SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended SEPTEMBER 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ____________
Commission file number 0-4028
TRANSMEDIA NETWORK INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 84-6028875
(State or other jurisdiction of (I.R.S Employer
incorporation or organization) Identification No.)
11900 BISCAYNE BOULEVARD, MIAMI, FLORIDA
33181 (Address of principal executive offices) (zip code)
305-892-3300
Registrant's telephone number,
including area code)
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ----------------------
None None
Securities registered pursuant to Section 12(b) of the Act:
COMMON STOCK, PAR VALUE $.02 PER SHARE
(Title of Class)
Indicate by (X) whether the Registrant (1) has filed all reports required to be
filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the
preceding 12 months and (2) has been subject to such filing requirements for the
past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
Yes [X] No [ ]
<PAGE>
Aggregate market value of voting stock held by non-affiliates of the Registrant
as of December 16, 1997: $52,048,482.
Number of shares outstanding of Registrant's Common Stock, as of December 16,
1997: 10,359,956.
DOCUMENTS INCORPORATED BY REFERENCE:
LOCATION IN FORM 10-K IN WHICH
DOCUMENT DOCUMENT IS INCORPORATED
-------- ------------------------------
Registrant's Proxy Statement Part III
relating to the 1997
Annual Meeting of Stockholders
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PART I
ITEM 1. BUSINESS
GENERAL
Transmedia Network Inc., (The "Company") is a marketing company that
selectively issues the TRANSMEDIA/Registered Trademark/ Card which is
designed to provide its members with a convenient way to save on the
purchase of quality products and services. Individual and business members
accrue savings from a menu of purchase options, the benefits of which may
be utilized in a variety of ways. Initially created to provide the
membership with savings at restaurants, the program has been expanded to
include hotels and resorts, travel and a host of other leisure time
activities. Additionally, the Company offers access to discount long
distance telephone service and discount programs for the purchase of
merchandise from selected retailers.
The Company's operations are transaction driven. Through the advance
purchase at wholesale of "rights-to-receive" from merchants by its sales
force, the Company is able to resell the credits to its cardmembers at
savings from retail prices. The Company earns additional commission income
by offering its growing value-and savings-oriented membership with an
array of other goods and services. In addition, merchants enjoy the
ability of analyzing results from the co-marketing programs.
The Company has recently introduced Transmedia Travel, an exclusive
cardmember booking service, through an affiliation with a major travel
agency. Cardmembers may now book various prepaid packaged vacations such
as cruises, tours, all-inclusive resorts, charter vacations and sports
holidays and earn dining credits (redeemable through use of the Transmedia
Card) equal to 10% of the cost of the vacation.
The Company derives income from franchising and licensing The Transmedia
Card and related proprietary rights and know-how, including rights to
solicit restaurants, hotels, resorts and motels and acquire food, beverage
and lodging credits, in the United States. The Company also receives
revenue from licensing The Transmedia Card and related proprietary rights
and know-how outside the United States.
CORPORATE STRUCTURE
The Company commenced operations in 1984 and was reincorporated as a
Delaware corporation in 1987. Currently, it has the following principal
operating subsidiaries:
/bullet/ Transmedia Restaurant Company Inc. which is responsible
for obtaining and servicing restaurants and obtaining other
locations and service establishments such as hotels, resort
destinations and retailers where the Transmedia Card may be used.
/bullet/ Transmedia Service Company Inc. which is responsible for
soliciting and servicing all cardmembers in the United States,
providing support services to Transmedia Restaurant Company, and
for all domestic franchising of The Transmedia Card and related
property rights and know- how.
/bullet/ TMNI International Incorporated which licenses the Transmedia
Card, service marks, proprietary software and know-how outside
the United States and has licensed rights
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to Europe, Turkey, the countries comprising the former Union of
Soviet Socialist Republics, Australia, New Zealand and the
Asia-Pacific region to date.
/bullet/ TNI Funding I, Inc., which was established as a special purpose
corporation for purposes of the securitization of cash advances
to merchants referred to as rights-to-receive.
DESCRIPTION OF RIGHTS TO RECEIVE AND THE TRANSMEDIA CARD
The Company's primary business is the acquisition of Rights to Receive
from participating establishments which are then sold for cash to holders
of The Transmedia Card. "Rights to Receive" are rights to receive goods
and services, principally food and beverages, which are acquired and
purchased from participating restaurants, for an amount equal to
approximately fifty percent (50%) of the food and beverage credits or by
financing the purchase of other goods or services as well as for having
provided advertising and media placement services to the participating
establishments. Approximately ninety-five percent (95%) of Rights to
Receive are purchased for cash. The Company typically purchases that
amount of food and beverage credits which will be consumed in a period of
no more than six months; however, it has not always been possible for the
Company to predict with accuracy the amount of time in which such credits
will be consumed, especially when the Company begins operating in new
areas.
The Transmedia Card is selectively issued to applicants who are determined
to be creditworthy by virtue of their having a current, valid MasterCard,
Visa, Discover or American Express credit card or who are otherwise deemed
creditworthy by Company management. The Transmedia Cardmembers have a
choice of programs, including a "Free for Life" Transmedia Card which
affords them 20% savings at participating establishments, a Turn Meals
into Miles/Registered trademark/ program which offers mileage credits with
Continental Airlines, U.S. Airways and United Airlines of 10 miles for
each dollar spent on food and beverage at participating establishments for
an annual fee of $9.95, and a card which offers a 25% savings at
participating establishments, for which there is a $50 annual fee. Each
account may have more than one user and, accordingly, more than one
cardmember. The Company recently introduced a "family of savings" concept
through a silver and gold Transmedia Card program designed to replace the
existing 25% savings / $50 fee program. Both the silver and gold programs
are fee based, offer 25% savings at participating establishments and
entitle the cardmember access to additional benefits and savings at either
no-cost or a reduced fee depending upon the cardmembers' election. The
silver program retails for $29.95 and the gold program for $59.95.
In presenting The Transmedia Card, cardmembers sign for the goods or
services rendered, as well as for the taxes and tips, as they would with
any other charge card. The Company, upon obtaining the receipt (directly
or via electronic point of sale transmission) from the appropriate
establishment, gives the establishment credit against Rights to Receive
which are owned by the Company. The Company then (i) processes the receipt
through the cardmember's MasterCard, Visa, Discover or American Express
card account, which remits to the Company the full amount of the bill, and
(ii) credits to the cardmember's MasterCard, Visa, Discover or American
Express account the appropriate discount or credits to the cardmember's
airline account the appropriate mileage. Taxes and tips are not discounted
and such sums are remitted to the various establishments.
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DOMESTIC FRANCHISING
In 1990, the Company commenced franchising The Transmedia Card (then known as
The Restaurant Card) and related proprietary rights and know-how, including
rights to solicit restaurants and acquire Rights to Receive, in the United
States. At September 30, 1997, the Company had franchises in the following
territories: a large part of New Jersey, the Washington, D.C./Baltimore,
Maryland metropolitan area, Dallas, Ft. Worth, San Antonio and Houston, Texas,
the States of Virginia, North Carolina, South Carolina, and Atlanta, Georgia and
eastern Tennessee. The Company has also granted a certain third party an option
to acquire a franchise for the State of Hawaii. The Company has determined that
it will no longer offer franchises at various locations throughout the United
States. In January 1997, the Company purchased certain of the assets of The
Western Transmedia Company, Inc., the Company's franchisee in the States of
California, Nevada, Oregon and Washington and now conducts the West Coast
operation directly. The Company has entered into an agreement to acquire the
rights-to-receive of East American Trading Company, its franchisee in the
Carolinas, Georgia and eastern Tennessee, and to terminate and cancel the
franchise. After the completion of this transaction in December 1997, the
Company will operate in these States directly.
Each franchise sold by the Company is operated under a ten year franchise
agreement that is renewable for one additional ten-year term for all locations.
Each agreement provides that the Company will assist the franchisee with
marketing, advertising, training and other administrative support; relates to a
territory that contains a minimum number of full-service restaurants that accept
MasterCard, Visa, Discover or American Express credit cards; and licenses the
franchisee to use the Company's trademarks in connection with the solicitation
of new cardmembers (which is not restricted to the franchisee's territory) and
the purchase of Rights to Receive from restaurants in the territory granted to
the franchisee. The franchisee is responsible for, among other things,
soliciting cardmembers and participating establishments, purchasing Rights to
Receive from participating establishments in its territory, and maintaining
adequate insurance. In consideration for the grant of the franchise, the
franchisee pays to the Company (i) a one-time franchise fee which varies based
upon the number of full-service restaurants located within the territory granted
to the franchisee, and (ii) the following continuing fees during the term of the
franchise agreement: (A) 7 1/2% of the total meal credits used within the
franchisee's territory; (B) 2 1/2% of the total meal credits sold within the
franchisee's territory into the Company's advertising and development fund; (C)
a processing fee of $.20 per sales transaction from the franchisee's territory;
and (D) a monthly service charge of $1.00 per participating establishment in the
franchisee's territory.
U.S. LICENSING
In November 1995, the Company entered into a license arrangement under
which a licensee was authorized to solicit Rights to Receive from various types
of resorts, hotels and other entities. The territory covered by the license
agreement is the continental United States, excluding the State of Minnesota.
The term of this arrangement was ten years, with a potential renewal period of
ten years and under this arrangement, the Company compensated the licensee
through a commission. In December 1996, the Company terminated the license
agreement.
NON-U.S. LICENSING
In 1993, the Company commenced licensing The Transmedia Card and related
proprietary rights and know-how outside the United States. The Company's
non-U.S. operations are conducted by its subsidiary, TMNI International
Incorporated. In 1993, the Company granted an exclusive, perpetual license to
Transmedia Europe, Inc. to establish the Company's business in Europe, Turkey
and the countries that formerly comprised the Union of Soviet Socialist
Republics. The license is governed by a Master License Agreement which provides
that, among other things, (i)
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the licensee has the right to sublicense the rights granted under the Master
License Agreement to others within the territory, provided that each such
sublicense is approved by the Company, (ii) the Company will assist the licensee
with training relating to sales, administration, technical and operations of the
business, and (iii) the licensee is solely responsible for developing its own
market, paying its own expenses for advertising and soliciting cardmembers and
participating establishments in its territory. In consideration for the license,
the licensee (i) paid the Company a non-refundable purchase price of One Million
One Hundred Twenty-Five Thousand ($1,125,000) Dollars, (ii) will pay to the
Company two percent (2%) of the gross volume with respect to the United Kingdom
sublicense, (iii) will pay to the Company twenty-five percent (25%) of initial
sublicense fees (with a minimum of $250,000) paid for each country licensed in
the territory, (iv) will pay to the Company twenty-five percent (25%) of
royalties paid by sublicensees to the licensee, and (v) granted to the Company a
five percent (5%) equity interest in the licenses. Melvin Chasen, the Chairman
and Chief Executive Officer of the Company, served as a director of the licensee
until March 1, 1995. In December 1996, Transmedia Europe Inc. amended the
sublicense it had granted for France and expanded the sublicensee's territory to
include Belgium and Luxemborg, Italy, Spain and Switzerland (other than the
German speaking area).
In 1994, the Company granted an exclusive perpetual license to Transmedia Asia
Pacific Inc. to establish the Company's business in Australia, New Zealand and
the Asia-Pacific region (such region covering approximately 16 major countries
and areas including, among others, Japan, Hong Kong, Taiwan, Korea, the
Philippines and India). The licensee also took an option to purchase a franchise
for the State of Hawaii. The license granted by the Company is governed by a
Master License Agreement which provides, among other things, that (i) the
Company will assist the licensee with training relating to sales,
administration, technical and operations of the business, and (ii) the licensee
is solely responsible for developing its own market, paying its own expenses for
advertising and soliciting cardmembers and restaurants in its territory. In
consideration for the license, the licensee (i) paid the Company One Million Two
Hundred Fifty Thousand Dollars ($1,250,000), and (ii) granted to the Company a
five percent (5%) equity interest in the licensee. The license also provides for
the following payments to the Company: (i) with respect to sublicenses granted
in all territories other than Australia and New Zealand, the licensee will pay
to the Company twenty-five percent (25%) of all initial sublicense fees (in no
event less than $500,000 in the People's Republic of China and Japan, and not
less than $250,000 in all other territories), as well as twenty-five percent
(25%) of all royalties, transfer fee payments and any other monies received; and
(ii) with respect to sublicenses granted in Australia and New Zealand, the
licensee will pay to the Company two percent (2%) of gross sales within such
territories. Mr. Chasen served as a director of Transmedia Asia Pacific Inc.
until March 1, 1995.
In December 1996, the Company entered into an agreement with Transmedia Europe,
Inc. and Transmedia Asia Pacific Inc. amending both of the licenses, among other
things, to permit the companies to be reorganized under one entity and to allow
them to acquire and operate worldwide the business of Countdown plc., which
conducts a discount savings program in Europe and, to a lesser extent, in the
United States. Upon closing of the Countdown acquisition, the Company received
$250,000 in cash and a $500,000 note bearing interest at 10%, which is payable
on April 1, 1998. At the Company's option, the note may be converted into stock
of the licensees.
AREAS OF OPERATION
The Company's areas of operation include Central and South Florida, the New
York, Chicago and Los Angeles metropolitan areas, Boston and surrounding New
England, Philadelphia, San Francisco, Detroit, Indianapolis, Milwaukee, Denver,
Phoenix and effective December 16, 1997, North and South Carolina; Atlanta,
Georgia and parts of Tennessee. Franchised areas include most of New Jersey,
Washington, D.C., Maryland, Virginia and Texas. Licensing arrangements exist for
the United Kingdom, Canada, and Europe, as well as the Asia-Pacific region.
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PARTICIPATING RESTAURANTS AND CARDMEMBERS
As of September 30, 1997, directories published by the Company, which are
distributed to cardmembers six times a year, listed 7,087 restaurants available
to cardmembers, and The Transmedia Card was held by an aggregate of 1,298,061
cardmembers, comprised of 904,507 accounts with an average of 1.44 cardmembers
per account. The following table sets forth (i) the number of restaurants listed
in directories published by the Company and (ii) the number of cardmembers, as
of the fiscal years ended September 30, 1993 though 1997:
1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------
Restaurants 7,087 6,974 5,330 3,628 2,328
- --------------------------------------------------------------------------------
Cardmembers 1,298,061 924,418 593,161 395,968 197,166
As the table indicates, the number of restaurants listed in directories
published by the Company has risen nearly 4,759 (304%) during the fiscal years
ended September 30, 1993 through September 30, 1997. The number of cardmembers
has increased 1,100,895 for the same period.
MARKETING
The Company markets The Transmedia Card through the use of advertising, direct
mail and through promotion with co-marketing partners such as banks and affinity
groups.
EMPLOYEES
As of December 16, 1997, the Company employed 167 persons. The Company believes
that its relationships with its employees are good.
COMPETITION
The charge card business is highly competitive and the Company competes for both
cardmembers and participating merchants, such as restaurants, hotels and other
applicable service establishments. Competitors include discount programs offered
by major credit card companies, other companies that offer different kinds of
discount marketing programs and numerous small companies which offer services
which may compete with the services offered or to be offered by the Company. The
Company has experienced increased competition in its core dining business in
recent years as variations on the basic discount dining concept have been
introduced. Such variations include restricted usage programs and registered
credit card programs, as well as different levels of discounts and cash advances
to merchants. Certain of the Company's competitors may have substantially
greater financial resources and expend considerably larger sums than does the
Company for new product development and marketing. Further, the Company must
compete with many larger and better established companies for the hiring and
retaining of qualified marketing personnel. The Company believes that the unique
features of its program -- that The Transmedia Card can be used by cardmembers
at participating establishments with very few restrictions, that The Transmedia
Card provides substantial savings without the need for a cardmember to present
discount coupons when paying for a meal, and that participating establishments
are provided with cash in advance of customer charges --contribute to the
Company's competitiveness and allow the Company to offer better value and
service to its cardmembers.
