SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-QSB
(mark one)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
[ ] TRANSITION REPORT UNDER SECTION 13
OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to ________
Commission File No. 0-16355
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PRINCETON MEDIA GROUP, INC.
(Exact name of small business issuer as specified in its Charter)
Ontario, Canada 98-0082860
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
214 Brazilian Avenue, Suite 300, Palm Beach, Florida 33480
(Address of principal executive offices)
561/659-0121
(Issuer's telephone number)
-----------------------------------------
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the issuer was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
YES [X] NO [ ]
The number of shares outstanding of the issuer's common stock no par value,
as of May 7, 1997 was 2,159,169.
Transitional Small Business Disclosure Format (check one):
YES [ ] NO [X]
PRINCETON MEDIA GROUP, INC.
FORM 10-QSB
For the Quarterly Period Ended March 31, 1997
INDEX
Page Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited Consolidated Balance Sheet March 31, 1997
Unaudited Consolidated Statements of Operations
and Accumulated Deficit
For the Three Months Ended March 31, 1997 and 1996
Unaudited Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 1997 and 1996
Notes to Unaudited Consolidated Financial Statements
Item 2. Management's Discussion and Analysis
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
Signatures
<PAGE>
PRINCETON MEDIA GROUP, INC.
Consolidated Balance Sheet
March 31, 1997 (Unaudited)
Assets
Current assets
Cash $ 417,194
Accounts receivable, net 2,471,372
Due from related party 20,441
Inventories 1,015,054
Deferred income tax benefit 271,300
Prepaid expenses 141,208
Total current assets 4,336,569
Property and equipment, net 1,793,178
Other assets 246,360
Trademarks, copyrights and other intangibles, net 12,429,560
Total assets $ 18,805,667
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable $ 882,426
Accrued expenses 888,775
Current portion of long-term debt 472,336
Line of credit 350,000
Deferred revenue 879,486
Accrued interest 294,658
Total current liabilities 3,767,681
Long-term debt, less current portion 8,620,974
Convertible debentures payable 1,925,000
Deferred taxes 166,900
Shareholders' Equity:
Series A Preference Shares 28,923
Series C Preference Shares 739,696
Series D Preference Shares 1,005,000
Series E Preference Shares 1,549,484
Common Stock 12,745,826
Accumulated deficit (11,743,817)
Total shareholders' equity 4,325,112
Total liabilities and shareholders equity $ 18,805,667
See accompanying notes to consolidated financial statements.
PRINCETON MEDIA GROUP, INC.
Consolidated Statements of Operations and Accumulated Deficit
For the Three Months Ended March 31, 1997 and 1996
(Unaudited)
<TABLE>
1997 1996
<S> <C> <C>
Distribution, circulation, and other income $ 2,644,029 $ -
Advertising income 988,428
Printing income 398,245
Net revenues 4,030,702
Costs and operating expenses:
Cost of sales 2,522,381
Selling and administrative 1,368,510
Income from operations 139,811
Interest expense
Long-term debt (232,513)
Loss before income taxes (92,702)
Provision for income taxes -
Loss from continuing operations (92,702)
Loss from discontinued operations - ( 51,226)
Net loss (92,702) ( 51,226)
Accumulated deficit - December 31, 1996 and 1995,
as previously reported (10,888,634) (5,959,517)
Prior period adjustment - discontinued operations (Note 13) (479,581) -
Accumulated deficit, revised - December 31, 1996 and 1995 (11,368,215) (5,959,517)
Accumulated deficit - end of the quarter $ (11,460,917) $(6,010,743)
Per share:
Loss from continuing operations $ ( .46) $ -
Discontinued operations - ( .23)
Net loss $ ( .46) $ ( .23)
Weighted average number of
shares outstanding 951,925 169,692
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
PRINCETON MEDIA GROUP, INC.
Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 1997 and 1996
(Unaudited)
<S> <C> <C>
1997 1996
Cash flows from operating activities:
Net loss $( 92,702) $( 51,226)
Adjustments to reconcile net loss
to net cash used in
operating activities
Depreciation 74,121 1,258
Amortization 90,302 -
Stock issued for consulting 56,376 22,656
Net income (loss) adjusted for noncash items 128,097 ( 27,312)
Changes in assets and liabilities:
Decrease in accounts receivable 64,296 9,368
Increase in inventories (359,029) -
Increase in prepaid expenses ( 69,556) -
Increase in other assets (122,771)
Increase (decrease) in accounts payable 94,317 ( 20,193)
Increase (decrease)in accrued expenses (441,188) 863
Decrease in due to related party ( 27,416) -
Increase in deferred revenue 109,619 -
Increase in accrued interest 101,096 -
Net cash used in operating
activities ( 522,535) ( 37,274)
Cash flows from investing activities:
Capital expenditures ( 34,087) -
Net cash used in
investing activities ( 34,087) -
Cash flows from financing activities:
Repayment of advances from related party - 7,100
Proceeds from issuance of
convertible debentures - 762,750
Proceeds from note payable 420,000 -
Payments of principal ( 76,347)
Net cash provided by
financing activities 343,653 769,850
Net increase (decrease) in cash (212,969) 732,576
Cash, December 31, 1996 and 1995 630,163 13,859
Cash, March 31, 1997 and 1996 $ 417,194 $ 746,435
Supplemental disclosures of cash flow information:
1997 1996
Interest paid $ 126,370 $ -
Noncash Investing and Financing Activities
Common stock issued for franchise rights $ 25,000 -
Common stock issued upon conversion of
convertible debt $ - $ 128,165
Common stock issued for settlement of debt $ - $ 162,925
Contribution from shareholder through
forgiveness of debt $ - $ 146,447
Inventory transferred in settlement of debt $ - $ 289,451
</TABLE>
During the first quarter of 1997, the Company purchased the trademark of a
magazine valued at $400,000 in exchange for a credit of $300,000 in advertising
in the Company's publications and $100,000 to be paid over a one year period.
The Company purchased printing equipment valued at $77,000 for a note. The
Company also issued stock valued at $25,000 as final payment for franchise
rights on environmentally safe ink.
See accompanying notes to consolidated financial statements.
PRINCETON MEDIA GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis for Presentation
The accompanying unaudited interim financial statements consolidate the accounts
of Princeton Media Group, Inc. ("Princeton") and its wholly owned subsidiaries.
All significant intercompany transactions and balances have been eliminated in
consolidation. In the opinion of management, the accompanying unaudited interim
consolidated financial statements contain all adjustments (consisting only of
normal recurring accruals) necessary to present fairly the financial position as
of March 31, 1997, and the results of their operations and their cash flows for
the three months ended March 31, 1997 and 1996. The results of operations for
the three months ended March 31, 1997 are not necessarily indicative of the
results to be expected for the full year. These statements should be read in
conjunction with the Company's annual report on Form 10-KSB for the year ended
December 31, 1996.
2. Net Loss Per Share
Net loss per share is computed using the weighted average number of shares of
common stock outstanding. Common equivalent shares from stock options and
warrants, and additional shares assuming the conversion of debentures and
preferred shares, are excluded from the computation as their effect is
antidilutive.
Cumulative dividends of $66,904 and a "deemed" dividend of $282,900 (see Note
11) on preferred shares have been added to net loss in the loss per share
computation.
3. Acquisitions
During the three months ended March 31, 1997, the Company purchased a trademark
of a magazine for $400,000 paid by way of a credit of $300,000 in advertising in
the Company's publications and $100,000 to be paid over a one year period.
4. Accounts Receivable
Accounts receivable at March 31, 1997 consisted of the following:
Accounts receivable, gross $5,691,379
Less:
Allowance for returns and miscellaneous charges 3,185,007
Allowance for doubtful accounts 35,000
Total accounts receivable, net $2,471,372
5. Inventories
Inventories at March 31, 1997 consisted of the following:
Paper $ 857,280
Ink 12,191
Work in process 145,583
Total inventories $1,015,054
6. Property and equipment
Property and equipment as of March 31, 1997 consisted of the following assets,
all depreciated between 5 and 7 years:
Printing equipment $1,917,068
Computer equipment 116,081
Office furniture and equipment 37,638
2,070,787
Less accumulated depreciation (277,609)
Total property and equipment, net $1,793,178
7. Trademarks, copyrights and other intangibles
Trademarks, copyrights and other intangibles at March 31, 1997 consisted of
the following:
Trademarks and copyrights $12,633,302
Organizational costs 34,388
Franchise rights 35,000
12,702,690
Less accumulated amortization (273,130)
Trademarks, copyrights, and
other intangibles, net $12,429,560
8. Line of Credit
The Company has a line of credit with a distributor for working capital of up
to $500,000 which may be drawn down in multiples of $10,000. Any draw will
bear interest at prime plus 2% and will be payable with equal monthly payments
of principal and interest over a one year period. In January 1997 the
Company was advanced $420,000 on the line of credit and $350,000 was payable as
of March 31, 1997.
