors containing provisions which are in
some respects broader than the specific indemnification provisions contained in
the Company's Certificate of Incorporation and By-laws. The indemnification
agreements may require the Company, among other things, to indemnify such
directors and officers against certain liabilities that may arise by reason of
their status as directors and officers (other than liabilities arising from
willful misconduct of a culpable nature), to advance their expenses incurred as
a result of any proceeding against them as to which they could be indemnified,
and to obtain directors' and officers' insurance, if available on reasonable
terms. The Company believes these agreements are necessary to attract and retain
qualified persons as directors and officers.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent of the Company where indemnification will
be required or permitted. The Company is not aware of any threatened litigation
or proceeding which may result in a claim for such indemnification.
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information concerning stock
ownership by (i) each person known by Company to be the beneficial owner of more
than 5% of the outstanding Common Stock, (ii) each director of the Company, and
(iii) all executive officers and directors as a group as of the date of this
Prospectus and the percentage ownership of the Common Stock for each named
person after consummation of this Offering.
<TABLE>
<CAPTION>
Percentage
Shares ---------------------------
Beneficially Prior to After
Name and Address(1) of Beneficial Owner (2) Owned Offering Offering
- ------------------------------------------- ----------- -------- --------
<S> <C> <C> <C>
Stuart N. Harting(3) 1,003,442 41.81% 25.08%
S. Lance Silver(5) 1,003,442 41.81% 25.08%
James R. Bergman(5) 52,690 2.20% 1.32%
Bruce Waugh(5) 52,690 2.20% 1.32%
David Wallack(6) 3,220 0.13% 0.08%
Jill R. Felix -- -- --
All directors and executive officers
as a group (8 persons)(5) 2,141,554 89.23% 53.54%
</TABLE>
- ------------------
(1) The addresses of the persons named in this table are: Messrs. Silver,
Harting and Bergman, c/o the Company, 415 North Columbus Boulevard,
Philadelphia, PA 19123; Mr. Wallack, 900 Ocean Drive, Miami Beach, Florida;
and Ms. Felix, 602 Cricklewood Road, West Chester, Pennsylvania 19380.
(2) Unless otherwise indicated, each named person has sole voting and
investment power with respect to the shares of Common Stock set forth
opposite his name.
(3) Includes _________ shares owned by the Stuart N. Harting Trust, an
irrevocable trust established by Mr. Harting of which he is the trustee and
his wife and children are the beneficiaries. Also includes 25,000 shares of
Common Stock pledged to secure indebtedness, in the principal amount of
$280,000, of Stuart N. Harting and S. Lance Silver.
(4) Includes _________ shares owned by the S. Lance Silver Trust, an
irrevocable trust established by Mr. Silver of which he is the trustee and
his wife and children are the beneficiaries. Also includes 25,000 shares of
Common Stock pledged to secure the indebtedness, in the principal amount of
$280,000, of Stuart N. Harting and S. Lance Silver.
(5) All of the employees of the Company who own shares of Common Stock, other
than Messrs. Silver and Harting, have entered into restricted stock
agreements with the Company, pursuant to which the shares of Common Stock
which they own (i) may not be sold or otherwise transferred prior to April
1, 2001 and (ii) will be forfeited if their employment with the Company is
terminated (unless such termination is without cause, or by reason of death
or disability of such employee) prior to such date. These restrictions will
lapse with respect to 25% of the shares of Common Stock owned by such
employee on each of April 1, 1998, 1999, 2000 and 2001.
(6) Concurrently, the shares owned by Mr. Wallack are being registered for
sale, together with all the shares of Common Stock issued in connection
with the June 1996 Financing, at the Company's expense, for sale by the
purchasers of the Notes pursuant to a separate prospectus. See "Shares
Eligible For Future Sale."
<PAGE>
CERTAIN TRANSACTIONS
Immediately prior to this Offering, the Company effected the
Reorganization pursuant to which it issued 1,606,884 shares of Common Stock to
S. Lance Silver, Stuart N. Harting, the S. Lance Silver Trust and the Stuart N.
Harting Trust in a tax-free exchange for all of their rights, title and
interest in various predecessors of the Company. See "The Company" and
"Reorganization and Final Partnership and S Corporation Distributions." In June
1996, the Company issued 3,220 shares of Common Stock to David Wallack, a
Director of the Company, in connection with the June 1996 Financing. See
"Management's Discussion and Analysis of Financial Condition and Plan of
Operation - Liquidity and Capital Resources."
In June 1995, the Company paid its past due indebtedness to the S.
Lance Silver Trust and the Stuart N. Harting Trust in the amounts of $122,695
and $119,338, respectively, including interest, of $46,517 and $43,161,
respectively, and to Lizzy Management Corporation, a corporation controlled by
Messrs. Silver and Harting, in the amount of $15,832. In June 1996 the Company
paid its past-due indebtedness to Powerhouse and 1809 Chestnut, in the amounts
of $24,370 and $325,878, respectively, including interest of [$1,493] and
[$8,075], respectively. Such indebtedness was incurred in 1991 and bore interest
at a rate of 12.5% per annum. Messrs. Silver and Harting control, directly and
indirectly, approximately 95% of Powerhouse and 85% of 1809 Chestnut. Messrs.
Silver and Harting and the entities which they control immediately contributed
their share of the proceeds from the repayment of the Powerhouse and 1809
Chestnut loans, approximately $305,000 to the Company.
In April 1996 the Company borrowed $125,000 from 1809 Chestnut and
$105,000 from Cherry Associates. The proceeds of the loan were used to fund
certain expenses associated with the opening of KatManDu-Philadelphia for the
1996 season. The entire principal amount of such loans, together with accrued
interest thereon will be repaid out of the proceeds of this Offering.
In June 1996, the Company purchased the interests of David Preefer and
Karen Zimmerman, in each of KIP, Kat Corp. and Chinatown for $225,000 in the
aggregate. Of the total purchase price, $54,550.50 was attributable to the
outstanding principal balance of a loan made by Karen Zimmerman to KIP and
$33,538 represented the accrued interest on such loan.
The Company will continue to lease the premises currently occupied by
KatManDu-Philadelphia from Pier 25 North, an affiliate of Messrs. Silver and
Harting. Beginning in March 1997 annual rental payments due under the lease will
be equal to the greater of (i) $50,000 increased by cost of living adjustments
and (ii) 4% of the gross income of KatManDu-Philadelphia. The lease terminates
in November 2005.
The Company has entered into lease with ERP for the second deck of the
restaurant ship Elizabeth, which will be used for additional seating for
KatManDu-Philadelphia and for the Company's executive offices, and with
Powerhouse for storage space and the right to display a KatManDu sign on the
building owned by Powerhouse. See "Business - Properties."
T-Kat will sublease the KatManDu-Trenton restaurant from T-Kat Urban
Renewal Corporation which leases the premises from the Mercer County Improvement
Authority. T-Kat Urban Renewal Corp. is owned by Messrs. Silver and Harting. The
terms of the sublease between T-Kat and T-Kat Urban Renewal Corporation are
identical to the terms of the over-lease between the Mercer County Improvement
Authority and T-Kat Urban Renewal Corporation.
T-Kat has received a commitment, dated July 15, 1996, (the
"Commitment") from Equity National Bank, pursuant to which Equity National Bank
has agreed to provide T-Kat with the Construction Loan, in the amount of $2.5
million, to be used for the construction and development of KatManDu-Trenton.
The Construction Loan is to be secured by all of the assets of T-Kat, a
leasehold mortgage encumbering the Trenton Lease, an assignment of T-Kat's
liquor license and is to be guaranteed by Messrs. Silver and Harting and the
Company. The Commitment contains other terms and conditions typical of
construction loans. The Construction Loan will be issued for a term of 12 months
and will bear interest at a floating rate equal to 1% above the New York Prime
Rate, as published in the money section of the Wall Street Journal. Interest
only will be payable monthly, calculated daily based upon the actual principal
balance of the Construction Loan and the current interest rate.
Shortly after the consummation of this Offering, the Company will make
the Final Distribution to the current partners of KIP and the current
shareholders of Chinatown, Kat Corp. and T-Kat. The amount of the Final
Distribution is not expected to exceed $450,000. See "Reorganization and Final
Partnership and S Corporation Distributions."
The Company believes that all prior transactions between the Company,
its officers, directors or other affiliates of the Company have been on terms no
less favorable than could have been obtained from unaffiliated third parties.
Any future transactions and loans with officers, directors or 5% stockholders or
their affiliates of the Company must be on terms no less favorable to the
Company than could be obtained from unaffiliated third parties and such
transactions will be approved by a majority of the independent outside members
of the Company's Board of Directors who do not have an interest in the
transactions.
<PAGE>
DESCRIPTION OF SECURITIES
Capital Stock
The Company's authorized capital stock consists of 25,000,000 shares of
Common Stock, par value $.001 per share, and 5,000,000 shares of undesignated
Preferred Stock. After the closing of this Offering, there will be issued and
outstanding 4,000,000 shares of Common Stock (4,240,000 shares of Common Stock
if the Representative's Over-Allotment Option is exercised in full). None of the
Preferred Stock will be issued and outstanding.
Common Stock
There are no preemptive, subscription, conversion or redemption rights
pertaining to the Common Stock. The absence of preemptive rights could result in
a dilution of the interest of the existing shareholders should additional shares
of Common Stock be issued. In addition, the rights of holders of the shares of
Common Stock may become subject in the future to prior and superior rights and
preferences in the event the Board of Directors establishes one or more
additional classes of Common Stock, or one or more series of Preferred Stock.
The Board of Directors has no present plan to establish any such additional
class or series. See "Risk Factors - Effect of Certain Anti-Takeover
Provisions." Holders of the Common Stock are entitled to receive such dividends
as may be declared by the Board of Directors out of assets legally available
therefor, and to share ratably in the assets of the Company available upon
liquidation.
Each share of Common Stock is entitled to one vote for all purposes and
cumulative voting is not permitted in the election of directors. Accordingly,
the holders of more than 50% of all of the outstanding shares of Common Stock
can elect all of the directors. Significant corporate transactions, such as
amendments to the certificate of incorporation, mergers, sales of assets and
dissolution or liquidation require approval by the affirmative vote of the
majority of the outstanding shares of Common Stock. Other matters to be voted
upon by the holders of Common Stock normally require the affirmative vote of a
majority of the shares present or represented by proxy at the particular
shareholders' meeting. Prior to the completion of this Offering, the Company's
directors and officers as a group beneficially own approximately 89.23% of the
outstanding Common Stock of the Company. Upon completion of this Offering, such
persons will beneficially own approximately 53.54% of the outstanding shares
(50.51% if the Representative's Over-Allotment Option is exercised in full). See
"Principal Shareholders." Accordingly, such persons will continue to be able to
control the Company's affairs, including, without limitation, the sale of equity
or debt securities of the Company, the appointment of officers, the
determination of officers' compensation and the determination whether to cause a
registration statement to be filed. There are 25 holders of record of the
Company's Common Stock as of the date of this Prospectus.
Concurrently, 141,666 shares of Common Stock are being registered, at
the Company's expense, for sale by certain stockholders pursuant to a separate
prospectus. See "Shares Eligible For Future Sale."
Although the Company has applied for the listing of the shares of
Common Stock on Nasdaq, there is currently no established market for the Common
Stock, and there is no assurance that any such market will develop.
Preferred Stock
The Board of Directors of the Company is authorized (without any
further action by the shareholders) to issue Preferred Stock in one or more
series and to fix the voting rights, liquidation preferences, dividend rates,
conversion rights, redemption rights and terms, including sinking fund
provisions, and certain other rights and preferences. Satisfaction of any
dividend preferences of outstanding Preferred Stock would reduce the amount of
funds available for the payment of dividends on the Common Stock. Also holders
of the Preferred Stock would normally be entitled to receive a preference
payment in the event of any liquidation, dissolution or winding up of the
Company before any payment is made to the holders of Common Stock. In addition,
under certain circumstances, the issuance of preferred stock may render more
difficult or tend to discourage a merger, tender offer or proxy contest, the
assumption of control by a holder of a large block of the Company's securities,
or the removal of incumbent management. The Board of Directors of the Company,
without shareholder approval, may issue Preferred Stock with voting and
conversion rights which could adversely affect the holders of Common Stock. On
the date of this Prospectus, none of the 5,000,000 authorized shares of
Preferred Stock are outstanding and the Company has no present intention to
issue any shares of Preferred Stock.
<PAGE>
Warrants
The Warrants offered hereby will be issued under and governed by the
provisions of a Warrant Agreement (the "Warrant Agreement") between the Company
and Continental Stock Transfer and Trust Company, as warrant agent (the "Warrant
Agent") and will be evidenced by warrant certificates in registered form. The
following summary of the Warrant Agreement is not complete and is qualified in
its entirety by reference to the Warrant Agreement, a copy of which has been
filed as an exhibit to the Registration Statement of which this Prospectus is a
part.
The shares of Common Stock and the Warrants offered together are
detachable and separately transferable. One Warrant entitles the holder thereof
(a "Warrant-holder") to purchase one share of Common Stock during the five years
following the Effective Date, subject to earlier redemption, provided that at
such time a current prospectus relating to the shares of Common Stock issuable
upon exercise of the Warrants is in effect and the issuance of such shares is
qualified for sale or exempt from qualification under applicable state
securities laws. Each Warrant will be exercisable at an exercise price of $7.20
per Warrant, subject to adjustment in certain events.
The Warrants are subject to redemption by the Company beginning 18
months after the Effective Date, on not less than 30 days written notice, at a
price of $0.10 per Warrant at any time following a period of 20 trading days
within a period of 30 consecutive trading days ending on the fifth trading day
prior to the date the notice of redemption to the Warrant-holders where the per
share closing bid price of the Common Stock equals or exceeds $12.00 (subject to
adjustment). For these purposes, the closing bid price of the Common Stock shall
be determined by the closing bid price as reported by Nasdaq so long as the
Common Stock is quoted on Nasdaq and, if the Common Stock is listed on a
national securities exchange, shall be determined by the last reported sale
price on the primary exchange on which the Common Stock is traded.
Warrant-holders will automatically forfeit all rights thereunder except the
right to receive the $0.10 redemption price per warrant unless the Warrants are
exercised before they are redeemed.
The Warrant-holders are not entitled to vote, receive dividends, or
exercise any of the rights of holders of shares of Common Stock for any purpose.
The Warrants are in registered form and may be presented for transfer, exchange
or exercise at the office of the Warrant Agent. Although the Company has applied
for listing of the Warrants on Nasdaq, there is currently no established
market for the Warrants, and there is no assurance that any such market will
develop.
The Warrant Agreement provides for adjustment of the exercise price and
the number of shares of Common Stock purchasable upon exercise of the Warrants
to protect Warrant-holders against dilution in certain events, including stock
dividends, stock splits, reclassification, and any combination of Common Stock,
or the merger, consolidation, or disposition of substantially all the assets of
the Company.
The Warrants may be exercised upon surrender of the certificate
therefor on or prior to the expiration date (or earlier redemption date) at the
offices of the Warrant Agent, with the form of "Election to Purchase" on the
reverse side of the certificate properly completed and executed as indicated,
accompanied by payment of the full exercise price (by certified or cashier's
check payable to the order of the Company) for the number of Warrants being
exercised.
Transfer Agent and Registrar
Continental Stock Transfer and Trust Company, located at 2 Broadway,
New York, New York 10004, is the transfer agent and registrar for the Common
Stock and the Warrants.
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this Offering, there has been no market for the Common Stock
or the Warrants of the Company, and no predictions can be made for the effect,
if any, that market sales of shares or the availability of shares for sale will
have on the market price prevailing from time to time. Nevertheless, sales of
substantial amounts of the Common Stock and the Warrants in the public market
could adversely affect prevailing market prices for the Common Stock and the
Warrants and the ability of the Company to raise equity capital in the future.
Upon completion of this Offering, there will be 4,000,000 shares of
Common Stock issued and outstanding (4,240,000, if the Representative's
Over-Allotment Option is exercised in full). The shares of Common Stock and
Warrants purchased in this Offering, will be freely tradable without
registration or other restriction under the Securities Act of 1933, as amended
(the "Securities Act"), except for any shares purchased by an "affiliate" (as
defined in the Act) of the Company. Shares purchased by an "affiliate" of the
Company will be subject to Rule 144.
The remaining 2,400,000 shares of Common Stock held by existing
stockholders will be restricted securities as that term is defined in Rule 144
under the Securities Act ("Restricted Shares"). Restricted Shares may be sold in
the public market only if registered under the Securities Act or if they qualify
for an exemption from registration under Rule 144 promulgated under the
Securities Act. Sale of the Restricted Shares in the public market, or the
availability of such shares for sale, could adversely affect the market prices
of Common Stock and Warrants.
In general, under Rule 144 as currently in effect, any person (or
persons whose shares are aggregated) including persons deemed to be affiliates,
whose restricted securities have been fully paid for and held for at least two
years from the later of the date of issuance by the Company or acquisition from
an affiliate, may sell such security in broker's transactions or directly to
market makers, provided that the number of shares sold in any three-month period
may not exceed the greater of 1% of the then outstanding shares of Common Stock
or the average weekly trading volume of the shares of Common Stock in the
over-the-counter market during the four calendar weeks preceding the sale. Sales
under Rule 144 are also subject to certain notice requirements and the
availability of current public information about the Company. After three years
have elapsed from the later of the issuance of restricted securities by the
Company or their acquisition from an affiliate, such securities may be sold
without limitation by persons who are not affiliates under the rule.
All officers, directors and stockholders of the Company, owning, in the
aggregate 2,261,554 shares of Common Stock, have agreed not to, directly or
indirectly, issue, offer, agree or offer to sell, sell, transfer, assign,
encumber, grant an option for the purchase or sale of, pledge, hypothecate or
otherwise dispose of any beneficial interest in such securities for a period of
13 months following the Effective Date of the Registration Statement without the
prior written consent of the Company and the Representative. As a result of
these contractual restrictions, shares subject to lock-up agreements will not be
salable until the agreements expire. Upon expiration of the lock-up period,
approximately 2,006,884 shares will be eligible for sale under Rule 144. The
remaining 131,450 shares held by existing stockholders will become eligible for
public resale at various times over a period of less than two years following
the completion of this Offering, subject in some cases to vesting provisions and
volume limitations.
In addition, Stockholders owning, in the aggregate, 141,666 shares of
Common Stock, including David Wallack, a Director of the Company, who owns 3,220
shares of Common Stock, have executed lock-up agreements pursuant to which they
have agreed with the Representative not to sell or otherwise dispose of any of
such securities for a period of 7 months from the date of this Prospectus
without the prior written consent of the Representative and the Company. The
Company has agreed, at its own expense, to register such shares for sale to the
public upon the expiration of the seven month period commencing with the
effective date of this Offering. The Company will not receive any proceeds from
the sale of such securities. Sales of such securities by such holders or the
potential of such sales may have a material adverse effect on the market price
of the Securities offered hereby. See "Risk Factors."
<PAGE>
UNDERWRITING
The Underwriters named below (the "Underwriters"), for whom National
Securities Corporation is acting as representative (in such capacity, the
"Representative"), have severally agreed, subject to the terms and conditions of
the Underwriting Agreement (the "Underwriting Agreement") to purchase from the
Company and the Company has agreed to sell to the Underwriters on a firm
commitment basis, the respective number of Shares and Warrants set forth
opposite their names:
Number of Number of
Underwriter Shares Warrants
- ----------- --------- ---------
National Securities Corporation................
Total.................................. 1,600,000 1,600,000
========= =========
The Underwriters are committed to purchase all the Shares of Common
Stock and Warrants offered hereby, if any of such securities are purchased. The
Underwriting Agreement provides that the obligations of the several Underwriters
are subject to conditions precedent specified therein.
The Company has been advised by the Representative that the
Underwriters propose initially to offer the Securities to the public at the
initial public offering prices set forth on the cover page of this Prospectus
and to certain dealers at such prices less concessions not in excess of $____
per Share and $____ per Warrant. Such dealers may reallow a concession not in
excess of $____ per Share and $____ per Warrant to certain other dealers. After
the commencement of the Offering, the public offering prices, concession and
reallowance may be changed by the Representative.
The Representative has informed the Company that it does not expect
sales to discretionary accounts by the Underwriters to exceed five percent of
the Securities offered hereby.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments that the Underwriters may be required to make. The Company has also
agreed to pay to the Representative a non-accountable expense allowance equal to
3% of the gross proceeds derived from the sale of the Securities underwritten,
of which $35,000 has been paid to date.
The Company has granted to the Underwriters an over-allotment option,
exercisable during the forty-five (45) day period from the date of this
Prospectus, to purchase up to an additional 240,000 shares of Common Stock
and/or 240,000 Warrants at the initial public offering price per Share and
Warrant, respectively, offered hereby, less underwriting discounts and the
non-accountable expense allowance. Such option may be exercised only for the
purpose of covering over-allotments, if any, incurred in the sale of the
Securities offered hereby. To the extent such option is exercised in whole or in
part, each Underwriter will have a firm commitment, subject to certain
conditions, to purchase the number of the additional Securities proportionate to
its initial commitment.
In connection with this Offering, the Company has agreed to sell to the
Representative, for nominal consideration, warrants to purchase from the Company
up to 160,000 shares of Common Stock and/or 160,000 Warrants (the
"Representative's Warrants"). The Representative's Warrants are initially
exercisable at a price of $___ per share of Common Stock [120% of the initial
public offering price per Share] and $_______ per Warrant [120% of the initial
public offering price per Warrant] for a period of four (4) years, commencing at
the beginning of the second year after their issuance and sale and are
restricted from sale, transfer, assignment or hypothecation for a period of
twelve (12) months from the date hereof, except to officers of the
Representative. The Representative's Warrants provide for adjustment in the
number of shares of Common Stock and Warrants issuable upon the exercise thereof
and in the exercise price of the Representative's Warrants as a result of
certain events, including subdivisions and combinations of the Common Stock. The
Representative's Warrants grant to the holders thereof certain rights of
registration for the securities issuable upon exercise thereof.
<PAGE>
All officers, directors and stockholders of the Company and all holders
of any options, warrants or other securities convertible, exercisable or
exchangeable for shares of Common Stock have agreed not to, directly or
indirectly, issue, offer, agree or offer to sell, sell, transfer, assign,
encumber, grant an option for the purchase or sale of, pledge, hypothecate or
otherwise dispose of any beneficial interest in such securities for a period of
thirteen (13) months following the effective date of the Registration Statement
without the prior written consent of the Company and the Representative. An
appropriate legend shall be marked on the face of certificates representing all
such securities.
The Underwriting Agreement provides that the Representative has a right
of first refusal for a period of three (3) years from the effective date of the
Registration Statement with respect to any sale of securities by the Company or
any of its present or future affiliates or subsidiaries for cash.
The Company has agreed that the Representative has a right to designate
a nominee for election to the Company's Board of Directors which individual may
be a director, employee or affiliate of the Representative. The Company has
agreed to reimburse designees of the Representative for their reasonable
out-of-pocket expenses incurred in connection with their attendance of meetings
of the Company's Board of Directors.
Prior to this Offering, there has been no public market for the Common
Stock or the Warrants. Consequently, the initial public offering prices of the
Securities has been determined by negotiation between the Company and the
Representative and does not necessarily bear any relationship to the Company's
asset value, net worth, or other established criteria of value. The factors
considered in such negotiations, in addition to prevailing market conditions,
included the history of and prospects for the industry in which the Company
competes, an assessment of the Company's management, the prospects of the
Company, its capital structure, the market for initial public offerings and
certain other factors as were deemed relevant.
Upon the exercise of any Warrants more than one year after the date of
this Prospectus, which exercise was solicited by the Representative, and to the
extent not inconsistent with the guidelines of the National Association of
Securities Dealers and the Rules and Regulations of the Commission, the Company
has, where defined, agreed to pay the Representative a commission which shall
not exceed five percent (5%) of the aggregate exercise price of such Warrants in
connection with bona fide services provided by the Representative relating to
any warrant solicitation undertaken by the Representative. In addition, the
individual must designate the firm entitled to payment of such warrant
solicitation fee. However, no compensation will be paid to the Representative in
connection with the exercise of the Warrants if (a) the market price of the
Common Stock is lower than the exercise price, (b) the Warrants were held in a
discretionary account, or (c) the exercise of the Warrants is not solicited by
the Representative. Unless granted an exemption by the Commission from its Rule
10b-6 under the Exchange Act, the Representative will be prohibited from
engaging in any market-making activities with regard to the Company's securities
for the period from nine (9) business days (or other such applicable periods as
Rule 10b-6 may provide) prior to any solicitation of the exercise of the
Warrants until the later of the termination of such solicitation activity or the
termination (by waiver or otherwise) of any right the Representative may have to
receive a fee. As a result, the Representative may be unable to continue to
provide a market for the Common Stock or Warrants during certain periods while
the Warrants are exercisable. If the Representative has engaged in any of the
activities prohibited by Rule 10b-6 during the periods described above, the
Representative undertakes to waive unconditionally its rights to receive a
commission on the exercise of such Warrants.
The foregoing is a summary of the principal terms of the agreements
described above and does not purport to be complete. Reference is made to a copy
of each such agreement which are filed as exhibits to the Registration
Statement. See "Available Information."