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ITEM 2. PROPERTIES
The Company's present executive office consists of 13,096 square feet, located
in Miami, Florida, which the Company occupies pursuant to a lease expiring on
February 28, 2002 and which provides for an annual base rental of $270,825. The
Company's Miami office also houses the Company's cardmember service center. The
Company leases offices in New York City for 5,710 square feet of office space
pursuant to a lease entered into in May 1996. The lease, which expires on June
30, 2001, provides for minimum annual rentals of $199,850. In addition, the
Company has a four and one-half year office lease in Philadelphia, Pennsylvania
for approximately 1,641 square feet, which commenced April 1, 1994. The lease
provides for a base annual rent of approximately $24,500 in the first year,
which will increase by approximately $800 each year thereafter. In Boston,
Massachusetts, the Company has a sixty-four month lease for approximately 1,500
square feet, which commenced May 1, 1995. The lease provides for base annual
rentals of $29,400. The Company has an option for one three-year renewal. In
Chicago, the Company has a thirty-nine month lease for approximately 1,183
square feet, which commenced October 1, 1995. The lease provides for an initial
annual lease rental of $26,730 increasing by approximately $600 each year
thereafter. In Detroit, the Company leases an executive office for a
fifteen-month period which began on February 1, 1997 at an annual fee of $7,589.
In Tampa, the Company leases an executive office for a twelve-month period which
began on July 1, 1997. The total rental for the thirteen month period is $8,616.
In Phoenix, the Company leases an executive office for a twelve-month period
which began on February 1, 1997 for a total rent of $12,600 for the twelve
months. In San Francisco, the Company assumed a lease for approximately 3,000
square feet, at an annual rent of $57,642 from August 1, 1997 to July 31, 1998
and $60,598 from August 1, 1998 to August 31, 1999. The lease expires on August
31, 1999. In Los Angeles, the Company extended its assumed lease for an
additional year at a monthly base rent of approximately $4,568. The lease will
expire on January 31, 1998.
ITEM 3. LEGAL PROCEEDINGS
In December 1996, the Company terminated its license agreement (the "Agreement")
with Sports & Leisure Inc. ("S&L"). In February 1997, S&L commenced an action
against the Company in the 11th Judicial Circuit, Dade County, Florida, alleging
that the Company improperly terminated the S&L license agreement and seeking
money damages. The Company has counterclaimed against S&L for breach of the
Agreement and intends to pursue the action vigorously. Management does not
expect the outcome of this case to adversely impact the financial position of
the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the quarter ended September 30, 1997, no matters were submitted to a vote
of the security holders.
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS OF THE REGISTRANT
NAME POSITION AGE
- ---- -------- ---
<S> <C> <C>
Melvin Chasen Director, Chairman of the Board, President 69
and Chief Executive Officer
James M. Callaghan Director and Vice President; President of 58
Transmedia Restaurant
Company Inc.
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Barry S. Kaplan Director and Vice President; 39
President of Transmedia Service Company Inc.
Stephen E. Lerch Executive Vice President and 43
Chief Financial Officer
Paul A. Ficalora Executive Vice President 46
of Transmedia Restaurant
Company Inc.
Gregory Borges Treasurer 61
Kathryn Ferara Secretary 41
</TABLE>
Mr. Chasen has been a director and the Chairman of the Board, President and
Chief Executive Officer of the Company since 1983. From 1984 through 1987, he
was a director, Chairman of the Board, President and Chief Executive Officer of
Transmedia Network Inc., a Colorado corporation, which was the predecessor of
the Company. He was President of TMNI International Incorporated, a subsidiary,
in 1997.
Mr. Callaghan, a director of the Company since 1991, was elected Vice President
of the Company and President of Transmedia Restaurant Company Inc., a
subsidiary, in 1994. He joined the Company in 1989 and served as its Executive
Vice President, Vice President, Sales and Marketing and Treasurer.
Mr. Kaplan was elected a Vice President of the Company and President of
Transmedia Service Company Inc., a subsidiary, in September 1995 and was elected
a Director of the Company in March 1996. From 1986 until joining the Company, he
served in various positions including Executive Vice President, Chief Operating
Officer of Liberty Travel, Inc., a chain of full-service travel agencies.
Mr. Lerch was elected Executive Vice President and Chief Financial Officer of
the Company, as well as Vice President of TMNI International Incorporated,
Transmedia Restaurant Company Inc. and Transmedia Service Company Inc,
subsidiaries, in 1997. Previously, Mr. Lerch was a Partner at Coopers and
Lybrand LLP, where he worked from 1978 to 1997.
Mr. Ficalora was elected Executive Vice President of the Restaurant Company in
1994, having served as Vice President, Operations of the Company from 1992 until
1994, and Director of Franchise Sales from 1991 to 1992.
Mr. Borges was elected Treasurer of the Company in 1992. He joined the Company
in 1985 as Controller.
Mrs. Ferara was elected Secretary of the Company in 1992. She joined the Company
in 1989 as Office Manager and Assistant Secretary.
<TABLE>
<CAPTION>
BOARD OF DIRECTORS OF THE REGISTRANT
NAME POSITION DIRECTOR SINCE
- ---- -------- --------------
<S> <C> <C>
Melvin Chasen Chairman of the Board, President and 1983
Chief Executive Officer of the Company
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Jack Africk Chairman of the Board 1992
Evolution Consulting Group, Inc.
James J. Callaghan Vice President of the Company and 1991
President of Transmedia Restaurant Company Inc.
Herbert M. Gardner Senior Vice President 1983
Janney Montgomery Scott, Inc.
Irwin Hochberg Senior Partner and President 1987
Bloom Hochberg & Co., P.C.
Barry S. Kaplan Vice President of the Company and 1996
President of Transmedia Service Company Inc.
Henry Seiden Chairman and Chief Executive Officer 1988
The Seiden Group Inc.
</TABLE>
Mr. Africk, who was elected a director of the Company in 1992, is the Chairman
of the Board of Evolution Consulting Group, Inc., Boca Raton, Florida. From 1993
to 1995, he was Vice Chairman of the Board of Duty Free International, Inc., and
is currently a director of that company. Until June 1993, Mr. Africk was Vice
Chairman of UST, Inc. and President and Chief Executive Officer of its
subsidiary, United States Tobacco Company. He is also a director of Crown
Central Petroleum Corporation and of Tanger Factory Outlet Centers.
Mr. Gardner, a director of the Company since 1983, has been employed as a Senior
Vice President of Janney Montgomery Scott, Inc., an investment banking firm, for
more than five years. He was a director of two predecessors of the Company from
1983 through 1987. Mr. Gardner is a director of Shelter Components Corporation,
a supplier to the manufactured housing industry, and Nu Horizons Electronics
Corp., a company which manufactures specialized truck bodies and shuttle buses.
Mr. Gardner is also a director of American Country Hol.dings, Inc.. (formerly
The Western Systems Corp.), which was the Company's franchisee in California,
Oregon, Washington and parts of Nevada until January 1997, a director of TGC
Industries, Inc., a company in the geophysical services industry, a director of
Hirsch International Corp., an importer of computerized embroidery machines, a
developer of embroidery machine application software and a provider of other
services to the embroidery industry, and a director of Chase Packaging, an
agricultural packaging products company.
Mr. Hochberg, a director of the Company since 1987, served as a director of
Transmedia Network Inc., a Colorado corporation ("Transmedia Colorado"), which
was merged into the Company. He has been Senior Partner and President of Bloom
Hochberg & Co., P.C., a firm of Certified Public Accountants, for more than
seven years. He is also a director of Ampal-America Israel Corporation, a
subsidiary of Bank Hapoalim, which finances industrial, financial, commercial
and agricultural enterprises.
Mr. Seiden, a director of the Company since 1988, is presently the Chairman and
Chief Executive Officer of The Seiden Group Inc., an advertising consultant, and
Vice Chairman of Jordan, McGrath, Case & Taylor Inc., an advertising agency. Mr.
Seiden had been the Chairman of
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Ketchum Advertising, New York, an advertising agency which is a division of
Ketchum Communications, Inc., from 1987 through 1991.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the New York Stock Exchange
under the symbol "TMN". Prior to June 28, 1995, the Company's Common Stock was
included in the Nasdaq National Market . The following table sets forth the high
and low sale prices for the common stock for each fiscal quarter ended from
December 31, 1995 as reported on the New York Stock Exchange or the Nasdaq
National Market, as well as the dividends paid during each such fiscal quarter.
The payment of dividends, if any, in the future, will depend upon,
among other things, the Company's earnings and financial requirements, as well
as general business conditions.
QUARTER ENDED LOW HIGH DIVIDEND PAID
------------- --- ---- -------------
December 31, 1995 8.750 11.000 .02
March 31, 1996 7.125 9.750 --
June 30, 1996 7.125 9.000 .02
September 30, 1996 5.500 8.625 --
December 31, 1996 7.125 4.750 .02
March 31, 1997 4.875 5.375 --
June 30, 1997 3.250 5.375 .02
September 30, 1997 3.250 4.186 --
The aggregate number of holders of record of the Company's Common Stock
on December 16, 1997 was approximately 2,400.
The payment of dividends, if any, in the future, will depend upon,
among other things, the Company's earnings and financial requirements, as well
as general and business conditions.
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<TABLE>
<CAPTION>
ITEM 6. SELECTED FINANCIAL DATA
YEAR ENDED SEPTEMBER 30,
(THOUSANDS)
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Gross dining sales $ 101,301 $90,076 $78,632 $62,012 $44,820
Net revenues from rights-to-receive 21,232 19,504 15,769 11,899 9,356
Membership and renewal fee income 7,251 6,646 4,081 2,685 1,634
Franchise fee income 1,438 1,839 1,881 1,061 257
Other income 1,023 497 423 281 --
Total operating revenues 30,944 28,486 22,154 15,926 11,247
Total operating expenses 30,246 23,729 15,809 10,709 7,822
Operating income 698 4,757 6,345 5,217 3,425
Income (loss) before taxes (684) 4,107 6,879 6,974 4,557
Net income (loss) $ (424) $ 2,546 $ 4,196 $ 4,176 $ 2,734
======== ======== ======== ======== ========
BALANCE SHEET DATA:
Total assets 72,685 54,514 38,383 28,477 17,903
Long-term debt:
Recourse -- 15,000 2,000 -- --
Non-recourse 33,000 -- -- -- --
Stockholders' equity 25,304 25,753 24,191 18,925 12,619
Cash dividends per common share 0.02 0.04 0.04 0.04 0.02
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(DOLLARS IN THOUSANDS)
NEW ACCOUNTING PRONOUNCEMENTS
i. Earnings Per Share.
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings Per Share" (SFAS No. 128) which establishes standards for
computing and presenting earnings per share (EPS). SFAS No. 128 replaces the
presentation of primary and fully diluted EPS with a presentation of basic and
diluted EPS. Basic EPS is computed by dividing income available to common
shareholders by the weighted-average number of common shares outstanding for the
period. Diluted EPS reflects the potential dilution that would occur from any
instrument which could result in additional common shares being issued. SFAS No.
128 must be adopted for the Company's fiscal year 1998 and requires restatement
of all prior-period EPS data presented. The adoption will not materially affect
the EPS reported during fiscal year 1997, 1996 or 1995.
ii. Reporting Comprehensive Income and Disclosures About Segments of an
Enterprise and Related Information
In June 1997, SFAS No. 130 "Reporting Comprehensive Income" and SFAS No. 131
"Disclosures About Segments of an Enterprise and Related Information" were
issued and are effective for fiscal periods beginning after December 15, 1997
with early adoption permitted. Currently, the Company is evaluating the effects
these statements will have on its financial reporting and disclosures.
RESULTS OF OPERATIONS (1997 VERSUS 1996)
Gross dining sales for the fiscal year ended September 30, 1997 increased 12.5%
to $101,301 as compared to $90,076 for the year ended September 30, 1996. The
sales increase is attributable to an increased base of cardholders and the
acquisition of the Western Transmedia franchise in January 1997. Cardmember
accounts increased 42% to over 900,000 for the year and total cardmembers at
September 30, 1997 were 1,289,061 or 1.4 cardmembers per account. The total
restaurants available to cardmembers remained consistent between years. At
September 30, 1997, the Company had 7,087 restaurants listed in its directories
(6,974 at September 30, 1996), of which 4,922 were in Company-owned sales
territories and 876 were overseas. The increase in Company-owned restaurants
from 4,047 a year ago relates primarily to the acquisition of the California
franchise discussed above. Approximately ninety percent (90%) of all restaurants
listed in the directories published by the Company renew their contracts with
the Company after the initial amount of rights to receive meal credits purchased
by the Company is expended. In the second year of renewal, the Company renews
approximately 80% of those restaurants continuing in business. After the second
year, renewal rates tend to drop sharply because the restaurants, with the
Company's help, have either become successful and no longer require the
Company's financial and marketing resources, the Company chooses not to renew
the restaurant or the restaurant has gone out of business. However, offsetting
this drop are new restaurants that sign on as old ones go out of business,
providing the Company with a continuous flow of new restaurant prospects, and
restaurants that were formerly on the program often sign on again as they
further expand and/or desire the program's benefits again. The Company believes
that in no area where the Company operates is it close to restaurant or
cardmember saturation. Gross dining sales associated with the Western Transmedia
sales territories, principally Los Angeles, Orange County and San Francisco,
amounted to approximately $7,900 since the acquisition in January 1997. Sales
volume in the New York metropolitan area, the Company's largest market, declined
10% compared to the prior year. Offsetting this decrease were increases in other
large
13
<PAGE>
markets such as Chicago, Boston and Detroit, as well as in new markets such as
Phoenix and Denver. Overall, gross dining sales have not grown proportionately
with the increase in the cardmember base. While the introduction of a 20%
discount, no-fee card in 1996 was very effective in building a desired critical
mass of cardmembers, the no fee cardholders, to date, have not been as active as
the traditional fee-paying cardmembers and spending per account has decreased
from prior years. The Company has instituted a number of programs that make the
card easier to both activate and use and to stimulate more frequent usage. The
initial results from the programs implemented in the latter part of fiscal 1997,
as measured in incremental sales, have been positive, particularly the frequent
dining rewards program. The Company intends to continue to focus on activation
and stimulation of its existing cardholder base to better leverage its card
solicitation investment.
At September 30, 1997, the average Rights to Receive balance per participating
Company restaurant was $8,198 versus $9,220 at September 30, 1996.
Rights-to-receive turnover for fiscal 1997 was 1.3, or 9.2 months on hand,
compared to 1.415, or 8.5 months on hand, in the prior year.
Cardmember discounts as a percentage of sales declined to 22.7% from 23.8% in
the 1996 comparable period reflecting the continued growth of new memberships in
the 20% discount category. Provision for rights-to-receive losses, which are
included in cost of sales, amounted to $3,209 in 1997, compared to $2,075 in the
prior year period. Processing fees (i.e., the standard fees established by the
major credit card companies for which the Company is responsible for) based on
transactions processed, declined as a percentage of gross dining sales to 1.9%
from 3.8% in the prior year reflecting economies of scale associated with higher
volume and the Company's quality initiatives.