9. Assignment of Accounts Receivable
During 1996, the Company had assigned $639,000 of certain accounts receivable
as collateral for its obligation to a paper vendor. Per the agreement, the
Company paid $200,000 to the vendor. Payments of assigned receivables began in
January 1997 and final payment is estimated to be in June 1997. The balance due
reflected in accrued expenses as of March 31, 1997 was $241,018.
10. Long-term Debt
Long-term debt at March 31, 1997 consisted of the following:
Note payable - First Seller $5,000,000
Note payable - Second Seller 4,000,000
Note payable - Equipment 73,017
Capital lease obligations 20,293
9,093,310
Less current portion 472,336
Total long-term debt $8,620,974
11. Convertible Securities
In March 1997, the Company reached an agreement (the "Agreement") with the
holders of all of its outstanding convertible debentures and convertible
preferred Series D and certain of its Series E stockholders to convert their
holdings to common stock. Pursuant to the Agreement, the convertible debenture
and convertible preferred Series D and E stock (collectively the "Securities"),
will be converted into approximately 1.1 million shares of the Company's common
stock over the ensuing five months. Had the conversion occurred pursuant to the
original conversion terms of the Securities, the Securities holders would have
received approximately 885,000 shares of common stock.
Under the Agreement, the Securities holders have agreed that if they choose to
sell their common stock holdings, then sales will be made during specified
periods during 1997. Further, pursuant to the Agreement, if at the end of
the selling period the cash proceeds and market value of any unsold shares of
common stock do not equal approximately $4,423,000, the Company has agreed to
either issue additional shares of common stock or cash to make up any short
fall. The Company will charge earnings (as debt conversion expense), or will
charge deficit (as preferred dividends), for any difference between the
carrying amount of the debenture or preferred shares and the cash paid or
additional shares issued. Further, the Company will charge earnings or deficit
in an amount equal to the fair value of the shares issued to the holders that
are in excess of the fair value of securities that were issuable under the
original conversion terms. As of May 17, 1997, the fair market value
of the shares was $5,390,288.
Certain of the securities holders were granted warrants at exercise prices
ranging from $4.85 to $8.85 to purchase 102,510 shares of the Company's common
stock. The estimated value of these warrants is $282,900, which was accounted
for as a deemed dividend to the preferred shareholders to whom these warrants
were issued.
12. Change in Common Shares
Change in common shares for the quarter ended March 31, 1997, was as follows:
Shares Amount
Balance at December 31, 1996 865,969 $12,197,802
Issuance of shares for consulting fees services
and severance 92,000 240,124
Issuance of shares for franchise rights 5,000 25,000
Deemed dividend (Note 11) - 282,900
Balance at March 31, 1997 962,969 $12,745,826
13. Prior Period Adjustment - Discontinued Operations
On December 17, 1996, Company had entered into severance agreements with the
former Chairman and President and an officer and director of a discontinued
subsidiary calling for payments of $479,581 at December 31, 1996, payable
$300,000 in cash over a period of three years plus 70,000 common shares. The
Company did not, but should have recognized this amount as an additional expense
of discontinued operations in 1996; accordingly, the 1996 ending deficit has
been restated to reflect this expense.
14. Stock Option
The Chairman of the Board has been granted a stock option covering 1.2 million
shares of the Company's common stock, exercisable at $3 per share, which was in
excess of the fair market value of the common shares on January 16, 1997. The
option vests and is exercisable in yearly installments of 120,000 shares over
ten years. Vesting may be accelerated based on a formula using either adjusted
net income or net revenues. At March 31, 1997, under the acceleration clause,
the option vested to the extent of 400,000 shares and is immediately exercisable
to that extent.
Item 2. Management's Discussion and Analysis
Forward-looking Statements
Statements contained in this Form 10-QSB regarding the Company's future
prospects or operating results constitute forward-looking statements and as
such, must be considered with caution and with the understanding that various
factors could cause actual results to differ materially from those in such
forward-looking statements. Such factors include but are not limited to
changes in revenues from distribution, advertising and subscriptions and
changes in costs of materials and operations.
General
The Company, through its wholly-owned subsidiaries, Princeton and Firestone,
is engaged in the publishing, printing, and distribution of approximately 25
periodical consumer lifestyle magazines. The Princeton and Firestone editorial
staffs and offices are located in New York City and Miami, respectively. A
wholly-owned subsidiary of Princeton, Kingston Press, Inc., leases and maintains
a printing plant in Sussex, Wisconsin. The plant is used for the printing of
the Company's magazines and to perform printing work for third parties on a
contract basis. The Company's executive offices are located in Palm Beach,
Florida.
The quarter ended March 31, 1997 compared to the quarter ended March 31, 1996
The Company discontinued operations of its prior business as of December 31,
1995 and had no continuing operations during the quarter ended March 31, 1996.
Operations for the Company's new business of publishing and printing began in
the second quarter of 1996.
Revenues for the quarter ended March 31, 1997 amounted to $4,030,702 compared
to no operating revenue for the same period in 1996. Revenues are almost
entirely derived from magazine sales, subscriptions, advertising, and outside
printing. The increase in revenues reflected for the quarter ended March 31,
1997 is a result of the Company's acquisition of magazine publishing assets in
March through September of 1996 and the Company's continuing use of those assets
in the same business.
Costs and expenses of revenues for the quarter ended March 31, 1997 were
$3,890,891 compared with no operating costs for the quarter ended March 31,
1996.
Net loss for the quarter ended March 31, 1997 was $92,702 which represents
an increase of $41,476 from the net loss of $51,226 for the quarter ended March
31, 1996.
Liquidity and Capital Resources
During the quarter ended March 31, 1997, $232,513 in interest expense was
charged to operations compared to no interest expense for the quarter ended
March 31, 1996. The interest expense was accrued pursuant to two promissory
notes executed by Princeton and Firestone in connection with the purchases of
the magazine publishing assets in March and September of 1996.
Monthly interest payments of approximately $43,000 are due pursuant to a $5
million promissory note executed upon acquisition of the publishing assets
acquired March 29, 1996. Interest on the $4 million promissory note executed
upon acquisition of the publishing assets acquired on September 6, 1996 will
be accrued for one year, at which time accrued interest will be added to
principal and payments of principal and interest will be due on a
straight-line amortization schedule over forty-eight months. Accordingly, the
Company will not incur any debt service obligations on the $4 million note
prior to October, 1997. Management is currently involved in negotiation with
several lending institutions to refinance the two notes prior to October,
1997. The Company anticipates that cash flows from operations will be
sufficient to pay all debt service obligations of the two subsidiaries.
Liquidity and capital resources are hereinafter discussed in three broad
categories: operating activities, investing activities and financing
activities.
Cash decreased $212,969 to $417,194 at March 31, 1997 from $630,163 at
December 31, 1996. Net cash used in operating activities was $522,535 during
the quarter ended March 31, 1997 compared to cash used by operating activities
of $37,274 during the quarter ended March 31, 1996. The increase of $485,261
is primarily attributable to continuing operations in connection with the
change in business of the Company from telecommunications equipment sales to
magazine publishing and printing. Net loss adjusted for non-cash items
including depreciation, amortization, and stock issued for consulting services
resulted in net income adjusted for noncash items of $128,097, before changes
in assets and liabilities. Changes in assets and liabilities constitute uses
of working capital to fund the start up of the new operations in the printing
and publishing business. The principal uses of cash were the increase of
inventory of approximately $359,000 and reduction of accrued expenses of
approximately $440,000.
During the quarter ended March 31, 1997, net cash provided by financing
activities was $343,653 representing a decrease of $426,197 from net cash
provided by financing activities of $769,850 during the quarter ended March 31,
1996. The funds provided in the first quarter of 1996 were primarily from
initial issuances of convertible debentures for the purpose of acquiring
publishing acquisitions. The funds provided in the first quarter of 1997 were
primarily a draw on the line of credit for working capital.
The Company intends to continue the operations of the businesses acquired
during 1996 and to expand these operations into new areas of distribution,
including foreign magazine versions and the establishment of Internet web
sites for several of its well-known magazine titles. The broader introduction
of brand-name magazine content is anticipated to increase substantially the
revenues from the Company's operations, compared with the results realized
during 1996. Management of the Company believes that the results of 1996 and
first quarter of 1997 operations were consistent with the expectations
established during the due diligence investigation completed prior to the
purchases of the two businesses. Management further anticipates that the
implementation of its business plan during 1997, which includes, among other
things, production efficiencies, cost-saving measures, new market exploration,
expansion of the printing plant, and acquisition of additional businesses, will
realize a substantial growth in assets as well as increases in revenues and
profits.