<PAGE>
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for
the Company by Morse, Zelnick, Rose & Lander, LLP ("MZRL"), a professional
limited liability partnership, with offices in New York, New York. Partners of
MZRL, or their affiliates, will own an aggregate of 40,000 shares of Common
Stock. Orrick, Herrington & Sutcliffe, New York, New York has acted as counsel
to the Underwriters.
EXPERTS
The financial statements and schedules included in this Prospectus and
elsewhere in the Registration Statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said report.
AVAILABLE INFORMATION
The Company is not a reporting company under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). The Company has filed a
Registration Statement on Form SB-2 under the Exchange Act with the Eastern
Regional Office of the Securities and Exchange Commission (the "SEC") with
respect to the Securities offered hereby. This Prospectus filed as a part of the
Registration Statement does not contain all of the information contained in the
Registration Statement and the exhibits thereto, certain portions of which have
been omitted in accordance with the rules and regulations of the Commission. For
further information with respect to the Company and the Securities offered
hereby, reference is made to such Registration Statements including the exhibits
and schedules thereto. Statements contained in this Prospectus as to the
contents of any contract, agreement or other documents are not necessarily
complete, and in each instance, reference is made to such contract, agreement or
other document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference. The Registration
Statement and exhibits may be inspected without charge and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, as well as at the New York
regional office of the Commission at Seven World Trade Center, 14th Floor, New
York, New York 10048. Copies of such material can also be obtained from the
Public Reference Section of the Commission at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The Company's
Common Stock is traded on the Nasdaq Small Cap Market. The foregoing material
also should be available for inspection at the National Association of
Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006.
<PAGE>
KATMANDU ENTERTAINMENT CORP.
INDEX
DECEMBER 31, 1994 AND 1995
AND MARCH 31, 1996 (UNAUDITED)
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS F - 1
CONSOLIDATED FINANCIAL STATEMENTS:
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1995
AND MARCH 31, 1996 (UNAUDITED) F - 2 - 3
CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED
DECEMBER 31, 1996 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1996 (UNAUDITED) F - 4
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AS OF DECEMBER 31, 1994, 1995 AND
MARCH 31, 1996 (UNAUDITED) F - 5
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED
DECEMBER 31, 1994 AND 1995 AND THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1996 (UNAUDITED) F - 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F - 7 - 15
<PAGE>
After giving effect of the stock transfer discussed in Note 11, we would be in a
position to render the following audit report.
Arthur Andersen LLP
New York, New York
July 22, 1996
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Katmandu Entertainment Corp.
We have audited the accompanying consolidated balance sheet of Katmandu
Entertainment Corp. (a Delaware corporation) and subsidiaries as of December 31,
1995, and the related consolidated statements of income, stockholders' equity
and cash flows for each of the two years in the period ended December 31, 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Katmandu
Entertainment Corp. and subsidiaries as of December 31, 1995, and the results of
their operations and their cash flows for each of the two years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
F - 1
<PAGE>
KATMANDU ENTERTAINMENT CORP.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1995 AND MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Pro forma
December 31, March 31, March 31,
1995 1996 1996
------------ ----------- ----------
(Unaudited) (Unaudited)
(Note 3)
<S> <C> <C> <C>
CURRENT ASSETS
Cash $ 19,768 $ 15,317 $ 837,508
Inventories 7,294 54,448 54,448
Prepaid expenses 10,270 28,780 28,780
Loan receivable,
related parties 26,983 34,592 34,592
--------- --------- ---------
Total Current Assets 64,315 133,137 955,328
--------- --------- ---------
PROPERTY AND EQUIPMENT,
AT COST
Furniture 75,950 75,950 75,950
Leasehold improvements 582,558 592,183 592,183
Machinery and equipment 467,211 467,211 467,211
--------- --------- ---------
1,125,719 1,135,344 1,135,344
Less: Accumulated
depreciation 609,884 641,976 641,976
--------- --------- ---------
Net Property and
Equipment 515,835 493,368 493,368
--------- --------- ---------
OTHER ASSETS
Liquor license 23,000 23,000 23,000
Trademark and artwork 6,055 6,055 6,055
Intangible assets, net of
accumulated amortization of
$46,555 in 1995 and $46,798
in March 31, 1996 (Unaudited) 1,048 805 805
Deferred financing cost - 828,912 1,706,412
Project development costs 54,666 103,275 103,275
--------- --------- ---------
Total Other Assets 84,769 962,047 1,839,547
--------- --------- ---------
TOTAL ASSETS $ 664,919 $ 1,588,552 $ 3,288,243
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F - 2
<PAGE>
KATMANDU ENTERTAINMENT CORP.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1995 AND MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Pro forma
December 31, March 31, March 31,
1995 1996 1996
------------ ----------- -----------
(Unaudited) (Unaudited)
(Note 3)
<S> <C> <C> <C>
CURRENT LIABILITIES
Accounts payable to a
related party $ 17,711 $126,300 $126,300
Accounts payable and
accrued expenses 380,174 481,361 481,361
Taxes payable, other than
on income 110,855 127,438 127,438
Deferred rent 36,728 36,728 36,728
Interest payable to
related parties 32,554 43,106 -
Loan payable to
related parties 405,158 403,491 -
Interest payable - - 27,500
Loan payable - - 1,100,000
Other current liabilities - 11,950 11,950
--------- --------- ---------
Total Current
Liabilities 983,180 1,230,374 1,911,277
--------- --------- ---------
COMMITMENTS AND CONTINGENCIES
(NOTES 10 & 11)
STOCKHOLDERS'(DEFICIT) EQUITY
Preferred stock, $.001 par value;
5,000,000 shares authorized,
none issued and outstanding as of
December 31, 1995 and
March 31, 1996 (Unaudited) - - -
Common stock, $.001 par value;
25,000,000 shares authorized, 2,006,884
shares issued and outstanding as of
December 31, 1995; and 2,258,334
shares issued and outstanding as of
March 31, 1996 (Unaudited) 2,007 2,258 2,400
Additional paid in capital 20,993 1,227,702 2,246,348
Accumulated deficit (341,261) (871,782) (871,782)
--------- --------- ---------
Total Stockholders
(Deficit) Equity (318,261) 358,178 1,376,966
--------- ----------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' (DEFICIT) EQUITY $ 664,919 $ 1,588,552 $ 3,288,243
========= =========== ===========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F - 3
<PAGE>
KATMANDU ENTERTAINMENT CORP.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1995 AND 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Year Ended December 31, Three Months Ended March 31,
----------------------- ----------------------------
1994 1995 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue (Unaudited) (Unaudited)
Food and beverage $ 2,451,992 $ 2,487,085 $ - $ -
Gate charges 355,597 396,123 - -
Promotional merchandise 36,713 45,793 - -
Miscellaneous 15,921 24,300 - -
--------- ---------
Gross Revenue 2,860,223 2,953,301 - -
Promotional disallowance ( 87,181) ( 87,550) - -
--------- --------- --------- ---------
Net revenue $ 2,773,042 $ 2,865,751 $ - $ -
--------- --------- --------- ---------
Cost and expenses
Food and beverage 612,395 585,115 - -
Promotional merchandise 20,722 34,984 - -
General administrative
expenses 1,793,336 1,855,230 136,811 130,234
Compensation expense (Note 11f) - - - 378,048
Rent expense to related party 52,296 52,296 - -
--------- --------- --------- ---------
Total Cost and Expenses 2,478,749 2,527,625 136,811 508,282
--------- --------- --------- ---------
Operating income (loss) 294,293 338,126 ( 136,811) ( 508,282)
Interest income 2,264 2,009 - -
Interest expense ( 69,383) ( 67,621) ( 17,807) ( 15,466)
--------- --------- --------- ---------
Income (loss) before income taxes 227,174 272,514 ( 154,618) ( 523,748)
Income tax provision - - - -
--------- --------- --------- ---------
Net income (loss) $ 227,174 $ 272,514 $( 154,618) $( 523,748)
========= ========= ========= =========
Net income (loss) per common share $ .09 $ .11 $( .06) $( .22)
========= ========= ========= =========
Weighted average number
of shares outstanding 2,400,000 2,400,000 2,400,000 2,400,000
Pro forma income taxes (Note 6) 92,800 111,500 - -
--------- --------- --------- ---------
Pro forma net income (loss) before
cumulative effect of accounting
change $ 134,374 $ 161,014 $( 154,618) $( 523,748)
Cumulative effect of accounting
change for income taxes ( 22,100) - - -
--------- --------- --------- ---------
Pro forma net income (loss) $ 156,474 $ 161,014 $( 154,618) $( 523,748)
========= ========= ========= =========
Pro forma net income (loss) per
common share $ .07 $ .07 $( .06) $( .22)
========= ========= ========= =========
Pro forma weighted average
number of shares outstanding 2,400,000 2,400,000 2,400,000 2,400,000
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F - 4
<PAGE>
KATMANDU ENTERTAINMENT CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS'(DEFICIT) EQUITY
AS OF DECEMBER 31, 1994, 1995 AND MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Preferred Stock Common Stock
--------------- ------------ Additional
No. of No. of Paid-In Accumulated
Shares Amount Shares Amount Capital Deficit Total
------ ------ ------ ------ ------- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December
31, 1993 - $ - 2,006,884 $ 2,007 $ 20,993 $ 43,095 $ 66,095
Net income 227,174 227,174
Distributions - - - - - ( 485,205) ( 485,205)
--- --- --------- ------ --------- --------- ---------
Balance, December
31, 1994 - - 2,006,884 $ 2,007 $ 20,993 $( 214,936) $( 191,936)
Net income - - - - - 272,514 272,514
Contribution from
stockholders - - - - - - -
Distributions - - - - - ( 398,839) ( 398,839)
--- --- --------- ----- --------- --------- ---------
Balance, December
31, 1995 - $ - 2,006,884 $ 2,007 $ 20,993 $( 341,261) $( 318,261)
=== === ========= ===== ========= ========= =========
Net loss ( 523,748) ( 523,748)
Distributions - - - - - ( 6,773) ( 6,773)
Issuance of common
stock - - 251,450 251 1,206,709 - 1,206,960
Contributions from
stockholders - - - - - - -
--- ----- --------- ----- --------- -------- ---------
Balance, March
31, 1996 - $ - 2,258,334 $ 2,258 $ 1,227,702 $( 871,782) $ 358,178
=== ===== ========= ===== ========= ========= ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F - 5
<PAGE>
KATMANDU ENTERTAINMENT CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
AND FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 (UNAUDITED)
<TABLE>
<CAPTION>
December 31, March 31,
--------------- --------------
1994 1995 1995 1996
---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 227,174 $ 272,514 $(154,618) $( 523,748)
------- ------- ------- ---------
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Amortization and depreciation 138,545 129,735 30,855 32,335
Cash compensation - - - 378,048
Changes in operating assets and liabilities:
Inventories ( 4,600) ( 2,694) ( 47,579) ( 47,154)
Prepaid expenses ( 300) ( 9,970) ( 13,134) ( 18,510)
Accounts payable, related party, trade
and accrued expenses 33,017 186,456 119,687 136,519
Taxes payable, other than on income ( 4,479) 32,606 ( 740) 89,840
Deferred rent ( 3,704) ( 3,704) - -
Interest payable to related party 28,955 ( 67,474) 7,238 10,552
Other current liabilities - - 7,381 11,950
------- ------- ------- ---------
Total Adjustments 187,434 264,955 103,708 593,580
------- ------- ------- ---------
Net Cash Provided By
(Used In) Operating Activities 414,608 537,469 ( 50,910) 69,832
------- ------- ------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Insurance proceeds 129,435 - - -
Leasehold improvements - ( 7,682) - ( 9,625)
Project development costs ( 5,000) ( 49,666) ( 1,000) ( 48,609)
Contribution from stockholders - - - -
------- ------- ------- ---------
Net Cash Provided By
(Used In) Investing Activities 124,435 ( 57,348) ( 1,000) (58,234)
------- ------- ------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Line of credits - - 15,000 -
Loan payable, related parties, net 10,442 (154,352) ( 24,626) ( 9,276)
Distributions (485,204) (398,839) ( 25,827) ( 6,773)
------- ------- ------- ---------
Net Cash Used In Financing Activities (474,762) (553,191) ( 35,453) ( 16,049)
------- ------- ------- ---------
NET INCREASE (DECREASE) IN CASH 64,281 ( 73,070) ( 87,363) ( 4,451)
CASH, BEGINNING OF YEAR 28,557 92,838 92,838 19,768
------- ------- ------- ---------
CASH, END OF YEAR $ 92,838 $ 19,768 $ 5,475 $ 15,317
======= ======= ======= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash paid for interest $ 40,428 $ 135,095 $ 10,569 $ 37,468
======= ======= ======= =========
NON CASH OPERATING ACTIVITIES:
Bartered services $ 21,497 $ 29,080 $ - $ -
======= ======= ======= =========
Compensation $ - $ - $ - $ 378,048
======= ======= ======= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F - 6
<PAGE>
KATMANDU ENTERTAINMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE 1 - BUSINESS ACTIVITIES AND ORGANIZATION
Katmandu Entertainment Corporation, ("Katmandu" or the "Company") was
incorporated on March 29, 1996 in the State of Delaware to wholly own
Katmandu Corporation ("Kat Corp."), T-Kat Corporation ("T-Kat") and Katmandu
Investment Partners ("KIP"), all of which are under common ownership and
control. Accordingly, the three entities are presented as wholly owned
subsidiaries of the Company. All significant intercompany transactions and
balances have been eliminated in consolidation.
Kat Corp. was formed in 1990, in the state of Pennsylvania and operates a
restaurant and nightclub on the Philadelphia, Pennsylvania waterfront. The
business is a seasonal operation, open from April through September.
T-Kat is developing a restaurant and nightclub on the Trenton, New Jersey
waterfront. While the Company was incorporated on August 25, 1995, in the
state of New Jersey, the concept for the development project and various
project costs commenced effective January 1, 1994.
KIP (a Pennsylvania Limited Partnership) was formed in 1991 to own the
furniture, leasehold improvements and machinery and equipment used in the
restaurant and nightclub operation of Kat Corp. KIP is owned by Chinatown
Convention Center Hotel, General Partner (1%), and three limited partners,
Lance Silver Trust (44.55%), Stuart Harting Trust (44.55%) and Karen
Zimmerman (9.9%).
NOTE 2 - RISKS AND UNCERTAINTIES
The Company has a net working capital deficiency and limited operating
history. Although the Company has operating income at year end, the Company's
ability to generate net income in the future will depend upon the success of
its location in Philadelphia and the successful implementation of the
Company's expansion strategy. Management believes that its current
operations, the proceeds from the June 1996 Financing and capital
contribution made subsequent to year end will be sufficient to support the
business activities through December 1996. (See Note 11.)
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
F - 7
<PAGE>
KATMANDU ENTERTAINMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
NOTE 2 - RISKS AND UNCERTAINTIES (CONTINUED)
The Company is subject to a number of risks including the Company's limited
operating history. The Company is also subject to general expansion risks,
availability of sites, and acceptance and evolution of its concept.
Additionally, there are risks associated with obtaining financing as well as
the quarterly fluctuations that exist due to the seasonality of the business
that could impact the future results of the Company. See discussions of Risk
Factors in the accompanying registration statement of which these combined
financial statements and notes to consolidated financial statements are a
part.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVENTORIES: Inventories at December 31, 1995 are valued at the lower of cost
or market value, using the first-in, first-out (FIFO) method.
PROPERTY AND EQUIPMENT AND DEPRECIATION: Property and equipment are stated at
cost. Depreciation is calculated using straight-line method over lessor of
their estimated useful lives or remaining term of lease. Estimated useful
lives are as follows:
Furniture 7 years
Leasehold improvements 15 years
Machinery and equipment 5-7 years
Expenditures for renewals and betterments which significantly extend the
useful life of property and equipment are capitalized; expenditures for
maintenance and repairs are charged to income. When property and equipment
are retired, the asset and related accumulated depreciation accounts are
relieved of the applicable amounts. Gains or losses from retirements or sales
are credited or charged to income. Depreciation expense was $131,278 and
$120,819 for the years ended December 31, 1994 and 1995, respectively.
INTANGIBLE ASSETS AND AMORTIZATION: Intangible assets are recorded at cost
less related accumulated amortization. Amortization is calculated on a
straight-line basis over 5 years. Amortization expense was $7,267 and $8,916
for the years ended December 31, 1994 and 1995, respectively.
PROJECT DEVELOPMENT: The Company capitalizes the costs relating to the
opening of the site in Trenton, New Jersey and will amortize such cost over
the twelve months following the opening date. At balance sheet date, these
costs are comprised primarily of legal and architectural expenses. The
Company will treat all pre opening costs as period costs and expense them as
incurred.
ADVERTISING COSTS: Advertising costs are generally charged to operations in
the year incurred. Advertising expense totaled $178,015 and $126,301 for the
years ended December 31, 1994 and 1995, respectively.
F - 8
<PAGE>
KATMANDU ENTERTAINMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES: Income taxes are determined under the liability method as
required by Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes", ("SFAS 109"). Under SFAS 109, deferred tax assets and
liabilities are determined based upon differences between financial reporting
and tax basis of assets and liabilities.
RECENTLY ISSUED ACCOUNTING STANDARDS: During March 1995, the Financial
Accounting Standards Board ("FASB") issued Statement of Financial Accounting
Standards No. 121 ("SFAS 121"), "Accounting for the Impairment of Long Lived
Assets and for Long Lived Assets to Be Disposed Of." This statement
establishes financial accounting and reporting standards for the impairment
of long lived assets, certain identifiable intangibles, and goodwill related
to those assets to be held and used, and for long lived assets and certain
identifiable intangibles to be disposed of. This statement is effective for
financial statements for fiscal years beginning after December 15, 1995,
although earlier application is encouraged. The Company does not expect that
the adoption of SFAS 121 will have a material effect on its financial
statements.
The FASB issued Statement of Financial Accounting Standards No. 123,
"Accounting to Stock Based Compensation" ("SFAS 123"), which will require
companies either to reflect in their financial statements or reflect as
supplemental disclosure the impact on earnings and earnings per share of the
fair value of stock based compensation using certain pricing models for the
option component of stock option plans. It is the Company's intention to
continue to account in its basic financial statements under the general
philosophy of Accounting Principles Board Opinion No. 25, as allowed under
the new standard, which measures only the intrinsic option value as
compensation. Disclosure, as required by SFAS 123, will be made commencing
with the Company's financial statements for the year ending December 31, 1996
and will reflect the impact of the compensation for options issued in 1995
and 1996 (if any) in the Notes to the Consolidated Financial Statements.
Accordingly, SFAS 123 has no impact on the financial position and results of
operations for any period described herein.
STOCK OPTION PLAN: Subsequent to balance sheet date, the Company adopted a
1996 Stock Option Plan ("Plan") in which 500,000 shares of Common Stock have
been reserved for issuance to employees, officers and directors of the
Company. At December 31, 1994 and 1995, no shares were issued in connection
with this Plan.
EARNINGS PER SHARE: Both historical and pro forma earnings per share are
computed using the weighted average number of common shares outstanding
adjusted for the issuance of shares in connection with the June 1996
financing discussed in Note 11.
RECLASSIFICATIONS: Certain prior year amounts have been reclassified to
conform to current year presentation.
F - 9
<PAGE>
KATMANDU ENTERTAINMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTERIM PERIODS PRESENTED: The interim consolidated financial statements for
the three months ended March 31, 1995 and 1996 are unaudited. Accordingly,
they do not include all of the information and notes required by generally
accepted accounting principals 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 three month period ended March 31, 1996, are not
necessarily indicative of the results that may be expected for the year
ending December 31, 1996.
UNAUDITED PRO FORMA BALANCE SHEET ADJUSTMENTS: Included in the consolidated
balance sheets are the pro forma adjustments which give to (i) the June 1996
Financing; (ii) the repayment of certain liabilities to related parties;
(iii) the purchase of a minority stockholders's interest in the Company; and
(iv) a capital contribution of approximately $305,000 by the present
stockholders of the Company, all of which occurred in June 1996, as if they
occurred in March 31, 1996 (see Note 11 for discussion of transactions).
The pro forma financial information is unaudited and not necessarily
indicative of the consolidated results which actually would have occurred if
the acquisition transaction had been consummated at the beginning of the
period presented, nor does it purport to represent the future financial
position and results of operations for future periods.
NOTE 4 - BANK LINE OF CREDIT
The Company utilized a $125,000 bank line of credit bearing interest at bank
prime rate during its 1994 and 1995 operating seasons. The line of credit
expired December 31, 1995 and was not renewed by the Company. The unpaid
balance on the line of credit was $0 at December 31, 1995. Interest expense
on the line of credit was $2,980 and $4,051 for the years ended December 31,
1994 and 1995, respectively.
NOTE 5 - LOANS RECEIVABLE, RELATED PARTIES
At December 31, 1995, the Companies were owed $26,983, from various parties
related through common ownership and control. The loans were non-interest
bearing with no specified repayment terms.
F - 10
<PAGE>
KATMANDU ENTERTAINMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
NOTE 6 - ACCOUNTS PAYABLE TRADE AND ACCRUED EXPENSES
Accounts payable and accrued expenses as of December 31, 1995 consists of the
following:
Accounts payable $ 348,726
Accrued expenses 19,448
Accrued bonus 12,000
-------
Total $ 380,174
=======
NOTE 7 - INCOME TAXES
Kat Corp., with the consent of its stockholders, elected to be taxed as an
S-Corporation for federal and state income tax purposes. As such, Kat Corp.
is not subject to federal and state corporate income taxes. Kat Corp.'s
income will, instead, be taxed to the individual stockholders. T-Kat was a C
Corporation for the year ended December 31, 1995 that had no material
operations or profitability. It also elected to be taxed as an S-Corporation
for federal and state income tax purposes effective January 1, 1996. KIP is a
Partnership. Its income will be taxed to the individual parties. No provision
for income taxes has been made for federal or state income taxes due to the
tax structure of the combined companies.
Immediately after the transfer of ownership discussed in Note 11, the Company
will no longer be treated as an S-Corporation. The accompanying consolidated
financial statements reflect a provision for income taxes on a pro forma
basis as if the Company was liable for federal, state and local income taxes
as a taxable corporate entity throughout the years presented.
The pro forma adjustments to income taxes represent the difference between
historical income taxes and the income taxes that would have been reported
had the Company filed federal, state and local income tax returns as a single
corporate entity for each of the years presented.
The following summarizes pro forma income taxes provision:
For the Year Ended
----------------------
1994 1995
------ ------
Pro forma income tax adjustment:
Current
Federal $ 82,000 $ 103,000
State 27,000 34,000
------- -------
Total 109,000 137,000
======= =======
Deferred
Federal (13,500) (21,000)
State (2,700) ( 4,500)
------- -------
Total (16,200) (25,500)
Pro forma income tax $ 92,800 $ 111,500
======= =======
F - 11
<PAGE>
KATMANDU ENTERTAINMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
NOTE 7 - INCOME TAXES
The pro forma provision for income taxes differs from the amounts computed by
applying federal statutory rates due to the following:
For the Year Ended
------------------------------
1994 1995
---- ----
Pro forma provision computed at the
federal statutory rate 34.0% 34.0%
State income taxes, net of federal
tax benefit 7.0% 7.0%
---- ----
Total 41.0% 41.0%
NOTE 8 - NOTE PAYABLE TO RELATED PARTIES
The Company is indebted to various parties related through common ownership
and control and various limited partners.
1995
----
Katmandu Investment Partners:
Demand note payable to a minority stockholder
with interest at 12.5% per annum $ 54,550
Demand note payable to a related party
with interest at 12.5% per annum 24,730
Demand notes payable to a related party
with interest at 12.5% per annum 325,878
---------
$ 405,158
=========
Substantially all assets of the Company have been pledged as collateral for
the above borrowings.
NOTE 9 - RELATED PARTY TRANSACTIONS
In June 1995, KIP satisfied in full its indebtedness to certain related
parties. The total amount paid was $257,865, of which $89,678 represented
accrued interest.
F - 12
<PAGE>
KATMANDU ENTERTAINMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
NOTE 9 - RELATED PARTY TRANSACTIONS (CONTINUED)
KIP leases, from a related party, the pier on which the business on the
Philadelphia waterfront operates. The lease is classified as an operating
lease and expires November, 2005. The terms of the lease stipulate that the
annual minimum rent for the year ending March 31, 1996 will be $50,000.
Beginning March 1, 1997, the annual minimum rent becomes the greater of
$50,000 plus an adjustment for cost of living and four percent (4%) of the
gross business conducted on the premises.
The Company has a lease agreement with a related party for storage space. The
rent under lease is $6,000 per year in equal monthly installments. The lease
terminates December 31, 1999. Subsequent to year end, the Company entered
into a new lease with the same related party for the right to display a sign
on the building owned by the related party for $12,000 per year. The new
lease terminates in April 1997.
Rent expense is straight-lined over the life of the lease. Total rent expense
for the years ended December 31, 1994 and 1995 was $52,296 in each year.