Membership and renewal fee income increased to $7,251, of which $670 was initial
fee income in 1997, compared to $6,646, of which $1,165 was initial fee income
in 1996. The anticipated decline in initial fee income reflects the Company's
continued focus on marketing the 20% savings, no-fee card which was introduced
in 1996. Offsetting this decrease, however, were strong renewals of the 25%
savings, fee-based cardholders. Fee income is recognized over a twelve-month
period beginning in the month the fee is received.
Continuing franchise fee and royalty income decreased to $1,438 from $1,839.
This decrease resulted primarily from the purchase of the California franchisee
in January 1997. On a same territory basis however, exclusive of California,
franchise dining sales increased 17% over the prior year.
Processing income relates to the Company's full service electronic processing
initiative and comprises the sale or lease of point-of-sale terminals to
merchants, principally restaurants, as well as fees received for serving as the
merchants' processor for all of their credit card transactions.
In 1997, selling, general and administrative expenses were significantly
impacted by the 40% net increase in the cardmember base and the related
increases in gross dining volume and other revenue items. The opening of new
territories in the latter part of fiscal 1996 and the acquisition of the
California franchise in January 1997 resulted in additional costs associated
with establishing five new sales territories. The Company also expanded its
support services infrastructure in fiscal 1997 to address gross dining sales
volume that now exceeds $100 million per year and a cardholder base of almost
1.3 million. Increased expenditures, principally personnel related costs, were
made in important functional areas such as cardmember services, merchant support
for credit card processing and marketing. Overall selling, general and
administrative expenses increased $6,323, or 32.8% over the prior year. The
principal components of the increase include salaries and related expenses
($6,051 in 1997 versus $4,605 in 1996), depreciation and amortization,
principally on the software development costs ($2,232 in 1997 versus $1,163 in
14
<PAGE>
1996), sales commissions ($2,457 in 1997 versus $1,672 in 1996), postage (2,878
in 1997 versus $2,524 in 1996), office related expenses ($2,688 in 1997 versus
$1,810 in 1996) and legal ($983 in 1997 versus $529 in 1996).
In 1997, cardmember acquisition expenses were $4,650 versus $4,456 in 1996.
Included in cardmember acquisition expenses is the amortization of deferred
advertising costs, which amounted to $670 in 1997 and $1,165 in 1996. Costs
capitalized in 1997 and 1996 were $446 and $969, respectively, again reflecting
the acquisition of fewer fee paying cardmembers and correspondingly, lower
initial fee income. The Company uses various techniques at different levels of
cost to solicit new cardmembers. Solicitation is accomplished through direct
mail, telemarketing and the use of affinity and loyalty programs with major
metropolitan newspapers, charitable and other not-for-profit organizations,
alumnae associations and corporations. Third party and strategic marketing
partners are often utilized on either a fee per acquisition or activation basis
or through wholesaling of the fee based savings card. The Company also generates
a significant amount of new cardmembers internally using its in-house business
development group as well as the sales force in the field. The card is marketed
as an enhancement or additional benefit, on a co-branded basis or most
frequently on a stand alone basis. The mix of solicitation programs used has a
direct correlation to the overall acquisition cost per member and the spending
profile of cardmembers acquired. The Company seeks to employ the most cost
effective means of acquiring active and frequent users of the card.
Operating income in 1997 was $698, a 85.0% decrease from $4,757 in 1996.
Other income, net of expense in 1997 was a net expense amounting to $1,382
versus $650 in 1996, an increased expense of $732. The principal reasons for the
change included $1,719 additional interest expense and financing costs in 1997
as a result of a $33 million securitization transaction that closed in December
1996, offset by $750 of license income from the Company's international
licensees and a $401 increase in interest and other income in 1997.
Earnings before taxes amounted to a loss of $684 in 1997 compared with income of
$4,107 in 1996. The effective tax rate in 1997 and 1996 was 38.0%.
Net loss was $424 or $.04 per share in 1997, versus net income of $2,546 or $.25
per share in 1996.
RESULTS OF OPERATIONS (1996 VERSUS 1995)
Gross dining sales for the fiscal year ended September 30, 1996 increased 14.6%
to $90,076, as compared to $78,632 for the year ended September 30, 1995. The
sales increase was primarily due to an increased number of cardmembers and
restaurants available to cardmembers. Cardmember accounts increased 72% to over
634,000 for the year and total cardmembers at September 30, 1996 were 924,418 or
1.46 cardmembers per account. The total restaurants available to cardmembers
increased to 6,974 from 5,330 a year earlier.
At September 30, 1996, the average Rights to Receive balance per Company
restaurant participating was $9,220 versus $8,592 at September 30, 1995.
Rights-to-receive turnover for fiscal 1996 was 1.415, or 8.5 months on hand,
compared to 1.811, or 6.6 months on hand, in the prior year.
Cardmember discounts as a percentage of sales declined to 23.8% from 25.2% in
the 1995 comparable period reflecting the introduction of the 20% discount
no-fee card in January 1996.
15
<PAGE>
Provision for rights-to-receive losses, which are included in cost of sales,
amounted to $2,075 in 1996, compared to $2,332 in the prior year period.
Membership and renewal fee income increased to $6,646, of which $1,165 was
initial fee income in 1996, compared to $4,081, of which $835 was initial fee
income in 1995. Fee income is recognized over a twelve-month period beginning in
the month the fee is received. In 1996, 7% of joining cardmembers paid a fee.
The others joined under no-fee programs. The renewal rate in 1996 and 1995
approximated 55% to 60%.
Continuing franchise fee and royalty income decreased to $1,839 from $1,881.
This slight decrease resulted primarily from the purchase of the Chicago
franchisee in July 1995 offset by an increase, on a same territory basis, in
franchise dining sales over the prior year.
In 1996, selling, general and administrative ("SG&A") expenses increased by
$4,907, as compared to 1995, representing a 34.2% increase. The main components
of the increase included sales salaries and commissions ($2,362 in 1996 versus
$1,866 in 1995), and salaries expense ($4,230 in 1996 versus $3,604 in 1995).
The Company also incurred $801 of expenses in 1996 associated with the start-up
of new territories operated by the Company compared with $268 in 1995.
In 1996, cardmember acquisition expenses were $4,456 versus $1,443 in 1995.
Included in cardmember acquisition expenses was the amortization of deferred
advertising costs amounting to $1,165 in 1996 and $752 in 1995. Costs
capitalized in 1996 and 1995 were $969, and $1,013, respectively.
Operating income in 1996 was $4,757, a 25.0% decrease from $6,345 in 1995.
Other income, net of expense in 1996 was a net expense amounting to $650, versus
net income of $534, in 1995, a difference of $1,184. Reasons for the reduction
included $736 more interest expense and financing costs in 1996 than 1995, $578
less initial franchise fee and license income in 1996 than 1995, $165 less in
interest and other income in 1996 than 1995, and no merger and acquisition
expenses in 1996 versus $295, in 1995, which was related to the Company's
acquisition of its Chicago franchisee.
Earnings before taxes amounted to $4,107 in 1996 compared with $6,879, in 1995.
The effective tax rate in 1996 was 38.0% versus 39.0% in 1995.
Net income was $2,546 or $.25 per share, versus $4,196 or $.42 per share in
1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital increased to $42,062 at September 30, 1997 from
$32,850 at September 30, 1996. This is due primarily to an increase in the
Company's rights-to-receive of $2,829 and an increase in cash and cash
equivalents of $5,786.
On December 24, 1996, the Company made an initial transfer of $33 million of
rights-to-receive to a special purpose corporation ("SPC"), an indirect wholly
owned subsidiary, as part of a revolving securitization. The rights-to-receive,
which were sold to the SPC without recourse, were in turn transferred to a
limited liability corporation ("Issuer"), which issued $33 million of fixed rate
securities in a private placement to various third party investors.
In exchange for the rights-to-receive, which have a retail value of
approximately $66 million before cardmember discounts, the Company received
approximately $32 million, after transaction costs, and a 1% equity interest in
the Issuer. Future excess cash flows, expected to be generated
16
<PAGE>
from the securitized assets as the rights-to-receive are exchanged for meals by
Company cardholders, are remitted to the Company on a monthly basis as a return
on capital from the Issuer. Excess cash flows are determined after payments of
interest to noteholders and investors, as well as trustee and servicing fees. It
is anticipated that the net revenue from securitized assets will be received in
approximately the same amount and within the same time frame that such revenue
would have been received had the securitization not taken place.
Rights-to-receive currently held by the Issuer, as well as cash and certain
deposits restricted under the securitization agreement, have been separately
depicted in the consolidated balance sheet.
The private placement certificates have a five-year term before amortization of
principal and have an interest rate of 7.4%. During this revolving period, the
Issuer is responsible for the ongoing purchase of rights-to-receive from the
Company to ensure that the initial pool of $33 million is continually
replenished as the rights-to-receive are utilized by cardholders. It is
anticipated that replenishment of rights-to-receive will provide for a
continuous stream of additional net revenue throughout the period.
The Company's intention in executing the revolving securitization transaction
was to provide current liquidity, as well as a platform for future growth, at a
cost of funds lower than has historically been available to the Company. The
Company also has the ability to securitize additional tranches or pools of
rights to receive in the future at a more economical transaction cost should it
so desire.
Prior to the securitization, the Company maintained a $20 million line of
credit. As a result of the sale of rights-to-receive, described above, the
outstanding obligation under the line of credit was refinanced and the credit
facility was terminated on December 24, 1996. On November 6, 1997, the Company
obtained a new line of credit with a bank for $10 million to be used principally
to finance the purchase of rights-to-receive. This line of credit is unsecured
and may be drawn down based on an advance rate calculated as a percentage of
unrestricted rights-to-receive. The line of credit matures on February 1, 1999
and bears interest at the prime rate with a LIBOR option. There is presently
nothing outstanding under the line.
On November 7, 1997, the Company entered into an agreement to sell 2.5 million
newly-issued common shares and warrants to purchase an additional 1.2 million
common shares for a total of $10.625 million to affiliates of Equity Group
Investments, Inc., a privately held investment company. The warrants will have a
term of five years; one third of the warrants will be exercisable at $6.00 per
share, another third will be exercisable at $7.00 per share and the third and
final will be exercisable at $8.00 per share. As part of this strategic
investment, Equity Group will nominate two candidates for the Board of Directors
who will join three of the Company's existing directors and two new independent
directors.
Capital expenditures by the Company over the past three fiscal years
(approximately $8.8 million) have been due almost exclusively to the Company's
development and acquisition of computer hardware and software necessary for the
operation of the Cardmember Service Center. The Company estimates that it will
spend approximately $2.6 million on capital expenditures, consisting primarily
of computer software in fiscal year 1998.
The Company believes that cash on hand at September 30, 1997, together with cash
generated from operations and the existing line of credit, if need be, will
satisfy the Company's total need for cash during the 1998 fiscal year.
The Company's inventory of Rights to Receive increased by $2,829 to a total of
$40,355 at September 30, 1997.
17
<PAGE>
In many instances the Rights to Receive purchased by the Company are secured by
the furniture, fixtures and kitchen equipment of the related restaurants as
filed pursuant to the Uniform Commercial Code. The Company also attempts to
obtain personal guarantees from the restaurant owners.
Analysis of Rights to Receive
1997 1996 1995
---- ---- ----
- ------------------------------------------------------------------------------
Rights to Receive, beginning of year $37,526 $26,147 $17,473
- ------------------------------------------------------------------------------
Purchase of Rights to Receive 56,244 59,181 50,294
- ------------------------------------------------------------------------------
Write-offs of Rights to Receive (2,764) (2,655) (2,132)
------- ------- -------
- ------------------------------------------------------------------------------
91,006 82,673 65,635
- ------------------------------------------------------------------------------
Cost of Rights to Receive, included
in cost of sales 50,651 45,147 39,488
------- ------- -------
- ------------------------------------------------------------------------------
Rights to Receive, end of year $40,355 $37,526 $26,147
======= ======= =======
Management of the Company believes that continued increase in the number of
restaurants which honor the Transmedia Card (and, therefore, increases in the
inventory of Rights to Receive purchased) is essential to attract additional
cardmembers, satisfy existing cardmembers and continue the Company's revenue
growth. Further, management believes that the purchase of Rights to Receive can
be funded generally from cash on hand, operations and the new line of credit, as
well as from funds made available through future securitizations.
Cash used in investing activities was $9,450 in the fiscal year ended September
30, 1997, compared with $3,354 used in 1996 and $2,020 used in 1995. Cash flow
deficits from investing activities were due primarily to the development and
acquisition of computer hardware and software necessary for the operation of the
Company's Cardmember Service Center and the acquisition of the California
franchise. Management believes that cash to be used in investing activities
associated with capital expenditures in the fiscal year ended September 30, 1998
will approximate $2,600.
Cash flow provided by financing activities was $14,499 for the fiscal year ended
September 30, 1997, compared with cash flows provided by financing activities of
$12,629 in 1996 and $2,655 in 1995. In 1997, the principal source of cash flows
was proceeds from the issuance of secured non-recourse notes relating to the
securitization. In 1996, the principal source of cash flow was from borrowings
under the Company's bank line of credit. In 1995, the principal source of cash
flow was from borrowings under the Company's bank line of credit and from the
exercise of options for common stock.
18
<PAGE>
ITEM 8. FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
Independent Auditors' Report F - 1
Financial Statements:
Consolidated Balance Sheets, F - 2
September 30, 1997 and 1996
Consolidated Statements of Income F - 3
for each of the years in the three-year
period ended September 30, 1997
Consolidated Statements of Stockholders' F - 4
Equity for each of the years in the three-year
period ended September 30, 1997
Consolidated Statements of Cash Flows F - 5,6
for each of the years in the three-year
period ended September 30, 1997
Notes to Consolidated Financial Statements F - 7
Schedule II - Valuation and Qualifying Accounts F - 21
19
<PAGE>
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information called for by Item 10 is set forth under the heading
"Executive Officers of the Registrant" in Part I hereof and in
"Election of Directors" in the Company's 1997 Proxy Statement, which is
incorporated herein by this reference.
ITEM 11. EXECUTIVE COMPENSATION
Information called for by Item 11 is set forth under the heading
"Executive Compensation" in the Company's 1997 Proxy Statement, which
is incorporated herein by this reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information called for in Item 12 is set forth under the heading
"Security Ownership of Certain Beneficial Owners and Management" in the
Company's 1997 Proxy Statement, which is incorporated herein by this
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information called for in Item 13 is set forth under the heading
"Certain Relationships and Related Transactions" in the Company's 1997
Proxy Statement, which is incorporated herein by this reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTS ON FORM 8-K
The following documents are being filed as part of this Report:
(a)(1) Financial Statements:
Transmedia Network Inc.
See "Index to Financial Statements" contained in Part II,
Item 8.