In March 1997, the Company reached agreement with the holders of its
convertible preferred stock and debentures to convert into approximately 1.1
million shares of the Company's common stock over a five-month period. If the
holders choose to sell their shares, such sales will be made in a controlled
manner during 1997. The Company has agreed to make up any shortfall to the
holders if sale proceeds and the market value of any unsold shares do not
equal approximately $4,423,000.
Several acquisitions were either completed or in the process of negotiation as
of the date of this report as follows:
On March 17, 1997, the Company purchased the trademark of a magazine in
exchange for $300,000 of advertising space valued at standard rates in the
Company's publications together with $100,000 to be paid from advertising
revenues received in excess of $10,000 per issue of the acquired magazine
with the balance due, if any, to be paid upon publication of the August,
1998 issue.
In March, 1997 the Company signed a letter of intent for the acquisition of a
group of magazine titles that would add significant revenue to the Company.
Additionally, during the first quarter of 1997 the Company was negotiating
for the acquisition of certain other magazine titles. Due diligence work is
in process and is being performed by an outside consulting group which
specializes exclusively in magazine acquisitions. The Company is also in
the process of negotiating financing for the above acquisitions, which if
consummated, would more than triple the Company's existing $18.1 million in
assets. An investment banking firm has expressed a highly confident
commitment to the Company to provide $40 million in financing for such
acquisitions.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit Exhibit
Number
10.1 Employment Agreement between the Company and James J. McNamara
dated January 1, 1997.
10.2 Common Stock Purchase Option granted by the Company to James J.
McNamara dated January 16, 1997.
27.1 Financial Data Schedule
(b) Reports on Form 8-K.
The following reports on Form 8-K were filed during the quarter ended
March 31, 1997 by the Company:
The Company filed two reports on Form 8-K, one dated March 5, 1997, and
one dated March 18, 1997, both reporting the issuance of certain shares of
common stock pursuant to Regulation S. No financial statements were filed with
either of said reports.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: May 20, 1997
PRINCETON MEDIA GROUP, INC.
/s/ James J. McNamara
By: James J. McNamara,
Chairman of the Board and
Acting Chief Executive Officer
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into effective as
of the 1st day of January, 1997 between Princeton Media Group, Inc., a
Canadian corporation (the "Company"), and James J. McNamara, an individual
resident of Palm Beach, Florida (the "Employee").
WITNESSETH:
WHEREAS, it is the desire of the Company to offer the Employee employment
with the Company upon the terms and subject to the conditions set forth
herein; and
WHEREAS, it is the desire of the Employee to accept the Company's offer
of employment with the Company upon the terms and subject to the conditions
set forth herein.
NOW THEREFORE, in consideration of the premises and mutual covenants,
conditions and agreements contained herein and for such other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, each intending to be legally bound hereby,
agree as follows:
1. Employment. The Company hereby agrees to employ the Employee and
the Employee hereby agrees to be employed by the Company upon the terms and
subject to the conditions set forth herein for the period of employment as set
forth in Section 2 hereof (the "Period of Employment"). Nothing set forth
herein shall be construed to give the Company the right to require the
Employee to relocate or be based in any place other than the greater Palm
Beach, Florida metropolitan area.
2. Term; Period of Employment. Subject to extension or termination
as hereinafter provided, the Period of Employment hereunder shall be from the
date hereof (the "Effective Date") through the tenth anniversary of the
Effective Date and shall be extended at the option of the Employee for a three
(3) year period (the "Renewal Period"). Notwithstanding any other provision
of this Agreement, it may be terminated: (i) by the Employee, on one (1)
year's prior written notice to the Company; or (ii) by the Company, on three
(3) years' prior written notice to the employee. The phrase "Period of
Employment" as used herein shall, unless otherwise indicated: (a)
specifically include any extensions permitted hereunder or provided herein,
except as otherwise noted; and (b) be deemed to have terminated as of the date
of any notice provided to the Employee pursuant to Section 9 hereof,
notwithstanding the Company's obligation to pay the Employee pursuant to
Subsections 9(b) and 9(c) hereof.
3. Office and Duties. During the Period of Employment:
(a) the Employee shall be employed as the most senior executive
officer as set forth in the bylaws of the Company (the "Bylaws") with the
responsibilities reasonably prescribed for such position by the board of
directors of the Company (the "Board of Directors") in accordance with the
Bylaws; the Employee shall also be a director throughout the Period of
Employment; and
(b) the Employee shall devote at least twenty (20) hours of his
time per week to the business and affairs of the Company except for vacations,
illness or incapacity, as hereinafter set forth. Notwithstanding the
preceding sentence, nothing in this Agreement shall preclude the Employee from
devoting reasonable amounts of time:
(i) for serving as a director, officer or member of a
committee of Celebrity Entertainment, Inc. or of any organization or entity
involving no conflict of interest with the Company; or
(ii) engaging in charitable and community activities;
provided, however, that such activities do not interfere with the performance
by the Employee of his duties hereunder. In consideration of such employment,
the Employee agrees that he shall not, directly or indirectly, individually or
as a member of any partnership or joint venture, or as an officer, director,
stockholder, employee or agent of any other person, firm, corporation,
business organization or other entity, engage in any trade or business
activity or pursuit for his own account or for, or on behalf of, any other
person, firm, corporation, business organization or other entity, irrespective
of whether the same competes, conflicts or interferes with that of the Company
or the performance of the Employee's obligations hereunder; provided, however,
that nothing contained herein shall be construed to prevent the Employee
from: (x) investing in the stock of Celebrity Entertainment, Inc. or of any
corporation, which does not compete with the Company, which is listed on a
national securities exchange or traded in the over-the-counter market if the
Employee does not and will not as a result of such investment own more than
five percent (5%) of the stock of such corporation ("Permitted Investments");
or (y) engaging in personal business ventures to which the Employee devotes
time outside of the time required to be devoted to the business of the Company
hereunder.
The Employee represents and warrants that he is not party to any
agreement, oral or written, which restricts in any way: (a) his ability to
perform his obligations hereunder; or (b) his right to compete with a previous
employer or such employer's business.
(c) the Employee shall be entitled to vacation time of five
weeks per year.
4. Compensation and Benefits. In exchange for the services rendered
by the Employee pursuant hereto in any capacity during the Period of
Employment, including without limitation, services as an officer, director, or
member of any committee of the Company or any affiliate, subsidiary or
division thereof, the Employee shall be compensated as follows:
(a) Compensation. The Company shall pay the Employee
compensation equal to at least One Hundred Fifty Thousand Dollars ($150,000)
per annum ("Annual Compensation") at a rate of Twelve Thousand Five Hundred
Dollars ($12,500) per month ("Monthly Compensation") until such time as the
Company's reported net revenues for the prior consecutive four (4) quarters
(the "Last 4 Quarters' Revenue") equals or exceeds $17,000,000 whereupon the
Employee's Annual Compensation shall increase in accordance with the schedule
set forth below. Such salary shall be payable in accordance with the
customary payroll practices of the Company.
The Employee's compensation shall be increased as set forth hereunder if
and when the specific net revenue targets are met by the Company:
Last 4 Quarters' Revenue Annual Compensation Monthly Compensation
Equals or exceeds $17,000,000 $200,000 $16,666.66
Equals or exceeds $25,000,000 $250,000 (plus $20,833.33 (plus
Participating Participating
Salary, Salary, if any)
if any, defined
below)
The Employee will be entitled to receive participating salary in addition
to the Annual Compensation. For purposes of this Section 4(a), participating
salary will be defined as additional compensation payable to the Employee in
the event that the Last 4 Quarters' Revenue exceeds $30,000,000
("Participating Salary").
The amount of such Participating Salary will be based upon a formula
equal to .001 of the amount by which the Last 4 Quarters' Revenue exceeds
$30,000,000 for any period during which such revenue target is met. The
Employee will be paid the Participating Salary, if any, within forty-five (45)
days after the close of the fiscal quarter ending the period for which it is
payable.
(b) Profitability Bonus. The Company may pay the Employee a
bonus if, in the sole judgment of the Board of Directors, the earnings of the
Company or the services of the Employee merit such a bonus.
(c) Withholding and Employment Tax. Payment of all compensation
hereunder shall be subject to customary withholding tax and other employment
taxes as may be required with respect to compensation paid by an
employer/corporation to an employee.
(d) Options. Upon commencement of employment of the Employee
hereunder, the Company shall grant to the Employee an option (the "Option") to
purchase One Million Two Hundred Thousand (1,200,000) shares of
the common stock of the Company (the "Common Stock") at an exercise price of
$3.00; the Option shall vest and become exercisable with respect to 120,000
shares of Common Stock on the first anniversary of the Issue Date and
thereafter will become exercisable in equal increments over the next nine
years. Notwithstanding the foregoing, the vesting period under the Option may
be accelerated subject to the satisfaction of the conditions as set forth in
Section 2(g) of the Option, a copy of the form of which is attached hereto and
the terms of which are incorporated herein by reference.