At December 31, 1995 future minimum lease payments under the above leases,
excluding real estate taxes and operating costs are as follows:
Year Ended December 31,
-----------------------
1996 $ 56,000
1997 56,000
1998 56,000
1999 56,000
2000 50,000
Thereafter 245,833
-------
$ 519,833
NOTE 10 - COMMITMENTS AND CONTINGENCIES
Kat Corp. and KIP are guarantors of a loan payable by a related entity. The
balance of the loan at December 31, 1995 was $375,315. The Companies are also
guarantors of an equipment lease payable by the same related entity. The
balance of the lease payable at December 31, 1995 was $40,953.
KIP has pledged substantially all of its assets as guarantor of an additional
loan payable by two of its partners. The balance of the loan at December 31,
1995 was $282,763.
F - 13
<PAGE>
KATMANDU ENTERTAINMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
NOTE 11 - SUBSEQUENT EVENTS
a) Proposed Initial Public Offers
On April 19, 1996 the Company entered into a letter of intent to offer
1,600,000 shares of Common Stock and 1,600,000 redeemable common stock
purchase warrants to purchase Common Stock.
b) June 1996 Financing
In June 1996, the Company borrowed $1.1 million ("June 1996 Loan") from
investors. The June 1996 Loan was evidenced by promissory notes issued by the
Company bearing interest at 10% per annum. Interest is payable monthly in
arrears. In addition, in connection with the June 1996 Loan, the Company
issued 141,666 shares of Common Stock to the lenders. The entire principal
amount of the June 1996 Loan and accrued interest thereon is due upon the
earlier of (i) the day following the day of closing with respect to the
Company's proposed public offering or (ii) May 31, 1998. In the event the
initial pubic offering for the sale of Common Stock is more or less than
$6.00 per share, the number of shares of Common Stock issued to the lenders
will be adjusted so that the total number of shares issued to the lenders
will be equal to $850,000.
The Company used approximately $225,000 of the proceeds of the June 1996 Loan
to purchase the interest of a minority stockholder in the Company and repay a
loan borrowed from the minority stockholder with unpaid interest. The amount
of the loan and accrued interest at December 31, 1995 was $54,550 and
$31,834, respectively.
The Company used approximately $368,000 of the proceeds to repay two related
parties in full satisfaction of loans that existed at balance sheet date. Two
principal stockholders control, directly and indirectly, approximately 95% of
one entity and 85% of another entity. These two stockholders and the entities
which they control immediately contributed their share of the proceeds from
the repayment of the loans, approximately $305,000, to the Company.
c) Loans
In April, 1996 the Company borrowed approximately $125,000 and $105,000 from
two separate related parties. $125,000 loan is bearing interest at an imputed
rate and is due on demand. $105,000 loan is bearing interest at 12% per
annum. The prinicpal and accrued interest are due April, 2000. The proceeds
of the loan were used to fund certain expenses associated with the opening of
Katmandu-Philadelphia for the 1996 season. The entire principal amount of
such loans, together with accrued interest thereon will be repaid out of the
proceeds of this Offering.
F - 14
<PAGE>
KATMANDU ENTERTAINMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
NOTE 11 - SUBSEQUENT EVENTS (CONTINUED)
d) Stock Option Plan
In April 1996, the Company adopted its 1996 Stock Option Plan covering up to
500,000 shares of Common Stock, pursuant to which officers, directors, and
key employees are eligible to receive options. As of July 1996, options were
granted for an aggregate of 175,176 shares exercisable at a price of $6.00
per share, and vest for a period of approximately 3 to 5 years.
e) Katmandu-Trenton ("T-Kat")
In July 1996 the Company received a commitment from a bank for a $2.5 million
construction loan to be used in conjunction with the development of Katmandu-
Trenton. Furthermore, in connection with development of Katmandu-Trenton, the
Company has, subsequent to year end entered into an agreement to lease the
premises from a related party. The lease for Katmandu-Trenton is for a term
of 30 years. The annual rental payable by T-Kat under such lease is an amount
equal to 2% of the gross revenues of Katmandu-Trenton with a minimum payment
of $50,000 and a maximum payment of $100,000 which amounts are adjusted every
three years to reflect increases in the consumer price index for the
Philadelphia/New Jersey region. In addition T-Kat is obligated to pay as
additional rent all real estate taxes, assessments and utility charges
applicable to such premises.
f) Stockholders' Equity
In June 1996, the stockholders approved an increase in the number of
authorized shares of Common and Preferred Stock to 25,000,000 and 5,000,000,
respectively. Immediately prior to the consummation of the offering, the
shareholders of Kat Corp. and T-Kat and the limited partners of KIP will
transfer their ownership interests in those entities to the Company in a
tax-free exchange pursuant to which transferors will receive a total of
1,606,884 shares of Common Stock of the Company. In addition, in connection
with the June 1996 Loan, the Company issued 141,666 shares of Common Stock to
the lenders. All shares and per share amounts in the combined financial
statements have been retroactively restated to give effect to these
transactions, where applicable.
In March 1996, the Company issued 251,450 shares of Common Stock at a price
of $4.80 per share to certain employees and consultants. Compensation expense
was charged in the amount of $378,048 in the first quarter of 1996, in
connection with the shares issued to the employees, and a deferred asset of
$828,912 was recorded in connection with the shares issued to the
consultants, as their services were related to the initial public offering.
g) New Lease
In July 1996, the Company entered into a new lease with a related party for
additional space as an executive office. The terms of the lease provide for
annual base rent of $50,000. The lease terminates on September 30, 2001.
F - 15
<PAGE>
[This page contains five graphics. In the top left corner is a picture of
patrons dining under umberella covered tables. To the right of that picture, is
a picture of a table decorated with flowers on which different types of food is
displayed, with decking and foliage in the background. Below that is a large
picture of the multi-colored front cover of the KatManDu menu with the KatManDu
logo at the top. In the bottom right corner is a picture of food presented on a
plate. Above this picture is a caption which reads "Classic KatManDu dining."
Above that picture, in the center of the left border of the page is a picture of
a flower and coconuts.
<PAGE>
===============================================================================
No Underwriter, dealer, salesman or any other person has been
authorized to give any information or to make any representations other than
those contained in this Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by the Company
or any Underwriter. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that there has
been no change in the affairs of the Company since the date hereof or that the
information contained herein is correct as of any date subsequent to the date
hereof. This Prospectus does not constitute an offer to sell or a solicitation
of an offer to buy any securities offered hereby by anyone in any jurisdiction
in which such offer or solicitation is not authorized or in which the person
making such offer or solicitation is not qualified to do so or to anyone to whom
it is unlawful to make such offer or solicitation.
----------------------
Table of Contents
Page
----
Prospectus Summary..............................
The Company.....................................
Reorganization and Final Partnership
and S Corporation Distributions..............
Risk Factors....................................
Use of Proceeds.................................
Capitalization..................................
Dilution........................................
Dividend Policy.................................
Selected Financial Data.........................
Management's Discussion and Analysis............
of Financial Condition and Plan of
Operations....................................
Business........................................
Management .....................................
Principal Stockholders..........................
Certain Transactions............................
Description of Securities.......................
Shares Eligible for Future Sale.................
Underwriting....................................
Legal Matters...................................
Experts.........................................
Available Information...........................
Index to Financial Statements...................
Until September ____, 1996 (25 days after the date of this Prospectus),
all dealers effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This delivery requirement is in addition to the obligations of dealers to
deliver a Prospectus when acting as Underwriters and with respect to their
unsold allotments or subscriptions.
================================================================================
KATMANDU
ENTERTAINMENT CORP.
[LOGO]
1,600,000 Shares of Common Stock
and
1,600,000 Redeemable Common
Stock Purchase Warrants
----------
PROSPECTUS
----------
NATIONAL SECURITIES
CORPORATION
, 1996
================================================================================
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITYHOLDER PROSPECTUS]
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These Securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED _____, 1996
PROSPECTUS
KATMANDU ENTERTAINMENT CORP.
[LOGO]
141,666 SHARES OF COMMON STOCK
This Prospectus relates to 141,666 shares (the "Shares") of common
stock, $0.001 par value per share (the "Common Stock"), of KatManDu
Entertainment Corp., a Delaware corporation (the "Company"), which are held by
certain securityholders (the "Selling Securityholders") of the Company. The
Shares were issued to the Selling Securityholders as part of the private
placement of the Company's 10% promissory notes (the "Notes") of the Company in
June 1996.
The Shares offered by this Prospectus may be sold from time to time by
the Selling Securityholders, provided a current registration statement with
respect to such securities is then in effect and subject to the prior written
consent of the Representative of the Underwriters of a concurrent public
offering of the Company (described below) permitting such securities to be sold
if sold within 7 months from the date of this Prospectus. See "Concurrent
Offering," "Description of Securities - Registration Rights" and "Plan of
Distribution."
The distribution of the Shares offered hereby by the Selling
Securityholders may be effected in one or more transactions that may take place
on the over-the-counter market, including ordinary broker's transactions,
privately-negotiated transactions or through sales to one or more dealers for
resale of such securities as principals, at market prices prevailing at the time
of sale, at prices related to such prevailing market prices or at negotiated
prices. Usual and customary or specifically negotiated brokerage fees or
commissions may be paid by the Selling Securityholders.
The Selling Securityholders and intermediaries through whom such
securities are sold may be deemed "underwriters" within the meaning of the
Securities Act of 1933, as amended (the "Securities Act") with respect to the
securities offered, and any profits realized or commissions received may be
deemed underwriting compensation.
The Company will not receive any of the proceeds from the sale of the
securities by the Selling Securityholders. Expenses of this offering, other than
fees and expenses of counsel to the Selling Securityholders and selling
commissions, will be paid by the Company. See "Plan of Distribution."
Application has been made to have the Common Stock approved for
quotation on the Nasdaq SmallCap Market under the symbol KATX.
On the date of this Prospectus, a registration statement filed under
the Securities Act with respect to an underwritten public offering by the
Company of 1,600,000 shares of Common Stock and 1,600,000 Redeemable Common
Stock Purchase Warrants ("Warrants") and up to 240,000 additional shares of
Common Stock and 240,000 Warrants to cover over-allotments, if any, was declared
effective by the Securities and Exchange Commission (the "Commission"). The
Company will receive net proceeds of approximately $7,992,100 from the sale of
the shares and Warrants included in the underwritten public offering, and will
receive approximately $1,273,700 in additional net proceeds if the
over-allotment option is exercised in full after payment of underwriting
discounts and commissions and estimated expenses of the underwritten public
offering. Sales of securities by the Selling Securityholders or even the
potential of such sales, would likely have an adverse affect on the market price
of the Common Stock and Warrants. See "Concurrent Offering."
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK
AND IMMEDIATE SUBSTANTIAL DILUTION. SEE "RISK FACTORS"
COMMENCING ON PAGE_____.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATES SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITYHOLDER PROSPECTUS]
<TABLE>
<CAPTION>
THE OFFERING
<S> <C>
Securities offered hereby(1)................................141,666 Shares of Common Stock at an assumed
initial public offering price of $6.00 per Share
Common Stock to be outstanding after this offering:
Common Stock (2) (3) (4) ..............................4,000,000 shares
Warrants...............................................1,600,000 warrants
Proposed Nasdaq Symbols
Common Stock to be outstanding
after this Offering................................KATX
Warrants to be outstanding after the Offering..........KATXW
Use of Proceeds.............................................None of the proceeds of this offering will go to the
Company. The net proceeds from the concurrent offering will
be used by the Company to finance the development and
opening of KatManDu-Trenton and 3 to 4 other KatManDu
restaurant/nightclubs, to repay the June 1996
Financing (as defined) and certain other funded debt,
to make the Final Distribution (as defined), and to
provide working capital. See "Use of Proceeds."
Risk Factors................................................None of the proceeds of this offering will go to the
Company. See "Use of Proceeds." The securities offered
hereby involve a high degree of risk. This Prospectus
contains forward-looking information which involve
risks and uncertainties. The Company's actual results
could differ materially from those anticipated by such
forward-looking information as a result of factors,
including those discussed under "Risk Factors" in this
Prospectus. See "Risk Factors."
</TABLE>
- ------------------
(1) An additional 1,600,000 shares of Common Stock and 1,600,000 Warrants
and up to 240,000 additional shares of Common stock and 240,000
additional Warrants to over over-allotments, if any, are being offered
by the Company in the concurrent underwritten public offering. See
"Concurrent Offering."
(2) Assumes that the shares of Common Stock registered under the Concurrent
Offering have been sold by the Company.
3
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITYHOLDER PROSPECTUS]
(3) Excludes 500,000 shares of Common Stock reserved for issuance under the
Company's 1996 Stock Option Plan, of which 175,176 shares are issuable
upon exercise of outstanding options granted to officers, directors and
employees of the Company, at an exercise price of $6.00 per share. See
"Management" and "Principal Stockholders."
(4) Includes 141,666 shares of Common Stock issuable, in connection with an
aggregate of $1.1 million of short-term debt incurred by the Company in
June 1996. See "Management's Discussion and Analysis of Financial
Condition and Plan of Operations - Liquidity and Capital Resources."
4
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITYHOLDER PROSPECTUS]
CONCURRENT OFFERING
On the date of this Prospectus, a registration statement under the
Securities Act with respect to an underwritten public offering by the Company of
1,600,000 shares of Common Stock and 1,600,000 Warrants and up to an additional
240,000 shares of Common Stock and 240,000 additional Warrants to cover
over-allotments, if any, was declared effective by the Commission. Sales of
securities by the Company and the Selling Securityholders, or even the potential
of such sales, would likely have an adverse affect on the market price of the
Common Stock and the Warrants. See "Risk Factors - Shares Eligible for Future
Sale."
5
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITYHOLDER PROSPECTUS]
PLAN OF DISTRIBUTION
The Shares of Common Stock offered hereby are being offered directly by
the Selling Securityholders, subject to the agreement with the Representative of
the Underwriters of the concurrent public offering that such Shares my not be
sold for a period of 7 months from the date of this Prospectus without the prior
written consent of the Representative and then only to or through the
Representative. Such Shares will be freely tradeable provided that when the
Shares are released by the Representative, a current registration statement with
respect to such Shares is then in effect. The following table sets forth certain
information regarding each of the Selling Securityholders. Except as set forth
below, to the knowledge of the Company, there is no position, office or other
material relationship between any of the Selling Securityholders and the
Company, nor have any such material relationships existed within the past three
years. Except as indicated in the footnotes of this table, the Company believes
that the persons named in the following table have sole voting and investment
power with respect to the shares of Common Stock indicated.
<TABLE>
<CAPTION>
Shares Beneficially Number of Shares Shares Beneficially
Owned Prior to this Being Offered Owned After
Name(1) Offering For Sale(2) this Offering(2)
------- -------- ----------- ----------------
<S> <C> <C> <C>
Willilam Harris & Co. Employee Profit
Sharing Trust(3) 32,197 32,197 0
Astro Communications(3) 12,879 12,879 0
Irving Harris Trust(3) 12,879 12,879 0
Harris Trust #2(3) 12,879 12,879 0
Jeffrey Markowitz
7 Kensington Road
Scarsdale, New York 10583 12,879 12,879 0
Richard Friedman
9 Fort Royal Isle
Ft. Lauderdale, Florida 33308 12,879 12,879 0
Universal Partners(4) 6,439 6,439 0
Lawrence Kaplan(4) 6,439 6,439 0
Stanley Kaplan(4) 6,439 6,439 0
Edmond O'Donnell(4) 6,439 6,439 0
Larry Fleischman(4) 6,439 6,439 0
Donald Tuck
6674 Northwest 24th Terrace
Boca Raton, Florida 33496 3,220 3,200 0
Lawrence Feldman
285 Hewlett Neck Road
Woodmere, New York 11598 6,439 6,439 0
David Wallack(5)
900 Ocean Drive
Miami Beach, Florida 33139 3,220 3,220 0
----- -----
Total 141,666 141,666
</TABLE>
- ---------------------
(1) None of such persons owned 5 percent or more of the outstanding Common
Stock. Each such person also holds a 10% Note issued by the Company in
June 1996, which will be repaid with accrued interest from the net
proceeds of the Concurrent Offering.
6
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITYHOLDER PROSPECTUS]
(2) Assumes all of the shares being registered will be sold.
(3) The address for each of these Selling Stockholders is:
c/o Steven A. Hirsh
William Harris & Co.
2 North LaSalle Street
Chicago, Illinois 60602
(4) The address for each of these Selling Stockholders is:
150 Vanderbilt Motor Parkway
Suite 311
Hauppauge, New York 11788
(5) Director of the Company.
The Company will not receive any of the proceeds from the sale of any
of the securities by the Selling Securityholders. The sale of the Shares may be
effected by the Selling Securityholders from time to time in transactions in the
over-the-counter market, on the Nasdaq SmallCap Market, in negotiated
transactions, or a combination of such methods of sale, at fixed prices which
may be changed, at market prices prevailing at the time of sale, at prices
related to prevailing market prices or at negotiated prices. The Selling
Securityholders may effect such transactions by selling the securities to or
through the Representative, who may receive compensation in the form of
discounts, concessions or commissions from the Selling Securityholders and/or
the purchasers of the Shares for whom it may act as agent or to whom it sells as
principal, or both (which compensation might be in excess of customary
commissions).
In order to comply with the securities laws of certain states, if
applicable, the Shares will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states the
securities may not be sold unless they have been registered or qualified for
sale in the applicable state or an exemption from the registration or
qualification requirement is available and is complied with by the Company and
the Selling Securityholders.
The Selling Securityholders and any broker-dealers, agents or
underwriters that participate with the Selling Securityholders in the
distribution of the shares may be deemed to be "underwriters" within the meaning
of Section 2(11) of the Securities Act of 1933, as amended (the "Act") and any
securities purchased by them may be deemed to be underwriting commissions or
discounts under the Act.
7
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITYHOLDER PROSPECTUS]
Under applicable rules and regulations under the Exchange Act, any
person engaged in the distribution of the securities may not simultaneously
engage in market-making-activities with respect to the securities for a period
of two business days prior to the commencement of such distribution. In
additional and without limiting the foregoing, each Selling Securityholder will
be subject to applicable provisions of the Exchange Act and the rules and
regulations thereunder, including without limitation, Rules 10b-6, 10b-6A and
10b-7, which provisions may limit the timing of the purchases and sales of
securities by the Selling Securityholders.
The Company has agreed to pay all fees and expenses incident to the
registration of the Shares, except selling commissions and fees and expenses of
counsel or any other professionals or other advisors, if any, to the Selling
Securityholders.
8
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITYHOLDER PROSPECTUS]
===============================================================================
No Underwriter, dealer, salesman or any other person has been
authorized to give any information or to make any representations other than
those contained in this Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by the Company
or any Underwriter. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that there has
been no change in the affairs of the Company since the date hereof or that the
information contained herein is correct as of any date subsequent to the date
hereof. This Prospectus does not constitute an offer to sell or a solicitation
of an offer to buy any securities offered hereby by anyone in any jurisdiction
in which such offer or solicitation is not authorized or in which the person
making such offer or solicitation is not qualified to do so or to anyone to whom
it is unlawful to make such offer or solicitation.
----------------------
Table of Contents
Page
----
Prospectus Summary..............................
The Company.....................................
Reorganization and Final Partnership
and S Corporation Distributions..............
Risk Factors....................................
Use of Proceeds.................................
Capitalization..................................
Dilution........................................
Dividend Policy.................................
Concurrent Offering ............................
Plan of Distribution ...........................
Selected Financial Data.........................
Management's Discussion and Analysis............
of Financial Condition and Plan of
Operations....................................
Business........................................
Management .....................................
Principal Stockholders..........................
Certain Transactions............................
Description of Securities.......................
Shares Eligible for Future Sale.................
Legal Matters...................................
Experts.........................................
Available Information...........................
Index to Financial Statements...................
================================================================================
================================================================================
KATMANDU
ENTERTAINMENT CORP.
[LOGO]
141,666 Shares of Common Stock
----------
PROSPECTUS
----------
, 1996
================================================================================
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITYHOLDER PROSPECTUS]
EXHIBIT INDEX
Exhibit
No. Description
- ------ -----------
Page
5.1 Revised Opinion of Morse, Zelnick, Rose & Lander, LLP
- ----------
(1) Filed herewith.
9
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
Sections 145 of the Delaware General Corporation Law grants to the
Company the power to indemnify the officers and directors of the Company, under
certain circumstances and subject to certain conditions and limitations as
stated therein, against all expenses and liabilities incurred by or imposed upon
them as a result of suits brought against them as such officers and directors if
they act in good faith and in a manner they reasonably believe to be in or not
opposed to the best interests of the Company and, with respect to any criminal
action or proceeding, have no reasonable cause to believe their conduct was
unlawful.
The Company's certificate of incorporation provides as follows:
"NINTH: A director of the Corporation shall not be personally liable to
the Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived an improper
personal benefit.
TENTH: (a) Right to Indemnification. Each person who was or is made a
party or is threatened to be made a party to or is involved in any action, suit
or proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was a director or officer,
of the Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to
employee benefit plans, whether the basis of such proceeding is alleged action
in an official capacity as a director, officer, employee or agent or in any
other capacity while serving as a director, officer, employee or agent, shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the General Corporation Law, as the same exists or may hereafter
be amended (but, in the case of any such amendment, only to the extent that such
amendment permits the Corporation to provide broader indemnification rights than
said law permitted the Corporation to provide prior to such amendment), against
all expense, liability and loss (including attorneys' fees, judgments, fines,
ERISA excise taxes or penalties and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such person in connection therewith and such
indemnification shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of his or her heirs,
executors and administrators; provided, however, that, except as provided in
paragraph (b) hereof, the Corporation shall indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person only if such proceeding (or part thereof) was authorized by the
Board of Directors of the Corporation. The right to indemnification conferred in
this Section shall be a contract right and shall include the right to be paid by
the Corporation the expenses incurred in defending any such proceeding in
advance of its final disposition; provided, however, that, if the General
Corporation Law requires, the payment of such expenses incurred by a director or
officer (in his or her capacity as a director or officer and not in any other
capacity in which service was or is rendered by such person while a director or
officer, including, without limitation, service to an employee benefit plan) in
advance of the final disposition of a proceeding, shall be made only upon
delivery to the Corporation of an undertaking, by or on behalf of such director
or officer, to repay all amounts so advanced if it shall ultimately be
determined that such director or officer is not entitled to be indemnified under
this Section or otherwise. The Corporation may, by action of its Board of
Directors, provide indemnification to employees and agents of the Corporation
with the same scope and effect as the foregoing indemnification of directors and
officers.
(b) Right of Claimant to Bring Suit. If a claim under paragraph (a) of
this Section is not paid in full by the Corporation within thirty days after a
written claim has been received by the Corporation, the claimant may at any time
thereafter bring suit against the Corporation to recover the unpaid amount of
the claim and, if successful in whole or in part, the claimant shall be entitled
to be paid also the expense of prosecuting such claim. It shall be a defense to
any such action (other than an action brought to enforce a claim for expenses
incurred in defending any proceeding in advance of its final disposition where
the required undertaking, if any is required, has been tendered to the
Corporation) that the claimant has not met the standards of conduct which make
it permissible under the General Corporation Law for the Corporation to
indemnify the claimant for the amount claimed, but the burden of proving such
defense shall be on the Corporation. Neither the failure of the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
General Corporation Law, nor an actual determination by the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) that the claimant has not met such applicable standard or conduct,
shall be a defense to the action or create a presumption that the claimant has
not met the applicable standard of conduct.
<PAGE>
(c) Non-Exclusivity of Rights. The right to indemnification and the
payment of expenses incurred in defending a proceeding in advance of its final
disposition conferred in this Section shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, provision of
the Certificate of Incorporation, by-law, agreement, vote of stockholders or
disinterested directors or otherwise.
(d) Insurance. The Corporation may maintain insurance, at its expense,
to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise against any such expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the General Corporation Law."
Reference is made to the form of the Underwriting Agreement, filed as
Exhibit 1.1 hereto, which contains provisions for indemnification of the
Company, its directors, officers, and any controlling persons, by the
Underwriters against certain liabilities for information furnished by the
Underwriters.
Item 25. Other Expenses of Issuance and Distribution.
Expenses in connection with the issuance and distribution of the shares
of Common Stock being registered hereunder other than underwriting commissions
and expenses, are estimated below.
Registration fee $ 9,500.00
NASD fee 3,500.00
Printing expenses 50,000.00
Accounting fees and expenses 125,000.00
Legal fees and expenses 200,000.00
State securities law fees and expenses 50,000.00
Transfer agent and registrar fees and expenses 2,500.00
Miscellaneous expenses 59,500.00
------------
Total $500,000.00
[The Selling Securityholders will not pay any of the foregoing expenses
in connection with the concurrent offering.]
Item 26. Recent Sales of Unregistered Securities
During the past three years the Registrant has issued the
following unregistered securities:
A. On April 1, 1996, the Company issued a total of 651,450 shares of
Common Stock for cash consideration in the aggregate amount of $651.45; 200,000
shares were issued to each of S. Lance Silver and Stuart N. Harting; an
aggregate of 131,450 shares were issued to James R. Bergman, Bruce Waugh, Jack
Gromacki and Diane Thomsen; and an aggregate of 120,000 shares were issued to
outside consultants, including 40,000 to Morse, Zelnick, Rose & Lander, LLP.