(a)(2) Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts
(a)(3) Exhibits
20
<PAGE>
<TABLE>
<CAPTION>
DESIGNATION DESCRIPTION
- ----------- -----------
<S> <C>
2.1 Assignment and Assumption of Franchise Agreements dated September 30, 1994 between Transmedia Network
Inc. and the Service Company.(1)
2.2 Capital Contribution dated September 30, 1994 by Transmedia Network Inc. to the Service Company.(1)
2.3 Trademark Contribution dated September 30, 1994 from Transmedia Network to the Service Company.(1)
2.4 Capital Contribution dated September 30, 1994 from Transmedia Network Inc. to the Restaurant Company.(1)
2.5 Administrative Services Agreement dated as of September 30, 1994 between Transmedia Service Company Inc.
and Transmedia Restaurant Company Inc.(1)
2.6 Franchise Agreement dated September 30, 1994 between Transmedia Service Company Inc. and Transmedia
Restaurant Company Inc.(1)
3.1 Certificate of Incorporation of the Company, as amended.(2)
3.2 Certificate of Amendment to the Certificate of Incorporation of the Company.(9)
3.3 Certificate of Amendment to the Certificate of Incorporation of the
Company, as filed with the Delaware Secretary of State on March 22,
1994.(1)
3.4 By-Laws of the Company.(3)
10.2 1987 Stock Option and Rights Plan, as amended.(1)(10)
10.3 Form of Stock Option Agreement (as modified) between the Company and
certain Directors.(10)(11)
10.4 Amended and Restated Employment Agreement dated as of November 15, 1996 between the Company and Melvin
Chasen.(12)
10.5 Amended and Restated Consulting Agreement dated as of November 15, 1996 between the Company and Melvin
Chasen.(12)
10.6 Employment Agreement effective April 1, 1992 between the Company and James Callaghan.(9) (10)
10.7 Amendment dated October 1, 1994, to Employment Agreement between the Company and James Callaghan.(1)(10)
10.8 Employment Agreement dated as of October 1, 1995 between the
Company and Barry Kaplan. (10)(12)
10.9 Amendment dated January 20, 1997 to Employment Agreement between Company and
James Callaghan.(10)(13)
21
<PAGE>
10.10 Amendment dated January 20, 1997 to Employment Agreement between Company and
Barry Kaplan.(10)(13)
10.11 Master License Agreement dated December 14, 1992 between the Company and Conestoga Partners, Inc.(8)
10.12 First Amendment to Master License Agreement dated April 12, 1993,
between the Company and Conestoga Partners, Inc.(9)
10.13 Second Amendment to Master License Agreement -- Assignment and
Assumption Agreement dated August 11, 1993 among the Company, TMNI
International Incorporated and Transmedia Europe, Inc.(9)
10.14 Master License Agreement Amendment No. 3 dated November 22, 1993 between TMNI International Incorporated
and Transmedia Europe, Inc.(9)
10.15 Master License Agreement dated March 21, 1994 between TMNI International Incorporated and Conestoga
Partners II, Inc. licensing rights in the Asia Pacific region.(1)
10.16 Agreement, dated as of December 6, 1996, among the Company, TMNI International Incorporated, Transmedia
Europe Inc. and Transmedia Asia Pacific Inc.(12)
10.17 Agreement, dated as of November 15, 1996 between the Company and The Western Transmedia Company Inc.(12)
10.18 Stock Purchase and Sale Agreement, dated as of November 6, 1997, among
Transmedia Network Inc., Samstock, L.L.C., and Transmedia Investors,
L.L.C. (14)
10.19 Form of Warrant to purchase Common Stock (14)
10.20 Investment Agreement, dated as of November 6, 1997, among Transmedia
Network Inc., Samstock, L.L.C., and Transmedia Investors, L.L.C. (14)
10.21 Agreement Among Stockholders Agreement, dated as of November 6, 1997,
among Transmedia Network Inc., Samstock, L.L.C., Transmedia Investors,
L.L.C., Melvin Chasen and Iris Chasen (14)
10.22 Stockholder Cooperation Agreement, dated as of November 6, 1997, among Transmedia
Investors, L.L.C., Samstock, L.L.C. and Melvin Chasen and Iris Chasen(14)
21.1 Subsidiaries of Transmedia Network Inc.(1)
23.1 Consent of Independent Auditors.(13)
27 Financial Data Schedule.
99.1 Prospectus of the Company dated July 10, 1992 filed pursuant to the Securities Act of 1933.(5)
99.2 Prospectus of the Company dated August 12, 1992 filed pursuant to the Securities Act of 1933.(6)
22
<PAGE>
99.3 Form of Subscription Agreement.(7)
99.4 Agency Agreement dated April 9, 1992 between the Company and Janney Montgomery Scott Inc.(8)
99.5 Warrant Purchase Agreement dated June 15, 1992 between the Company and Janney Montgomery Scott.(8)
(1) Filed as an exhibit to the Company's Annual Report on Form
10-K for the fiscal year ended September 30, 1994 and
incorporated by reference.
(2) Filed as an exhibit to the Company's Annual Report on Form
10-K for the fiscal year ended September 30, 1988, and
incorporated by reference thereto.
(3) Filed as an exhibit to the Post Effective Amendment to the
Registration Statement on Form S-1 (Registration No. 33-5036),
and incorporated by reference thereto.
(4) Filed as an exhibit to the Company's Annual Report on Form
10-K for the fiscal year ended September 30, 1990, and
incorporated by reference thereto.
(5) Filed as an exhibit to the Company's Registration Statement on
Form S-8 (Registration No. 33-494460), and incorporated by
reference thereto.
(6) Filed as an exhibit to the Company's Registration Statement on
Form S-3 (Registration No. 33-49374), and incorporated by
reference thereto.
(7) Filed as an exhibit to the Company's Form 8-K Current Report
dated June 15, 1992, and incorporated by reference thereto.
(8) Filed as an exhibit to the Company's Annual Report on Form
10-K for the fiscal year ended September 30, 1992, and
incorporated by reference thereto.
(9) Filed as an exhibit to the Company's Annual Report on Form
10-K for the fiscal year ended September 30, 1993, and
incorporated by reference thereto.
(10) Management contract or compensatory plan or arrangement
required to be filed as an exhibit to this Annual Report on
Form 10-K pursuant to Item 14(c) hereof.
(11) Filed as an exhibit to the Company's Annual Report on Form
10-K for the fiscal year ended September 30, 1995 and
incorporated by reference.
(12) Filed as an exhibit to the Company's Annual Report on Form
10-K for the fiscal year ended September 30, 1996, and
incorporated by reference.
(13) Filed as an exhibit hereto.
(14) Filed as an exhibit to the Company's Current Report on Form
8-K as of November 6, 1997
</TABLE>
23
<PAGE>
(b) The Company did not file any Form 8-K Current Reports during
the fourth quarter of the fiscal year ended September 30,
1997.
(c) Exhibits:
See paragraph (a) (3) above for items filed as exhibits to
this Annual Report on Form 10-K as required by Item 601 of
Regulation S-K.
(d) Financial Statement Schedules:
See paragraphs (a)(1) and (a)(2) above for financial statement
schedules and supplemental financial statements filed as part
of this Annual Report on Form 10-K.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
TRANSMEDIA NETWORK INC.
By: /S/ STEPHEN E. LERCH
---------------------------
Stephen E. Lerch, Executive Vice President
and Chief Financial Officer
Dated: December 16, 1997
24
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the follwing persons on behalf of the Registrant and in
the capacities and on the date indicated.
NAME TITLE DATE
- ---- ----- ----
/s/ MELVIN CHASEN Director, Chairman December 22, 1997
- -------------------------- of the Board, President
Melvin Chasen and Chief Executive
Officer
/s/ JAMES M. CALLAGHAN Director, Vice President December 22, 1997
- --------------------------
James M. Callaghan
__________________________ Director December , 1997
Jack Africk
__________________________ Director December , 1997
Herbert M. Gardner
/s/ IRWIN HOCHBERG Director December 22, 1997
- --------------------------
Irwin Hochberg
/s/ HENRY SEIDEN Director December 22, 1997
- --------------------------
Henry Seiden
/s/ BARRY S. KAPLAN Director, Vice President December 22, 1997
- --------------------------
Barry S. Kaplan
/s/ STEPHEN E. LERCH Executive Vice President December 22, 1997
- --------------------------- and Chief Financial
Stepehn E. Lerch Officer (Principal
Financial and
Accounting Officer)
25
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
Consolidated Financial Statements
September 30, 1997 and 1996
(With Independent Auditors' Report Thereon)
<PAGE>
KPMG Peat Marwick LLP 1897-1997
450 East Las Olas Boulevard Telephone 954 524 6000 Telefax 954 462 4836
Fort Lauderdale, FL 33301
INDEPENDENT AUDITORS' REPORT
The Board of Directors and
Stockholders
Transmedia Network Inc.:
We have audited the consolidated financial statements of Transmedia Network Inc.
and subsidiaries as listed in the accompanying index. In connection with our
audits of the consolidated financial statements, we have also audited the
financial statement schedule as listed in the accompanying index. These
consolidated financial statements and the financial statement schedule are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements and the financial
statement schedule 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 consolidated financial position of
Transmedia Network Inc. and subsidiaries at September 30, 1997 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended September 30, 1997, in conformity with generally
accepted accounting principles. Also in our opinion, the related financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
/s/ KPMG Peat Marwick LLP
---------------------
KPMG Peat Marwick LLP
November 13, 1997
Miami, Florida
F-1
<PAGE>
<TABLE>
<CAPTION>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 1997 and 1996
(in thousands)
ASSETS 1997 1996
------ ---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 7,223 3,603
Restricted cash (note 2) 2,166 -
Accounts receivable, net 2,260 2,617
Rights-to-receive, net (note 2)
Unrestricted 5,110 37,526
Securitized and owned by Trust 35,245 -
Prepaid expenses and other current assets 2,279 1,928
------- -------
Total current assets 54,283 45,674
Securities available for sale, at fair value (note 3) 1,988 1,868
Equipment held for sale or lease, net (note 4) 981 712
Property and equipment, net (note 5) 7,275 5,664
Other assets 1,375 582
Restricted deposits and investments (note 2) 1,980 -
Excess of cost over net assets acquired and other intangible
assets(note 10) 4,803 14
------- --------
Total assets $72,685 54,514
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable - rights-to-receive $ 4,768 4,784
Accounts payable - reimbursable tax and tips 410 485
Accounts payable - other 2,996 2,679
Accrued expenses 791 773
Deferred membership fee income 3,256 4,103
------- -------
Total current liabilities 12,221 12,824
Secured non-recourse notes payable (note 2) 33,000 -
Line of credit (note 15) - 15,000
Other long-term liabilities 2,160 937
------- --------
Total liabilities 47,381 28,761
------ ------
Commitments (notes 7, 12, 13 and 16)
Stockholders' equity (notes 7 and 8):
Preferred stock - -
Common stock 204 202
Additional paid-in capital 10,635 10,547
Unrealized gain on securities available for sale, net (note 5) 1,059 985
Retained earnings 13,406 14,019
------ ------
Total stockholders' equity 25,304 25,753
------ ------
Total liabilities and stockholders' equity $72,685 54,514
====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
<TABLE>
<CAPTION>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For each of the years in the three-year period ended September 30, 1997
(in thousands, except income per share)
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Operating revenue:
Sales of rights-to-receive:
Owned by Company $ 23,189 90,076 78,632
Owned by Trust (note 2) 78,112 - -
------- ------ ------
Gross dining sales 101,301 90,076 78,632
Cost of sales 57,065 49,096 43,024
Cardmember discounts 23,004 21,476 19,839
------- ------ ------
Net revenue from rights-to-receive 21,232 19,504 15,769
Membership and renewal fee income 7,251 6,646 4,081
Franchise fee income 1,438 1,839 1,881
Commission income 403 497 423
Processing income 620 - -
------- ------ ------
Total operating revenues 30,944 28,486 22,154
------- ------ ------
Operating expenses:
Selling, general and administrative expenses 25,596 19,273 14,366
Cardmember acquisition expenses 4,650 4,456 1,443
------- ------ ------
Total operating expenses 30,246 23,729 15,809
------- ------ ------
Operating income 698 4,757 6,345
Other income (expense):
Initial franchise fee and license fee income, net 740 30 608
Interest and other income 450 172 337
Interest expense and financing cost (2,572) (852) (411)
------- ------ ------
Income (loss) before income taxes (684) 4,107 6,879
Income tax provision (benefit) (note 9) (260) 1,561 2,683
------- ------ ------
Net income (loss) $ (424) 2,546 4,196
======= ====== ======
Net income (loss) per common and common
equivalent share:
Primary $ (.04) .25 .42
======= ====== ======
Fully diluted $ (.04) .25 .42
======= ====== ======
Weighted average number of common and common
equivalent shares outstanding:
Primary 10,180 10,299 10,112
======= ====== ======
Fully diluted 10,184 10,299 10,112
======= ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For each of the years in the three-year period ended September 30, 1997
(in thousands)
COMMON STOCK
----------------------- ADDITIONAL UNREALIZED
NUMBER PAID-IN GAINS RETAINED
OF SHARES AMOUNT CAPITAL (LOSSES), NET EARNINGS TOTAL
--------- ------ ---------- ------------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1994 9,619 $ 192 9,478 1,275 7,980 18,925
Net income -- -- -- -- 4,196 4,196
Exercise of stock options 222 4 342 -- -- 346
Income tax benefit related to
stock option plan -- -- 689 -- -- 689
Dividend -- -- -- -- (398) (398)
Acquisition of franchise 278 6 4 -- 100 110
Unrealized gains, net -- -- -- 323 -- 323
------- ------- ------- ------- ------- -------
Balance, September 30, 1995 10,119 202 10,513 1,598 11,878 24,191
Net income -- -- -- -- 2,546 2,546
Exercise of stock options 8 -- 34 -- -- 34
Dividend -- -- -- -- (405) (405)
Unrealized loss, net -- -- -- (613) -- (613)
------- ------- ------- ------- ------- -------
Balance, September 30, 1996 10,127 202 10,547 985 14,019 25,753
Net loss -- -- -- -- (424) (424)
Exercise of stock options 63 2 64 -- -- 66
Income tax benefit related to
stock option plan -- -- 24 -- -- 24
Dividend -- -- -- -- (189) (189)
Unrealized gains, net -- -- -- 74 -- 74
------- ------- ------- ------- ------- -------
Balance, September 30, 1997 10,190 $ 204 10,635 1,059 13,406 25,304
======= ======= ======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For each of the years in the three-year period ended September 30, 1997
(in thousands)
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (424) 2,546 4,196
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 2,232 1,163 694
Amortization of deferred financing cost 158 - -
Provision for rights-to-receive 3,209 2,075 2,332
Deferred income taxes (256) 304 (115)
Changes in assets and liabilities:
Accounts receivable 357 (845) 527
Rights-to-receive (6,038) (13,454) (11,007)
Prepaid expenses and other current assets 886 (131) (398)
Other assets (372) (1,175) 181
Accounts payable - Rights-to-receive (17) (149) 1,291
Accounts payable - other 242 1,073 243
Income taxes receivable (payable) (791) (330) (319)
Accrued expenses 232 (255) 184
Deferred membership fee income (847) 1,236 1,347
------- ------- -------
Net cash used in operating activities (1,429) (7,942) (844)
------- ------- -------
Cash flow from investing activities:
Additions to property and equipment (3,443) (3,354) (2,020)
Excess of cost over net assets acquired and intangible
assets (5,017) - -
Increase in restricted deposits and investments (990) - -
------- ------- -------
Net cash used in investing activities (9,450) (3,354) (2,020)
------- ------- -------
Cash flows from financing activities:
Proceeds from issuance of secured
non-recourse notes 31,978 - -
Net borrowings (repayments) on revolving line of credit (15,000) 13,000 2,000
Increase in restricted cash (2,166) - -
Conversion of warrants and options for common stock, net
of tax benefits 90 34 1,035
Dividends paid (403) (405) (380)
------- ------- -------
Net cash provided by financing activities 14,499 12,629 2,655
------- ------- -------
</TABLE>
F-5
<PAGE>
<TABLE>
<CAPTION>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net increase (decrease) in cash $ 3,620 1,333 (209)
Cash and cash equivalents:
Beginning of year 3,603 2,270 2,479
------- ------- -------
End of year $ 7,223 3,603 2,270
======= ======= =======
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 2,219 580 95
======= ======= =======
Income taxes $ 764 1,382 2,138
======= ======= =======
</TABLE>
Supplemental schedule of noncash investing and financing activities: Noncash
investing and financing activities:
During the years ended September 30, 1997, 1996 and 1995, the Company
adjusted its available for sale investment portfolio to fair value;
resulting in a net increase (decrease) to stockholders' equity of
$74, ($613) and $323, net of deferred income taxes.