5. Business Expenses. The Company shall: (a) pay or reimburse the
Employee for all reasonable travel or other expenses incurred by the Employee
in connection with the performance of his duties under this Agreement,
provided that the same are previously authorized by the Company, in accordance
with such procedures as the Company may from time to time establish for
employees and as required to preserve any deductions for federal income
taxation purposes to which the Company may be entitled; and (b) pay the
Employee $800 per month as an automobile allowance and, in addition thereto,
reimburse the Employee for all reasonable expenses related to maintenance of
such an automobile including, but not limited to, ordinary and necessary
repairs, registration, insurance and fuel.
6. Disability. The Company shall provide the Employee with
substantially the same disability insurance benefits as those, if any,
currently being provided by the Company, if any, for similar employees, which
insurance benefits must provide for disbursement thereunder of an amount equal
to no less than 60% of the Employee's then current compensation as set forth
in Section 4(a) hereof.
7. Death. The Company shall provide the Employee with substantially
the same life insurance benefits as those currently being provided by the
Company for similar employees. In the event of the Employee's death, the
obligation of the Company to make payments pursuant to Section 4 hereof shall
cease as of the date of such Employee's death and the Company shall pay to the
estate of the Employee any amount due to the Employee under Sections 4 and 5
which has accrued up to the date of death.
8. Other Benefits. The Employee shall be entitled to participate in
fringe benefit, deferred compensation and stock option plans or programs of
the Company, if any, to the extent that his position, tenure, salary, age,
health and other qualifications make him eligible to participate, subject to
the rules and regulations applicable thereto. Such additional benefits shall
include, but not be limited to, paid sick leave and individual health
insurance (all in accordance with the policies of the Company) and
professional dues and association memberships. Except as specifically set
forth herein, the terms of, and participation by the Employee in, any deferred
compensation plan or program shall be determined by the Board of Directors in
its sole discretion.
9. Termination of Employment. Notwithstanding any other provision of
this Agreement, employment hereunder may be terminated:
(a) By the Company, in the event of the employee's death or
Disability or for "Just Cause." "Just Cause" shall be defined to be limited
to: (i) the Employee's indictment or conviction of a crime involving a
felonious act or acts, including dishonesty, fraud or moral turpitude by the
Employee; (ii) prolonged or repeated absence from duty without the consent of
the Company (for reasons other than the Employee's health or incapacity);
(iii) habitual engaging in any activity which is competitive with the business
of the Company; and (iv) habitual and willful misconduct on the part of the
Employee relating to the performance of his duties hereunder. The Employee
shall be deemed to have a "Disability" for purposes of this Agreement if he is
unable to perform, by reason of physical or mental incapacity, a material
portion of his duties or obligations under this Agreement for a period of one
hundred twenty (120) consecutive days in any 365-day period. The Board of
Directors shall determine whether and when the Disability of the Employee has
occurred and such determination shall not be arbitrary or unreasonable. The
Company shall by written notice to the Employee given within thirty (30) days
after discovery of the occurrence of an event or circumstance which
constitutes "Just Cause," specify the event or circumstance giving rise to the
Company's exercise of its right hereunder and, with respect to Just Cause
arising under Section 9(a)(i), the Employee's employment hereunder shall be
deemed terminated as of the date of such notice; with respect to Just Cause
arising under Section 9(a)(ii), the Company shall provide the Employee with
thirty (30) days written notice of such violation and the Employee shall be
given reasonable opportunity during such thirty (30) day period to cure the
subject violation;
(b) By the Company, in its sole and absolute discretion,
provided that in such event the Company shall, as liquidated damages or
severance pay, or both, pay the Employee an amount equal to the Employee's
then Monthly Compensation (as defined in Section 4(a) hereof) multiplied by
the sum of the number of months remaining during the Period of Employment plus
twelve (12) months (the "Termination Formula"); provided however, that in the
event that the Employee is terminated hereunder during the first three (3)
year period of the Period of Employment (exclusive of the Renewal Period), the
"number of months remaining" for application of the Termination Formula shall
be construed to mean the number of months remaining during such initial three
(3) year period plus twelve (12) months, exclusive of the three (3) year
Renewal Period (as defined in Section 2 hereof); or
(c) By the Employee: (i) upon any material violation of any
material provision of this Agreement by the Company, which violation remains
unremedied for a period of thirty (30) days after written notice of the same
is delivered to the Company by the Employee; (ii) upon any material change in
the nature of the Company's business, without the Employee's prior consent;
(iii) upon any material change in the responsibilities of the Employee,
without the Employee's prior consent; or (iv) a "Change of Control" as defined
in Section 10(b) hereof, provided that in such event, the Company shall, as
liquidated damages or severance pay, or both, pay to the Employee in one lump
sum installment an amount equal to the Employee's current Monthly Compensation
(as defined in Section 4(a) or Annex A, as applicable), for the number of
months remaining in the Period of Employment.
Nothing set forth in this section shall: (i) require the Employee in the
event of termination pursuant to Subsections 9(b) or 9(c) above to mitigate
damages during the period in which the Employee is receiving payment
thereunder (the "Severance Period"); or (ii) entitle the Company to offset the
amounts owed by the Company to the Employee pursuant to Subsections 9(b) or
9(c) by any income or compensation received by the Employee from sources other
than the Company during such Severance Period. In addition, the Company shall
not be entitled to withhold or otherwise offset any amounts payable to the
Employee under Subsections 9(b) or 9(c) above in response to an alleged
violation by the Employee of any of the obligations which are imposed under
this Agreement and survive termination hereof until such time as court of
competent jurisdiction or other appropriate governing body has rendered
judgment or otherwise made a determination with respect to whether such
violation has occurred.
In the event that this Agreement is terminated pursuant to Sections 9(b)
or 9(c), the Employee shall be entitled to continue to participate, at the
Company's expense, in any health insurance plan of the Company then in place
for such period as the Employee is entitled to receive severance payment
hereunder. In the event that such insurance policy does not provide for the
Employee's confirmed coverage thereunder as a result of termination hereof,
the Company will provide other comparable health insurance to the Employee, at
the Company's expense.
10. Non-Competition. Notwithstanding any earlier termination, during
the Period of Employment and for one (1) year thereafter:
(a) the Employee shall not, anywhere in North America directly
or indirectly, individually or as a member of any partnership or joint
venture, or as an officer, director, stockholder, employee or agent of any
other person, firm, corporation, business organization or other entity,
participate in, engage in, solicit or have any financial or other interest in
any activity or any business or other enterprise in any field which at the
time of termination is competitive with the business or is in substantially
the same business as the Company or any affiliate, subsidiary or division
thereof (unless the Board of Directors shall have authorized such activity and
the Company shall have consented thereto in writing), as an individual or as a
member of any partnership or joint venture, or as an officer, director,
stockhol
der, investor, employee or agent of any other person, firm, corporation,
business organization or other entity; provided, however, that nothing
contained herein shall be construed to prevent the employee from investing in
Permitted Investments; and
(b) the Employee shall not: (i) solicit or induce any employee
of the Company to terminate his employment or otherwise leave the Company's
employ or hire any such employee (unless the Board of Directors shall have
authorized such employment and the Company shall have consented thereto in
writing); or (ii) contact or solicit any clients or customers of the Company,
either as an individual or as a member of any partnership or joint venture, or
as an officer, director, stockholder, investor, employee or agent of any other
person, firm, corporation, business organization or other entity; provided,
however, that the provisions of this Section 9 shall be of no force and effect
in the event of a Change of Control. A Change of Control shall be deemed to
occur if: (x) the Company is merged into another corporation and, after such
merger, the voting securities of the Company outstanding immediately prior to
such merger represent less than 75% of the voting securities of the surviving
corporation; or (y) all or substantially all of the assets of the Company are
sold; or (z) a person or group (not including the Employee) obtains beneficial
ownership of twenty (20%) or more of the Company's issued and outstanding
voting securities.
The Employee is aware that the Company is entering or may enter into other
employment agreements similar to this Agreement with other employees similarly
situated to the Employee and that it is important to the Company to maintain
consistency among the employment agreements between it and those similarly
situated employees. The Employee has therefore consented to the inclusion of
this section at the request of the Company for the express purpose of such
consistency.