B. On June 19, 1996, the Company issued 141,666 shares of Common Stock
to the purchasers of its 10% promissory notes, in the aggregate principal amount
of $1.1 million.. Included in such shares are 3,220 shares issued to David
Wallack, a Director of the Company.
C. Immediately prior to this Offering, a holding company structure will
be formalized when the Company issues 1,606,884 shares of Common Stock to the
owners of the operating KatManDu entities, KatManDu Investment Partners,
KatManDu Corporation, T-Kat Corp. and Chinatown Convention Center Hotel
Corporation, in exchange for their ownership interest in such entities.
None of the transactions described above involved public offerings of
the Registrant's securities. The transactions described in paragraphs A and C
above were exempt from the registration requirements of the Securities Act of
1933 (the "Act") pursuant to Section 4(2) of the Act. The transaction described
in paragraph B was also exempt from registration by reason of Regulation D of
the Act. All of the shares issued in the above transactions have appropriate
restrictive legends and are subject to "stop transfer" instructions.
<PAGE>
Item 27. Exhibits
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit
No. Description Page
- ------- ------------- ------
<S> <C> <C>
1.1 Form of Underwriting Agreement(1)
1.2 Form of Exchange and Reorganization Agreement
3.1 Certificate of Incorporation of the Company
3.1a Certificate of Amendment of Certificate of Incorporation of the Company
3.2 By-Laws of the Company
4.1 Specimen Stock Certificate(1)
4.2 Form of Warrant(1)
4.3 Form of Representative's Warrant Agreement including Form of Representative's Warrant(1)
5.1 Form of Opinion of Morse, Zelnick, Rose & Lander, LLP
10.1 1996 Stock Option Plan
10.2 Form of Shareholders Agreement among S. Lance Silver, Stuart N. Harting, James R. Bergman,
Bruce Waugh, Jack Gromacki, Diane Thomsen, Steven Rabinovici, InterEquity Capital Partners, LP
and Morse, Zelnick, Rose & Lander, LLP
10.3 Employment Agreement between the Company and S. Lance Silver
10.4 Employment Agreement between the Company and Stuart N. Harting
21.1 List of Subsidiaries of the Registrant
23.1 Consent of Arthur Andersen, LLP
23.2 Consent of Morse, Zelnick, Rose & Lander, LLP (included in Exhibit 5.1)
24 Power of Attorney (included in signature page hereof)
- --------------
</TABLE>
(1) To be filed by amendment.
<PAGE>
Item 28. Certain Undertakings
A. The undersigned Registrant hereby undertakes:
(1) to file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section
10(a)(3) of the Securities Act of 1933, as amended (the "Act");
(ii) to reflect in the prospectus any facts or events
arising after the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in the
Registration Statement; and
(iii) to include any material information with
respect to the plan of distribution not previously disclosed in the Registration
Statement or any material change to such information in the Registration
Statement.
(2) That, for the purpose of determining any liability under
the Act, each such post-effective amendment shall be deemed to be a new
Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(4) To provide to the Underwriters at the closing specified in
the underwriting agreement certificates in such denominations and registered in
such names as required by the Underwriters to permit prompt delivery to each
purchaser.
(5) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of a registration statement in reliance upon Rule 430A and
contained in the form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part
of the registration statement as of the time it was declared effective.
(6) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
B. Insofar as indemnification for liabilities arising under
the Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, the Registrant certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing on Form SB-2 and authorized this
Registration Statement to be signed on its behalf by the undersigned, in the
City of Philadelphia, State of Pennsylvania on July 26, 1996.
KATMANDU ENTERTAINMENT CORP.
By: /s/ S. Lance Silver
-------------------------------------------
S. Lance Silver
Co-Chairman and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signatures appears
below constitutes and appoints S. Lance Silver and Stephen A. Zelnick, and each
one of them individually, his true and lawful attorneys-in-fact and agents, with
full power of substitution and resubstitiution for him and in his name, place
and stead, in any and all capacities to sign any and all amendments (including
post-effective amendments) to this registration statement, and any registration
statement relating to the offering hereunder pursuant to Rule 462(b) under the
Securities Act of 1933, as amended, and to file the same with the Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite or
necessary to be done and about the premises, as fully to all intents and purpose
as he might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirement of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C>
/s/ S. Lance Silver
- ---------------------- Co-Chairman, Co-Chief Executive Officer July 26, 1996
S. Lance Silver Co-President and Director
/s/ Stuart N. Harting
- ---------------------- Co-Chairman, Co-President, July 26, 1996
Stuart N. Harting and Director
/s/ James R. Bergman
- ---------------------- Executive Vice President-Administration, July 26, 1996
James R. Bergman Chief Financial Officer, Secretary,
Treasurer and Director
/s/ Bruce Waugh
- ---------------------- Director July 26, 1996
Bruce Waugh
/s/ David Wallack
- ---------------------- Director July 26, 1996
David Wallack
/s/ Jill R. Felix
- ---------------------- Director July 26, 1996
Jill R. Felix
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description Page
- ------- ------------- ------
<S> <C> <C>
1.1 Form of Underwriting Agreement(1)
1.2 Form of Exchange and Reorganization Agreement
3.1 Certificate of Incorporation of the Company
3.1a Certificate of Amendment of Certificate of Incorporation of the Company
3.2 By-Laws of the Company
4.1 Specimen Stock Certificate(1)
4.2 Form of Warrant(1)
4.3 Form of Representative's Warrant Agreement including Form of Representative's Warrant(1)
5.1 Form of Opinion of Morse, Zelnick, Rose & Lander, LLP
10.1 1996 Stock Option Plan
10.2 Form of Shareholders Agreement among S. Lance Silver, Stuart N. Harting, James R. Bergman,
Bruce Waugh, Jack Gromacki, Diane Thomsen, Steven Rabinovici, InterEquity Capital Partners, LP
and Morse, Zelnick, Rose & Lander, LLP
10.3 Employment Agreement between the Company and S. Lance Silver
10.4 Employment Agreement between the Company and Stuart N. Harting
21.1 List of Subsidiaries of the Registrant
23.1 Consent of Arthur Andersen, LLP
23.2 Consent of Morse, Zelnick, Rose & Lander, LLP (included in Exhibit 5.1)
24 Power of Attorney (included in signature page hereof)
- --------------
</TABLE>
(1) To be filed by amendment.
<PAGE>
EXCHANGE AND REORGANIZATION AGREEMENT
AGREEMENT, dated as of the st day of , 1996, by and among KATMANDU
ENTERTAINMENT CORP. ("KEC"), a Delaware corporation having an address at 415
North Columbus Boulevard, Philadelphia, Pennsylvania 19123; KATMANDU INVESTMENT
PARTNERS ("KIP"), a Pennsylvania limited partnership having an address at 415
North Columbus Boulevard, Philadelphia, Pennsylvania 19123; CHINATOWN CONVENTION
CENTER HOTEL CORPORATION ("Chinatown"), a Pennsylvania corporation having an
address at 415 North Columbus Boulevard, Philadelphia, Pennsylvania 19123;
KATMANDU CORPORATION ("Kat Corp."), a Pennsylvania corporation having an address
at 415 North Columbus Boulevard, Philadelphia, Pennsylvania 19123; T-KAT
CORPORATION ("T-KAT"), a New Jersey corporation having an address at 415 North
Columbus Boulevard, Philadelphia, Pennsylvania 19123; S. LANCE SILVER ("Silver")
having an address at 8 Shawnee Court, Medford, New Jersey 08055; STUART N.
HARTING ("Harting") having an address at 600 Coles Mill Road, Haddonfield, New
Jersey 08033; the S. LANCE SILVER TRUST (the "Silver Trust") having an address
c/o S. Lance Silver, Trustee, 8 Shawnee Court, Medford, New Jersey 08055; and
the STUART N. HARTING TRUST (the "Harting Trust") having an address c/o Stuart
N. Harting, Trustee, 600 Coles Mill Road, Haddonfield, New Jersey 08033.
W I T N E S S E T H
WHEREAS, Chinatown is the general partner of KIP, owning a 1% general
partnership interest therein; and
WHEREAS, Silver and Harting own all of the issued and outstanding stock
of Chinatown; and
WHEREAS, the Silver Trust and the Harting Trust own all of the limited
partnership interests in KIP; and
WHEREAS, KIP is the owner of the restaurant located on Pier 25 on the
Delaware River waterfront, 415 N. Columbus Boulevard, Philadelphia,
Pennsylvania, operated under the name "KatManDu" ("KatManDu-Philadelphia"); and
WHEREAS, Kat Corp. is the holder of the liquor license for
KatManDu-Philadelphia and is the operator of KatManDu-Philadelphia pursuant to a
management agreement, dated March 1, 1991, between Kat Corp. and KIP; and
WHEREAS, Silver and Harting own all of the issued and outstanding stock
of T-KAT; and
WHEREAS, T-KAT was formed for the purpose of developing, owning and
operating a KatManDu restaurant/nightclub similar to KatManDu-Philadelphia
on the Delaware River waterfront in Trenton, Mercer County, New Jersey
("KatManDu-Trenton"); and
WHEREAS, KEC has filed a registration statement on Form SB-2 with the
Securities and Exchange Commission (the "SEC") for the purpose of offering and
selling to the public (the "Offering") 1,600,000 shares of its common stock,
$.001 par value (the "Common Stock") and 1,600,000 Redeemable Common Stock
Purchase Warrants (the "Redeemable Warrants"); and
<PAGE>
WHEREAS, the KEC Common Stock being offered to the public in connection
with the Offering will represent approximately forty (40%) per cent of the total
issued and outstanding shares of KEC at the time of the Offering; and
WHEREAS, immediately prior to the date on which the Offering is
declared effective by the SEC (the "Effective Date"), each of Silver, Harting,
the Silver Trust and the Harting Trust will transfer all of their respective
rights, title and interests in and to Chinatown, KIP, Kat Corp. and T-KAT in
exchange for an aggregate of 1,606,884 shares of KEC Common Stock and
immediately thereafter KEC will liquidate Chinatown and KIP and Kat Corp. and
T-KAT will survive as wholly-owned subsidiaries of KEC with Kat Corp. owning and
operating KatManDu-Philadelphia and T-KAT owning and operating KatManDu-Trenton;
and
WHEREAS, as a result of the transactions described herein, Silver,
Harting, the Silver Trust and the Harting Trust, in the aggregate, will own in
excess of fifty (50%) of the total issued and outstanding shares of KEC Common
Stock.
NOW, THEREFORE, in consideration of the foregoing premises, the mutual
representations, warranties and covenants set forth below and other good and
valuable consideration, the sufficiency of which is hereby acknowledged, the
parties hereto hereby agree as follows:
1. Basic Transactions
Immediately prior to the Effective Date:
(a) each of Silver and Harting will transfer all of their right, title
and interest in and to Chinatown, representing all of the issued and outstanding
shares of Chinatown, to KEC in exchange for _____ shares of KEC Common Stock
(___ shares each), and KEC will immediately thereafter liquidate and dissolve
Chinatown;
(b) each of the Silver Trust and the Harting Trust will transfer all of
its right, title and interest in and to KIP, representing all of the limited
partnership interests in KIP to KEC in exchange for ____ shares of KEC Common
Stock (___ shares each), and KEC will immediately thereafter liquidate and
dissolve KIP;
(c) each of Silver and Harting will transfer all of their right, title
and interest in and to Kat Corp., representing all of the issued and outstanding
shares of Kat. Corp., to KEC in exchange for _____ shares of KEC Common Stock
(___ shares each), and thereafter Kat Corp. will own and operate
KatManDu-Philadelphia as a wholly-owned subsidiary of KEC;
(d) each of Silver and Harting will transfer all of their right, title
and interest in and to T-KAT, representing all of the issued and outstanding
shares of T-KAT, to KEC in exchange for ____ shares of KEC Common Stock (___
shares each), and thereafter T-KAT will continue to
2
<PAGE>
develop and, ultimately own and operate KatManDu-Trenton as a wholly-owned
subsidiary of KEC.
2. Tax Considerations
It is the intent of the parties hereto that:
(a) the transactions described in paragraph (a) of Section 1 of this
Agreement constitute and qualify as tax free reorganizations described in
section 368(a)(1)(A) of the Internal Revenue Code of 1986, as amended (the
"Code"); and
(b) the closing of the Offering and the consummation of the
transactions described in paragraphs (a) - (d) of Section 1 are interdependent
and are to be considered as component parts of the same transaction so that,
upon consummation of the Offering and the transactions described in Section 1
hereof, Silver, Harting, the Silver Trust and the Harting Trust together with
purchasers of KEC Common Stock pursuant to the Offering will be in "control" of
KEC for purposes of section 351 of the Code. The parties hereto will report the
transactions described herein for federal, state and local income tax purposes
consistent with the provisions of this Section 2 and will timely file all such
returns, forms, statements and agreements as may be required by the Internal
Revenue Service (the "IRS") on such basis. The provisions of this Section shall
survive the closing of the Offering and the transactions described herein.
3. Representations and Warranties
(a) Each of Silver, Harting, the Silver Trust and the Harting
Trust (each a "Transferor" and, collectively, the "Transferors") on his or its
own behalf and not on behalf of any other Transferor represents and warrants as
follows:
(i) Each Transferor is the legal and equitable owner of his or
its respective interests in each of Chinatown, KIP, Kat Corp.
and T-KAT and that such interests, on the date the exchanges
described in Section 1 hereof are consummated, will be owned
free and clear of all mortgages, liens, pledges or other
security interests.
(ii) Each Transferor has the full power and authority to
execute and deliver this Agreement and to perform his or its
obligations hereunder, that he or it has duly executed and
delivered this Agreement and that this Agreement constitutes a
valid and legally and binding obligation as to such
Transferor, enforceable in accordance with its terms.
(iii) That neither the execution and the delivery of this
Agreement by such Transferor, nor the consummation of
3
<PAGE>
the transaction contemplated hereby by such Transferor, will
(A) violate any statute, regulation, rule judgment, order,
decree, stipulation, injunction, charge, or other restriction
of any government, governmental agency or court to which such
Transferor is subject or (B) conflict with, result in a breach
of or constitute a default under, result in the acceleration
of, create in any party the right to accelerate, terminate,
modify, cancel, or require any notice under any contract,
agreement, instrument of indebtedness, security interest or
other arrangement to which he or it may be a party or by which
he or it is bound or to which any of his or its assets is
subject.
(b) Each of Kat Corp., KEC and T-KAT, on its own behalf and
not on behalf of any other entity, represent and warrant as follows:
(i) It is a corporation duly organized, validly existing and
in good standing under the laws of the state of its
incorporation.
(ii) It has the full power and authority to execute and
deliver this Agreement and to perform its obligations
hereunder, that this Agreement has been duly executed and
delivered, and that this Agreement constitutes a valid and
legally binding obligation, enforceable in accordance with its
terms and conditions.
(iii) Neither the execution and delivery of this Agreement,
nor the consummation of the transactions contemplated hereby
will (A) violate any statute, regulation, rule judgment,
order, decree, stipulation, injunction, charge, or other
restriction of any government, governmental agency or court to
which it may be subject or any provision of its charter or
By-laws or (B) conflict with, result in a breach of,
constitute a default under, result in acceleration of, create
in any party the right to accelerate, terminate, modify, or
cancel, or require any notice under any contract, lease,
sublease, license, sublicense, franchise, permit, indenture,
agreement or mortgage for borrowed money, instrument of
indebtedness, security interest, or other arrangement to which
it may be a party or by which it may be bound or to which any
of its assets is subject and which will have a material
adverse effect on it.
4
<PAGE>
(c) The shares of Common Stock to be issued by KEC pursuant to
this Agreement, at the time of such issuance will be free and clear of any
restrictions on transfer (other than restrictions under the Securities Act of
1933 and state securities laws and restrictions under the Underwriters Agreement
executed in connection with the Offering) claims, taxes, security interests,
options, warrants, rights, contracts, calls, commitments, equities and demands.
(d) Kat Corp. is the holder of a valid and existing liquor
license for KatManDu-Philadelphia. Such license is free from all defects, liens,
mortgages, pledges and other security interests.
(e) T-KAT is the lessee under a legal, valid, binding and
enforceable lease for the premises known as the Cooper Iron Works Building
located on the Delaware River waterfront in Trenton, New Jersey and has the
right to occupy such premises and to conduct therein a restaurant/nightclub
facility.
(f) KIP represents and warrants as follows:
(i) it is a limited partnership duly organized, validly
existing, and in good standing under the laws of Pennsylvania
and is duly authorized to conduct business and is in good
standing under the laws of each jurisdiction in which it is
conducting business
(ii) Neither the execution and delivery of this Agreement nor
the consummation of the transactions contemplated hereby will
(A) violate any statute, regulation, rule judgment, order,
decree, stipulation, injunction, charge, or other restriction
of any government, governmental agency or court to which it is
subject or any provision of its limited partnership agreement
or (B) conflict with, result in a breach of, constitute a
default under, result in acceleration of, create in any party
the right to accelerate, terminate, modify, or cancel, or
require any notice under any contract, lease, sublease,
license, sublicense, franchise, permit, indenture, agreement
or mortgage for borrowed money, instrument of indebtedness,
security interest, or other arrangement to which it may be a
party or by which it may
5
<PAGE>
be bound or to which any of its assets is subject and which
will have a material adverse effect on them.
(iii) It owns or leases all of the tangible and intangible
assets necessary for the conduct of the business conducted by
KatManDu-Philadelphia, other than the liquor license relevant
thereto. Each such tangible asset is free from defects, has
been maintained in accordance with normal industry practice,
and is in good operating condition and repair (subject to
normal wear and tear). It is the lessee under a legal, valid,
binding and enforceable lease for the premises on which it
conducts the operations of KatManDu-Philadelphia at Pier 25,
415 N. Columbus Boulevard, Philadelphia, Pennsylvania and has
the right to occupy such premises and to conduct therein the
operations of KatManDu-Philadelphia.
(g) All of the representations, warranties and covenants set
forth in this Section 3 shall be true as of the date hereof and as of the date
of the Exchange.
(h) Each party hereto indemnifies and holds each other party
hereto harmless from any and all losses, damages, costs (including, but not
limited to, reasonable attorneys fees), claims and/or liabilities arising,
directly or indirectly, from a breach of any representations, warranties or
covenants made by such indemnifying party as set forth herein.
4. Conditions and Obligations to Closing.
(a) The obligation of KEC to consummate the transactions to be
performed by it under this Agreement is subject to the following conditions:
(i) The representations and warranties set forth in Section 3
above made by the parties hereto other than KEC shall be true
and correct in all material respects at and as of the date the
exchanges described in Section 1 hereof are consummated;
(ii) no action, suit or proceeding shall be pending or
threatened before any court or quasi-judicial or
administrative agency of any federal, state, local or foreign
jurisdiction wherein an unfavorable judgment, order, decree,
stipulation, injunction or charge would (A) prevent
consummation of any of the transactions contemplated by this
Agreement, (B) cause any of the transactions contemplated by
this Agreement to be rescinded following
6
<PAGE>
consummation or (C) have an adverse effect on the right of KEC
to own and control Kat Corp. and T-KAT or have an adverse
effect on the right of Kat Corp. to own, operate or control
KatManDu-Philadelphia and the right of T-Kat to develop, own,
operate or control KatManDu-Trenton; and
(iii) the Offering shall have been declared effective by the
SEC.
KEC may waive any condition specified in this Section 4(a), other than
the condition set forth in clause (iii) thereof, if it executes a writing so
stating at or prior to the closing of the Exchange.
(b) The obligation of the Transferors to consummate the
transactions to be performed by them under this Agreement is subject to the
following conditions:
(i) The representations and warranties set forth in Sections
3(b)-3(f) above shall be true and correct in all material
respects at and as of the date of the Exchange;
(ii) no action, suit or proceeding shall be pending or
threatened before any court or quasi-judicial or
administrative agency of any federal, state, local or foreign
jurisdiction wherein an unfavorable judgment, order, decree,
stipulation, injunction or charge would (A) prevent
consummation of any of the transactions contemplated by this
Agreement, (B) cause any of the transactions contemplated by
this Agreement to be rescinded following consummation or (C)
have an adverse effect on the right of any Transferor to own
or control the shares of KEC Common Stock issued pursuant to
this Agreement; and
(iii) the Offering shall have been declared effective by the
SEC.
The Transferors may waive any condition specified in this Section 4(b),
other than the condition set forth in clause (iii) thereof, if they execute a
writing so stating at or prior to the closing of the Exchange.
5. Miscellaneous
(a) This Agreement shall not confer any rights or remedies upon any
person other than the parties and their respective successors and permitted
assigns.
7
<PAGE>
(b) This Agreement (including the documents referred to herein)
constitutes the entire agreement among the parties with respect to the matters
set forth herein, and supersedes any prior understandings, agreements, or
representations by or among the parties, written or oral, that may have related
in any way to the subject matter hereof.
(c) This Agreement shall be binding upon and inure to the benefit of
the parties named herein and their respective successors and permitted assigns.
No party may assign either this Agreement or any of his, her or its rights,
interests, or obligations hereunder without the prior written approval of the
other parties hereto.
(d) This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original but all of which together will constitute one
and the same instrument. A facsimile, telecopy or other reproduction of this
Agreement may be executed by one or more parties hereto, and an executed copy of
this Agreement may be delivered by one or more parties hereto by facsimile or
similar instantaneous electronic transmission device pursuant to which the
signature of or on behalf of such party can be seen, and such execution and
delivery shall be considered valid, binding and effective for all purposes. At
the request of any party hereto, all parties hereto agree to execute an original
of this Agreement as well as any facsimile, telecopy or other reproduction
hereof.
(e) The section headings contained in this Agreement are inserted for
convenience only and shall not affect in any way the meaning or interpretation
of this Agreement.
(f) All notices, requests, demands, claims, and other communications
hereunder will be in writing. Any notice, request, demand, claim or other
communication hereunder shall be deemed duly given if (and then two business
days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient at the
address set forth following the name of such person in the preamble of this
Agreement. Any party may give any notice, request, demand, claim or other
communication hereunder using any other means (including personal delivery,
expedited courier, messenger service, telecopy, telex, ordinary mail, or
electronic mail), but no such notice, request, demand, claim, or other
communication shall be deemed to have been duly given unless and until it
actually is received by the individual and/or entity for whom it is intended.
Any party may change the address to which notices, requests, demands, claims,
and other communications hereunder are to be delivered by giving the other
parties notice in the manner herein set forth.
(g) This Agreement shall be governed by and construed in accordance
with the internal laws of the State of Delaware.
(h) No Amendment of any provisions of this Agreement shall be valid
unless the same shall be in writing and signed by the parties hereto. No waiver
by any party of any default, misrepresentation, or breach of warranty or
covenant hereunder, whether intentional or not, shall be deemed to extend to any
prior or subsequent default,
8
<PAGE>
misrepresentation, or breach of warranty or covenant hereunder or affect in any
way any rights arising by virtue of any prior or subsequent such occurrence.
(i) Any term or provision of this Agreement that is invalid or
unenforceable in any situation in any jurisdiction shall not affect the validity
or enforceability of the remaining terms and provisions hereof or the validity
or enforceability of the offending term or provision in any other situation or
in any other jurisdiction. If the final judgment of a court of competent
jurisdiction declares that any term or provision hereof is invalid or
unenforceable, the parties agree that the court making the determination of
invalidity or unenforceability shall have the power to reduce the scope,
duration, or area of the term or provision, to delete specific words or phrases,
or to replace any invalid or unenforceable term or provision, to delete specific
words or phrases, or to replace any invalid or unenforceable term or provision
with a term or provision that is valid and enforceable and that comes closest to
expressing the intention of the invalid or unenforceable term or provision, and
this Agreement shall be enforceable as so modified after the expiration of the
time within which the judgment may be appealed.
(j) The language used in this Agreement will be deemed to be the
language chosen by the parties to express their mutual intent, and no rule of
strict construction shall be applied against any party. Any reference to any
federal, state, local, or foreign statute or law shall be deemed also to refer
to all rules and regulations promulgated thereunder, unless the context requires
otherwise. The parties intend that each representation, warranty, and covenant
contained herein shall have independent significance. If any party has breached
any representation, warranty, or covenant relating to the same subject matter as
any other representation, warrant or covenant (regardless of the relative levels
of specificity) which the party has not breached, it shall not detract from or
mitigate the fact that the party is in breach of the first representation,
warranty, or covenant.
(k) The Exhibits, Annexes, and Schedules identified in this Agreement
are incorporated herein by reference and made a part hereof.
(l) Each of the parties acknowledges and agrees that the other parties
would be damaged irreparably in the event any of the provisions of this
Agreement are not performed in accordance with their specific terms or otherwise
are breached. Accordingly, each of the parties agrees that the other parties
shall be entitled to an injunction or injunctions to prevent breaches of the
provisions of this Agreement and to enforce specifically this Agreement and the
terms and provisions hereof in any action instituted in any court of the United
States or any state thereof having jurisdiction over the parties and the matter.
9
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the date first above written.
KATMANDU ENTERTAINMENT CORP.