At September 30, 1996 and 1995, dividends payable of $214 and $210,
respectively, are recorded as accrued expenses. There is no dividend
payable outstanding as of September 30, 1997.
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) DESCRIPTION OF BUSINESS
Transmedia Network Inc. and subsidiaries' (the "Company") owns
and markets a charge card ("the Transmedia Card") offering
savings to the Company's card members on dining costs as well as
savings on long distance calls, lodging, travel and retail
catalogues. The Company's primary business activity is to
acquire rights-to-receive food and beverage credits from
restaurants ("Rights-to-receive"), which are then sold for cash
to holders of the Transmedia card. These Rights-to-receive are
primarily purchased by the Company for cash but may also be
acquired in exchange for services.
The Company's areas of operation include Central and South
Florida, the New York, Chicago and Los Angeles metropolitan
areas, Boston and surrounding New England, Philadelphia, San
Francisco, Detroit, Indianapolis, Milwaukee, Denver and Phoenix.
Franchised areas include most of New Jersey, Washington, D.C.,
Maryland, Virginia, Texas, North and South Carolina; Atlanta,
Georgia, and parts of Tennessee. Licensing arrangements exist
for the United Kingdom, Canada, and Europe, as well as the
Asia-Pacific region.
Transmedia Network Inc.'s corporate structure consists of three
wholly owned subsidiaries: Transmedia Restaurant Company Inc.
functions as the sales organization and is responsible for
merchant acquisition and relationship management; TMNI
International Incorporated is responsible for all foreign
licensing; and Transmedia Service Company Inc. is responsible
for all card member-related facets of the business, including
the card member service center, domestic franchising, and
support services to Transmedia Restaurant Company. In 1997, TNI
Funding I, Inc. was established as a special purpose corporation
as part of the securitization discussed in note 2. TNI Funding
I, Inc. is a wholly owned subsidiary of Transmedia Service
Company, Inc. All intercompany accounts and transactions have
been eliminated in consolidation.
(B) RIGHTS-TO-RECEIVE
Rights-to-receive ("Rights") are composed primarily of food and
beverage credits acquired from restaurants. Rights are stated at
the gross amount of the commitment to the establishment
(approximately 50 percent of the retail value of Rights
obtained). Accounts payable-Rights represent the unfunded
portion of the total commitments. Cost is determined by the
first-in, first-out method. The Company reviews the
realizability of the Rights on a periodic basis and provides for
anticipated losses on Rights-to-receive from restaurants that
have ceased operations or whose credits are not utilized by
cardholders. These losses are offset by recoveries from
restaurants previously written off.
(C) SECURITIES AVAILABLE FOR SALE
The company classifies any debt and marketable equity securities
in one of three categories: trading, available for sale, or held
to maturity. Securities available for sale are recorded at fair
value. Realized gains and losses from the sale of securities
available for sale are computed using the specific
identification method. Unrealized gains and losses on
F-7
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
securities, net of the related tax effects, are recorded as a
separate component of stockholders' equity until realized.
(D) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation on
property and equipment used in the business is calculated on the
straight-line method over an estimated useful life of five
years. Amortization of leasehold improvements is calculated over
the shorter of the lease term or estimated useful life of the
asset.
Equipment held for sale or lease consists primarily of
electronic terminals used for credit card processing and is
stated at cost. Depreciation is calculated on a straight line
basis over a three year life.
(E) EXCESS OF COST OVER NET ASSETS ACQUIRED
Excess of cost over net assets acquired, which resulted
primarily from the purchase of The Western Transmedia Company,
Inc. (see note 10), is amortized on a straight line basis over
the expected periods to be benefited, generally 20 years. The
Company assesses the recoverability of this intangible asset by
determining whether the amortization of the goodwill balance
over its remaining life can be recovered through undiscounted
future operating cash flows of the acquired operation. The
amount of goodwill impairment, if any, is measured based on
projected discounted future operating cash flows using a
discount rate reflecting the Company's average cost of funds.
The assessment of the recoverability of goodwill will be
impacted if estimated future operating cash flows are not
achieved.
(F) DEFERRED MEMBERSHIP AND RENEWAL FEE INCOME
Initial membership and renewal fees are billed in advance and
amortized on a straight-line basis over 12 months, which
represents the standard cardholder's membership period.
Certain costs of acquiring cardmembers are deferred and
amortized, on a straight-line basis over 12 months. The
advertising costs capitalized as assets by the Company represent
initial fee-paying member acquisition costs resulting from
direct-response campaign costs that are recorded as incurred.
Campaign costs include incremental direct costs of
direct-response advertising, such as printing of brochures,
campaign applications and mailing; as well as, payroll and
payroll-related costs paid to employees directly related to the
campaigns and to outside sources. Such costs are deferred only
to the extent of initial membership fees generated by the
campaign.
Card member acquisition expenses represent the cost of acquiring
cardmembers and consist primarily of direct-response advertising
costs incurred in excess of fees received and amortization of
previously deferred costs.
F-8
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
(G) REVENUE RECOGNITION
Gross dining sales represent the retail value of the
rights-to-receive that are recognized when cardmembers use the
Transmedia Card at a dining establishment.
Continuing franchise fee revenue represents royalties calculated
as a percentage of the franchisees' sales and is recognized when
earned. Initial franchise fees and license fees are recognized
when material services or conditions relating to the sale of the
franchise have been substantially performed.
Commission income represents income earned on discounted
products and services provided by third parties to the Company's
cardholders. Such services consist of retail catalogues, phone
cards and travel services.
(H) COST OF SALES AND CARDMEMBER DISCOUNTS
Cost of sales is composed of the cost of rights-to-receive sold,
provision for rights-to-receive losses and related processing
fees.
Cardmember discount represents the specific discount given to
cardmembers whenever the Transmedia Card is used.
(I) USE OF ESTIMATES
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities
and the disclosure of contingent assets and liabilities to
prepare these financial statements in conformity with generally
accepted accounting principles. Actual results could differ from
those estimates.
(J) STOCK BASED COMPENSATION
In fiscal 1997, the Company adopted the disclosure only
provision of Statement of Financial Accounting Standards
("SFAS") No.123, "Accounting for Stock-Based Compensation." The
Company continues to account for its stock compensation
arrangements using the intrinsic value method in accordance with
Accounting Principles Board ("APB") Opinion No.25, "Accounting
for Stock Issued to Employees."
(K) INCOME PER COMMON AND COMMON EQUIVALENT SHARE
Primary income per common and common equivalent share is
computed by dividing net income by the weighted average number
of common stock outstanding and common stock equivalents. Fully
diluted income per share computation reflects the effect of
common shares contingently issuable upon the exercise warrants
in periods in which such exercise would cause dilution. Fully
diluted income per share also reflects additional dilution
related to stock options due to the use of the market price at
the end of the period, when higher than the average price for
the period.
F-9
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
(L) INCOME TAXES
The Company recognizes deferred tax liabilities and assets for
the expected future tax consequences of events that have been
included in the financial statements or tax returns. Under this
method, deferred tax liabilities and assets are determined based
on the difference between the financial statement and tax basis
of assets and liabilities using enacted tax rates in effect for
the year in which the differences are expected to reverse. The
effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the
enactment date.
(M) CASH AND CASH EQUIVALENTS
Cash and cash equivalents are instruments with original
maturities at the date of purchase of three months or less.
(N) RECLASSIFICATION
Certain prior year amounts have been reclassified to conform
with the 1997 presentation. Deferred membership fee revenue is
classified as a current liability and electronic processing
expense previously recorded in general and administrative
expenses, is now allocated to the specific revenue items.
(O) NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board
issued Statement No. 128, "Earnings Per Share" (SFAS No. 128)
which establishes standards for computing and presenting
earnings per share (EPS). SFAS No. 128 replaces the presentation
of primary and fully diluted EPS with a presentation of basic
and diluted EPS. Basic EPS is computed by dividing income
available to common shareholders by the weighted-average number
of common shares outstanding for the period. Diluted EPS
reflects the potential dilution that would occur from any
instrument which could result in additional common shares being
issued. SFAS No. 128 must be adopted for the Company's fiscal
year 1998 and requires restatement of all prior-period EPS data
presented. The adoption will not materially affect the EPS
reported during fiscal year 1997, 1996 or 1995.
In June 1997, SFAS No. 130 "Reporting Comprehensive Income" and
SFAS No. 131 "Disclosures About Segments of an Enterprise and
Related Information" were issued and are effective for fiscal
periods beginning after December 15, 1997 with early adoption
permitted. Currently, the Company is evaluating the effects
these statements will have on its financial reporting and
disclosures.
(2) SALE OF RIGHTS-TO-RECEIVE
On December 24, 1996, the Company made an initial transfer of $33
million of rights-to-receive to a special purpose corporation ("SPC"),
an indirect wholly owned subsidiary, as part of a revolving
securitization. The rights-to-receive, which were sold to the SPC
without recourse,
F-10
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
were in turn transferred to a limited liability corporation ("Issuer"),
which issued $33 million of fixed rate securities in a private
placement to various third party investors.
In exchange for the rights-to-receive, which have a retail value of
approximately $66 million before cardmember discounts, the Company
received approximately $32 million, after transaction costs, and a 1%
equity interest in the Issuer. Future excess cash flows, expected to be
generated from the securitized assets as the rights-to-receive are
exchanged for meals by Company cardholders, and are remitted to the
Company on a monthly basis as a return on capital from the Issuer.
Excess cash flows are determined after payments of interest to
noteholders and investors, as well as trustee and servicing fees. It is
anticipated that the net revenue from securitized assets will be
received in approximately the same amount and within the same time
frame that such revenue would have been received had the securitization
not taken place. Rights-to-receive currently held by the Issuer, as
well as cash and certain deposits restricted under the securitization
agreement, have been separately depicted in the consolidated balance
sheet.
The private placement certificates have a five-year term before
amortization of principal and have an interest rate of 7.4%. During
this revolving period, the Issuer is responsible for the ongoing
purchase of rights-to-receive from the Company to ensure that the
initial pool of $33 million is continually replenished as the
rights-to-receive are utilized by cardholders. It is anticipated that
replenishment of rights-to-receive will provide for a continuous stream
of additional net revenue throughout the period.
The Company's intention in executing the revolving securitization
transaction was to provide current liquidity, as well as a platform for
future growth, at a cost of funds lower than has been historically
available to the Company. This was accomplished by, among other things,
isolating the rights-to-receive beyond the reach of the Company or its
creditors in the event of bankruptcy or other receivership through a
transfer of assets that constitutes a true sale at law.
(3) SECURITIES AVAILABLE FOR SALE
Securities available for sale consist of marketable equitable
securities that are recorded at fair value and have an aggregate basis
of $280 as of September 30, 1997 and 1996. Gross unrealized gains were
$1,774 and $1,750 and gross unrealized losses were $66 and $161 as of
September 30, 1997 and 1996, respectively. There were no realized gains
or losses for the years ended September 30, 1997, 1996 and 1995.
Deferred income taxes associated with the net unrealized gains were
$649 and $604 at September 30, 1997 and 1996, respectively.
(4) EQUIPMENT HELD FOR SALE OR LEASE
Equipment held for sale and lease consists primarily of electronic
terminals used for credit card processing. The cost of the terminals on
hand is determined on a first in, first out basis. The amount presented
on the balance sheet represents the net book value of terminals after
reduction for terminals sold and accumulated depreciation of $172 on
terminals currently under lease at September 30, 1997. There was no
depreciation in fiscal 1996.
F-11
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
(5) PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
September 30,
---------------------
1997 1996
----- ----
Furniture and fixtures $ 644 355
Office equipment 10,463 7,386
Leasehold improvements 131 54
------ ------
11,238 7,795
Less accumulated depreciation and
amortization (3,963) (2,131)
------ ------
$ 7,275 5,664
===== =====
Depreciation and amortization expense for the years ended September 30,
1997, 1996 and 1995 was $1,812, $1,153 and $684, respectively.
(6) FAIR VALUES OF FINANCIAL INSTRUMENTS
The fair value of a financial instrument is the amount at which the
instrument could be exchanged in a current transaction between willing
parties. The fair value of cash and cash equivalents, restricted cash,
accounts receivable, rights-to-receive, securities available for sale,
accounts payable and notes payable approximate the carrying amounts at
September 30, 1997 and 1996. The fair value of the rights-to-receive is
based upon the sale described in note 2. The fair value of the
securities available for sale is based upon quoted market prices for
these or similar instruments.
(7) STOCK OPTION PLANS
Under the Company's 1987 Stock Option and Rights Plan (the "1987
Plan"), the Company may grant stock options and related stock
appreciation rights to persons who are now or who during the term of
the 1987 Plan become key employees (including those who are also
directors) and independent sales agents. Stock options granted under
the 1987 Plan may either be incentive stock options or nonqualified
stock options for federal income tax purposes. The 1987 Plan, as
amended in 1992, provides that the stock option committee of the board
of directors may grant stock options or stock appreciation rights with
respect to a maximum of 1,012,500 shares of common stock at a price not
less than the fair market value at the date of grant for qualified and
nonqualified stock options. The exercise price under an incentive stock
option granted to a person owning stock representing more than 10
percent of the common stock must equal at least 110 percent of the fair
market value at the date of grant. Options are exercisable beginning
not less than one year after date of grant. All options expire either
five or ten
F-12
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
years from the date of grant and each becomes exercisable in
installments of 25 percent of the underlying shares for each year the
option is outstanding, commencing on the first anniversary of the date
of grant.
In March 1996, the 1996 Long-Term Incentive Plan (the "1996 Plan") was
approved for adoption by the Company's stockholders. Under the 1996
Plan, the Company may grant awards, which may include stock options,
stock appreciation rights, restricted stock, deferred stock, stock
granted as a bonus or in lieu of other awards, dividend equivalents and
other stock based awards to directors, officers and other key employees
and consultants of the Company. A maximum of 505,966 shares of the
Company's common stock is included in the 1996 Plan. Stock options
granted under the 1996 Plan may be either incentive stock options or
nonqualified stock options for federal income tax purposes. The
exercise price under an incentive stock option to a person owning stock
representing more than 10 percent of the common stock must equal at
least 110 percent of the fair market value at the date of grant.
Options are exercisable not less than one year after the date of grant.
At September 30, 1997, there were 275,466 shares available for grant
under the 1996 Stock Option Plan. The per share weighted average fair
value of stock options granted during 1997 ranged from approximately
$2.27 to $3.09 on the dates granted using the Black-Scholes
option-pricing model with the following weighted-average assumption:
expected dividend yield is 4%, risk-free interest rate of 5.8%, and
expected lives ranging from five to ten years.
The Company has continued to comply with APB No.25 to account for stock
options and accordingly, no compensation expense has been recognized in
the financial statements. Had the Company determined compensation
expense based on the fair value at the grant date for its stock options
under SFAS No. 123, the Company's net income would have been reduced to
the pro forma amounts indicated below:
1997 1996
---- ----
Net Income
As reported (424) 2,546
Pro forma (719) 2,365
Net Income per Common and
Common Equivalent Share
As reported (.04) .25
Pro forma (.06) .24
The full impact of the calculation of compensation expense for stock
options under SFAS No. 123 is not reflected in the pro forma net income
amounts presented above because compensation expense is reflected over
the option's vesting period which could be up to five years. Also, the
provision of SFAS 123 apply to grants awarded subsequent to December
15, 1994.