11. Confidential Information. The parties hereto recognize that it
is fundamental to the business and operation of the Company, its affiliates,
subsidiaries and divisions thereof to preserve the specialized knowledge,
trade secrets, and confidential information of the foregoing concerning the
field of advertising, marketing and interactive Internet solutions. The
strength and good will of the Company is derived from the specialized
knowledge, trade secrets, and confidential information generated from
experience through the activities undertaken by the Company, its affiliates,
subsidiaries and divisions thereof. The disclosure of any of such information
and the knowledge thereof on the part of competitors would be beneficial to
such competitors and detrimental to the Company, its affiliates, subsidiaries
and divisions thereof, as would the disclosure of information about the
marketing practices, pricing practices, costs, profit margins, design
specifications, analytical techniques, concepts, ideas, process developments
(whether or not patentable), customer and client agreements, vendor and
supplier agreements and similar items or technologies. By reason of his being
an employee of the Company, in the course of his employment, the Employee has
or shall have access to, and has obtained or shall obtain, specialized
knowledge, trade secrets and confidential information such as that described
herein about the business and operation of the Company, its affiliates,
subsidiaries and divisions thereof. Therefore, the Employee hereby agrees as
follows, recognizing and acknowledging that the Company is relying on the
following in entering into this Agreement:
(a) The Employee hereby sells, transfers and assigns to the
Company, or to any person or entity designated by the Company, any and all
right, title and interest of the Employee in and to all creations, designs,
inventions, ideas, disclosures and improvements, whether patented or
unpatented, and copyrightable material, made or conceived by the Employee
solely or jointly, in whole or in part, during or before the term hereof
(commencing with the date of the Employee's employment with the Company)
which: (i) relate to methods, apparatus, designs, products, processes or
devices created, promoted, marketed, distributed, sold, leased, used,
developed, relied upon or otherwise provided by the Company or any affiliate,
subsidiary or division thereof; or (ii) otherwise relate to or pertain to the
business, operations or affairs of the Company or any affiliate, subsidiary or
division thereof. Whether during the Period of Employment or thereafter, the
Employee shall execute and deliver to the Company such formal transfers and
assignments and such other papers and documents as may be required of the
Employee to permit the Company or any person or entity designated by the
Company to file, enforce and prosecute the patent applications relating to any
of the foregoing and, as to copyrightable material, to obtain copyright
thereon; and
(b) Notwithstanding any earlier termination, during the Period
of Employment and for a period of one (1) year thereafter, the Employee shall,
except as otherwise required by or compelled by law, keep secret and retain in
strict confidence, and shall not use, disclose to others, or publish any
information, other than information which is in the public domain or becomes
publicly available through no wrongful act on the part of the Employee, which
information shall be deemed not to be confidential information, relating to
the business, operation or other affairs of the Company, its affiliates,
subsidiaries and divisions thereof, including but not limited to confidential
information concerning the design and marketing practices, pricing practices,
costs, profit margins, products, methods, guidelines, procedures, engineering
designs and standards, design specifications, analytical techniques, technical
information, customer, client, vendor or supplier information, employee
information, and any and all other confidential information acquired by him in
the course of his past or future services for the Company or any affiliate,
subsidiary or division thereof. The Employee shall hold as the Company's
property all notes, memoranda, books, records, papers, letters, formulas and
other data and all copies thereof and therefrom in any way relating to the
business, operation or other affairs of the Company, its affiliates,
subsidiaries and divisions thereof, whether made by him or otherwise coming
into his possession. Upon termination of his employment or upon the demand of
the Company, at any time, the Employee shall deliver the same to the Company
within twenty-four (24) hours of such termination or demand.
12. Reasonableness of Restrictions. The Employee hereby agrees that
the restrictions in this Agreement, including without limitation, those
relating to the duration of the provisions hereof and the territory to which
such restrictions apply, are necessary and fundamental to the protection of
the business and operation of the Company, its affiliates, subsidiaries and
divisions thereof, and are reasonable and valid.
13. Reformation of Certain Provisions. In the event that a court of
competent jurisdiction determines that the non-compete or the confidentiality
provisions hereof are unreasonably broad or otherwise unenforceable because of
the length of their respective terms or the breadth of their territorial
scope, or for any other reason, the parties hereto agree that such court may
reform the terms and/or scope of such covenants so that the same are
reasonable and, as reformed, shall be enforceable.
14. Remedies. Subject to Section 15 below, in the event of a breach
of any of the provisions of this Agreement, the non-breaching party shall
provide written notice of such breach to the breaching party. The breaching
party shall have thirty (30) days after receipt of such notice in which to
cure its breach. If, on the thirty-first (31st) day after receipt of such
notice, the breaching party shall have failed to cure such breach, the
non-breaching party thereafter shall be entitled to seek damages. It is
acknowledged that this Agreement is of a unique nature and of extraordinary
value and of such a character that a breach hereof by the Employee shall
result in irreparable damage and injury to the Company for which the Company
may not have any adequate remedy at law. Therefore, if, on the thirty-first
(31st) day after receipt of such notice, the breaching party shall have failed
to cure such breach, the non-breaching party shall also be entitled to seek a
decree of specific performance against the breaching party, or such other
relief by way of restraining order, injunction or otherwise as may be
appropriate to ensure compliance with this Agreement. The remedies provided
by this section are non-exclusive and the pursuit of such remedies shall not
in any way limit any other remedy available to the parties with respect to
this Agreement, including, without limitation, any remedy available at law or
equity with respect to any anticipatory or threatened breach of the provisions
hereof. In the event of any litigation or other proceeding between the
Company and the Employee with respect to the subject matter of this Agreement
and the enforcement of the rights hereunder, the losing party shall reimburse
the prevailing party for all of his/its reasonable costs and expenses, as well
as any forum fees, relating to such litigation or other proceeding, including,
without limitation, his/its reasonable attorneys' fees and expenses, provided
that such litigation or proceeding results in a final settlement requiring
payment to the prevailing party; or final judgement.
15. Certain Provisions; Specific Performance. In the event of a
breach by the Employee of the non-competition or confidentiality provisions
hereof, such breach shall not be subject to the cure provision of Section 14
above and the Company shall be entitled to seek immediate injunctive relief
and a decree of specific performance against the Employee. Such remedy is
non-exclusive and shall be in addition to any other remedy to which the
Company or any affiliate, subsidiary or division thereof may be entitled.
16. Consolidation; Merger; Sale of Assets. Nothing in this Agreement
shall preclude the Company from combining, consolidating or merging with or
into, transferring all or substantially all of its assets to, or entering into
a partnership or joint venture with, another corporation or other entity, or
effecting any other kind of corporate combination, provided that, the
corporation resulting from or surviving such combination, consolidation or
merger, or to which such assets are transferred, or such partnership or joint
venture assumes this Agreement and all obligations and undertakings of the
Company hereunder. Upon such a consolidation, merger, transfer of assets or
formation of such partnership or joint venture, this Agreement shall inure to
the benefit of, be assumed by, and be binding upon such resulting or surviving
transferee corporation or such partnership or joint venture, and the term
"Company," as used in this Agreement, shall mean such corporation, partnership
or joint venture, or other entity and subject to the provisions in this
Agreement relating to the Change of Control, this Agreement shall continue in
full force and effect and shall entitle the Employee and his heirs,
beneficiaries and representatives to exactly the same compensation, benefits,
perquisites, payments and other rights as would have been their entitlement
had such combination, consolidation, merger, transfer of assets or formation
of such partnership or joint venture not occurred.
17. Survival. Sections 10 through 15 shall survive the termination
for any reason of this Agreement (whether such termination is by the Company,
by the Employee, upon the expiration of this Agreement by its terms or
otherwise); provided, however, that in the event that the Company ceases to
exist and neither an affiliate, subsidiary or division thereof has assumed, at
its option, the obligations of the Company hereunder, the Employee shall no
longer be bound by the Non-Competition provision set forth in Section 10
hereof.
18. Severability. The provisions of this Agreement shall be
considered severable in the event that any of such provisions are held by a
court of competent jurisdiction to be invalid, void or otherwise
unenforceable. Such invalid, void or otherwise unenforceable provisions shall
be automatically replaced by other provisions which are valid and enforceable
and which are as similar as possible in term and intent to those provisions
deemed to be invalid, void or otherwise unenforceable. Notwithstanding the
foregoing, the remaining provisions hereof shall remain enforceable to the
fullest extent permitted by law.
19. Entire Agreement; Amendment. This Agreement contains the entire
agreement between the Company and the Employee with respect to the subject
matter hereof and thereof. This Agreement may not be amended, changed,
modified or discharged, nor may any provision hereof be waived, except by an
instrument in writing executed by or on behalf of the party against whom
enforcement of any amendment, waiver, change, modification or discharge is
sought. No course of conduct or dealing shall be construed to modify, amend
or otherwise affect any of the provisions hereof.
20. Notices. All notices, request, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
physically delivered, delivered by express mail or other expedited service or
upon receipt if mailed, postage prepaid, via first class mail as follows:
(a) To the Company: Princeton Media Group, Inc.
214 Brazilian Avenue, Suite 300
Palm Beach, Florida 33480
Attention: President
With an additional copy
by like means to: Fleming & O'Neill, P.C.
Two Newton Place, Suite 200
Newton, Massachusetts 02158
Attn: Julia K. O'Neill, Esq.