By: ______________________________
Name:
Title:
KATMANDU CORPORATION
By: ______________________________
Name:
Title:
T-KAT CORP.
By: ______________________________
Name:
Title:
KATMANDU INVESTMENT PARTNERS
By: Chinatown Convention Center Hotel
Corporation, General Partner
By: ______________________________
Name:
Title:
CHINATOWN CONVENTION CENTER
HOTEL CORPORATION
By: ______________________________
Name:
Title:
S. LANCE SILVER TRUST
By: ______________________________
Name:
Title:
10
<PAGE>
STUART N. HARTING TRUST
By: ______________________________
Name:
Title:
------------------------------
S. LANCE SILVER
------------------------------
STUART N. HARTING
11
<PAGE>
Certificate of Incorporation
of
Katmandu Entertainment Corp.
The undersigned, being a natural person for the purpose of organizing a
corporation for conducting the business and promoting the purposes hereinafter
stated, under the provisions and subject to the requirements of the laws of the
State of Delaware (particularly Chapter 1, Title 8 of the Delaware Code and the
acts amendatory thereof and supplemental thereto, and known, identified and
referred to as the "General Corporation Law of the State of Delaware"), hereby
certifies that:
FIRST: The name of the corporation (hereinafter called the
"corporation") is Katmandu Entertainment Corp.
SECOND: The address, including street, number, city and county
of the registered office of the corporation in the State of Delaware is 1013
Centre Road, City of Wilmington, County of New Castle; and the name of the
registered agent of the corporation in the State of Delaware at such address is
The Prentice-Hall Corporation System, Inc.
THIRD: The nature of the business and the purposes to be
conducted and promoted by the corporation are to conduct any lawful business, to
promote any lawful purpose, and to engage in any lawful act or activity for
which corporations may be organized under the General Corporation Law of the
State of Delaware.
FOURTH: The total number of shares of stock which the
corporation shall have authority to issue is 1,000,000. The par value of each of
such shares is $.001. All such shares are of one class and are shares of Common
Stock.
No holder of any of the shares of the stock of the
corporation, whether now or hereafter authorized and issued, shall be entitled
as of right to purchase or subscribe for (1) any unissued stock of any class, or
(2) any additional shares of any class to be issued by reason of any increase of
the authorized capital stock of the corporation of any class, or (3) bonds,
certificates of indebtedness, debentures or other securities convertible into
stock of the corporation, or carrying any right to purchase stock of any class,
but any such unissued stock or such additional authorized issue of any stock or
of other securities convertible into stock, or carrying any right to purchase
stock, may be issued and disposed of pursuant to resolution of the Board of
Directors to such persons, firms, corporations or associations and upon such
terms as may be deemed advisable by the Board of Directors in the exercise of
its discretion.
FIFTH: The name and the mailing address of the incorporator
are as follows:
Name Mailing Address
---- ---------------
Howard L. Weinreich Morse, Zelnick, Rose & Lander, LLP
450 Park Avenue
New York, New York 10022
SIXTH: The corporation is to have perpetual existence.
<PAGE>
SEVENTH: Whenever a compromise or arrangement is proposed
between this corporation and its creditors or any class of them and/or between
this corporation and its stockholders or any class of them, any court of
equitable jurisdiction within the State of Delaware may, on the application in a
summary way of this corporation or of any creditor or stockholder thereof or on
the application of any receiver or receivers appointed for this corporation
under the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this corporation under the provisions of Section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholder or class of stockholders of this corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this corporation, as the case may be,
and also on this corporation.
EIGHTH: For the management of the business and for the conduct
of the affairs of the corporation, and in further definition, limitation and
regulation of the powers of the corporation and of its directors and of its
stockholders or any class thereof, as the case may be, it is further provided:
1. The management of the business and the conduct of the
affairs of the corporation shall be vested in its Board of Directors. The number
of directors which shall constitute the whole Board of Directors shall be fixed
by, or in the manner provided in, the By-Laws. The phrase "whole Board" and the
phrase "total number of directors" shall be deemed to have the same meaning, to
wit, the total number of directors which the corporation would have if there
were no vacancies. No election of directors need be by written ballot.
2. After the original or other By-Laws of the corporation have
been adopted, amended, or repealed, as the case may be, in accordance with the
provisions of Section 109 of the General Corporation Law of the State of
Delaware, and after the corporation has received any payment for any of its
stock, the power to adopt, amend, or repeal the By-Laws of the corporation may
be exercised by the Board of Directors of the corporation; provided, however,
that any provision for the classification of directors of the corporation for
staggered terms pursuant to the provisions of subsection (d) of Section 141 of
the General Corporation Law of the State of Delaware shall be set forth in an
initial By-Law or in a By-Law adopted by the stockholders entitled to vote of
the corporation unless provisions for such classification shall be set forth in
this certificate of incorporation.
3. Whenever the corporation shall be authorized to issue only one class
of stock each outstanding share shall entitle the holder thereof to notice of,
and the right to vote at, any meeting of stockholders. Whenever the corporation
shall be authorized to issue more than one class of stock no outstanding share
of any class of stock which is denied voting power under the provisions of the
certificate of incorporation shall entitle the holder thereof to the right to
vote at any meeting of stockholders except as the provisions of paragraph (c)(2)
of Section 242 of the General Corporation Law of the State of Delaware shall
otherwise require; provided, that no share of any such class which is otherwise
denied voting power shall entitle the holder thereof to vote upon the increase
or decrease in the number of authorized shares of said class.
NINTH: A director of the Corporation shall not be personally
liable to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct
2
<PAGE>
or a knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the director derived an
improper personal benefit.
TENTH: (a) Right to Indemnification. Each person who was or is
made a party or is threatened to be made a party to or is involved in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), by reason of the fact that he or
she, or a person of whom he or she is the legal representative, is or was a
director or officer, of the Corporation or is or was serving at the request of
the Corporation as a director, officer, employee or agent of another corporation
or of a partnership, joint venture, trust or other enterprise, including service
with respect to employee benefit plans, whether the basis of such proceeding is
alleged action in an official capacity as a director, officer, employee or agent
or in any other capacity while serving as a director, officer, employee or
agent, shall be indemnified and held harmless by the Corporation to the fullest
extent authorized by the Delaware General Corporation Law, as the same exists or
may hereafter be amended (but, in the case of any such amendment, only to the
extent that such amendment permits the Corporation to provide broader
indemnification rights than said law permitted the Corporation to provide prior
to such amendment), against all expense, liability and loss (including
attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts
paid or to be paid in settlement) reasonably incurred or suffered by such person
in connection therewith and such indemnification shall continue as to a person
who has ceased to be a director, officer, employee or agent and shall inure to
the benefit of his or her heirs, executors and administrators: provided,
however, that, except as provided in paragraph (b) hereof, the Corporation shall
indemnify any such person seeking indemnification in connection with a
proceeding (or part thereof) initiated by such person only if such proceeding
(or part thereof) was authorized by the board of directors of the Corporation.
The right to indemnification conferred in this Section shall be a contract right
and shall include the right to be paid by the Corporation the expenses incurred
in defending any such proceeding in advance of its final disposition: provided,
however, that, if the Delaware General Corporation Law requires, the payment of
such expenses incurred by a director or officer (in his or her capacity as a
director or officer and not in any other capacity in which service was or is
rendered by such person while a director or officer, including, without
limitation, service to an employee benefit plan) in advance of the final
disposition of a proceeding, shall be made only upon delivery to the Corporation
of an undertaking, by or on behalf of such director or officer, to repay all
amounts so advanced if it shall ultimately be determined that such director or
officer is not entitled to be indemnified under this Section or otherwise. The
Corporation may, by action of its Board of Directors, provide indemnification to
employees and agents of the Corporation with the same scope and effect as the
foregoing indemnification of directors and officers.
(b) Right of Claimant to Bring Suit. If a claim under paragraph (a) of
this Section is not paid in full by the Corporation within thirty days after a
written claim has been received by the Corporation, the claimant may at any time
thereafter bring suit against the Corporation to recover the unpaid amount of
the claim and, if successful in whole or in part, the claimant shall be entitled
to be paid also the expense of prosecuting such claim. It shall be a defense to
any such action (other than an action brought to enforce a claim for expenses
incurred in defending any proceeding in advance of its final disposition where
the required undertaking, if any is required, has been tendered to the
Corporation) that the claimant has not met the standards of conduct which make
it permissible under the Delaware General Corporation Law for the Corporation to
indemnify the claimant for the amount claimed, but the burden of proving such
defense shall be on the Corporation. Neither the failure of the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
Delaware General Corporation Law, nor an actual determination by the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) that the claimant has not met such applicable standard or conduct,
shall be a defense to the action or create a presumption that the claimant has
not met the applicable standard of conduct.
3
<PAGE>
(c) Non-Exclusivity of Rights. The right to indemnification and the
payment of expenses incurred in defending a proceeding in advance of its final
disposition conferred in this Section shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, provision of
the Certificate of Incorporation, by-law, agreement, vote of stockholders or
disinterested directors or otherwise.
(d) Insurance. The Corporation may maintain insurance, at its expense,
to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise against any such expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the Delaware General Corporation Law.
ELEVENTH: From time to time any of the provisions of this
certificate or incorporation may be amended, altered or repealed, and other
provisions authorized by the laws of the State of Delaware at the time in force
may be added or inserted in the manner and at the time prescribed by said laws,
and all rights at any time conferred upon the stockholders of the corporation by
this certificate of incorporation are granted subject to the provisions of this
Article ELEVENTH.
Dated: March 28, 1996
/s/
----------------------------------
Howard L. Weinreich, Incorporator
4
<PAGE>
Certificate of Amendment
of
Certificate of Incorporation
of
Katmandu Entertainment Corp.
(Pursuant to Chapter 1, Title 8 of the General Corporation Law of the
State of Delaware)
It is hereby certified that:
FIRST: The name of the Corporation is Katmandu Entertainment Corp.
SECOND: The Certificate of Incorporation was filed with the Office of
the Secretary of State on March 28, 1996.
THIRD: The Amendment of the Certificate of Incorporation of the
Corporation effected by this Certificate of Amendment is (a) to change the name
of the Corporation and (b) to increase the aggregate number of shares which the
Corporation shall have authority to issue by authorizing 24,000,000 additional
shares of Common Stock with a par value of $.001 per share and a new class of
5,000,000 shares of Preferred Stock with a par value of $.001 per share so that
the aggregate number of shares which the Corporation shall have authority to
issue shall be 30,000,000, 25,000,000 of which shall be shares of Common Stock
and 5,000,000 of which shall be shares of Preferred Stock
FOURTH: To accomplish the foregoing amendment, ARTICLE FIRST relating
to the name of the Corporation and ARTICLE FOURTH relating to the number, class
and par value of the shares the Corporation is authorized to issue are amended
to read as follows:
"FIRST: The name of the corporation (hereinafter called the
"corporation") is KatManDu Entertainment Corp.
FOURTH: The aggregate number of shares which the Corporation
shall have authority to issue is 30,000,000, of which
25,000,000 shall be shares of Common Stock, par value $.001
per share (the "Common Stock") and 5,000,000 shall be shares
of Preferred Stock, par value $.001 per share (the "Preferred
Stock"). The Preferred Stock may be issued, from time to time,
in one or more series with such designations, preferences and
relative participating optional or other special rights and
qualifications, limitations or restrictions thereof, as shall
be stated in the resolutions adopted by the Board of Directors
providing for the issuance of such Preferred Stock or series
thereof; and the Board of Directors is hereby expressly vested
with authority to fix such designations, preferences and
relative participating optional or other special rights or
qualifications, limitations or restrictions for each series,
including, but not by way of limitation, the power to affix
the redemption and liquidation preferences, the rate of
dividends payable and the time for and the priority of payment
thereof and to determine
<PAGE>
whether such dividends shall be cumulative or not and to
provide for and affix the terms of conversion of such
Preferred Stock or any series thereof into Common Stock of the
Corporation and fix the voting power, if any, of Preferred
Stock or any series thereof.
No holder of any of the shares of the stock
of the corporation, whether now or hereafter authorized and
issued, shall be entitled as of right to purchase or subscribe
for (1) any unissued stock of any class, or (2) any additional
shares of any class to be issued by reason of any increase of
the authorized capital stock of the corporation of any class,
or (3) bonds, certificates of indebtedness, debentures or
other securities convertible into stock of the corporation, or
carrying any right to purchase stock of any class, but any
such unissued stock or such additional authorized issue of any
stock or of other securities convertible into stock, or
carrying any right to purchase stock, may be issued and
disposed of pursuant to resolution of the Board of Directors
to such persons, firms, corporations or associations and upon
such terms as may be deemed advisable by the Board of
Directors in the exercise of its discretion.
FIFTH: The foregoing Amendment of the Certificate of Incorporation of
the Corporation was authorized by the vote at a meeting of the Board of
Directors of the Corporation followed by the affirmative vote by the holders of
a majority of the votes of all of the outstanding shares of the Corporation
entitled to vote on said Amendment of the Certificate of Incorporation.
IN WITNESS WHEREOF, we have subscribed this document on the date set
forth below and do hereby affirm under penalties of perjury, that the statements
contained therein have been examined by us and are true and correct.
Dated: June 21, 1996
/s/
----------------------------
S. Lance Silver,
Co-President and
Co-Chief Executive Officer
<PAGE>
BY-LAWS OF
KatManDu Entertainment Corp.
(A Delaware Corporation)
ARTICLE I
STOCKHOLDERS
1. CERTIFICATES REPRESENTING STOCK.
Every holder of stock in the corporation shall be entitled to have a
certificate signed by, or in the name of, the corporation by the Chairman or
Vice-Chairman of the Board of Directors, if any, or by the President or a
Vice-President and by the Treasurer or an Assistant Treasurer or the Secretary
or an Assistant Secretary of the corporation certifying the number of shares
owned by him in the corporation. Any and all signatures on any such certificate
may be facsimiles. In case any officer, transfer agent, or registrar who has
signed or whose facsimile signature has been placed upon a certificate shall
have ceased to be such officer, transfer agent, or registrar before such
certificate is issued, it may be issued by the corporation with the same effect
as if he were such officer, transfer agent, or registrar at the date of issue.
Whenever the corporation shall be authorized to issue more than one
class of stock or more than one series of any class of stock, and whenever the
corporation shall issue any shares of its stock as partly paid stock, the
certificates representing shares of any such class or series or of any such
partly paid stock shall set forth thereon the statements prescribed by the
General Corporation Law. Any restrictions on the transfer or registration of
transfer of any shares of stock of any class or series shall be noted
conspicuously on the certificate representing such shares.
The corporation may issue a new certificate of stock in place of any
certificate theretofore issued by it, alleged to have been lost, stolen or
destroyed, and the Board of Directors may require the owner of any lost, stolen
or destroyed certificate, or his legal representative, to give the corporation a
bond sufficient to indemnify the corporation against any claim that may be made
against it on account of the alleged loss, theft or destruction of any such
certificate or the issuance of any such new certificate.
2. FRACTIONAL SHARE INTEREST.
The corporation may, but shall not be required to, issue fractions of a
share. If the corporation does not issue fractions of a share, it shall (i)
arrange for the disposition of fractional interests by those entitled thereto,
(ii) pay in cash the fair value of fractions of a share as of the time when
those entitled to receive such fractions are determined, or (iii) issue scrip or
warrants in registered or bearer form which shall entitle the holder to receive
a certificate for a full share upon the surrender of such scrip or warrants
aggregating a full share. A certificate for a fractional share shall, but scrip
or warrants shall not unless otherwise provided therein, entitle the holder to
exercise voting rights, to receive dividends thereon, and to participate in any
of the assets of the corporation in the event of liquidation. The Board of
Directors may cause scrip or warrants to be issued subject to the conditions
that they shall become void if not exchanged for certificates representing full
shares before a specified date, or subject to the conditions that the shares for
which scrip or warrants are exchangeable may be sold by the corporation and the
proceeds thereof
<PAGE>
distributed to the holders of scrip or warrants, or subject to any other
conditions which the Board of Directors may impose.
3. STOCK TRANSFERS.
Upon compliance with provisions restricting the transfer or
registration of transfer of shares of stock, if any, transfers or registration
of transfers of shares of stock of the corporation shall be made only on the
stock ledger of the corporation by the registered holder thereof, or by his
attorney thereunto authorized by power of attorney duly executed and filed with
the Secretary of the corporation or with a transfer agent or a registrar, if
any, and on surrender of the certificate or certificates for such shares of
stock properly endorsed and the payment of all taxes due thereon.
4. RECORD DATE FOR STOCKHOLDERS.
For the purpose of determining the stockholders entitled to notice of
or to vote at any meeting of stockholders or any adjournment thereof, or to
express consent to corporate action in writing without a meeting, or entitled to
receive payment of any dividend or other distribution or the allotment of any
rights, or entitled to exercise any rights in respect of any change, conversion
or exchange of stock or for the purpose of any other lawful action, the
directors may fix, in advance, a record date, which shall not be more than sixty
days nor less than ten days before the date of such meeting, nor more than sixty
days prior to any other action. If no record date is fixed, the record date for
determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held, the record date for
determining stockholders entitled to express consent to corporate action in
writing without a meeting, when no prior action by the Board of Directors is
necessary, shall be the day on which the first written consent is expressed and
the record date for determining stockholders for any other purpose shall be at
the close of business on the day on which the Board of Directors adopts the
resolution relating thereto. A determination of stockholders of record entitled
to notice of or to vote at any meeting of stockholders shall apply to any
adjournment of the meeting, provided, however, that the Board of Directors may
fix a new record date for the adjourned meeting.
5. MEANING OF CERTAIN TERMS,
As used herein in respect of the right to notice of a meeting of
stockholders or a waiver thereof or to participate or vote thereat or to consent
or dissent in writing in lieu of a meeting, as the case may be, the term "share"
or "shares" or "share of stock" or "shares of stock" or "stockholder" or
"stockholders" refers to an outstanding share or shares of stock and to a holder
or holders of record of outstanding shares of stock when the corporation is
authorized to issue only one class of shares of stock, and said reference is
also intended to include any outstanding share or shares of stock and any holder
or holders of record of outstanding shares of stock of any class upon which or
upon whom the certificate of incorporation confers such rights where there are
two or more classes or series of shares of stock or upon which or upon whom the
General Corporation Law confers such rights notwithstanding that the certificate
of incorporation may provide for more than one class or series of shares of
stock, one or more of which are limited or denied such rights thereunder,
provided, however, that no such right shall vest in the event of an increase or
a decrease in the authorized number of shares of stock of any class or series
which is otherwise denied voting rights under the provisions of the certificate
of incorporation, except as any provision of law may otherwise require.
-2-
<PAGE>
6. STOCKHOLDER MEETINGS.
-TIME-. The annual meeting shall be held on the date and at the time
fixed, from time to time by the directors provided that the first annual meeting
shall be held on a date within 13 months after the organization of the
corporation and each successive annual meeting shall be held on a date within 13
months after the date of the preceding annual meeting. A special meeting shall
be held on the date and at the time fixed by the directors.
-PLACE. Annual meetings and special meetings shall be held at such
place, within or without the State of Delaware as the directors may from time to
time, fix. Whenever the directors shall fail to fix such place, the meeting
shall be held at the registered office of the corporation in the State of
Delaware.
-CALL. Annual meetings and special[ meetings may be called by the
directors or by any officer instructed by the directors to call the meeting.
-NOTICE OR WAIVER OF NOTICE. Written notice of all meetings shall be
given stating the place, date and hour of the meeting and stating the place
within the city or other municipality or community at which the list of
stockholders of the corporation may be examined. The notice of an annual meeting
shall state that the meeting is called for the election of directors and for the
transaction of other business which may properly come before the meeting and
shall (if any other action which could be taken at a special meeting is to be
taken at such annual meeting) state the purpose or purposes. The notice of a
special meeting shall in all instances state the purpose or purposes for which
the meeting is called. The notice of any meeting shall also include or be
accompanied by any additional statement information or documents prescribed by
the General Corporation Law. Except as otherwise provided by the General
Corporation Law, a copy of the notice of any meeting shall be given personally
or by mail, not less than 10 days nor more than 60 days before the date of the
meeting unless the lapse of the prescribed period of time shall have been
waived, and directed to each stockholder at his record address or at such other
address which he may have furnished by request in writing to the Secretary of
the Corporation. Notice by mail shall be deemed to be given when deposited, with
postage thereon prepaid in the United States mail. If a meeting is adjourned to
another time, not more than 30 days hence, and/or to another place and if an
announcement of the adjourned time and/or place is made at the meeting it shall
not be necessary to give notice of the adjourned meeting unless the directors
after adjournment fix a new record date for the adjourned meeting. Notice need
not be given to any stockholder who submits a written waiver of notice signed by
him before or after the time stated therein. Attendance of a stockholder at a
meeting of stockholders shall constitute a waiver of notice of such meeting
except when the stockholder attends the meeting for the express purpose of
objecting at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened. Neither the business to
be transacted at nor the purpose of, any regular or special meeting of the
stockholders need be specified in any written waiver of notice.
-STOCKHOLDER LIST. The officer who has charge of the stock ledger of
the corporation shall prepare and make, at least ten days before every meeting
of stockholders, a complete list of the stockholder arranged in alphabetical
order, and showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder for any purpose germane to the meeting, during
ordinary business hours for a period of at least ten days prior to the meeting
either at a place within the city or other municipality or community where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present. The stock ledger shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, the list required by this
section or the books of the corporation, or to vote at any meeting of
stockholders.
-3-
<PAGE>
-CONDUCT OF MEETING. Meetings of the stockholders shall be presided
over by one of the following officers in the order of seniority and if present
and acting - the Chairman of the Board, if any, the Vice-Chairman of the Board,
if any, the President, a Vice-President, or, if none of the foregoing is in
office and present and acting, by a chairman to be chosen by the stockholders.
The Secretary of the corporation, or in his absence, an Assistant Secretary,
shall act as secretary of every meeting, but if neither the Secretary nor an
Assistant Secretary is present the Chairman of the meeting shall appoint a
secretary of the meeting.
-PROXY REPRESENTATION. Every stockholder may authorize another person
or persons to act for him by proxy in all matters in which a stockholder is
entitled to participate, whether by waiving notice of any meeting, voting or
participating at a meeting, or expressing consent or dissent without a meeting.
Every proxy must be signed by the stockholder or by his attorney-in-fact. No
proxy shall be voted or acted upon after three years from its date unless such
proxy provides for a longer period. A duty executed proxy shall be irrevocable
if it states that it is irrevocable and, if, and only as long as, it is coupled
with an interest sufficient in law to support an irrevocable power. A proxy may
be made irrevocable regardless of whether the interest with which it is coupled
is an interest in the stock itself or an interest in the corporation generally.
-INSPECTORS. The directors, in advance of any meeting, may, but need
not, appoint one or more inspectors of election to act at the meeting or any
adjournment thereof. If an inspector or inspectors are not appointed, the person
presiding at the meeting may, but need not, appoint one or more inspectors. In
case any person who may be appointed as an inspector fails to appear or act, the
vacancy may be filled by appointment made by the directors in advance of the
meeting or at the meeting by the person presiding thereat. Each inspector, if
any, before entering upon the discharge of his duties, shall take and sign an
oath faithfully to execute the duties of inspector at such meeting with strict
impartiality and according to the best of his ability. The inspectors, if any,
shall determine the number of shares of stock outstanding and the voting power
of each, the shares of stock represented at the meeting, the existence of a
quorum, the validity and effect of proxies, and shall receive votes, ballots or
consents, hear and determine all challenges and questions arising in connection
with the right to vote, count and tabulate all votes, ballots or consents,
determine the result, and do such acts as are proper to conduct the election or
vote with fairness to all stockholders. On request of the person presiding at
the meeting, the inspector or inspectors, if any, shall make a report in writing
of any challenge, question or matter determined by him or them and execute a
certificate of any fact found by him or them.
-QUORUM. The holders of a majority of the outstanding shares of stock
shall constitute a quorum at a meeting of stockholders for the transaction of
any business. The stockholders present may adjourn the meeting despite the
absence of a quorum.
-VOTING. Each share of stock shall entitle the holder thereof to one
vote. In the election of directors, a plurality of the votes cast shall elect.
Any other action shall be authorized by a majority of the votes cast except
where the General Corporation Law prescribes a different percentage of votes
and/or a different exercise of voting power, and except as may be otherwise
prescribed by the provisions of the certificate of incorporation and these
By-Laws. In the election of directors, and for any other action, voting need not
be by ballot.
7. STOCKHOLDER ACTION WITHOUT MEETINGS. Any action required by the
General Corporation Law to be taken at any annual or special meeting of
stockholders, or any action which may be taken at any annual or special meeting
of stockholders, may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
miminum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted. Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing.