F-13
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
Stock option activity during the periods indicated is as follows:
<TABLE>
<CAPTION>
INCENTIVE STOCK OPTIONS NONQUALIFIED OPTIONS
-------------------------- ----------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
------ ----- ------ -----
<S> <C> <C> <C> <C>
Balance at September 30, 1995 509,529 9.85 421,250 5.23
Granted(1987 Plan) 35,000 7.91 - -
Granted(1996 Plan) 50,000 10.00 - -
Exercised (8,156) 4.13 - -
Cancellations - - - -
------- ----- -------- -----
Balance at September 30, 1996 586,373 9.82 421,250 5.23
Granted(1996 Plan) 206,800 4.52 - -
Exercised (26,156) 3.88 (168,748) 3.88
Cancellations (57,049) 9.3 (5,002) 11.37
------- ----- -------- -----
Balance at September 30, 1997 709,968 8.54 247,500 6.02
======= ===== ======== =====
</TABLE>
At September 30, 1997, the range of weighted average exercise prices
and remaining contractual life of outstanding options was $4.375 to
$15.00 and 1 to 10 years, respectively.
At September 30, 1997 and 1996, the number of options exercisable was
635,718 and 745,066 and the weighted-average exercise price of those
options was $8.29 and $6.81, respectively.
(8) STOCKHOLDERS' EQUITY
The Company has 1 million authorized shares of preferred stock, $.10
par value per share; none of which has been issued.
The Company has 20 million authorized shares of common stock, $.02 par
value per share; with 10,189,956 and 10,126,926 issued and outstanding
at September 30, 1997 and 1996, respectively.
F-14
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
(9) INCOME TAXES
The tax effects of the temporary differences that give rise to
significant portions of the deferred tax assets and liabilities at
September 30, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Deferred tax assets:
Rights-to-receive $ 298 $ 132
Travel programs 146 99
Reserve for frequent flyer miles obligation 106 --
Charitable contributions 72 --
Other 53 12
------- -------
Deferred tax assets 675 243
------- -------
Deferred tax liabilities:
Unrealized gain on securities available for sale 649 604
Deferred advertising costs 47 141
Property and equipment 474 191
------- -------
Deferred tax liabilities 1,170 936
------- -------
Net deferred tax liability (495) (693)
======= =======
</TABLE>
There was no valuation allowance for deferred tax assets
September 30, 1997 and 1996. The increase/(decrease) in deferred tax
liability related to securities available for sale was $45 and ($418)
during 1997 and 1996, respectively.
Income tax provision (benefit) for the years ended September 30, 1997,
1996 and 1995 is as follows:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- -----
<S> <C> <C> <C>
1997:
U.S. federal $ (4) (206) (210)
State and local - (50) (50)
------- ---- -----
$ (4) (256) (260)
======= ==== =====
1996:
U.S. federal $ 922 336 1,258
State and local 335 (32) 303
------- ---- -----
$ 1,257 304 1,561
------- ---- -----
1995:
U.S. federal $ 2,179 (75) 2,104
State and local 619 (40) 579
------- ---- -----
$ 2,798 (115) 2,683
======= ==== =====
</TABLE>
F-15
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
Reconciliation of the statutory federal income tax rate and the
Company's effective rate for the years ended September 30, 1997, 1996
and 1995, is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------------ ------------------ ------------------
% OF PRETAX % OF PRETAX % OF PRETAX
AMOUNT EARNINGS AMOUNT EARNINGS AMOUNT EARNINGS
------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Federal tax rate $(232) 34.0 $1,396 34.0% $2,339 34.0%
State and local taxes,
net of federal
income tax benefit (33) 4.8 200 4.9 382 5.6
Other 5 (0.8) (35) (0.9) (38) (0.6)
----- ---- ------ ---- ------ ----
$(260) 38.0% $1,561 38.0% $2,683 39.0%
===== ==== ====== ==== ====== ====
</TABLE>
(10) FRANCHISE AGREEMENTS
The Company, as franchiser, has entered into various ten-year
franchising agreements. In accordance with these agreements, the
Company has granted franchisees a territory with at least 625
full-service restaurants that accept certain major credit cards. The
Company will continue to develop trademarks for itself and the system
of franchisees and in addition provide marketing, advertising, training
and other administrative support.
The franchisees are responsible for soliciting restaurants and
cardholders, advancing consideration to the restaurants to obtain
Rights-to-receive food and beverage credits, and maintaining adequate
insurance.
In consideration for granting the franchises, the franchisees paid the
Company initial franchise fees and an initial fee to the Company's
advertising and development fund. Continuing fees to be paid by the
franchisees are as follows:
/bullet/ 7.5 percent of the total food and beverage credits used
within the franchisee's territory.
/bullet/ 2.5 percent of the total credits used within the
franchisee's territory to be deposited into the
advertising and development fund.
/bullet/ A processing fee of $0.20 per sale transaction.
/bullet/ A weekly service charge of $0.23 per participating
restaurant in the franchisee's territory.
There were no franchise territories sold during 1996 or 1997.
On November 15, 1996, the Company entered into a purchase agreement
with The Western Transmedia Company, Inc. ("Western"), a franchisee of
the Company. Under the terms of the agreement, the Company reacquired
for cash the right to operate its business in California, Oregon,
Washington and a portion of Nevada, Western's rights-to-receive and its
furniture, fixtures and equipment, as well as the assumption of certain
obligations. The transaction closed
F-16
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
on January 2, 1997. The purchase price was approximately $7,454 of
which $4,750 represented the cost of the franchise, which has been
recorded as the excess of cost over net assets acquired. The Company
had previously received 60,000 shares of publicly traded common stock
in connection with the initial sale of this franchise, representing 2.3
percent of the franchisee's common stock. The shares are included in
securities available for sale. In addition, the chairman and a director
of the Company own 0.3 percent and 6.5 percent of the franchisee's
common stock, respectively.
The Company has made an offer to acquire all the rights-to-receive of
East America Trading Company, its franchisee in the Carolinas and
Georgia, and to terminate and cancel the franchise agreement. The offer
consists of 170,000 shares of Transmedia Network stock. The effective
date of the termination of the franchise is contemplated for December
4, 1997, at which time the Company intends to assume operational
control of the sales territories.
(11) LICENSE AGREEMENTS
The Company has an agreement for exclusive perpetual licenses of its
software and trademark in the Asia-Pacific region and the continent of
Europe. In accordance with the agreements, the Company agreed to assist
the licensees with training relating to sales, administration,
technology and operations of the business. All material services or
conditions relating to the license sales have been substantially
performed or satisfied by the Company. The licensee may grant
sublicenses in the territories and is responsible for the operations of
the business in the respective regions, including procuring member
restaurants and providing related services and activities throughout
the territory.
In consideration for granting the exclusive licenses, the licensee paid
the Company license fees aggregating $2,375 for the master license
agreements and has granted to the Company a five percent equity
interest in the new entities which will operate in the United Kingdom,
Australia and New Zealand. The shares comprising the equity interests
are included in securities available for sale. Continuing fees to be
paid by the licensee are as follows:
/bullet/ 25 percent of any amounts that the licensee receives
from any sublicensee within the territory, other than
Australia, New Zealand and the United Kingdom. Such
amounts shall include, but not be limited to, royalty
payments, transfer fee payments and up-front sublicense
fee payments. The portion of the up-front sublicense fee
paid to the Company shall not be less than $250, unless
otherwise agreed to by the Company, and in no event less
than $500, for each of the People's Republic of China
and Japan.
/bullet/ Royalty of two percent of gross sales of the Australia
and New Zealand sublicensee and the United Kingdom
sublicensee, and 25 percent of any other amounts that
the licensee receives from the sublicensee.
During 1995, the Company received $250 from the European licensee when
it exercised its right to sublicense within the territory.
F-17
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
In December 1996, the Company amended its agreements with its
international licensees, Transmedia Europe, Inc. and Transmedia
Asia-Pacific, Inc. permitting them to acquire, on a worldwide basis,
the business of Countdown, plc Holding Corp. ("Countdown"). Upon
closing of the Countdown acquisition, the Company received $250 in cash
and a $500 note bearing interest at 10%, which is payable on April 1,
1998. At the Company's option, the note may be converted into stock of
the licensees.
(12) LEASES
The Company leases certain equipment and office space under long-term
lease agreements.
Future minimum lease payments under noncancelable operating leases as
of September 30, 1997 are as follows:
YEAR ENDING
SEPTEMBER 30, AMOUNT
------------- ------
1998 $ 728
1999 652
2000 579
2001 498
2002 113
------
Total minimum lease payments $2,570
======
Rent expense charged to operations was $625, $387, and $293 for the
years ended September 30, 1997, 1996 and 1995, respectively.
(13) COMMITMENTS
On July 14, 1995, the Company entered into an unconditional guaranty
agreement with a financial institution, to extend credit in the amount
of $450 to a franchisee, which agreement is still outstanding at
September 30, 1997.
On November 15, 1996, the Company amended its employment agreement with
its president and chief executive officer through September 30, 1999.
The agreement provides for salary at an annual rate of $375 through
September 30, 1998; and $400 through September 30, 1999, plus 5 percent
of the Company's pretax income not to exceed $700 for the fiscal years
ended September 30, 1998 and 1999. In addition, in the event of a sale
of the Company, the president has the right to resign from his
positions with Transmedia within one year and receive $1 million upon
such resignation.
On November 15, 1996, the Company's consulting agreement with its
president and chief executive officer was amended to commence on the
termination of his employment agreement
F-18
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
and to continue for ten years thereafter. The agreement provides
compensation at an annual amount equal to 50 percent of the sum of the
highest base salary and bonus received by the president in any year
under the employment agreement, discussed above, not to exceed in any
one year during the term of the consulting agreement, 10 percent of the
Company's prior year's pretax income, but in any event not less than
$100.
The Company also amended an employment agreement with two vice
presidents of the Company, one of which is the president of Transmedia
Restaurant Company and the other is president of Transmedia Service
Company, through September 30, 1999. The agreement provides for salary
at an annual rate of $315 through September 30, 1998; and $335 through
September 30, 1999, plus eligibility for a bonus up to 50% of his
salary.
On October 31, 1994, the Company approved a severance plan for selected
officers and key employees of the Company. This plan offers one year of
salary for each year of service with the Company, up to a maximum of
three years, if, within the two-year period following a change in
control of the Company, either the individual is terminated or certain
events occur and the individual voluntarily resigns from the Company.
(14) LINE OF CREDIT
Prior to the securitization discussed in note 2, the Company maintained
a $20 million line of credit. As a result of the sale of
rights-to-receive described in Note 2, the outstanding obligation under
the line of credit was refinanced and the credit facility was
terminated on December 24, 1996.
On November 6, 1997, the Company obtained a line of credit with a bank
for $10 million to be used principally to finance the purchase of
rights-to-receive. This line of credit is unsecured and may be drawn
down based on an advance rate calculated as a percentage of
unrestricted rights-to-receive. The line of credit matures on February
1, 1999 and bears interest at the prime rate with a LIBOR option.
(15) BUSINESS AND CREDIT CONCENTRATIONS
Most of the Company's customers are located in the New York City,
California, Massachusetts and Florida areas. No single customer
accounted for more than 5 percent of the Company's sales in any fiscal
year presented.
No single restaurant's Rights-to-receive balance was greater than 5
percent of the total Rights-to-receive balance at September 30, 1997
or 1996.
(16) LITIGATION
In December 1996, the Company terminated its license agreement (the
"Agreement") with Sports & Leisure Inc. ("S&L"). In February 1997, S&L
commenced an action against the Company in the 11th Judicial Circuit,
Dade County, Florida, alleging that the Company
F-19
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
improperly terminated the S&L license agreement and seeking money
damages. The Company has counterclaimed against S&L for breach of the
Agreement and intends to pursue the action vigorously. Management does
not expect the outcome of this case to adversely impact the financial
position of the Company.
(17) SUBSEQUENT EVENTS
On November 7, 1997, the Company entered into an agreement to sell 2.5
million newly-issued common shares and non-transferable warrants to
purchase an additional 1.2 million common shares for a total of $10,625
to affiliates of Equity Group Investments, Inc., a privately held
investment company. The non-transferable warrants will have a term of
five years; one third of the warrants will be exercisable at $6.00 per
share, another third will be exercisable at $7.00 per share and the
third and final will be exercisable at $8.00 per share. As part of this
strategic investment, Equity Group will nominate two candidates for the
Board of Directors who will join three of the Company's existing
directors and two new independent directors.
(18) SELECTED QUARTERLY FINANCIAL DATA
Selected quarterly financial data is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
------------------------------------------------------- -------------
SEPTEMBER 30, JUNE 30, MARCH 31, DECEMBER 31, SEPTEMBER 30,
1997 1997 1997 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gross dining sales: 26,507 25,640 26,473 22,681 101,301
Operating revenue: 8,982 7,702 7,283 6,977 30,944
Operating income (loss): 855 118 (271) (4) 698
Net Income: 183 184 (587) (204) (424)
Earnings per share: .02 .02 (.06) (.02) (.04)
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED YEAR ENDED
----------------------------------------------------------- -------------- ---------------
SEPTEMBER 30, JUNE 30, MARCH 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1996 1996 1996 1995 1996 1995
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Gross dining sales: $ 23,394 23,271 22,743 20,668 90,076 78,632
Operating revenue: 7,975 7,384 7,008 6,119 28,486 22,154
Operating income: 1,109 1,529 829 1,290 4,757 6,345
Net Income: 464 839 462 781 2,546 4,196
Earnings per share: .05 .08 .05 .08 .25 .42
</TABLE>
F-20
<PAGE>
<TABLE>
<CAPTION>
TRANSMEDIA NETWORK, INC.
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
For each of the years in the three-years ended September 30, 1997
(in thousands)
BALANCE, CHARGED BALANCE,
BEGINNING TO END OF
OF YEAR EXPENSES WRITE-OFFS YEAR
------- -------- ---------- ----
<S> <C> <C> <C> <C>
Accounts receivable:
Year ended September 30, 1997:
Allowance for doubtful accounts $ 15 501 (501) 15
==== ====== ======= ====
Year ended September 30, 1996:
Allowance for doubtful accounts $ 15 425 (425) 15
==== ====== ====== ====
Year ended September 30, 1995:
Allowance for doubtful accounts $ 25 333 (343) 15
==== ====== ====== ====
Rights to receive:
Year ended September 30, 1997:
Allowance for doubtful accounts $ 320 3,209 (2,764) 765
=== ===== ====== ===
Year ended September 30, 1996:
Allowance for doubtful accounts $ 900 2,075 (2,655) 320
=== ===== ====== ===
Year ended September 30, 1995:
Allowance for doubtful accounts $ 700 2,332 (2,132) 900
=== ===== ====== ===
</TABLE>
F-21
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
10.9 Amendment dated January 20, 1997 to Employment
Agreement between Company and James Callaghan.
10.10 Amendment dated January 20, 1997 to Employment
Agreement between Company and Barry Kaplan.
27. Financial Data Schedule
RESTATED AND AMENDED
EMPLOYMENT AGREEMENT
RESTATED AND AMENDED EMPLOYMENT AGREEMENT, dated as of the 20th day of
January 1997, by and between TRANSMEDIA NETWORK INC., a Delaware corporation
("TRANSMEDIA"), and JAMES M. CALLAGHAN (the "EXECUTIVE").