(b) To the Employee: Mr. James J. McNamara
214 Brazilian Avenue, Suite 300
Palm Beach, Florida 33480
and/or to such other persons and addresses as any party hereto shall have
specified in writing to the other.
21. Assignability. This Agreement shall not be assignable by the
Employee, but shall be binding upon and shall inure to the benefit of his
heirs, executors, administrators and legal representatives. This Agreement
shall be assignable by the Company to any affiliate, subsidiary or division
thereof and to any successor in interest.
22. Governing Law. This Agreement shall be governed by and construed
under the laws of the State of Florida, without regard to the principles of
conflicts of laws thereof.
23. Waiver and Further Agreement. Any waiver of any breach of any
terms or conditions of this Agreement shall not operate as a waiver of any
other breach of such terms or conditions or any other term or condition
hereof, nor shall any failure to enforce any provision hereof operate as a
waiver of such provision or of any other provision hereof. Each of the
parties hereto agrees to execute all such further instruments and documents
and to take all such further action as the other party may reasonably require
in order to effectuate the terms and purposes of this Agreement.
24. Headings of No Effect. The headings contained in this Agreement
are for reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
25. Vesting; Registration. Notwithstanding the provisions as set
forth in Section 4(d) of this Agreement, upon termination of this Agreement
pursuant to Sections 9(b) or 9(c), or upon the Company's notice of nonrenewal
pursuant to Section 2 or a Change of Control as defined in Section 10(b); (i)
any and all options, warrants, rights or other securities which are
exercisable into shares of common stock of the Company granted to the Employee
prior to such expiration shall vest and become immediately exercisable
(subject to applicable law); and (ii) the Company shall as soon as practicable
thereafter, at its sole expense, and upon the written request of the Employee,
file a registration statement relating to all of the common stock of the
Company owned by the Employee, and take all other actions required under (or
incident to compliance with) federal and state securities laws, rules and
regulations to enable the Employee to sell such shares of Common Stock.
26. Indemnification. To the fullest extent allowed, and in the
manner provided, by Ontario provincial law, the Company shall indemnify the
Employee and hold the Employee harmless from and against any claims arising
out of the Employee's performance of his services hereunder as permitted by
the Articles of Incorporation of the Company.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
PRINCETON MEDIA GROUP, INC.
By: /s/ Robert F. Kendall
Name: Robert F. Kendall
Title: Chief Financial Officer
THE EMPLOYEE
/s/ James J. McNamara
James J. McNamara
EXHIBIT 10.2
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED,
PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF: (i) AN
EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER SAID ACT, OR (ii)
AN EXEMPTION THEREFROM UNDER SAID ACT.
Void after 5:00 p.m. (Eastern time) on
January 15, 2008 as provided herein.
Issue Date: January 16, 1997 Option to Purchase Common Shares
Expiration Date: January 15, 2008 Exercisable Commencing: January 16,
1998
COMMON STOCK PURCHASE OPTION
TO PURCHASE COMMON SHARES OF
PRINCETON MEDIA GROUP, INC.
Princeton Media Group, Inc. (the "Company), a Canadian corporation,
hereby certifies that for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged by the Company, James J. McNamara
is entitled, subject to the terms set forth in this Common Stock purchase
option (the "Option"), at any time hereafter or from time to time hereafter,
(the "Exercise Date") through but not later than January 15, 2008 (the
"Expiration Date"), to purchase from the Company One Million, Two Hundred
Thousand (1,200,000) shares of common stock, no par value (the "Common Stock")
of the Company (the "Shares") at an exercise price of three dollars ($3.00)
per Share (such exercise price per Share, as adjusted from time to time
pursuant to the provisions set forth below, being referred to herein as the
"Exercise Price"). This Option and all rights hereunder, to the extent such
rights shall not have been exercised, shall terminate and become null and
void to the extent the Holder fails to exercise any portion of this Option
prior to 5:00 p.m., New York, New York time, on the Expiration Date.
1. Restrictions on Transfer of Shares
The Shares underlying this Option may be restricted securities and in the
event they have not been the subject of registration under the Securities Act
of 1933, as amended (the "Act"), they may not be sold, transferred, pledged,
hypothecated or otherwise disposed of in the absence of: (i) an effective
registration statement for such securities under said Act, or (ii) an
exemption therefrom under said Act.
2. Exercise of Option
(a) All or any part of this Option may be exercised by the holder of
this Option (the "Holder") by surrendering it, with the form of subscription
annexed hereto duly executed by such Holder, to the Company at its principal
executive office or to the Company's transfer agent accompanied by payment in
full, in cash or by certified or official bank check, of the Exercise Price
payable in respect of all or part of the Option being exercised. If less than
the entire Option is exercised, the Company shall, upon such exercise, execute
and deliver to the Holder hereof a new option in the same form as this Option
evidencing the right to purchase Shares hereunder to the extent not
exercised. This Option shall be deemed to have been exercised prior to the
close of business on the date this Option is surrendered and payment is made
in accordance with the foregoing provision;
(b) The Company shall, at the time of any exercise of all or part of
this Option, upon the request of the Holder hereof, acknowledge in writing its
continuing obligation to afford to such Holder any rights to which such Holder
shall continue to be entitled after such exercise in accordance with the
provisions of this Option; provided that if the Holder of this Option shall
fail to make any such request, such failure shall not affect the continuing
obligations of the Company to afford to such Holder any such rights;
(c) The Shares which may be delivered upon the exercise of this
Option shall, upon delivery, be fully paid and nonassessable and free from all
taxes, liens and charges with respect thereto;
(d) The Company shall cooperate with the Holder in an exercise
pursuant to which all or part of the Shares will be sold simultaneously with
the exercise of this Option with the broker-dealer, if any, participating in
such sale being irrevocably instructed to remit the proceeds of the exercise
to the Company upon settlement of the sale of the underlying Shares;
(e) The Holder may exercise part or all of the Option by tender to
the Company of a written notice of exercise together with advice of the
delivery of an order to a broker to sell part or all of the shares of Common
Stock subject to such exercise notice and an irrevocable order to such broker
to deliver to the Company (or its transfer agent) sufficient proceeds from the
sale of such shares to pay the exercise price and any withholding taxes. All
documentation and procedures to be followed in connection with such a
"cashless exercise" shall be approved in advance by the Company, which
approval shall be expeditiously provided and not unreasonably withheld. The
Holder may also tender shares of the Company's Common Stock owned by him and
having an aggregate fair market value at least equal to the total exercise
price, in lieu of cash, to exercise part or all of the Option. For purposes
of this provision, the fair market value of a share of Common Stock will be
the average daily closing transaction price (or if not reported, the average
daily closing bid price) for the five (5) trading days preceding the date of
delivery of a notice of exercise to the Company on the principal exchange or
quotation system on which the Common Stock is traded or quoted; and
(f) Except to the extent that their vesting may be accelerated
pursuant to Section 2(g) or 2(h) of this Option, the Option shall vest and
become exercisable in ten equal increments over the next ten (10) years,
one-tenth per year as set forth below:
(1) the Option shall vest with respect to 120,000 shares on the
first
anniversary of the Issue Date set forth on the cover hereof;
(2) the Option shall vest with respect to an additional 120,000
shares on the second anniversary of the Issue Date;
(3) the Option shall vest with respect to an additional 120,000
shares on the third anniversary of the Issue Date;
(4) the Option shall vest with respect to an additional 120,000
shares on the fourth anniversary of the Issue Date;
(5) the Option shall vest with respect to an additional 120,000
shares on the fifth anniversary of the Issue Date;
(6) the Option shall vest with respect to an additional 120,000
shares on the sixth anniversary of the Issue Date;
(7) the Option shall vest with respect to an additional 120,000
shares on the seventh anniversary of the Issue Date;
(8) the Option shall vest with respect to an additional 120,000
shares on the eighth anniversary of the Issue Date;
(9) the Option shall vest with respect to an additional 120,000
shares on the ninth anniversary of the Issue Date; and
(10) the Option shall vest with respect to an additional 120,000
shares on the tenth anniversary of the Issue Date.
(g) Notwithstanding any other provision of this Option, the vesting
schedule set forth in Section 2(f) hereof shall be accelerated such that the
rights relating to the purchase hereunder of:
(1) one third (1/3) of the Shares purchasable under the Option, to the extent
not already vested, shall become vested and exercisable if and when the
Company's reported net income before interest expense, taxes, depreciation and
amortization for the prior consecutive four (4) quarterly reporting periods as
reported in the Company's filings with the Securities and Exchange Commission
("Adjusted Net Income") equals or exceeds $1,000,000, or the Company's
reported net revenues for the prior consecutive four (4) quarterly reporting
periods as reported in the Company's filings with the Securities and Exchange
Commission exceed $10,000,000;
(2) two thirds (2/3) of the Shares purchasable under the Option, to the extent
not already vested, shall become vested and exercisable if and when the
Company's Adjusted Net Income exceeds $2,000,000, or the Company's reported
net revenues for the prior consecutive four (4) quarterly reporting periods as
reported in the Company's filings with the Securities and Exchange Commission
exceed $17,000,000; and
(3) all of the Shares purchasable under this Option, to the extent not already
vested, shall become vested and exercisable if and when the Company's
Adjusted Net Income exceeds $3,000,000 or the Company's reported net revenues
for the prior consecutive four (4) quarterly reporting periods as reported in
the Company's filings with the Securities and Exchange Commission exceed
$25,000,000.