-4-
<PAGE>
In order to determine the stockholders entitled to consent to corporate
action in writing without a meeting, the Board of Directors may fix a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and which date
shall not be more than 10 days after the date upon which the resolution fixing
the record date is adopted by the Board of Directors. Any stockholder of record
seeking to have the stockholders authorize or take corporate action by written
consent shall, by written notice to the Secretary, request the Board of
Directors to fix a record date. Such notice shall specify the action sought to
be consented to by stockholders. The Board of Directors shall promptly, but in
all events within 10 days after the date on which such a request is received,
adopt a resolution fixing the record date. If no record date has been fixed by
the Board of Directors within 10 days after the date on which such a request is
received, the record date for determining stockholders entitled to consent to
corporate action in writing without a meeting, when no prior action by the Board
of Directors is required by applicable law, shall be the first date on which a
signed written consent setting forth the action taken or proposal to be taken is
delivered to the corporation by delivery to its registered office in the State
of Delaware, its principal place of business, or any officer or agent of the
corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Any such delivery shall be by hand or by certified or
registered mail, return receipt requested. If no record date has been fixed by
the Board of Directors and prior action by the Board of Directors is required by
applicable law, the record date for determining stockholders entitled to consent
to corporate action in writing without a meeting shall be at the close of
business on the date on which the Board of Directors adopts the resolution
taking such prior action.
In the event of the delivery of a written consent or consents
purporting to authorize or take corporate action and/or related revocations
(each such written consent and related revocation is referred to in this Section
7 as a "Consent"), the Secretary shall provide for the safekeeping of such
Consent and shall immediately appoint duly qualified and objective inspectors to
conduct, as promptly as practical, such reasonable ministerial review as they
deem necessary or appropriate for the purpose of ascertaining the sufficiency
and validity of such Consent and all matters incident thereto, including,
without limitation, whether holders of shares having the requisite voting power
to authorize or take the action specified in the Consent have given consent. If
after such investigation the Secretary shall determine that the Consent is
valid, that fact shall be certified on the records of the corporation kept for
the purpose of recording the proceedings of meetings of stockholders, and the
Consent shall be filed in such records, at which time the Consent shall become
effective as stockholder action.
ARTICLE II
DIRECTORS
1. FUNCTIONS AND DEFINITION. The business and affairs of the
corporation shall be managed by or under the direction of the Board of Directors
of the corporation. The Board of Directors shall have the authority to fix the
compensation of the members thereof. The use of the phrase "whole board" herein
refers to the total number of directors which the corporation would have if
there were no vacancies.
2. QUALIFICATIONS AND NUMBER.A director need not be a stockholder, a
citizen of the United States, or a resident of the State of Delaware. The
initial Board of Directors shall consist of two persons fixed from time to
time by action of the stockholders or of the directors. The number of directors
may be increased or decreased by action of the stockholders or of the directors.
3. ELECTION AND TERM. The first Board of Directors, unless the members
thereof shall have been named in the certificate of incorporation, shall be
elected by the incorporator or incorporators and shall hold office until the
first annual meeting of stockholders and until their successors are elected and
qualified or until their earlier resignation or removal. Any director may resign
at any time upon written notice to the corporation. Thereafter, directors
-5-
<PAGE>
who are elected at an annual meeting of stockholders, and directors who are
elected in the interim to fill vacancies and newly created directorships, shall
hold office until the next annual meeting of stockholders and until their
successors are elected and qualified or until their earlier resignation or
removal. In the interim between annual meetings of stockholders or of special
meetings of stockholders called for the election of directors and/or for the
removal of one or more directors and for the filling of any vacancy in that
connection, newly created dictatorships and any vacancies in the Board of
Directors, including unfilled vacancies resulting from the removal of directors
for cause or without cause may be filled by the vote of a majority of the
remaining directors then in office, although less than a quorum, or by the sole
remaining director.
4. MEETINGS.
-TIME. Meetings shall be held at such time as the Board shall fix,
except that the first meeting of a newly elected Board shall be held as soon
after its election as the directors may conveniently assemble.
-PLACE. Meetings shall be held at such place within or without the
State of Delaware as shall be fixed by the Board.
-CALL. No call shall be required for regular meetings for which the
time and place have been fixed. Special meetings may be called by or at the
direction of the Chairman of the Board, if any, the Vice-Chairman of the Board,
if any, of the President, or of a majority of the directors in office.
-NOTICE OR ACTUAL OR CONSTRUCTIVE WAIVER. No notice shall be required
for regular meetings for which the time and place have been fixed. Written,
oral, or any other mode of notice of the time and place shall be given for
special meetings in sufficient time for the convenient assembly of the directors
thereat. Notice need not be given to any director or to any member of a
committee of directors who submits a written waiver of notice signed by him
before or after the time stated therein. Attendance of any such person at a
meeting shall constitute a waiver of notice of such meeting, except when he
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the directors need be specified in any
written waiver of notice.
-QUORUM AND ACTION. A majority of the whole Board shall constitute a
quorum except when a vacancy or vacancies prevents such majority, whereupon a
majority of the directors in office shall constitute a quorum, provided, that
such majority shall constitute at least one-third of the whole Board. A majority
of the directors present, whether or not a quorum is present, may adjourn a
meeting to another time and place. Except as herein otherwise provided, and
except as otherwise provided by the General Corporation Law, the vote of the
majority of the directors present at a meeting at which a quorum is present
shall be the act of the Board. The quorum and voting provisions herein stated
shall not be construed as conflicting with any provisions of the General
Corporation Law and these By-Laws which govern a meeting of directors held to
fill vacancies and newly created directorships in the Board or action of
disinterested directors.
Any member or members of the Board of Directors or of any committee
designated by the Board, may participate in a meeting of the Board, or any such
committee, as the case may be, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other.
-CHAIRMAN OF THE MEETING. The Chairman of the Board, if any and if
present and acting, shall preside at all meetings. Otherwise, the Vice-Chairman
of the Board, if any and if present and acting, or the President, if present and
acting, or any other director chosen by the Board, shall preside.
-6-
<PAGE>
5. REMOVAL OF DIRECTORS. Except as may otherwise be provided by the
General Corporation Law, any director or the entire Board of Directors may be
removed, with or without cause, by the holders of a majority of the shares then
entitled to vote at an election of directors.
6. COMMITTEES. The Board of Directors may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee to
consist of one or more of the directors of the corporation. The Board may
designated one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In
the absence or disqualification of any member of any such committee or
committees, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board, shall have and
may exercise the powers and authority of the Board of Directors in the
management of the business and affairs of the corporation with the exception of
any authority the delegation of which is prohibited by Section 141 of the
General Corporation Law, and may authorize the seal of the corporation to be
affixed to all papers which may require it.
7. WRITTEN ACTION. Any action required or permitted to be taken at any
meeting of the Board of Directors or any committee thereof may be taken without
a meeting if all members of the Board or committee, as the case may be, consent
thereto in writing, and the writing or writings are filed with the minutes of
proceedings of the Board or committee.
ARTICLE III
OFFICERS
The officers of the corporation shall consist of one or more
Presidents, one or more Secretaries, one or more Treasurers, and, if deemed
necessary, expedient, or desirable by the Board of Directors, one or more Chief
Executive Officers, one or more Chairmen of the Board, a Vice-Chairman of the
Board, an Executive Vice-President, one or more other Vice-Presidents, one or
more Assistant Secretaries, one or more Assistant Treasurers, and such other
officers with such titles as the resolution of the Board of Directors choosing
them shall designate. Except as may otherwise be provided in the resolution of
the Board of Directors choosing an officer, no officers other than the Chairman
or Chairmen of the Board, as the case may be, or Vice-Chairman of the Board, if
any, need be a director. Any number of offices may be held by the same person,
as the directors may determine.
Unless otherwise provided in the resolution choosing him, each officer
shall be chosen for a term which shall continue until the meeting of the Board
of Directors following the next annual meeting of stockholders and until his
successor shall have been chosen and qualified.
All officers of the corporation shall have such authority and perform
such duties in the management and operation of the corporation as shall be
prescribed in the resolutions of the Board of Directors designating and choosing
such officers and prescribing their authority and duties, and shall have such
additional authority and duties as are incident to their office except to the
extent that such resolutions may be inconsistent therewith. The Secretary or
Assistant Secretary of the corporation shall record all of the proceedings of
all meetings and actions in writing of stockholders, directors, and committees
of directors, and shall exercise such additional authority and perform such
additional duties as the Board shall assign to him. Any officer may be removed,
with or without cause, by the Board of Directors. Any vacancy in any office may
be filled by the Board of Directors.
-7-
<PAGE>
ARTICLE IV
CORPORATE SEAL
The corporate seal shall be in such form as the Board of Directors
shall prescribe.
ARTICLE V
FISCAL YEAR
The fiscal year of the corporation shall be fixed, and shall be subject
to change, by the Board of Directors.
ARTICLE VI
CONTROL OVER BY- LAWS
Subject to the provisions of the certificate of incorporation and the
provisions of the General Corporation Law, the power to amend, alter or repeal
these By-Laws and to adopt new By-Laws may be exercised by the Board of
Directors or by the stockholders.
-8-
<PAGE>
[MORSE, ZELNICK, ROSE & LANDER, LLP LETTERHEAD]
(212) 838-8269
__________ _____, 1996
KatManDu Entertainment Corp.
415 North Columbus Boulevard
Philadelphia, PA 19123
Dear Sirs:
We have acted as counsel to KatManDu Entertainment Corp., a Delaware
corporation (the "Company") in connection with the preparation of a registration
statement on Form SB-2, (the "Registration Statement") filed with the Securities
and Exchange Commission under the Securities Act of 1933, as amended (the
"Act"), to register the offering by the Company of (a) 1,600,000 shares of
Common Stock (and the offering of an additional 240,000 shares if the
over-allotment option is exercised in full; (b) 1,600,000 Redeemable Common
Stock Purchase Warrants (the "Redeemable Warrants") to purchase shares of Common
Stock (and the offering of any additional 240,000 Redeemable Warrants if the
over-allotment option is exercised in full); (c) 1,600,000 shares of Common
Stock underlying the Redeemable Warrants, (and the offering of an additional
240,000 shares of Common Stock if the over-allotment option is exercised in
full); (d) Common Stock Purchase Warrants (the "Representative's Warrants") to
purchase 160,000 shares of Common Stock and 160,000 Redeemable Warrants; (e)
160,000 shares of Common Stock underlying the Representative's Warrants; (f)
160,000 shares of Common Stock underlying the Redeemable Warrants which underly
the Representative's Warrants; and (g) any and all amendments to the (i)
Registration Statement, and any Registration Statements for additional shares of
Common Stock, the Redeemable Warrants the Common Stock underlying the Redeemable
Warrants, the Representative's Warrants, the Common Stock underlying the
Representative's Warrants and the Redeemable Warrants underlying the
Representative's Warrants pursuant to Rule 462(b) of the Act.
In this regard, we have reviewed the Certificate of Incorporation of
the Company, as amended, resolutions adopted by the Company's Board of
Directors, the Registration Statement, the proposed form of the Redeemable
Warrants and the Representative's Warrants, the other exhibits to the
Registration Statement and such other records, documents, statutes and decisions
as we have deemed relevant in rendering this opinion. Based upon the foregoing,
we are of the opinion that:
<PAGE>
KatManDu Entertainment Corp.
___ _____, 1996
Page 2 of 2
Each share of Common Stock being offered, the Redeemable Warrants, the
Representative's Warrants, and the Common Stock underlying the Redeemable
Warrants and the Representative's Warrants have been duly and validly authorized
for issuance and when issued as contemplated by the Registration Statement or
upon exercise of the Representative's Warrants will be legally issued, fully
paid and non-assessable.
We hereby consent to the use of this opinion as Exhibit 5.1 to the
Registration Statement and any and all amendments thereto, and any Registration
Statements for additional shares of Common Stock pursuant to Rule 462(b) of the
Act. In giving such opinion, we do not thereby admit that we are acting within
the category of persons whose consent is required under Section 7 of the Act or
the rules or regulations of the Securities and Exchange Commission thereunder.
Members of this firm or their affiliates own an aggregate of 40,000 Common Stock
of the Company.
Very truly yours,
MORSE, ZELNICK, ROSE & LANDER, LLP
<PAGE>
KATMANDU ENTERTAINMENT CORP.
1996 STOCK OPTION PLAN
1. PURPOSES. The purposes of this Stock Option Plan are to attract and
retain the best qualified personnel for positions of substantial responsibility,
to provide additional incentive to the Employees of the Company or its
Subsidiaries, if any (as defined in Section 2 below), as well as other
individuals who perform services for the Company or its Subsidiaries, and to
promote the success of the Company's business.
Options granted hereunder may be either "incentive stock options", as
defined in Section 422A of the Internal Revenue Code of 1986, as amended, or
"non-qualified stock options", at the discretion of the Board and as reflected
in the terms of the written instrument evidencing an Option.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "Board" shall mean the Committee, if one has been
appointed, or the Board of Directors of the Company, if no Committee is
appointed.
(b) "Common Stock" shall mean the Common Shares of the Company
(par value $.001 per share).
(c) "Company" shall mean Kat*Man*Du Entertainment Corp., a
Delaware corporation.
(d) "Committee" shall mean the Committee appointed by the
Board of Directors in accordance with paragraph (a) of Section 4 of the Plan, if
one is appointed.
(e) "Continuous Status as an Employee" shall mean the absence
of any interruption or termination of service as an Employee. Continuous Status
as an Employee shall not be considered interrupted in the case of sick leave,
military leave, or any other leave of absence approved by the Board.
(f) "Employee" shall mean any person, including officers and
directors, employed by the Company or any Parent or Subsidiary of the Company.
The payment of a director's fee by the Company shall not be sufficient to
constitute "employment" by the Company.
(g) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
<PAGE>
(h) "Incentive Stock Option" shall mean a stock option
intended to qualify as an incentive stock option within the meaning of Section
422A of the Internal Revenue Code of 1986, as amended.
(i) "Non-qualified Stock Option" shall mean a stock option not
intended to qualify as an Incentive Stock Option.
(j) "Option" shall mean a stock option granted pursuant to the
Plan.
(k) "Optioned Stock" shall mean the Common Stock subject to an
Option.
(l) "Optionee" shall mean an Employee or other person who
receives an Option.
(m) "Parent" shall mean a "parent corporation", whether now or
hereafter existing, as defined in Section 425(e) of the Internal Revenue Code of
1986, as amended.
(n) "Securities Act" shall mean the Securities Act of 1933, as
amended.
(o) "SEC" shall mean the Securities and Exchange Commission.
(p) "Share" shall mean a share of the Common Stock, as
adjusted in accordance with Section 11 of the Plan.
(q) "Subsidiary" shall mean a "subsidiary corporation",
whether now or hereafter existing, as defined in Section 425(f) of the Internal
Revenue Code of 1986, as amended.
3. STOCK.
Subject to the provisions of Section 11 of the Plan, the maximum
aggregate number of shares which may be optioned and sold under the Plan is
500,000 shares of Common Stock. If an Option should expire or become
unexercisable for any reason without having been exercised in full, the
unpurchased Shares which were subject thereto shall, unless the Plan shall have
been terminated, become available for further grant under the Plan.
4. ADMINISTRATION.
(a) Procedure. The Company's Board of Directors may appoint a Committee
to administer the Plan. The Committee shall consist of not less than two members
of the Board of Directors who shall administer the Plan on behalf of the Board
of Directors, subject to such terms and conditions as the Board of Directors may
prescribe. Once appointed, the Committee shall continue to serve until otherwise
directed by the Board of Directors. From time to time the Board of Directors may
increase the size of the Committee and appoint additional members thereof,
remove members (with or without cause), and appoint new members in substitution
therefor, fill vacancies, however caused, or remove all members of the Committee
and thereafter directly administer the Plan.
2
<PAGE>
If a majority of the Board of Directors is eligible to be granted
Options or has been eligible at any time within the preceding year, a Committee
must be appointed to administer the Plan. The Committee must consist of not less
than two members of the Board of Directors, all of whom are "disinterested
persons" as defined in Rule 16b-3 of the General Rules and Regulations
promulgated under the Exchange Act.
(b) Powers of the Board. Subject to the provisions of the Plan, the
Board shall have the authority, in its discretion: (i) to grant Incentive Stock
Options, in accordance with Section 422A of the Internal Revenue Code of 1986,
as amended, or to grant Non-qualified Stock Options; (ii) to determine, upon
review of relevant information and in accordance with Section 8(b) of the Plan,
the fair market value of the Common Stock; (iii) to determine the exercise price
per share of Options to be granted which exercise price shall be determined in
accordance with Section 8(a) of the Plan; (iv) to determine the persons to whom,
and the time or times at which, Options shall be granted and the number of
shares to be represented by each Option; (v) to interpret the Plan; (vi) to
prescribe, amend and rescind rules and regulations relating to the Plan; (vii)
to determine the terms and provisions of each Option granted (which need not be
identical) and, with the consent of the holder thereof, modify or amend each
Option; (viii) to accelerate or defer (with the consent of the Optionee) the
exercise date of any Option; (ix) to authorize any person to execute on behalf
of the Company any instrument required to effectuate the grant of an Option
previously granted by the Board; and (x) to make all other determinations deemed
necessary or advisable for the administration of the Plan.
(c) Effect of the Board's Decision. All decisions, determinations, and
interpretations of the Board shall be final and binding on all Optionees and any
other holders of any Options granted under the Plan.
5. ELIGIBILITY; NON-DISCRETIONARY GRANTS.
(a) General. Incentive Stock Options may be granted only to Employees.
Non-qualified Stock Options may be granted to employees as well as directors
(subject to the limitations set forth in Section 4), independent contractors and
agents, as determined by the Board. Any person who has been granted an Option
may, if he is otherwise eligible, be granted an additional Option or Options.
The Plan shall not offer upon any Optionee any right with respect to
continuation of employment by the Company, nor shall it interfere in any way
with his right or the Company's right to terminate his employment at any time.
(b) Limitation on Incentive Stock Options. No Incentive Stock Option
may be granted to an Employee if, as the result of such grant, the aggregate
fair market value (determined at the time each option was granted) of the Shares
with respect to which such Incentive Stock Options are exercisable for the first
time by such Employee during any calendar year (under all such plans of the
Company and any Parent and Subsidiary) shall exceed One Hundred Thousand Dollars
($100,000).
(c) Annual Limitation on all Stock Options. No Stock Options may be
granted to any Employee in any fiscal year if as a result of such grant the
aggregate number of shares subject to options granted to such Employee that year
(under all such plans of the Company and any
3
<PAGE>
Parent or Subsidiary) exceed 500,000 shares subject to the anti-dilution
provisions of this Plan (Section 11) and/or other Plans as applicable.
6. TERM OF THE PLAN. The Plan shall become effective upon the earlier
to occur of (i) its adoption by the Board of Directors, or (ii) its approval by
vote of the holders of a majority of the outstanding shares of the Company
entitled to vote on the adoption of the Plan. The Plan shall continue in effect
until March 1, 2006 unless sooner terminated under Section 13 of the Plan.
7. TERM OF THE OPTION. The term of each Option shall be ten (10) years
from the date of grant hereof or such shorter term as may be provided in the
instrument evidencing the Option. However, in the case of an Incentive Stock
Option granted to an Employee who, immediately before the Incentive Stock Option
is granted, owns stock representing more than ten percent (10%) of the voting
power of all classes of stock of the Company or any Parent or Subsidiary, the
term of the Incentive Stock Option shall be five (5) years from the day of grant
thereof or such shorter time as may be provided in the instrument evidencing the
Option.
8. EXERCISE PRICE AND CONSIDERATION.
(a) The per Share exercise price for the Shares to be issued pursuant
to the exercise of an Option shall be such price as is determined by the Board,
but shall be subject to the following:
(i) In the case of an Incentive Stock Option:
(A) granted to an Employee who, immediately before
the grant of such Incentive Stock Option, owns stock
representing more than ten percent (10%) of the voting power
of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than
110% of the fair market value per Share on the date of grant,
as the case may be;
(B) granted to an Employee not subject to the
provisions of Section 8(a)(i)(A), the per Share exercise price
shall be no less than one hundred percent (100%) of the fair
market value per Share on the date of grant.
(ii) In the case of a Non-qualified Stock Option, the per
Share exercise price shall be determined by the Board or the
Committee, as the case may be, in its sole discretion.
(b) The fair market value shall be determined by the Board in its
discretion; provided, however, that where there is a public market for the
Common Stock, the fair market value per Share shall be the mean of the bid and
asked prices or, if applicable, the closing price of the Common Stock on the
date of grant, as reported by the National Association of Securities Dealers
Automated Quotation (NASDAQ) System or, in the event the Common Stock is listed
on a stock exchangeable, the fair market value per Share shall be the closing
price on such exchange on the date of grant of the Option, as reported in the
Wall Street Journal.
4
<PAGE>
(c) The consideration to be paid for the Shares to be issued upon
exercise of an Option or in payment of any withholding taxes thereon, including
the method of payment, shall be determined by the Board an may consist entirely
of (i) cash, check or promissory note; (ii) other Shares of Common Stock owned
by the Employee having a fair market value on the date of surrender equal to the
aggregate exercise price of the Shares as to which said Option shall be
exercised; (iii) an assignment by the Employee of the net proceeds to be
received from a registered broker upon the sale of the Shares or the proceeds of
a loan from such broker in such amount; or (iv) any combination of such methods
of payment, or such other consideration and method of payment for the issuance
of Shares to the extent permitted under New York Law and meeting rules and
regulations of the SEC to plans meeting the requirements of Section 16(b)(3) of
the Exchange Act.
9. EXERCISE OF OPTION.
(a) Procedure or Exercise; Rights as a Stockholder. Any option granted
hereunder shall be exercisable at such times and subject to such conditions as
may be determined by the Board, including performance criteria with respect to
the Company and/or the Optionee, and as such shall be perishable under the terms
of the Plan.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
instrument evidencing the Option by the person entitled to exercise the Option
and full payment for the Shares with respect to which the Option is exercised
has been received by the Company. Full payment may, as authorized by the Board,
consist of any consideration and method of payment allowable under Section 8(c)
of the Plan; it being understood that the Company shall take such action as may
be reasonably required to permit use of an approved payment method. Until the
issuance, which in no event will be delayed more than thirty (30) days from the
date of the exercise of the Option, (as evidenced by the appropriate entry on
the books of the Company or of a duly authorized transfer agent of the Company)
of the stock certificate evidencing such Shares, no right to vote or receive
dividends or any other rights as a stockholder shall exist with respect to the
Optioned Stock, notwithstanding the exercise of the Option. No adjustment will
be made for a dividend or other right for which the record date is prior to the
date the stock certificate is issued, except as provided in the Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Status as an Employee. If any Employee ceases to
serve as an Employee, he may, but only within thirty (30) days (or such other
period of time not exceeding three (3) months as is determined by the Board)
after the date he ceases to be an Employee of the Company, exercise his Option
to the extent that he was entitled to exercise it as of the date of such
termination. To the extent that he was not entitled to exercise the Option at
the date of such termination, or if he does not exercise such Option (which he
was entitled to exercise) within the time specified herein, the Option shall
terminate.
5
<PAGE>
(c) Notwithstanding the provisions of Section 9(b) above, in the event
an Employee is unable to continue his employment with the Company as a result of
his total and permanent disability (as defined in Section 105(d)(4) of the
Internal Revenue Code of 1986, as amended), he may, buy only within three (3)
months (or such other period of time not exceeding twelve (12) months as is
determined by the Board) from the date of disability, exercise his Option to the
extent he was entitled to exercise it at the date of such disability. To the
extent that he was not entitled to exercise it at the date of such disability,
or if he does not exercise such Option (which he was entitled to exercise)
within the time specified herein, the Option shall terminate.
(d) Death of Optionee. In the event of the death of an Optionee:
(i) during the term of the Option who is at the time of his death
an Employee of the Company and who shall have been in
Continuous Status as an Employee since the date of grant of
the Option, the Option may be exercised, at any time within
twelve (12) months following the date of death, by the
Optionee's estate or by a person who acquired the right to
exercise that would have accrued had the Optionee continued
living one (1) month after the date of death; or
(ii) within thirty (30) days (or such other period of time not
exceeding three (3) months as is determined by the Board)
after the termination of Continuous Status as an Employee, the
Option may be exercised, at any time within three (3) months
following the date of death, by the Optionee's estate or by a
person who acquired the right to exercise the Option by
bequest or inheritance, but only to the extent of the right to
exercise that had accrued at the date of termination.
10. NON-TRANSFERABILITY OF OPTIONS. The Option may not be sold,
pledged, assigned, hypothecated, transferred, or disposed of in any manner other
than by will or by the laws of descent or distribution and may be exercised,
during the lifetime of the Optionee, only by the Optionee.
11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER. Subject to
any required action by the Stockholders of the Company, the number of shares of
Common Stock covered by each outstanding Option, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options have yet been granted or which have been returned to the Plan
upon cancellation or expiration of an Option, as well as the price per share of
Common Stock covered by each such outstanding Option, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split or the payment of a stock dividend with
respect to the Common Stock or any other increase or decrease in the number of
issued shares of Common Stock effected without receipt of consideration by the
Company; provided, however, that conversion of any convertible securities of the
Company shall not be deemed to have been "effected without receipt of
consideration". Such adjustment shall be made by the Board, whose determination
in that respect by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
of Common Stock subject to an Option.