WHEREAS, Transmedia and the Executive wish to amend and restate the
Employment Agreement dated as of April 1, 1992, and amended as of October 1,
1994, which they previously executed;
NOW, THEREFORE, In consideration of the mutual promises and covenants
herein contained, and intending to be legally bound hereby, the parties hereto
do mutually agree as follows:
1. EMPLOYMENT. Transmedia agrees to and does hereby employ the
Executive, and the Executive accepts such employment, upon the terms and
conditions hereinafter set forth. The Executive represents and warrants that he
is free to enter into this Agreement and that entering into this Agreement is
not in violation of any obligations that he has to any other person, firm or
corporation.
2. TERM. The term of this Agreement shall be for the period commencing
April 1, 1992 and ending on September 30, 1999 (the "TERM"), unless earlier
terminated as provided herein.
3. OFFICE AND DUTIES. The Executive shall perform such executive
services in the operation of the business of Transmedia and its subsidiaries as
Transmedia's Board of Directors may from time to time reasonably assign to the
Executive. The Executive shall hold the position of Vice President of Transmedia
and President of Transmedia Restaurant Company Inc., and shall report directly
to Transmedia's President. During the term of this Agreement, the Executive
shall:
<PAGE>
(1) work for Transmedia and its subsidiaries on a full-time, exclusive
basis;
(2) use his best efforts to apply on a full-time basis all of his skill
and experience to the performance of his duties in such employment; and
(3) not engage in any other business activities, other than personal
investments in corporations and other entities which do not compete directly or
indirectly with Transmedia and its subsidiaries. Notwithstanding the provisions
of the preceding sentence, the Executive shall be entitled, on an occasional
basis, to serve as a consultant to, or on the Board of Directors of, other
corporations during the term of this Agreement and to receive and retain all
compensation paid to him in such capacities, so long as such other corporations
do not compete directly or indirectly with Transmedia and its subsidiaries. The
provisions of this Section 3 are subject to modification as set forth in Section
10.
4. COMPENSATION AND BENEFITS.
(1) For services rendered by the Executive under this Agreement, the
Executive shall be paid a base salary (the "Salary") at the rate of One Hundred
Eighty Thousand Dollars ($180,000) per annum during the first year of the Term,
Two Hundred Fifty Thousand Dollars ($250,000) per annum during the second year
of the Term, and Three Hundred Thousand Dollars ($300,000) per annum during the
third year of the Term, Three Hundred Fifteen Thousand Dollars ($315,000) per
annum during the fourth year of the Term, and Three Hundred Thirty-Five Thousand
Dollars ($335,000) during the fifth year of the Term. The Salary shall be
payable in equal weekly installments.
(2) As additional compensation, the Executive shall be eligible to
receive annually a bonus of up to one-half (1/2) of his salary during each year
of the Term. The Bonus shall be payable on an annual basis within 120 days after
the end of each fiscal year, commencing with the fiscal year ending September
30, 1996.
(3) Transmedia shall, during the term of this Agreement, procure,
maintain in force, and pay all premiums on an insurance policy to be issued on
the life of the
2
<PAGE>
Executive, with his estate as beneficiary, in the face amount of Five Hundred
Thousand ($500,000) Dollars. Upon the expiration of the term of this Agreement,
Transmedia shall transfer the ownership of such policy to the Executive without
any payment by the Executive whether or not he becomes disabled during the
employment Term.
(4) At all times during the term of this Agreement, the Executive shall
be included in any life, medical, health and hospitalization insurance, pension,
stock option, stock ownership, incentive compensation and other benefit programs
maintained by or for Transmedia at the date hereof. If Transmedia hereafter
establishes any other programs, the Executive shall be included therein at least
at the same level as the other senior executives of Transmedia. In addition, in
the event of the Executive's Disability (as defined below), Transmedia will pay
to the Executive the following: (i) during the first six months of Disability,
100% of the Salary that would be payable to the Executive but for such
Disability; (ii) thereafter, and until the end of the Term, 75% of such Salary;
and (iii) the Bonus for the period(s) provided in the next sentence. The
Executive shall receive a Bonus for the entire fiscal year ending on any
applicable September 30, if said September 30 occurs during the first six months
of Disability; in all other instances, the Executive shall receive a portion of
the Bonus for an entire year determined by multiplying the Bonus for the entire
fiscal year by a fraction, the numerator of which is the total number of months
starting with October lst and ending upon the conclusion of said six months of
Disability and the denominator of which is 12. For purposes of this
sub-paragraph (d), all calculations shall be made on the basis of full and not
partial months. For the purposes hereof "Disability" shall mean a physical or
mental impairment of such duration and degree that the Executive is determined
by the Board of Directors of Transmedia to be substantially unable because of
the impairment to perform the services described in Section 3.
(5) Transmedia agrees to provide the Executive with a One Thousand
($1,000) Dollar monthly automobile allowance.
3
<PAGE>
(6) Transmedia may provide to the Executive such additional
compensation, bonuses, and benefits as its Board of Directors deems appropriate,
but nothing herein shall obligate Transmedia to do so.
5. VACATION. The Executive shall be entitled to take four (4) weeks
paid vacation during each twelve-month period this employment hereunder on a
basis consistent with the requirements of the business Transmedia and its
subsidiaries and in accordance with Transmedia's customary practice for senior
executives.
6. REIMBURSEMENT OF EXPENSES. During the term of this Agreement, the
Executive shall be reimbursed for reasonable travel, entertainment and other
expenses incident to the rendering, of services hereunder, upon presentation of
expense statements or vouchers or such other supporting information as
Transmedia may customarily require of its senior executives.
7. RESTRICTIONS
(1) The Executive acknowledges that the business of Transmedia is
potentially nationwide in scope, and that it expects to be marketing its
products and services throughout a wider geographical area than that in which it
presently operates. Accordingly, during the Restricted Period (as defined
below), the Executive shall not, unless acting with Transmedia's prior written
consent: (i) directly or indirectly own, manage, operate, join, or control, or
participate in the ownership, management, operations or control of, or be
connected as a director, officer, employee, partner, stockholder, consultant or
otherwise with, any business or organization located in or doing business in the
Restricted Area (as defined below) which competes with the business of
Transmedia and its subsidiaries, licensees or franchisees as conducted at any
time during the term hereof; or (ii) interfere with, or divert or attempt to
divert from them the benefits of, any relationship with employees, agents,
suppliers, restaurant clients, membership card holders or other customers
maintained by Transmedia and its subsidiaries at any time during the Restricted
Period. However, if the Executive's employment hereunder is terminated without
"cause" (as defined in Section 9 hereof), then the provisions of this Section
4
<PAGE>
7(a) shall cease, upon such termination. For the purposes of this Agreement, (i)
"RESTRICTED PERIOD" means the twenty-four-month period commencing upon the
earlier of (x) the termination of the Executive's employment with Transmedia
prior to the expiration hereof, either voluntarily by the Executive or by
Transmedia for "cause"; or (y) the expiration of this Agreement after its stated
term; and (ii) "RESTRICTED AREA" means any geographical market in or with
respect to which Transmedia, within twelve months prior to the commencement of
the Restricted Period, is then operating or has taken significant affirmative
steps to commence operations. Nothing in this Section 7(a) shall be construed to
prevent the Executive from owning or dealing in any stock actively traded
over-the-counter or on any recognized exchange and issued by a corporation which
may compete directly or indirectly with Transmedia and its subsidiaries so long
as the Executive does not participate in the management, control, or operations
of any such corporation and the Executive's holdings do not at any time exceed
Five Percent (5%) of the outstanding shares of any class of stock of such
corporation.
(2) The Executive agrees that all confidential and proprietary matters
which he may now have or may obtain during the Term of his employment hereunder
relating in any way to the business of Transmedia and its subsidiaries shall not
be disclosed to any other person, either during or after the termination of his
employment, unless Transmedia has given its prior consent to such disclosure or
such disclosure is a necessary incident to transactions which the Executive is
pursuing in accordance with duties delegated to him by Transmedia's Board of
Directors. The Executive shall promptly return all tangible evidence of such
confidential and proprietary matters to Transmedia at the termination of his
employment or upon Transmedia's earlier request.
(3) The Executive acknowledges that the remedy at law for his breach of
the covenants contained in this Section 7 is inadequate, and that therefore
Transmedia and its subsidiaries shall be entitled, in addition to any other
right or remedy available to them, to
5
<PAGE>
injunctive relief and the remedy of specific performance to restrain the
Executive from committing or continuing any such breach and to enforce the
Executive's obligations hereunder.
(4) If any court of tribunal of competent jurisdiction shall
refuse to enforce any or all of the provisions of this Section 7, because
individually or taken together, they are deemed unreasonable, then the parties
hereto understand and agree that any such provision or provisions shall not be
void but for the purpose of such proceedings, shall be revised to the extent
necessary to permit the enforcement of such provisions.
8. OWNERSHIP OF WORK PRODUCT. The Executive acknowledges that during
the term of his employment hereunder, he may conceive of, discover, invent or
create inventions, improvements, new contributions, literary property, material,
ideas and discoveries, whether or not patentable or copyrightable, which relate
to the business of Transmedia and its subsidiaries (all of the foregoing being
collectively referred to herein as "Work Product"), and that various business
opportunities appropriate for Transmedia and its subsidiaries may be presented
to him by reason of his employment. The Executive acknowledges that, unless
Transmedia otherwise agrees in writing, all of the foregoing shall be owned by
and belong exclusively to Transmedia, and he shall have no personal interest
therein. The Executive, at Transmedia's expense, shall further: (a) promptly
disclose any such Work Product and business opportunities to Transmedia; (b)
assign to Transmedia, upon request and without additional compensation, the
entire rights to such Work Product and business opportunities; (c) sign all
papers necessary to carry out the foregoing; and (d) give testimony in support
of his discovery invention, or creation in any appropriate case.
9. TERMINATION.
(1) Notwithstanding anything contained herein to the contrary, the
Executive's employment hereunder: (i) shall automatically terminate upon the
Executive's death; and (ii) may be terminated by Transmedia's Board of Directors
for "cause" (as hereinafter defined) upon 60 days prior written notice of
termination, subject to the Executive's right to cure certain
6
<PAGE>
breaches constituting "cause", as provided below. For the purposes of this
Agreement, termination shall be deemed to be "for cause" if: (i) the Executive
is convicted of a felony; (ii) the Executive declares personal bankruptcy
pursuant to any applicable law; (iii) the Executive commits an act of fraud with
respect to Transmedia or misappropriates any of its funds; or (iv) the Executive
directly and repeatedly refuses to perform his duties pursuant to this
Agreement, or directly and repeatedly breaches any covenants contained herein.
The written notice of termination shall set forth with specificity the reason
for such termination. If the reason for such termination is the Executive's
direct and repeated refusal to perform his duties hereunder or his direct and
repeated breach of any covenants contained herein, the Executive shall have the
right, within 30 days of his receipt of such notice, to notify the Board of
Directors of his intention to cure such breach. On or within 10 days before the
effective date of termination, the Board of Directors shall meet to determine
whether such breach has been effectively cured and, upon the majority vote of
the Directors (not including the Executive) that it has been cured, the notice
of termination shall be deemed ineffective. The Executive shall be entitled to
be represented at such meeting by counsel. On the effective date of termination,
except for the reimbursement of expenses incurred to such date, the Executive
shall cease to have any further rights hereunder but shall be subject to all
restrictions set forth elsewhere herein.
(2) Except where the Executive has exercised his right to attempt to
cure pursuant to the preceding subsection, the Executive may, within 15 days
following delivery of a notice of termination for "cause", by written notice to
the Board of Directors of Transmedia, cause the matter of termination for
"cause" by Transmedia to be discussed at the next regularly scheduled meeting of
the Board of Directors or at a special meeting of the Board of Directors
requested by majority of its members. The Executive shall be entitled to be
represented at such meeting by counsel. Such meeting shall be conducted
according to procedures deemed equitable by a majority of the Directors present.
If at such meeting, it shall be determined that this Agreement has been
terminated without "cause", or that such "cause" shall be waived, the
7
<PAGE>
provisions of this Agreement shall be reinstated with the same force and effect
as if the notice of termination had not been given; and the Executive shall be
entitled to receive the compensation and other benefits provided herein for the
period from the effective date of the notice of termination through the date of
such reinstatement, plus all reasonable costs of his counsel, as approved by the
Board of Directors of Transmedia. Except as provided in the first sentence of
this subsection (b), neither the Executive's election to pursue or forego the
procedures set forth in this subsection (b), nor a determination by the Board of
Directors, at any meeting pursuant to this subsection, that the Executive's
employment hereunder was terminated for "cause", shall prejudice or preclude the
exercise any other right or remedy which the Executive may have at law or
otherwise as a result of the termination of his employment hereunder.
10. SALE OF TRANSMEDIA. Upon a change of control of Transmedia, the
Executive shall be entitled to receive a severance payment in accordance with,
and subject to the terms of, the Company's severance plan.
11. NOTICES. Any Notices to be given hereunder shall be deemed to have
been given if delivered personally against receipt, if sent by nationally
recognized overnight delivery service, of if mailed by registered or certified
mail, return receipt requested, to the following address: if to Transmedia, at
750 Lexington Avenue, New York, New York 10022, with a copy to Morgan, Lewis &
Bockius LLP, 101 Park Avenue, New York, New York 10178, to the attention of
Stephen P. Farrell, Esq.; and if to the Executive, at 750 Lexington Avenue, New
York, New York 10022. Either party may change his or its address set forth above
by giving written notice to the other party in accordance with this Section.
12. GOVERNING LAW. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of New York.
8
<PAGE>
13. OPTIONS. The captions of the sections of this Agreement are for the
purpose of convenience only, are not intended to be part of this Agreement and
shall not be deemed to modify, explain, enlarge or restrict any of its
provisions.
14. SEVERABILITY. If any clause or provision of this Agreement shall be
held invalid or unenforceable, in whole or in part, in any jurisdiction, such
invalidity or unenforceability shall attach only to such clause or provision, or
part thereof, in such jurisdiction, and shall not in any manner affect any other
clause or provision hereof in any jurisdiction.
15. BINDING EFFECT; ASSIGNMENT. This Agreement shall bind and inure to
the benefit of the respective heirs, representatives, successors and permitted
assignees of Transmedia and the Executive. Transmedia may assign this Agreement
or any of its rights and obligations hereunder to (i) any transferee of or
successor to all or substantially all of the assets of business of Transmedia
and its subsidiaries or (ii) any subsidiary or affiliate of Transmedia;
PROVIDED, HOWEVER, that no such assignment shall release Transmedia from its
obligations hereunder. The Executive may not assign this Agreement or any of his
rights and obligations hereunder under any circumstances.
16. MISCELLANEOUS. This Agreement embodies the entire understanding
between Transmedia and the Executive with respect to its subject matter, and
there is no extrinsic agreement of any kind affecting it. This Agreement also
supersedes and replaces any prior agreement with respect to the subject matter
of this Agreement. This Agreement may not be changed or terminated orally, and
no change, termination or waiver of this Agreement or of any of the provisions
herein contained shall be binding unless made in writing and signed by the party
against whom the same is sought to be enforced.
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
TRANSMEDIA NETWORK INC.
By: /s/MELVIN CHASEN
------------------------
Melvin Chasen, President
/s/JAMES M. CALLAGHAN
------------------------
James M. Callaghan
10
RESTATED AND AMENDED
EMPLOYMENT AGREEMENT
RESTATED AND AMENDED EMPLOYMENT AGREEMENT, dated as of the 20th day of
January 1997, by and between TRANSMEDIA NETWORK INC., a Delaware corporation
("TRANSMEDIA"), and BARRY S. KAPLAN (the "EXECUTIVE").