(h) Notwithstanding Sections 2(f) and 2(g) hereof, this Option shall
vest in full and become exercisable with respect to all of the Shares subject
hereto, at such time and in the event that: (i) the employment of James J.
McNamara is terminated pursuant to Section 9(b) or 9(c) of Mr. McNamara's
employment contract with the Company dated the same date as the date of issue
hereof (the "McNamara Agreement"); or (ii) the Company provides a notice of
nonrenewal pursuant to Section 2 of the McNamara Agreement; or (iii) there is
a "Change of Control" as defined in Section 10(b) of the McNamara Agreement.
3. Fractional Shares
No fractional securities or scrip representing fractional securities
shall be issued upon the exercise of this Option. With respect to any
fraction of a security called for upon any such exercise hereof, the Company
shall pay to the Holder an amount in cash equal to such fraction multiplied by
the current market value of such security, determined as follows:
(a) If the security is listed on a national securities exchange or
admitted to unlisted trading privileges on such exchange, the current value
shall be the last reported sale price of the security on such exchange on the
last business day prior to the date of exercise of this Option, or if no such
sale is made on such day, the average closing bid and asked prices for such
day on such exchange; or
(b) If the security is not listed or admitted to unlisted trading
privileges, the current value shall be the last reported sale price on the
Nasdaq National Market System ("NASDAQ/NMS") or the mean of the last reported
bid and asked prices reported by the Nasdaq SmallCap Market ("NASDAQ")
or the NASD OTC Bulletin Board (or, if not so quoted, by the National
Quotation Bureau, Inc.) on the last business day prior to the date of the
exercise of this Option; or
(c) If the security is not so listed or admitted to unlisted trading
privileges and prices are not reported on NASDAQ, or the NASD OTC Bulletin
Board (or by the National Quotation Bureau, Inc.), an amount, not less than
the book value, determined in such reasonable manner as may be prescribed by
the board of directors of the Company.
4. Rights of the Holder
(a) The Company shall advise the Holder or its transferee, whether
the Holder holds the Option or has exercised the Option and holds Shares, by
written notice at least thirty (30) days prior to the filing of any
registration statement under the Act covering any securities of the Company,
for its own account or for the account of others, and will for a period of
three years beginning on the Exercise Date, upon the request of the Holder,
include in any registration statement, such information as may be required to
permit a public offering of the Shares underlying the Option (the "Registrable
Securities"). The Company shall supply prospectuses and such other documents
as the Holder may reasonably request in order to facilitate the public sale or
other disposition of the Registrable Securities, use its best efforts to
register and qualify any of the Registrable Securities for sale in such states
as such Holder reasonably designates and do any and all other acts and things
which may be necessary to enable such Holder to consummate the public sale or
other disposition of the Registrable Securities. Notwithstanding the
foregoing, if such public offering is on a firm commitment underwritten basis
and the managing underwriter thereof advises the Company and the Holder in
writing that the sale of such securities would impair the underwritten
offering of securities for the account of the Company, the Holder will not be
permitted to include such securities in the subject offering; and the Holder
thereafter may exercise his/its rights to a demand registration via a separate
registration statement and pursuant to Section 4(b) hereof immediately.
(b) The Company agrees to prepare and file a registration statement
under the Act relating to the exercise of this Option and the offer and sale
of the Common Stock issuable upon such exercise. Notwithstanding the
foregoing, if the Holder gives notice to the Company at any time to the effect
that the Holder desires to register Registrable Securities under the Act,
under such circumstances that a public distribution (within the meaning of the
Act) of any such securities will be involved then the Company will, within
thirty (30) days after receipt of such notice, file a registration statement
pursuant to the Act, so as to enable the Registrable Securities to be publicly
sold under the Act as promptly as practicable thereafter and the Company will
use its best efforts to cause such registration statement to become and remain
effective. The Holder shall furnish the Company with appropriate information
in connection therewith as the Company may reasonably request in writing. The
Holder may, at its option, request the filing of a registration statement
under the Act on one occasion at any time. The Holder may, at its option,
request the registration of the Registrable Securities in a registration
statement filed by the Company as contemplated by Section 4(a) or pursuant to
this Section 4(b) prior to acquisition of the Shares issuable upon exercise of
the Option and even though the Holder has not given notice of exercise of the
Option. The Holder may, at its option, request such registration during the
requisite three-year period with respect to the Registrable Securities, and
such registration rights may be exercised by the Holder prior to or subsequent
to the exercise of the Option. Within ten (10) days after receiving any such
notice pursuant to this subparagraph (b), the Company shall give notice to the
Holder, advising that the Company is proceeding with the preparation and
filing of a registration statement. In the event the registration statement
is not filed within the period specified herein, unless such delay is caused
by a requirement to include financial statements and the delay is not beyond
the date such statements are required to be filed with the Securities and
Exchange Commission, the expiration date of this Option shall be extended by
an amount of time equal to the delay in filing. All costs and expenses
related to the preparation and filing of a registration statement shall be
borne by the Company, except that the Holder shall bear the fees of its own
counsel and any underwriting discounts or commissions applicable to any of the
securities sold by Holder. If the Company determines to include securities to
be sold by it in any registration statement pursuant to this Section 4(b),
such registration shall be deemed to have been a registration under Section
4(a).
If Form S-8 is available for purposes of the registration of the
Registrable Securities, the Company will maintain the effectiveness of the
registration statement throughout the term of the Option; if Form F-8 is not
so available, the Company will maintain the effectiveness of such registration
statement under the Act for a period of at least nine months (and for up to an
additional three months if requested by the Holder) from the effective date
thereof. The Company shall supply prospectuses, and such other documents as
the Holder may reasonably request in order to facilitate the public sale or
other disposition of the Registrable Securities and use its best efforts to
register and qualify any of the Registrable Securities for sale in such states
as such Holder reasonably designates.
(c) The Holder of this Option shall not, by virtue hereof, be
entitled to any voting or other rights of a stockholder in the Company, either
at law or equity, and the rights of the Holder are limited to those expressed
in this Option.
5. Adjustments
(a) The number of shares of Common Stock purchasable on exercise of
this Option and the purchase prices therefor shall be subject to adjustment
from time to time in the event that the Company shall: (1) pay a dividend in,
or make a distribution of, shares of Common Stock; (2) subdivide its
outstanding shares of Common Stock into a greater number of shares; (3)
combine its outstanding shares of Common Stock into a smaller number of
shares; or (4) spin-off a subsidiary by distributing, as a dividend or
otherwise, shares of the subsidiary to its stockholders. In any such case,
the total number of Shares and the number of any other shares of Common Stock
purchasable on exercise of this Option immediately prior thereto shall be
adjusted so that the Holder shall be entitled to receive, at the same
aggregate exercise price, the number of Shares and the number of any other
shares of Common Stock that the Holder would have owned or would have been
entitled to receive immediately following the occurrence of any of the events
described above had this Option been exercised in full immediately prior to
the occurrence (or applicable record date) of such event. An adjustment made
pursuant to this subsection shall, in the case of a stock dividend or
distribution, be made as of the record date and, in the case of a subdivision
or combination, be made as of the effective date thereof. If, as a result of
any adjustment pursuant to this subsection, the Holder shall become entitled
to receive shares of two or more classes or series of securities of the
Company, the board of directors of the Company shall equitably determine the
allocation of the adjusted exercise price between or among shares or other
units of such classes or series and shall notify the Holder of such
allocation.
(b) In the event of any reorganization or recapitalization of the
Company or in the event the Company consolidates with or merges into or with
another entity or transfers all or substantially all of its assets to another
entity, then and in each such event, the Holder, on exercise of this Option as
provided herein, at any time after the consummation of such reorganization,
recapitalization, consolidation, merger or transfer, shall be entitled, and
the documents executed to effectuate such event shall so provide, to receive
the stock or other securities or property to which the Holder would have been
entitled upon such consummation if the Holder had exercised this Option
immediately prior thereto. In such case, the terms of this Option shall
survive the consummation of any such reorganization, recapitalization,
consolidation, merger or transfer and shall be applicable to the shares of
stock or other securities or property receivable on the exercise of this
Option after such consummation.
(c) Whenever a reference is made in this section to the issue or sale
of shares of Common Stock, the term "Common Stock" shall mean the Common Stock
of the Company of the class authorized as of the date hereof and any other
class of stock ranking on a parity with such Common Stock.