6
<PAGE>
In the event of the proposed dissolution or liquidation of the Company,
or in the event of a proposed sale of all or substantially all of the assets of
the Company, or the merger of the Company with or into another corporation, the
Board of Directors of the Company shall, as to outstanding Options, either (i)
make appropriate provision for the protection of any such outstanding Options by
the substitution on an equitable basis of appropriate stock of the Company or of
the merged, consolidated or otherwise reorganized corporation which will be
issuable in respect to one share of Common Stock of the Company; provided, only
that the excess of the aggregate fair market value of the shares subject to the
Options immediately after such substitution over the purchase price thereof is
not more than the excess of the aggregate fair market value of the shares
subject to such Options immediately before such substitution over the purchase
price thereof, or (ii) upon written notice to an Optionee, provide that all
unexercised Options must be exercised within a specified number of days of the
date of such notice or they will be terminated. In any such case, the Board of
Directors may, in its discretion, advance the lapse of any waiting or
installment periods and exercise dates.
12. TIME FOR GRANTING OPTIONS. The date of grant of an Option shall,
for all purposes, be the date on which the Board makes the determination
granting such Option. Notice of the determination shall be given to each person
to whom an Option is so granted within a reasonable time after the date of such
grant.
13. AMENDMENT AND TERMINATION OF THE PLAN.
(a) The Board may amend or terminate the Plan from time to time in such
respects as the Board may deem advisable; provided, however, that the following
revisions or amendments shall require approval of the holders of a majority of
the outstanding shares of the Company entitled to vote:
(i) any increase in the number of Shares subject to the Plan, other
than in connection with an adjustment under Section 11 of the
Plan;
(ii) any change in the designation of the class of persons eligible to
be granted options; or
(iii) any material increase in the benefits accruing to participants
under the Plan.
(b) Stockholder Approval. If any amendment requiring stockholder
approval under Section 13(a) of the Plan is made, such stockholder approval
shall be solicited as described in Section 17(a) of the Plan.
(c) Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the Optionee and
the Board, which agreement must be in writing and signed by the Optionee and the
Company.
14. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance
7
<PAGE>
and delivery of such Shares pursuant thereto shall comply with all relevant
provisions of law, including, without limitation, the Securities Act of 1933, as
amended, the Exchange Act, the rules and regulations promulgated thereunder, and
the requirements of any stock exchange upon which the Shares may then be listed,
and shall be further subject to the approval of counsel for the Company with
respect to such compliance.
As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares, if in the
opinion of counsel for the Company, such a representation is required by, or
appropriate under, any of the aforementioned relevant provisions of law.
15. RESERVATION OF SHARES. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
Inability of the Company to obtain authority from any regulatory body
having jurisdiction, which authority is deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, shall relieve
the Company of any liability in respect of the failure to issue or sell such
Shares as to which such requisite authority shall not have been obtained.
16. OPTION AGREEMENT. Options shall be evidenced by written option
agreements in such form as the Board shall approve.
17. STOCKHOLDER APPROVAL. Continuation of the Plan shall be subject to
approval by the stockholders of the Company within twelve (12) months before or
after the date the Plan is adopted. If such stockholder approval is obtained at
a duly held stockholders' meeting, it may be obtained by the affirmative vote of
the holders of a majority of the outstanding shares of the Company entitled to
vote thereon. The approval of such stockholders of the Company shall be (1)
solicited substantially in accordance with Section 14(a) of the Exchange Act and
the rules and regulations promulgated thereunder, or (2) solicited after the
Company has furnished in writing to the holders entitled to vote substantially
the same information concerning the Plan as that which would be required by the
rules and regulations in effect under Section 14(a) of the Exchange Act at the
time such information is furnished.
18. OTHER PROVISIONS. The Stock Option Agreement authorized under the
Plan shall contain such other provisions, including, without limitations,
restrictions upon the exercise of the Option, as the Board of Directors of the
Company shall deem advisable. Any Incentive Stock Option Agreement shall contain
such limitations and restrictions upon the exercise of the Incentive Stock
Option as shall be necessary in order that such option will be an Incentive
Stock Option as defined in Section 422A of the Internal Revenue Code of 1986, as
amended.
19. INDEMNIFICATION OF BOARD. In addition to such other rights of
indemnification as they may have as directors or as members of the Board, the
members of the Board shall be indemnified by the Company against the reasonable
expenses, including attorneys' fees actually and necessarily incurred in
connection with the defense of any action suit or
8
<PAGE>
proceeding, or in connection with any appeal therein, to which they or any of
them may be a party by reason of any action taken or failure to act under
or in connection without the Plan or any Option granted thereunder, and against
all amounts paid by them in settlement thereof (provided such settlement is
approved by independent legal counsel selected by the Company) or paid by them
in satisfaction of a judgment in any such action, suit or proceeding that such
Board member is liable for negligence or misconduct in the performance of his
duties, provided that within sixty (60) days after institution of any such
action, suit or proceeding a Board member shall, in writing, offer the Company
the opportunity, at its own expense, to handle and defend the same.
20. OTHER COMPENSATION PLANS. The adoption of the Plan shall not affect
any other stock option or incentive or other compensation plans in effect for
the Company or any Subsidiary, nor shall the Plan preclude the Company from
establishing any other forms of incentive or other compensation for employees
and directors of the Company or any Subsidiary.
21. COMPLIANCE WITH EXCHANGE ACT RULE 16b-3. With respect to persons
subject to Section 16 of the Exchange Act, transactions under the Plan are
intended to comply with all applicable conditions of Rule 16b-3 or its
successors under the Exchange Act. To the extent any provision of the Plan or
action by the Board fails to so comply, it shall be deemed null and void, to the
extent permitted by law and deemed advisable by the Board.
22. SINGULAR, PLURAL; GENDER. Whenever used herein, nouns in the
singular shall include the plural, and the masculine pronoun shall include the
feminine gender.
23. HEADINGS, ETC., NO PART OF PLAN. Headings of Articles and Sections
hereof are inserted for convenience and reference; they constitute no part of
the Plan.
9
<PAGE>
AGREEMENT, dated as of the 1st day of April, 1996, by and among S.
LANCE SILVER ("Silver"), STUART N. HARTING ("Harting"), JAMES R. BERGMAN
("Bergman"), BRUCE WAUGH ("Waugh"), DAVID R. GROMACKI ("Gromacki"), DIANE
THOMSEN ("Thomsen"), STEVEN RABINOVICI ("Rabinovici"), INTEREQUITY CAPITAL
PARTNERS, LLP ("InterEquity") and MORSE, ZELNICK, ROSE & LANDER, LLP ("MZRL").
W I T N E S S E T H
WHEREAS, each of the parties hereto is a shareholder of KatManDu
Entertainment Corp. ("KEC"), a Delaware corporation, owning the number of shares
of KEC common stock, par value $.001 per share (the "Common Stock") set forth
opposite his, her or its name on Schedule A annexed hereto and made a part
hereof; and
WHEREAS, Bergman, Waugh, Gromacki, Thomsen, Rabinovici, InterEquity and
MZRL (collectively referred to herein as the "Other Shareholders") have each
agreed to grant to Silver and Harting, jointly, the right to vote the shares of
Common Stock which they own.
NOW, THEREFORE, in consideration of the premises se forth above and the
mutual agreements, representations and warranties set forth herein and other
good and valuable consideration, the sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. Voting of KEC Common Stock. For as long as they own shares of KEC
Common Stock, the Other Shareholders agree that:
(a) At any special or annual meeting of shareholders at which
Directors are to be elected or in connection with a solicitation of consents
through which Directors are to be elected, they each shall vote (or give a
written consent with respect to) all of their shares of KEC Common Stock as
directed by Silver and Harting.
(b) At any special or annual meeting of shareholders at which
it is proposed to remove Directors from office, or in connection with a
solicitation of consents through which Directors are to be removed from office,
they each shall vote (or give a written consent with respect to) all of their
shares of KEC Common Stock as directed by Silver and Harting.
1.2 Other Matters. For as long as they own shares of KEC Common Stock,
the Other Shareholders agree that at any special or annual meeting of the
shareholders or in connection with the solicitation of consents on any matter
other than the election or removal of
<PAGE>
Directors, they each shall vote (or give a written consent with respect
to) all of their shares of KEC Common Stock in accordance with the instructions
of Silver and Harting. In the event Silver and Harting shall not have given any
instructions with respect to such matter, then, and in such event, the Other
Shareholders shall be free to vote their shares of KEC Common Stock in any
manner that they so choose.
1.3 Proxy. In order to insure their obligations under this Section 1,
the Other Shareholders shall simultaneously herewith deliver to Silver and
Harting his, her or its, as the case may be, irrevocable proxy with respect to
all of the shares of KEC Common Stock owned by such Other Shareholder from time
to time in the form annexed hereto as Exhibit A (the "Proxy"); it being agreed
that the Proxy shall be revoked immediately upon the termination of this
Agreement.
2. Restrictive Legend.
2.1 Legend on Stock Certificates. Each certificate evidencing shares of
KEC Common Stock held by the Other Shareholders shall contain the following
legend:
THE RIGHT OF THE HOLDER OF THIS CERTIFICATE
TO VOTE THE SHARES REPRESENTED HEREBY MAY BE
RESTRICTED IN CERTAIN RESPECTS AS PROVIDED IN THE
TERMS OF A SHAREHOLDERS AGREEMENT DATED AS OF APRIL
1, 1996, A COPY OF WHICH IS ON FILE AT THE OFFICES OF
THE COMPANY AT 415 NORTH COLUMBUS BOULEVARD,
PHILADELPHIA, PENNSYLVANIA 19123.
2.2 Removal of Legend. The foregoing legend, or pertinent portions
thereof, shall be removed by KEC, through delivery of a replacement certificates
not bearing such legend, if the provisions of this Agreement which are the
subject of such legend shall have terminated in accordance with their terms.
3. Termination.
3.1 Change in Control. This Agreement shall terminate and be of no
further force and effect after a "Change in Control" shall have occurred. A
Change of Control will be deemed to have occurred if following: (a) a tender or
exchange offer for voting securities of KEC, (b) a proxy contest for the
election of directors of KEC, or (c) a merger or consolidation or sale of all or
substantially all of the business or assets of KEC, the persons constituting the
Board of Directors of KEC immediately prior to the initiation of such event
cease to constitute a majority of the Board of Directors of KEC upon the
occurrence of such event or within one year after such event.
3.2 Bankruptcy. This Agreement shall terminate and be of no further
force and effect at such time as: (a) KEC, pursuant to Title 11 of the U.S. Code
or any similar federal or state law
2
<PAGE>
for the relief of debtors ("Bankruptcy Law") (i) commences a voluntary case or
proceeding, (ii) consents to the entry of an order for relief against it in an
involuntary case or proceeding, (iii) consents to the appointment of a receiver,
trustee or similar official of it or for all or substantially all of its
property, or (iv) makes a general assignment for the benefit of its creditors;
or (b) a court of competent jurisdiction enters an order or decree under any
Bankruptcy Law that: (i) is for relief against KEC in an involuntary case or
proceeding, (ii) appoints a receiver, trustee or similar official for KEC or for
all or substantially all of its property, or (iii) orders the liquidation of KEC
and the order or decree remains unstayed and in effect for 90 days.
3.3 Events Relating to Silver and Harting.
(a) If at any time the shares of KEC Common Stock owned,
directly and indirectly, by Silver and Harting and any trusts of which they are
trustees and any other entities in which they own, directly or indirectly, in
excess of 50% of the equity interests, in the aggregate shall represent less
than [40%] of the then outstanding shares of KEC Common Stock then, and in such
event, this Agreement shall terminate and be of no further force and effect.
(b) Upon the death and/or "disability" of both Silver and
Harting (as defined in the Employment Agreements executed by Silver and KEC, and
Harting and KEC) this Agreement shall terminate and be of no further force and
effect.
3.4 Sale By Other Shareholder. If an Other Shareholder shall sell or
otherwise transfer his, her or its shares of Common Stock to a person other than
(i) an Other Shareholder (ii) the spouse, ancestor or lineal descendant of an
Other Shareholder (including the transferor Other Shareholder) and (iii) any
partner or shareholder of an Other Shareholder, this Agreement shall terminate
and be of no further force or effect with respect to the shares of Common Stock
so transferred.
3.5 Other Events of Termination.
(a) If the Board of Directors of KEC shall have approved or
recommended acceptance of (i) a tender or exchange offer for voting securities
of KEC or (ii) a merger or consolidation of KEC (each being hereinafter referred
to as an "Approved Transaction"), then and in such event, the Other Shareholders
may tender, exchange, sell or otherwise dispose of any and all of their shares
of KEC Common Stock in the manner provided for in such Approved Transaction.
(b) If immediately after the consummation of an Approved
Transaction, the persons constituting the Board immediately prior thereto cease
to constitute a majority of the Board or such successor corporation as shall
have been contemplated by such Approved Transaction, then, and in such event,
this Agreement shall terminate and be of no further force and effect.
3
<PAGE>
4. Miscellaneous.
4.1 Notice. Any notice, request, instruction or other document to be
given hereunder by any party to any of the other parties shall be in writing and
shall be deemed to have been duly given when delivered personally or five (5)
days after dispatch by registered or certified mail, postage prepaid, return
receipt requested, to the party to whom the same is so given or made at the
address of such party as set forth on Schedule A annexed hereto and made a part
hereof or to such other address as the one party shall specify to the other
parties in writing.
4.2 Successors and Assigns.
(a) The provisions of this Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns, except that no party may assign or otherwise transfer any of
its rights under this Agreement without the prior written consent of the other
parties hereto.
(b) All of the terms, covenants and agreements contained in
this Agreement are solely for the benefit of the parties hereto, and their
respective successors and assigns, and no other parties (including, without
limitation, any other stockholder or creditor of KEC, or any director, officer
or employee of KEC) are intended to be benefited by, or entitled to enforce,
this Agreement.
4.3 Entire Agreement; Amendment.
(a) This Agreement and the other instruments and agreements
referred to herein embody the entire agreement of the parties hereto with
respect to the subject matter hereof and supersede all prior agreements with
respect thereto.
(b) No failure or delay by any party hereto in exercising any
right, power or privilege hereunder shall operate as a waiver thereof nor shall
any single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein provided shall be cumulative and not exclusive of any rights or
remedies provided by law.
(c) Since a breach of certain provisions of this Agreement
could not adequately be compensated by money damages, any party shall be
entitled, in addition to any other right or remedy available to such party, to
an injunction restraining such breach or a threatened breach and to specific
performance of any such provisions of this Agreement, and in either case no bond
or other security shall be required in connection therewith.
4.4 Choice of Law. This Agreement shall be construed in accordance with
and governed by the laws of the State of Delaware applicable to agreements made
and to be performed entirely within such state.
4
<PAGE>
4.5 No Partnership. No partnership, joint venture or joint undertaking
is intended to be, or is, formed between any of the parties hereto by reason of
this Agreement or the transactions contemplated herein.
4.6 Counterparts and Headings. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument. All headings (including,
without limitation, Article headings and Section titles) are inserted for
convenience of reference only and shall not affect its meaning or
interpretation.
4.7 Severability. If and to the extent that any court of competent
jurisdiction holds any provision (or any part thereof) of this Agreement to be
invalid or unenforceable, such holding shall in no way affect the validity of
the remainder of this Agreement
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
____________________________________
S. LANCE SILVER
____________________________________
JAMES R. BERGMAN
____________________________________
BRUCE WAUGH
____________________________________
DAVID R. GROMACKI
____________________________________
DIANE THOMSEN
____________________________________
STEVEN M. RABINOVICI
INTEREQUITY CAPITAL PARTNERS, LLP
By: __________________________________
MORSE, ZELNICK, ROSE & LANDER, LLP
By: __________________________________
5
<PAGE>
EXHIBIT A
IRREVOCABLE PROXY
KNOW ALL MEN BY THESE PRESENTS that I, ______________________ do hereby
constitute and appoint S. Lance Silver and Stuart N. Harting, jointly or the
survivor of them (the "Appointee") as my agent to attend any annual or special
meetings of the shareholders of KatManDu Entertainment Corp., a Delaware
corporation (the "Company"), and any continuation or adjournment thereof, and
said Appointee shall have full power to vote all shares of common stock, par
value $.001 per share, of the Company ("Common Stock") which are held by me,
from time to time, including, without limitation, shares of Common Stock,
acquired by me after the date hereof (the "Shares") for me and to act for me and
in my name, place and stead, in the same manner, to the extent, and with all
powers I would possess if personally executing such document or present at such
meeting, giving to said Appointee full power of substitution and revocation. The
Appointee shall by this appointment have all voting and consensual rights and
powers pertaining to the Shares as if he were the record and beneficial owner of
such Shares.
This proxy is given in consideration of the execution by the Company of
an Agreement, dated as of April 1, 1996, by and among the Company and the
Appointee and certain Other Shareholders (as defined therein) which by its terms
is an agreement made pursuant to the provisions of Section ____ of the Delaware
General Corporation Law.
THIS PROXY IS IRREVOCABLE.
Dated: ______________________
_______________________________
In Presence of:
_____________________________
Witness
6
<PAGE>
SCHEDULE A
Name and Address Number of Shares
- ---------------- ----------------
S. Lance Silver 200,000
8 Shawnee Court
Medford, New Jersey 08033
Stuart N. Harting 200,000
600 Coles Mill Road
Haddonfield, New Jersey 08033
James R. Bergman 52,690
910 South Delhi Street
Philadelphia, Pennsylvania 19147
Bruce Waugh 52,690
487 Rick Road
Southhampton, Pennsylvania 18966
David R. Gromacki 21,070
15 High Street
Moorestown, New Jersey 08057
Diane Thomsen 5,000
2848 Magee Street
Philadelphia, Pennsylvania 19149
Steve Rabinovici 60,000
48 Country Drive
Plainview, New York 11803
InterEquity Capital Partners, LLP 20,000
220 Fifth Avenue
New York, New York 10001
Morse, Zelnick, Rose & Lander, LLP 40,000
450 Park Avenue - Suite 902
New York, New York 10022
7
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made as of this
____ day of _________, 1996, by and between KATMANDU ENTERTAINMENT CORP., a
Delaware Corporation (the "Company"), and S. LANCE SILVER (the "Executive"). The
Agreement shall become effective as of the date on which the Registration
Statement on Form SB-2 with respect to the Company's initial public offering
shall be deemed effective by the Securities and Exchange Commission (the
"Effective Date").
W I T N E S S E T H:
WHEREAS, the Company believes that it would benefit from the
application of the Executive's particular and unique skill, experience and
background to the management and operation of the Company, and wishes to employ
the Executive as Chief Executive Officer ("CEO") and Co-President of the
Company; and
WHEREAS, the parties desire by this Agreement to set forth the
terms and conditions of the employment relationship between the Company and the
Executive.
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants in this Agreement, the Company and the Executive agree as
follows:
1. Employment and Duties. The Company hereby employs the
Executive as CEO and Co-President on the terms and conditions provided in
this Agreement and Executive
-1-
<PAGE>
agrees to accept such employment subject to the terms and conditions of this
Agreement. The Executive shall perform the duties and responsibilities as are
customary for the officer of a corporation in such positions, and shall perform
such other duties and responsibilities as are reasonably determined from time to
time by the Board of Directors of the Company (the "Board"). The Executive shall
be based at the Company's offices in Philadelphia, Pennsylvania or such other
place that shall constitute the Company's headquarters, although he may perform
such duties and responsibilities, consistent with his obligations hereunder,
from any other location, and except for business travel incident to his
employment under this Agreement, the Company agrees the Executive shall not be
required to relocate.
2. Term. The term of this Agreement shall be for three years
(the "Initial Term"), commencing on the Effective Date, and expiring on the day
preceding the third anniversary of the Effective Date (the "Termination Date"),
unless extended by mutual agreement of the parties or earlier terminated in
accordance with the terms of this Agreement.
3. Compensation. As compensation for performing the services
required by this Agreement, and during the term of this Agreement, the Executive
shall be compensated as follows:
(a) Base Compensation. The Company shall pay to the
Executive an annual salary ("Base Compensation") of $150,000, payable in equal
installments pursuant to the Company's customary payroll procedures in effect
for its executive personnel at the time of payment, but in no event less
frequently than monthly, subject to withholding for applicable federal, state,
and local taxes. The Executive shall be entitled to increases in Base
Compensation and bonuses with respect to each fiscal year during the term of
this Agreement, to be determined
-2-
<PAGE>
by the Compensation Committee of the Board based on periodic reviews of the
Executive's performance conducted on at least an annual basis. The Executive's
Base Compensation shall not be reduced during the term of this Agreement.
(b) Incentive Compensation. In addition to Base
Compensation, the Executive shall receive additional compensation ("Incentive
Compensation"). The Incentive Compensation shall be pursuant to short-term
and/or long-term incentive compensation programs which shall be established by
the Compensation Committee of the Board. For purposes of this Agreement, the
Executive's "Pro Rata Share" of Incentive Compensation for any fiscal year of
the Company shall be a fraction whose numerator shall be equal to the number of
months (or parts of months) during which the Executive was actually employed by
the Company during any such fiscal year and whose denominator shall be the total
number of months in such fiscal year.
4. Employee Benefits. During the term of this Agreement and
subject to the limitations set forth in this Section 4, the Executive and his
eligible dependents shall have the right to participate in any retirement plans
(qualified and non-qualified), pension, insurance, health, disability or other
benefit plan or program that has been or is hereafter adopted by the Company (or
in which the Company participates), according to the terms of such plan or
program, on terms no less favorable than the most favorable terms granted to
senior executives of the Company.
5. Vacation and Leaves of Absence. The Executive shall be
entitled to the normal and customary amount of paid vacation provided to senior
executive officers of the Company, but in no event less than 25 days during each
12 month period, beginning on the Effective Date of this Agreement. Any vacation
days that are not taken in a given 12 month period shall not accrue or carry
over from year to year. Upon any termination of this Agreement
-3-
<PAGE>
for any reason whatsoever, accrued and unused vacation for the year in which
this Agreement terminates will be paid to the Executive within 10 days of such
termination based on his annual rate of Base Compensation in effect on the date
of such termination. In addition, the Executive may be granted leaves of absence
with or without pay for such valid and legitimate reasons as the Board in its
sole and absolute discretion may determine, and is entitled to the same sick
leave and holidays provided to other senior executive officers of the Company.
6. Expenses.
(a) Business Expenses. The Executive shall be promptly
reimbursed against presentation of vouchers or receipts for all reasonable and
necessary expenses incurred by him in connection with the performance of
business-related duties.
(b) Automobile Expense. During the term of this Agreement,
in order to facilitate the performance of the Executive's duties hereunder, and
otherwise for the convenience of the Company, the Company shall provide the
Executive with an automobile allowance of $750 per month.
7. Indemnification. The Company shall (and is hereby obligated
to) indemnify (including advance payment of expenses, which such expenses shall
include without limitation attorneys' fees) the Executive in each and every
situation where (i) the Company is obligated to make such indemnification
pursuant to applicable law and the relevant portions of the Company's
Certificate of Incorporation and By-Laws, and (ii) the Company, under applicable
law, is not obligated, but is nevertheless permitted or empowered, to make such
indemnification.
8. Termination and Termination Benefits.
(a) Termination by the Company.
-4-
<PAGE>
(i) With Cause. The Company may terminate this Agreement
prior to its expiration date only with "cause" by action of the Board. For
purposes of this subsection 8(a)(i), "cause" shall mean (1) the continuing
willful failure by the Executive to substantially perform his duties hereunder
for any reason other than total or partial incapacity due to physical or mental
illness, (2) gross negligence or malfeasance on the part of the Executive in the
performance of his duties hereunder, and (3) the conviction of the Executive, by
a court of competent jurisdiction, of a felony. Termination pursuant to this
subsection 8(a)(i) shall be effective immediately upon giving the Executive
written notice thereof and the reason or reasons therefor with respect to
clauses (2) and (3) above, and 15 days after written notice thereof from the
Board to the Executive specifying the acts or omissions constituting the failure
and requesting that they be remedied with respect to clause (1) above, but only
if the Executive has not cured such failure within such 15 day period. In the
event of a termination pursuant to this subsection 8(a)(i), the Executive shall
be entitled to payment of his Base Compensation and the benefits pursuant to
Section 4 hereof up to the effective date of such termination.
(ii) Disability. If due to illness, physical or mental
disability, or other incapacity, the Executive shall fail, for a total of any
six consecutive months ("Disability"), to substantially perform the principal
duties required by this Agreement, the Company may terminate this Agreement upon
30 days' written notice to the Executive. In such event, the Executive shall be
(A) paid his Base Compensation until the Termination Date and his Pro Rata Share
of any Incentive Compensation payable to him for the year in which the
termination occurs, and (B) provided with employee benefits pursuant to Section
4, to the extent available, until the Termination Date; provided, however, that
any compensation to be paid to the Executive
-5-
<PAGE>
pursuant to this subsection 8(a)(ii) shall be offset against any payments
received by the Executive pursuant to any policy of disability insurance the
premiums of which are paid for by the Company.