WHEREAS, Transmedia and the Executive wish to amend and restate the
Employment Agreement dated as of October 1, 1995, which they previously
executed;
NOW, THEREFORE, In consideration of the mutual promises and covenants
herein contained, and intending to be legally bound hereby, the parties hereto
do mutually agree as follows:
1. EMPLOYMENT. Transmedia agrees to and does hereby employ the
Executive, and the Executive accepts such employment, upon the terms and
conditions hereinafter set forth. The Executive represents and warrants that he
is free to enter into this Agreement and that entering into this Agreement is
not in violation of any obligations that he has to any other person, firm or
corporation.
2. TERM. The term of this Agreement shall be for the period commencing
October 1, 1995 and ending on September 30, 1999 (the "TERM"), unless earlier
terminated as provided herein.
3. OFFICE AND DUTIES. The Executive shall perform such executive
services in the operation of the business of Transmedia and its subsidiaries as
Transmedia's Board of Directors may from time to time reasonably assign to the
Executive. The Executive shall hold the position of Vice President of Transmedia
and President of Transmedia Restaurant Company Inc., and shall report directly
to Transmedia's President. During the term of this Agreement, the Executive
shall:
(1) work for Transmedia and its subsidiaries on a full-time, exclusive
basis;
<PAGE>
(2) use his best efforts to apply on a full-time basis all of his skill
and experience to the performance of his duties in such employment; and
(3) not engage in any other business activities, other than personal
investments in corporations and other entities which do not compete directly or
indirectly with Transmedia and its subsidiaries. Notwithstanding the provisions
of the preceding sentence, the Executive shall be entitled, on an occasional
basis, to serve as a consultant to, or on the Board of Directors of, other
corporations during the term of this Agreement and to receive and retain all
compensation paid to him in such capacities, so long as such other corporations
do not compete directly or indirectly with Transmedia and its subsidiaries. The
provisions of this Section 3 are subject to modification as set forth in Section
10.
4. COMPENSATION AND BENEFITS.
(1) For services rendered by the Executive under this Agreement, the
Executive shall be paid a base salary (the "Salary") at the rate of Two Hundred
Twenty-Five Thousand Dollars ($225,000) from October 1, 1995 through September
30, 1996, Two Hundred Eighty Thousand ($280,000) Dollars from October 1, 1996 to
September 30, 1997, Three Hundred Fifteen Thousand ($315,000) Dollars from
October 1, 1997 to September 30, 1998, and Three Hundred and Thirty-Five
Thousand ($335,000) Dollars from October 1, 1998 to September 30 1999. The
Salary shall be payable in equal weekly installments.
(2) As additional compensation, the Executive shall be eligible to
receive annually a bonus of up to one-half (1/2) of his salary during each year
of the Term. The Bonus shall be payable on an annual basis within 120 days after
the end of each fiscal year, commencing with the fiscal year ending September
30, 1996.
(3) Transmedia shall, during the term of this Agreement, procure,
maintain in force, and pay all premiums on an insurance policy to be issued on
the life of the Executive, with his estate as beneficiary, in the face amount of
Five Hundred Thousand ($500,000) Dollars. Upon the expiration of the term of
this Agreement, Transmedia shall transfer
2
<PAGE>
the ownership of such policy to the Executive without any payment by the
Executive whether or not he becomes disabled during the employment Term.
(4) At all times during the term of this Agreement, the Executive shall
be included in any life, medical, health and hospitalization insurance, pension,
stock option, stock ownership, incentive compensation and other benefit programs
maintained by or for Transmedia at the date hereof. If Transmedia hereafter
establishes any other programs, the Executive shall be included therein at least
at the same level as the other senior executives of Transmedia. In addition, in
the event of the Executive's Disability (as defined below), Transmedia will pay
to the Executive the following: (i) during the first six months of Disability,
100% of the Salary that would be payable to the Executive but for such
Disability; (ii) thereafter, and until the end of the Term, 75% of such Salary;
and (iii) the Bonus for the period(s) provided in the next sentence. The
Executive shall receive a Bonus for the entire fiscal year ending on any
applicable September 30, if said September 30 occurs during the first six months
of Disability; in all other instances, the Executive shall receive a portion of
the Bonus for an entire year determined by multiplying the Bonus for the entire
fiscal year by a fraction, the numerator of which is the total number of months
starting with October lst and ending upon the conclusion of said six months of
Disability and the denominator of which is 12. For purposes of this
sub-paragraph (d), all calculations shall be made on the basis of full and not
partial months. For the purposes hereof "Disability" shall mean a physical or
mental impairment of such duration and degree that the Executive is determined
by the Board of Directors of Transmedia to be substantially unable because of
the impairment to perform the services described in Section 3.
(5) Transmedia agrees to provide the Executive with a One Thousand
($1,000) Dollar monthly automobile allowance.
(6) Transmedia may provide to the Executive such additional
compensation, bonuses, and benefits as its Board of Directors deems appropriate,
but nothing herein shall obligate Transmedia to do so.
3
<PAGE>
5. VACATION. The Executive shall be entitled to take four (4) weeks
paid vacation during each twelve-month period this employment hereunder on a
basis consistent with the requirements of the business Transmedia and its
subsidiaries and in accordance with Transmedia's customary practice for senior
executives.
6. REIMBURSEMENT OF EXPENSES. During the term of this Agreement, the
Executive shall be reimbursed for reasonable travel, entertainment and other
expenses incident to the rendering, of services hereunder, upon presentation of
expense statements or vouchers or such other supporting information as
Transmedia may customarily require of its senior executives.
7. RESTRICTIONS
(1) The Executive acknowledges that the business of Transmedia is
potentially nationwide in scope, and that it expects to be marketing its
products and services throughout a wider geographical area than that in which it
presently operates. Accordingly, during the Restricted Period (as defined
below), the Executive shall not, unless acting with Transmedia's prior written
consent: (i) directly or indirectly own, manage, operate, join, or control, or
participate in the ownership, management, operations or control of, or be
connected as a director, officer, employee, partner, stockholder, consultant or
otherwise with, any business or organization located in or doing business in the
Restricted Area (as defined below) which competes with the business of
Transmedia and its subsidiaries, licensees or franchisees as conducted at any
time during the term hereof; or (ii) interfere with, or divert or attempt to
divert from them the benefits of, any relationship with employees, agents,
suppliers, restaurant clients, membership card holders or other customers
maintained by Transmedia and its subsidiaries at any time during the Restricted
Period. However, if the Executive's employment hereunder is terminated without
"cause" (as defined in Section 9 hereof), then the provisions of this Section
7(a) shall cease, upon such termination. For the purposes of this Agreement, (i)
"RESTRICTED PERIOD" means the twenty-four-month period commencing upon the
earlier of (x) the termination of the Executive's employment with Transmedia
prior to the expiration hereof, either voluntarily
4
<PAGE>
by the Executive or by Transmedia for "cause"; or (y) the expiration of this
Agreement after its stated term; and (ii) "RESTRICTED AREA" means any
geographical market in or with respect to which Transmedia, within twelve months
prior to the commencement of the Restricted Period, is then operating or has
taken significant affirmative steps to commence operations. Nothing in this
Section 7(a) shall be construed to prevent the Executive from owning or dealing
in any stock actively traded over-the-counter or on any recognized exchange and
issued by a corporation which may compete directly or indirectly with Transmedia
and its subsidiaries so long as the Executive does not participate in the
management, control, or operations of any such corporation and the Executive's
holdings do not at any time exceed Five Percent (5%) of the outstanding shares
of any class of stock of such corporation.
(2) The Executive agrees that all confidential and proprietary matters
which he may now have or may obtain during the Term of his employment hereunder
relating in any way to the business of Transmedia and its subsidiaries shall not
be disclosed to any other person, either during or after the termination of his
employment, unless Transmedia has given its prior consent to such disclosure or
such disclosure is a necessary incident to transactions which the Executive is
pursuing in accordance with duties delegated to him by Transmedia's Board of
Directors. The Executive shall promptly return all tangible evidence of such
confidential and proprietary matters to Transmedia at the termination of his
employment or upon Transmedia's earlier request.
(3) The Executive acknowledges that the remedy at law for his breach of
the covenants contained in this Section 7 is inadequate, and that therefore
Transmedia and its subsidiaries shall be entitled, in addition to any other
right or remedy available to them, to injunctive relief and the remedy of
specific performance to restrain the Executive from committing or continuing any
such breach and to enforce the Executive's obligations hereunder.
(4) If any court of tribunal of competent jurisdiction shall refuse to
enforce any or all of the provisions of this Section 7, because individually or
taken together, they
5
<PAGE>
are deemed unreasonable, then the parties hereto understand and agree that any
such provision or provisions shall not be void but for the purpose of such
proceedings, shall be revised to the extent necessary to permit the enforcement
of such provisions.
8. OWNERSHIP OF WORK PRODUCT. The Executive acknowledges that during
the term of his employment hereunder, he may conceive of, discover, invent or
create inventions, improvements, new contributions, literary property, material,
ideas and discoveries, whether or not patentable or copyrightable, which relate
to the business of Transmedia and its subsidiaries (all of the foregoing being
collectively referred to herein as "Work Product"), and that various business
opportunities appropriate for Transmedia and its subsidiaries may be presented
to him by reason of his employment. The Executive acknowledges that, unless
Transmedia otherwise agrees in writing, all of the foregoing shall be owned by
and belong exclusively to Transmedia, and he shall have no personal interest
therein. The Executive, at Transmedia's expense, shall further: (a) promptly
disclose any such Work Product and business opportunities to Transmedia; (b)
assign to Transmedia, upon request and without additional compensation, the
entire rights to such Work Product and business opportunities; (c) sign all
papers necessary to carry out the foregoing; and (d) give testimony in support
of his discovery invention, or creation in any appropriate case.
9. TERMINATION.
(1) Notwithstanding anything contained herein to the contrary, the
Executive's employment hereunder: (i) shall automatically terminate upon the
Executive's death; and (ii) may be terminated by Transmedia's Board of Directors
for "cause" (as hereinafter defined) upon 60 days prior written notice of
termination, subject to the Executive's right to cure certain breaches
constituting "cause", as provided below. For the purposes of this Agreement,
termination shall be deemed to be "for cause" if: (i) the Executive is convicted
of a felony; (ii) the Executive declares personal bankruptcy pursuant to any
applicable law; (iii) the Executive commits an act of fraud with respect to
Transmedia or misappropriates any of its funds; or (iv) the
6
<PAGE>
Executive directly and repeatedly refuses to perform his duties pursuant to this
Agreement, or directly and repeatedly breaches any covenants contained herein.
The written notice of termination shall set forth with specificity the reason
for such termination. If the reason for such termination is the Executive's
direct and repeated refusal to perform his duties hereunder or his direct and
repeated breach of any covenants contained herein, the Executive shall have the
right, within 30 days of his receipt of such notice, to notify the Board of
Directors of his intention to cure such breach. On or within 10 days before the
effective date of termination, the Board of Directors shall meet to determine
whether such breach has been effectively cured and, upon the majority vote of
the Directors (not including the Executive) that it has been cured, the notice
of termination shall be deemed ineffective. The Executive shall be entitled to
be represented at such meeting by counsel. On the effective date of termination,
except for the reimbursement of expenses incurred to such date, the Executive
shall cease to have any further rights hereunder but shall be subject to all
restrictions set forth elsewhere herein.
(2) Except where the Executive has exercised his right to attempt to
cure pursuant to the preceding subsection, the Executive may, within 15 days
following delivery of a notice of termination for "cause", by written notice to
the Board of Directors of Transmedia, cause the matter of termination for
"cause" by Transmedia to be discussed at the next regularly scheduled meeting of
the Board of Directors or at a special meeting of the Board of Directors
requested by majority of its members. The Executive shall be entitled to be
represented at such meeting by counsel. Such meeting shall be conducted
according to procedures deemed equitable by a majority of the Directors present.
If at such meeting, it shall be determined that this Agreement has been
terminated without "cause", or that such "cause" shall be waived, the provisions
of this Agreement shall be reinstated with the same force and effect as if the
notice of termination had not been given; and the Executive shall be entitled to
receive the compensation and other benefits provided herein for the period from
the effective date of the notice of termination through the date of such
reinstatement, plus all reasonable costs of his counsel, as
7
<PAGE>
approved by the Board of Directors of Transmedia. Except as provided in the
first sentence of this subsection (b), neither the Executive's election to
pursue or forego the procedures set forth in this subsection (b), nor a
determination by the Board of Directors, at any meeting pursuant to this
subsection, that the Executive's employment hereunder was terminated for
"cause", shall prejudice or preclude the exercise any other right or remedy
which the Executive may have at law or otherwise as a result of the termination
of his employment hereunder.
10. SALE OF TRANSMEDIA. Upon a change of control of Transmedia, the
Executive shall be entitled to receive a severance payment in accordance with,
and subject to the terms of, the Company's severance plan.
11. NOTICES. Any Notices to be given hereunder shall be deemed to have
been given if delivered personally against receipt, if sent by nationally
recognized overnight delivery service, of if mailed by registered or certified
mail, return receipt requested, to the following address: if to Transmedia, at
750 Lexington Avenue, New York, New York 10022, with a copy to Morgan, Lewis &
Bockius LLP, 101 Park Avenue, New York, New York 10178, to the attention of
Stephen P. Farrell, Esq.; and if to the Executive, at 750 Lexington Avenue, New
York, New York 10022. Either party may change his or its address set forth above
by giving written notice to the other party in accordance with this Section.
12. GOVERNING LAW. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of New York.
13. OPTIONS. The captions of the sections of this Agreement are for the
purpose of convenience only, are not intended to be part of this Agreement and
shall not be deemed to modify, explain, enlarge or restrict any of its
provisions.
14. SEVERABILITY. If any clause or provision of this Agreement shall be
held invalid or unenforceable, in whole or in part, in any jurisdiction, such
invalidity or unenforceability shall attach only to such clause or provision, or
part thereof, in such jurisdiction, and shall not in any manner affect any other
clause or provision hereof in any jurisdiction.
8
<PAGE>
15. BINDING EFFECT; ASSIGNMENT. This Agreement shall bind and inure to
the benefit of the respective heirs, representatives, successors and permitted
assignees of Transmedia and the Executive. Transmedia may assign this Agreement
or any of its rights and obligations hereunder to (i) any transferee of or
successor to all or substantially all of the assets of business of Transmedia
and its subsidiaries or (ii) any subsidiary or affiliate of Transmedia;
PROVIDED, HOWEVER, that no such assignment shall release Transmedia from its
obligations hereunder. The Executive may not assign this Agreement or any of his
rights and obligations hereunder under any circumstances.
16. MISCELLANEOUS. This Agreement embodies the entire understanding
between Transmedia and the Executive with respect to its subject matter, and
there is no extrinsic agreement of any kind affecting it. This Agreement also
supersedes and replaces any prior agreement with respect to the subject matter
of this Agreement. This Agreement may not be changed or terminated orally, and
no change, termination or waiver of this Agreement or of any of the provisions
herein contained shall be binding unless made in writing and signed by the party
against whom the same is sought to be enforced.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
TRANSMEDIA NETWORK INC.
By: /s/ MELVIN CHASEN
-----------------------
Melvin Chasen, President
/s/ BARRY S. KAPLAN
-----------------------
Barry S. Kaplan
9
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<PERIOD-START> OCT-01-1996 OCT-01-1995
<PERIOD-END> SEP-30-1997 SEP-30-1996
<CASH> 9,389 3,603
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<INVENTORY> 40,355 37,526
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<PP&E> 11,238 7,795
<DEPRECIATION> 7,275 2,131
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