(b) Termination by the Executive. The Executive may
terminate this Agreement for "good reason" upon 30 days' written notice to the
Company (during which period the Executive shall, if requested in writing by the
Company, continue to perform his duties as specified under this Agreement). For
purposes of this Agreement, if the Executive's employment is terminated by the
Company without cause (as such term is defined in subsection 8(a)(i) above) it
shall be deemed as though the Executive terminated this Agreement for "good
reason" under this subsection 8(b). In such event, the Executive shall be paid
his Base Compensation up to the effective date of such termination and his full
share of any Incentive Compensation payable to him for the year in which the
termination occurs. For purposes of the Executive's termination of this
Agreement for "good reason" under this subsection 8(b), "good reason" includes
without limitation (A) the Company's failure to make any of the payments or
provide any of the benefits to the Executive under this Agreement, (B) the
Company's material breach of any provision of this Agreement. In addition, it
shall, at the option of the Executive, be deemed as though the Executive
terminated this Agreement for "good reason" pursuant to this subsection 8(b) in
the event that Stuart N. Harting, the Company's Co-President, terminates his
Employment Agreement with the Company for "good reason" pursuant to subsection
8(b) of such Employment Agreement.
(c) Additional Termination Compensation. In the event of a
termination of this Agreement pursuant to subsection 8(b) above, the Company, in
addition to paying the Executive his Base Compensation and Incentive
Compensation as hereinabove
-6-
<PAGE>
provided, shall make the following payment (hereinafter "Termination
Compensation") to the Executive: a lump sum payment equal to the lesser of (A)
24 months' Base Compensation, or (B) the Base Compensation that the Executive
would have received during the remaining portion of the Initial Term, if any.
Payment of Termination Compensation to the Executive shall occur no later than
14 days following the effective date of the Executive's termination.
(d) Death Benefit. Notwithstanding any other provision of
this Agreement, this Agreement shall terminate on the date of the Executive's
death. In such event the Executive's estate shall be paid his Base Compensation
for the remainder of the month in which such termination occurs and his Pro Rata
Share of any Incentive Compensation payable to him for the year in which such
termination occurs.
(e) No Mitigation. The Executive shall not be required to
mitigate the amount of any payments provided for by this Agreement by seeking
employment or otherwise, nor shall the amount of any payment or benefit provided
in this Agreement be reduced by any compensation or benefit earned by the
Executive after termination of his employment.
9. Company Property. All food and beverage preparation,
menu-related, advertising, promotional, sales, suppliers', manufacturers' and
other materials or articles or information, including without limitation data
processing reports, customer sales analyses, invoices, price lists or
information, samples, or any other materials or data of any kind furnished to
the Executive by the Company or developed by the Executive on behalf of the
Company or at the Company's direction or for the Company's use or otherwise in
connection with the Executive's employment hereunder, are and shall remain the
sole and confidential property of the Company; if
-7-
<PAGE>
the Company requests the return of such materials at any time during or at or
after the termination of the Executive's employment, the Executive shall
immediately deliver the same to the Company.
10. Covenant Not To Compete.
(a) No Solicitation or Competition. During the
effectiveness of this Agreement and for a period of one year after termination
of the Executive's employment with the Company for any reason other than
termination by the Company without cause or termination by the Executive for
good reason, the Executive shall not, directly or indirectly, solicit, induce,
encourage or attempt to influence any client, customer, employee, consultant,
independent contractor, salesman or supplier of the Company to cease to do
business or terminate his employment with the Company, and shall not engage in
(as a principal, partner, director, officer, agent, employee, consultant or
otherwise) or be financially interested in any business operating anywhere
within a 50 mile radius of any of the Company's restaurant, bar and night-club
units which is involved in business activities which are in competition with the
business activities carried on by the Company, or being definitively planned by
the Company, at the time of the termination of Executive's employment. However,
nothing contained in this Section 10 shall prevent the Executive from holding
for investment no more than five percent (5%) of any class of equity securities
of a company whose securities are publicly traded or from engaging in any real
estate-related activities that are not in competition with the business
activities of the Company.
(b) Confidentiality of Company Property. During the
effectiveness of this Agreement and at all times thereafter, the Executive shall
not use for his personal benefit, or disclose, communicate or divulge to, or use
for the direct or indirect benefit of any person, firm, association or company
other than the Company, any material referred to in Section 9 above.
-8-
<PAGE>
(c) Saving Clause. If the period of time or the area
specified in subsection (a) above should be adjudged unreasonable in any
proceeding, then the period of time shall be reduced by such number of months or
the area shall be reduced by the elimination of such portion thereof or both so
that such restrictions may be enforced in such area and for such time as is
adjudged to be reasonable. If the Executive violates any of the restrictions
contained in the foregoing subsection (a), the restrictive period shall not run
in favor of the Executive from the time of the commencement of any such
violation until such time as such violation shall be cured by the Executive to
the satisfaction of Company.
11. Miscellaneous.
(a) Integration; Amendment. This Agreement constitutes
the entire agreement between the parties hereto with respect to the matters set
forth herein and supersedes and renders of no force and effect all prior
understandings and agreements between the parties with respect to the matters
set forth herein. No amendments or additions to this Agreement shall be binding
unless in writing and signed by both parties.
(b) Severability. If any part of this Agreement is
contrary to, prohibited by, or deemed invalid under applicable law or
regulations, such provision shall be inapplicable and deemed omitted to the
extent so contrary, prohibited, or invalid, but the remainder of this Agreement
shall not be invalid and shall be given full force and effect so far as
possible.
(c) Waivers. The failure or delay of any party at any
time to require performance by the other party of any provision of this
Agreement, even if known, shall not affect the right of such party to require
performance of that provision or to exercise any right, power, or remedy
hereunder, and any waiver by any party of any breach of any provision of this
Agreement shall not be construed as a waiver of any continuing or succeeding
breach of such provision, a waiver of the provision itself, or a waiver of any
right, power, or
-9-
<PAGE>
remedy under this Agreement. No notice to or demand on any party in any case
shall, of itself, entitle such party to the other or further notice or demand in
similar or other circumstances.
(d) Power and Authority. The Company represents and
warrants to the Executive that it has the requisite corporate power, to enter
into this Agreement and perform the terms hereof; and that the execution,
delivery and performance of this Agreement by it has been duly authorized by all
appropriate corporate action; and this Agreement represents the valid and
legally binding obligation of the Company and is enforceable against it in
accordance with its terms.
(e) Burden and Benefit; Survival. This Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective heirs, executors, personal and legal representatives, successors and
assigns. In addition to, and not in limitation of anything contained in this
Agreement, it is expressly understood and agreed that the Company's obligation
to pay Termination Compensation as set forth herein shall survive any
termination of this Agreement.
(f) Governing Law; Headings. This Agreement and its
construction, performance, and enforceability shall be governed by, and
construed in accordance with, the laws of the Commonwealth of Pennsylvania.
Headings and titles herein are included solely for convenience and shall not
affect, or be used in connection with, the interpretation of this Agreement.
-10-
<PAGE>
(g) Notices. All notices called for under this Agreement
shall be in writing and shall be deemed given upon receipt if delivered
personally or by facsimile transmission and followed promptly by mail, or mailed
by registered or certified mail (return receipt requested), postage prepaid, to
the parties at the following addresses (or at such other address for a party as
shall be specified by like notice; provided that notices of a change of address
shall be effective only upon receipt thereof):
If to the Executive:
S. Lance Silver
8 Shawnee Court
Medford, New Jersey 08055
-11-
<PAGE>
with a copy to:
S. Lance Silver, Esquire
Wolf, Block, Schorr and Solis-Cohen
Twelfth Floor, Packard Building
Philadelphia, Pennsylvania 19102-2678
If to the Company:
Katmandu Entertainment Corp.
417 North Columbus Boulevard
Philadelphia, Pennsylvania 19123
Attention: Board of Directors
with a copy to:
Morse, Zelnick, Rose & Lander, LLP
450 Park Avenue
New York, New York 10022
Attention: Howard Morse, Esquire
or to any other address or addressee as any party entitled to receive notice
under this Agreement shall designate, from time to time, to others in the manner
provided in this subsection 11(g) for the service of Notices.
Any notice delivered to the party hereto to whom it is
addressed shall be deemed to have been given and received on the day it was
received; provided, however, that if such day is not a business day then the
notice shall be deemed to have been given and received on the business day next
following such day. Any notice sent by facsimile transmission shall be deemed to
have been given and received on the business day next following the day of
transmission.
(h) Number of Days. In computing the number of days for
purposes of this Agreement, all days shall be counted, including Saturdays,
Sundays and holidays; provided, however, that if the final day of any time
period falls on a Saturday, Sunday or holiday on which
-12-
<PAGE>
federal banks are or may elect to be closed, then the final day shall be deemed
to be the next day which is not a Saturday, Sunday or such holiday.
IN WITNESS WHEREOF, the parties have duly executed this
Agreement as of the date first above written.
ATTEST: KATMANDU ENTERTAINMENT CORP.
______________________ By: _____________________________
Name:
Title:
______________________ _________________________________
S. Lance Silver
-13-
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made as of this
____ day of _________, 1996, by and between KATMANDU ENTERTAINMENT CORP., a
Delaware Corporation (the "Company"), and STUART N. HARTING (the "Executive").
The Agreement shall become effective as of the date on which the Registration
Statement on Form SB-2 with respect to the Company's initial public offering
shall be deemed effective by the Securities and Exchange Commission (the
"Effective Date").
W I T N E S S E T H:
WHEREAS, the Company believes that it would benefit from the
application of the Executive's particular and unique skill, experience and
background to the management and operation of the Company, and wishes to employ
the Executive as Co-President of the Company; and
WHEREAS, the parties desire by this Agreement to set forth the
terms and conditions of the employment relationship between the Company and the
Executive.
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants in this Agreement, the Company and the Executive agree as
follows:
1. Employment and Duties. The Company hereby employs the
Executive as Co-President on the terms and conditions provided in this
Agreement and
-1-
<PAGE>
Executive agrees to accept such employment subject to the terms and conditions
of this Agreement. The Executive shall perform the duties and responsibilities
as are customary for the officer of a corporation in such positions, and shall
perform such other duties and responsibilities as are reasonably determined from
time to time by the Board of Directors of the Company (the "Board"). The
Executive shall be based at the Company's offices in Philadelphia, Pennsylvania
or such other place that shall constitute the Company's headquarters, although
he may perform such duties and responsibilities, consistent with his obligations
hereunder, from any other location, and except for business travel incident to
his employment under this Agreement, the Company agrees the Executive shall not
be required to relocate.
2. Term. The term of this Agreement shall be for three years
(the "Initial Term"), commencing on the Effective Date, and expiring on the day
preceding the third anniversary of the Effective Date (the "Termination Date"),
unless extended by mutual agreement of the parties or earlier terminated in
accordance with the terms of this Agreement.
3. Compensation. As compensation for performing the services
required by this Agreement, and during the term of this Agreement, the Executive
shall be compensated as follows:
(a) Base Compensation. The Company shall pay to the
Executive an annual salary ("Base Compensation") of $150,000, payable in equal
installments pursuant to the Company's customary payroll procedures in effect
for its executive personnel at the time of payment, but in no event less
frequently than monthly, subject to withholding for applicable federal, state,
and local taxes. The Executive shall be entitled to increases in Base
Compensation and bonuses with respect to each fiscal year during the term of
this Agreement, to be determined
-2-
<PAGE>
by the Compensation Committee of the Board based on periodic reviews of the
Executive's performance conducted on at least an annual basis. The Executive's
Base Compensation shall not be reduced during the term of this Agreement.
(b) Incentive Compensation. In addition to Base
Compensation, the Executive shall receive additional compensation ("Incentive
Compensation"). The Incentive Compensation shall be pursuant to short-term
and/or long-term incentive compensation programs which shall be established by
the Compensation Committee of the Board. For purposes of this Agreement, the
Executive's "Pro Rata Share" of Incentive Compensation for any fiscal year of
the Company shall be a fraction whose numerator shall be equal to the number of
months (or parts of months) during which the Executive was actually employed by
the Company during any such fiscal year and whose denominator shall be the total
number of months in such fiscal year.
4. Employee Benefits. During the term of this Agreement and
subject to the limitations set forth in this Section 4, the Executive and his
eligible dependents shall have the right to participate in any retirement plans
(qualified and non-qualified), pension, insurance, health, disability or other
benefit plan or program that has been or is hereafter adopted by the Company (or
in which the Company participates), according to the terms of such plan or
program, on terms no less favorable than the most favorable terms granted to
senior executives of the Company.
5. Vacation and Leaves of Absence. The Executive shall be
entitled to the normal and customary amount of paid vacation provided to senior
executive officers of the Company, but in no event less than 25 days during each
12 month period, beginning on the Effective Date of this Agreement. Any vacation
days that are not taken in a given 12 month period shall not accrue or carry
over from year to year. Upon any termination of this Agreement
-3-
<PAGE>
for any reason whatsoever, accrued and unused vacation for the year in which
this Agreement terminates will be paid to the Executive within 10 days of such
termination based on his annual rate of Base Compensation in effect on the date
of such termination. In addition, the Executive may be granted leaves of absence
with or without pay for such valid and legitimate reasons as the Board in its
sole and absolute discretion may determine, and is entitled to the same sick
leave and holidays provided to other senior executive officers of the Company.
6. Expenses.
(a) Business Expenses. The Executive shall be promptly
reimbursed against presentation of vouchers or receipts for all reasonable and
necessary expenses incurred by him in connection with the performance of
business-related duties.
(b) Automobile Expense. During the term of this Agreement,
in order to facilitate the performance of the Executive's duties hereunder, and
otherwise for the convenience of the Company, the Company shall provide the
Executive with an automobile allowance of $750 per month.
7. Indemnification. The Company shall (and is hereby obligated
to) indemnify (including advance payment of expenses, which such expenses shall
include without limitation attorneys' fees) the Executive in each and every
situation where (i) the Company is obligated to make such indemnification
pursuant to applicable law and the relevant portions of the Company's
Certificate of Incorporation and By-Laws, and (ii) the Company, under applicable
law, is not obligated, but is nevertheless permitted or empowered, to make such
indemnification.
8. Termination and Termination Benefits.
(a) Termination by the Company.
-4-
<PAGE>
(i) With Cause. The Company may terminate this Agreement
prior to its expiration date only with "cause" by action of the Board. For
purposes of this subsection 8(a)(i), "cause" shall mean (1) the continuing
willful failure by the Executive to substantially perform his duties hereunder
for any reason other than total or partial incapacity due to physical or mental
illness, (2) gross negligence or malfeasance on the part of the Executive in the
performance of his duties hereunder, and (3) the conviction of the Executive, by
a court of competent jurisdiction, of a felony. Termination pursuant to this
subsection 8(a)(i) shall be effective immediately upon giving the Executive
written notice thereof and the reason or reasons therefor with respect to
clauses (2) and (3) above, and 15 days after written notice thereof from the
Board to the Executive specifying the acts or omissions constituting the failure
and requesting that they be remedied with respect to clause (1) above, but only
if the Executive has not cured such failure within such 15 day period. In the
event of a termination pursuant to this subsection 8(a)(i), the Executive shall
be entitled to payment of his Base Compensation and the benefits pursuant to
Section 4 hereof up to the effective date of such termination.
(ii) Disability. If due to illness, physical or mental
disability, or other incapacity, the Executive shall fail, for a total of any
six consecutive months ("Disability"), to substantially perform the principal
duties required by this Agreement, the Company may terminate this Agreement upon
30 days' written notice to the Executive. In such event, the Executive shall be
(A) paid his Base Compensation until the Termination Date and his Pro Rata Share
of any Incentive Compensation payable to him for the year in which the
termination occurs, and (B) provided with employee benefits pursuant to Section
4, to the extent available, until the Termination Date; provided, however, that
any compensation to be paid to the Executive
-5-
<PAGE>
pursuant to this subsection 8(a)(ii) shall be offset against any payments
received by the Executive pursuant to any policy of disability insurance the
premiums of which are paid for by the Company.
(b) Termination by the Executive. The Executive may
terminate this Agreement for "good reason" upon 30 days' written notice to the
Company (during which period the Executive shall, if requested in writing by the
Company, continue to perform his duties as specified under this Agreement). For
purposes of this Agreement, if the Executive's employment is terminated by the
Company without cause (as such term is defined in subsection 8(a)(i) above) it
shall be deemed as though the Executive terminated this Agreement for "good
reason" under this subsection 8(b). In such event, the Executive shall be paid
his Base Compensation up to the effective date of such termination and his full
share of any Incentive Compensation payable to him for the year in which the
termination occurs. For purposes of the Executive's termination of this
Agreement for "good reason" under this subsection 8(b), "good reason" includes
without limitation (A) the Company's failure to make any of the payments or
provide any of the benefits to the Executive under this Agreement, (B) the
Company's material breach of any provision of this Agreement. In addition, it
shall, at the option of the Executive, be deemed as though the Executive
terminated this Agreement for "good reason" pursuant to this subsection 8(b) in
the event that S. Lance Silver, the Company's CEO and Co-President,
terminates his Employment Agreement with the Company for "good reason" pursuant
to subsection 8(b) of such Employment Agreement.
(c) Additional Termination Compensation. In the event of
a termination of this Agreement pursuant to subsection 8(b) above, the Company,
in addition to paying the Executive his Base Compensation and Incentive
Compensation as hereinabove
-6-
<PAGE>
provided, shall make the following payment (hereinafter "Termination
Compensation") to the Executive: a lump sum payment equal to the lesser of (A)
24 months' Base Compensation, or (B) the Base Compensation that the Executive
would have received during the remaining portion of the Initial Term, if any.
Payment of Termination Compensation to the Executive shall occur no later than
14 days following the effective date of the Executive's termination.
(d) Death Benefit. Notwithstanding any other provision
of this Agreement, this Agreement shall terminate on the date of the Executive's
death. In such event the Executive's estate shall be paid his Base Compensation
for the remainder of the month in which such termination occurs and his Pro Rata
Share of any Incentive Compensation payable to him for the year in which such
termination occurs.
(e) No Mitigation. The Executive shall not be required
to mitigate the amount of any payments provided for by this Agreement by seeking
employment or otherwise, nor shall the amount of any payment or benefit provided
in this Agreement be reduced by any compensation or benefit earned by the
Executive after termination of his employment.
9. Company Property. All food and beverage preparation,
menu-related, advertising, promotional, sales, suppliers', manufacturers' and
other materials or articles or information, including without limitation data
processing reports, customer sales analyses, invoices, price lists or
information, samples, or any other materials or data of any kind furnished to
the Executive by the Company or developed by the Executive on behalf of the
Company or at the Company's direction or for the Company's use or otherwise in
connection with the Executive's employment hereunder, are and shall remain the
sole and confidential property of the Company; if
-7-
<PAGE>
the Company requests the return of such materials at any time during or at or
after the termination of the Executive's employment, the Executive shall
immediately deliver the same to the Company.
10. Covenant Not To Compete.
(a) No Solicitation or Competition. During the
effectiveness of this Agreement and for a period of one year after termination
of the Executive's employment with the Company for any reason other than
termination by the Company without cause or termination by the Executive for
good reason, the Executive shall not, directly or indirectly, solicit, induce,
encourage or attempt to influence any client, customer, employee, consultant,
independent contractor, salesman or supplier of the Company to cease to do
business or terminate his employment with the Company, and shall not engage in
(as a principal, partner, director, officer, agent, employee, consultant or
otherwise) or be financially interested in any business operating anywhere
within a 50 mile radius of any of the Company's restaurant, bar and night-club
units which is involved in business activities which are in competition with the
business activities carried on by the Company, or being definitively planned by
the Company, at the time of the termination of Executive's employment. However,
nothing contained in this Section 10 shall prevent the Executive from holding
for investment no more than five percent (5%) of any class of equity securities
of a company whose securities are publicly traded or from engaging in any real
estate-related activities that are not in competition with the business
activities of the Company.
(b) Confidentiality of Company Property. During the
effectiveness of this Agreement and at all times thereafter, the Executive shall
not use for his personal benefit, or disclose, communicate or divulge to, or use
for the direct or indirect benefit of any person, firm, association or company
other than the Company, any material referred to in Section 9 above.
-8-
<PAGE>
(c) Saving Clause. If the period of time or the area
specified in subsection (a) above should be adjudged unreasonable in any
proceeding, then the period of time shall be reduced by such number of months or
the area shall be reduced by the elimination of such portion thereof or both so
that such restrictions may be enforced in such area and for such time as is
adjudged to be reasonable. If the Executive violates any of the restrictions
contained in the foregoing subsection (a), the restrictive period shall not run
in favor of the Executive from the time of the commencement of any such
violation until such time as such violation shall be cured by the Executive to
the satisfaction of Company.
11. Miscellaneous.
(a) Integration; Amendment. This Agreement constitutes
the entire agreement between the parties hereto with respect to the matters set
forth herein and supersedes and renders of no force and effect all prior
understandings and agreements between the parties with respect to the matters
set forth herein. No amendments or additions to this Agreement shall be binding
unless in writing and signed by both parties.
(b) Severability. If any part of this Agreement is
contrary to, prohibited by, or deemed invalid under applicable law or
regulations, such provision shall be inapplicable and deemed omitted to the
extent so contrary, prohibited, or invalid, but the remainder of this Agreement
shall not be invalid and shall be given full force and effect so far as
possible.
(c) Waivers. The failure or delay of any party at any
time to require performance by the other party of any provision of this
Agreement, even if known, shall not affect the right of such party to require
performance of that provision or to exercise any right, power, or
-9-
<PAGE>
remedy hereunder, and any waiver by any party of any breach of any provision of
this Agreement shall not be construed as a waiver of any continuing or
succeeding breach of such provision, a waiver of the provision itself, or a
waiver of any right, power, or remedy under this Agreement. No notice to or
demand on any party in any case shall, of itself, entitle such party to the
other or further notice or demand in similar or other circumstances.
(d) Power and Authority. The Company represents and
warrants to the Executive that it has the requisite corporate power, to enter
into this Agreement and perform the terms hereof; and that the execution,
delivery and performance of this Agreement by it has been duly authorized by all
appropriate corporate action; and this Agreement represents the valid and
legally binding obligation of the Company and is enforceable against it in
accordance with its terms.
(e) Burden and Benefit; Survival. This Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective heirs, executors, personal and legal representatives, successors and
assigns. In addition to, and not in limitation of anything contained in this
Agreement, it is expressly understood and agreed that the Company's obligation
to pay Termination Compensation as set forth herein shall survive any
termination of this Agreement.
(f) Governing Law; Headings. This Agreement and its
construction, performance, and enforceability shall be governed by, and
construed in accordance with, the laws of the Commonwealth of Pennsylvania.
Headings and titles herein are included solely for convenience and shall not
affect, or be used in connection with, the interpretation of this Agreement.
-10-
<PAGE>
(g) Notices. All notices called for under this Agreement
shall be in writing and shall be deemed given upon receipt if delivered
personally or by facsimile transmission and followed promptly by mail, or mailed
by registered or .ertified mail (return receipt requested), postage prepaid, to
the parties at the following addresses (or at such other address for a party as
shall be specified by like notice; provided that notices of a change of address
shall be effective only upon receipt thereof):
If to the Executive:
Stuart N. Harting
600 Coles Mill Road
Haddonfield, New Jersey 08033
-11-
<PAGE>
with a copy to:
S. Lance Silver, Esquire
Wolf, Block, Schorr and Solis-Cohen
Twelfth Floor, Packard Building
Philadelphia, Pennsylvania 19102-2678
If to the Company:
Katmandu Entertainment Corp.
417 North Columbus Boulevard
Philadelphia, Pennsylvania 19123
Attention: Board of Directors
with a copy to:
Morse, Zelnick, Rose & Lander, LLP
450 Park Avenue
New York, New York 10022
Attention: Howard Morse, Esquire
or to any other address or addressee as any party entitled to receive notice
under this Agreement shall designate, from time to time, to others in the manner
provided in this subsection 11(g) for the service of Notices.
Any notice delivered to the party hereto to whom it is
addressed shall be deemed to have been given and received on the day it was
received; provided, however, that if such day is not a business day then the
notice shall be deemed to have been given and received on the business day next
following such day. Any notice sent by facsimile transmission shall be deemed to
have been given and received on the business day next following the day of
transmission.
(h) Number of Days. In computing the number of days for
purposes of this Agreement, all days shall be counted, including Saturdays,
Sundays and holidays; provided, however, that if the final day of any time
period falls on a Saturday, Sunday or holiday on which
-12-
<PAGE>
federal banks are or may elect to be closed, then the final day shall be deemed
to be the next day which is not a Saturday, Sunday or such holiday.
IN WITNESS WHEREOF, the parties have duly executed this
Agreement as of the date first above written.
ATTEST: KATMANDU ENTERTAINMENT CORP.
______________________ By: _____________________________
Name:
Title:
______________________ ________________________________
Stuart N. Harting
-13-
<PAGE>
Exhibit 21.1
Subsidiaries of the Company
- ---------------------------
T-Kat Corp., incorporated under the laws of the State of New Jersey*
Katmandu Corp., incorporated under the laws of the Commonwealth of Pennsylvania*
*Will become a subsidiary of the Company upon the consummation of the
Reorganization.
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
(and to all references to our Firm) included in or made a part of this
registration statement on SB-2 registering 1,981,666 shares of Common Stock
and 1,840,000 Redeemable Warrants.
/s/ Arthur Andersen LLP
New York, New York
July 22, 1996