(d) Whenever the number of shares of Common Stock purchasable upon
exer
cise of this Option or the exercise prices thereof shall be adjusted as
required herein, the Company shall forthwith file such information with its
Secretary at its principal office, and with the price determined as herein
provided and setting forth in detail the facts requiring such adjustment.
Each such officer's certificate shall be made available at all reasonable
times for inspection by the Holder and the Company shall, forthwith after such
adjustment, deliver a copy of such certificate to the Holder.
(e) The Company: (1) shall not cause the par value of any shares of
Common Stock issuable on exercise of this Option to be in excess of the amount
payable therefor on such exercise, and (2) shall take all action as may be
necessary or appropriate so that the Company may validly and legally issue
fully paid and non-assessable shares of Common Stock (or other securities or
property deliverable hereunder) upon the exercise of this Option. This Option
shall bind the successors and assigns of the Company.
(f) Notwithstanding anything in this section to the contrary, no
adjustment in the number of shares of Common Stock purchasable on exercise of
this Option shall be made with respect to dilution which would result from the
issuance of Common Stock pursuant to the exercise of options which may be or
have been granted pursuant to any employee incentive plan of the Company,
whether qualified or non-qualified, or the conversion of any outstanding
securities of the Company.
6. Notices of Record Dates, Etc.
(a) If the Company shall fix a record date of the holders of Common
Stock (or other securities at the time deliverable on exercise of this Option)
for the purpose of entitling or enabling them to receive any dividends or
other distribution, or to receive any right to subscribe for or purchase any
shares of any class of any securities or to receive any other right
contemplated by Section 5 or otherwise; or
(b) In the event of any reorganization or recapitalization of the
Company, any reclassification of the capital stock of the Company, any
consolidation or merger of the Company with or into another corporation or any
transfer of all or substantially all of the assets of the Company to another
entity; or
(c) In the event of the voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in any such event, the Company shall mail or cause to be mailed to the
Holder a notice specifying, as the case may be: (1) the date on which a
record is to be taken for the purpose of such dividend, distribution or right
and stating the amount and character of such dividend, distribution or right,
or (2) the date on which a record is to be taken for the purpose of voting on
or approving such reorganization, recapitalization, reclassification,
consolidation, merger, conveyance, dissolution, liquidation or winding up and
the date on which such event is to take place and the time, if any, is to be
fixed, as of which the Holder of record of Common Stock (or any other
securities at the time deliverable on exercise of this Option) shall be
entitled to exchange its shares of Common Stock (or such other securities) for
securities or other property deliverable on such reorganization,
recapitalization, reclassification, consolidation, merger, conveyance,
dissolution, liquidation or winding up. Such notice shall be mailed at the
same date as the Company shall inform its stockholders, but in no event less
than ten (10) days preceding such record date.
7. Reservation of Shares
The Company shall at all times reserve, for the purpose of issuance on
exercise of this Option, such number of shares of Common Stock (or such class
or classes of capital stock or other securities) as shall from time to time be
sufficient to comply with this Option, and the Company shall take such
corporate action as may in the opinion of its counsel be necessary to increase
its authorized and unissued shares of Common Stock (or such other class or
classes of capital stock or other securities) in such number as shall be
sufficient for such purpose.
8. Approvals
The Company shall from time to time use its best efforts to obtain and
continue in effect any and all permits, consents, registrations,
qualifications and approvals of governmental agencies and authorities and to
make all filings under applicable securities laws that may be or become
necessary in connection with the issuance, sale, transfer and delivery of this
Option and the issuance of securities on any exercise hereof. Nothing
contained in this section shall in any way expand, alter or limit the rights
of the Holder set forth in Section 1 hereof.
9. Restrictions on Transfer
This Option has not been registered under the Act or qualified under any
state securities or "blue sky" law. This Option may not be offered, sold or
otherwise transferred unless registered and qualified pursuant to the
provisions of such Act and "blue sky" laws, or unless an exemption from
registration and qualification is available.
10. Survival
All agreements, covenants, representations and warranties herein shall
survive the execution and delivery of this Option and any investigation at any
time made by or on behalf of any parties hereto and the exercise, sale and
purchase of this Option, the Options and the Shares (and any other securities
or property) issuable on exercise hereof.
11. Notices
All demands, notices, consents and other communications to be given
hereunder shall be in writing and shall be deemed duly given when delivered
personally or five (5) days after being mailed by first class mail, postage
prepaid, properly addressed, as follows:
(a) if to the Company, to:
Princeton Media Group Inc.
214 Brazilian Avenue
Suite 300
Palm Beach, FL 33480
Attention: President
with a copy to:
Julia K. O'Neill, Esq.
Fleming & O'Neill, P.C.
Two Newton Place
Suite 200
Newton, Massachusetts 02158
Facsimile: (617) 964-1694
(b) if to the Holder to:
James J. McNamara
214 Brazilian Avenue, Suite 300
Palm Beach, Florida 33480
The Company and each Holder may change such address at any time or times by
notice hereunder to the other.
12. Amendments; Waivers; Terminations; Governing Law; Headings; Entire
Agreement
This Option and any term hereof may be changed, waived, discharged or
terminated only by an instrument in writing signed by the party against which
enforcement of such change, waiver, discharge or termination is sought. This
Option shall be governed by and construed and interpreted in accordance with
the laws of the Province of Ontario, Canada. The headings in this Option are
for convenience of reference only and are not part of this Option. This
Option is intended to and does contain and embody all of the understandings
and agreements, both written and oral, of the parties hereto with respect to
the subject matter of this Option, and there exists no oral agreement or
understanding, express or implied, whereby the absolute, final and
unconditional character and nature of this Option shall be in any way
invalidated, empowered or affected. A modification or waiver of any of the
terms, conditions or provisions of this Option shall be effective only if made
in writing and executed with the same formality of this Option.
IN WITNESS WHEREOF, Princeton Media Group, Inc. has duly caused this
Common Stock Purchase Option to be signed in its name and on its behalf by its
duly authorized officers, as of the date first set forth above.
ATTEST: PRINCETON MEDIA GROUP, INC.
/s/ J. William Metzger By:/s/ Robert F. Kendall
Acting Secretary Title: Chief Financial Officer
EXHIBIT A
Annex to Option
FORM OF ASSIGNMENT
(To be executed upon transfer of Common Stock Purchase Option)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
to ______________________________ the right represented by the within Option,
together with all rights, title and interest therein, and does hereby
irrevocably constitute and appoint ______________________________ attorney to
transfer such Option on the option register of the within named Company, with
full power of substitution.
DATED: ____________________, 199___.
Signature:
(Signature must conform in all respects to name of holder as specified on the
face of the Option)
Signature Guaranteed:
Annex to Option
FORM OF SUBSCRIPTION
(To be completed and signed only upon an exercise of the Option in whole
or in part)
TO: [Princeton Media Group, Inc.]
The undersigned, the Holder of the attached Option, hereby irrevocably
elects to exercise the purchase right represented by the Option for, and to
purchase thereunder, _________ Shares (as such terms are defined in the
Option dated January _____, 1997 from Princeton Media Group, Inc. to
_________________________________ (or other securities or property), and
herewith makes payment of $______________ therefor in cash or by certified or
official bank check. The undersigned hereby requests that the Certificate(s)
for such securities be issued in the name(s) and delivered to the address(es)
as follows:
Name:
Address:
Social Security Number:
Deliver to:
Address:
If the foregoing Subscription evidences an exercise of the Option to
purchase fewer than all of the Shares (or other securities or property) to
which the undersigned is entitled under such Option, please issue a new
Option, of like tenor, for the remaining portion of the Option (or other
securities or property) in the name(s), and deliver the same to the
address(es), as follows:
Name:
Address:
DATED: ____________________, 19___.
(Name of Holder)
(Signature of Holder or Authorized Signatory)
Signature Guaranteed:
(Social Security or Taxpayer Identification Number of Holder)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FINANCIAL STATEMENTS INCLUDED IN FORM 10-QSB AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 417,194
<SECURITIES> 0
<RECEIVABLES> 5,691,379
<ALLOWANCES> 3,220,007
<INVENTORY> 1,015,054
<CURRENT-ASSETS> 4,336,569
<PP&E> 2,070,787
<DEPRECIATION> 277,609
<TOTAL-ASSETS> 18,805,667
<CURRENT-LIABILITIES> 3,767,681
<BONDS> 8,620,974
3,323,103
0
<COMMON> 12,745,826
<OTHER-SE> (11,743,817)
<TOTAL-LIABILITY-AND-EQUITY> 18,805,667
<SALES> 4,030,702
<TOTAL-REVENUES> 4,030,702
<CGS> 2,522,381
<TOTAL-COSTS> 3,890,891
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 232,513
<INCOME-PRETAX> (92,702)
<INCOME-TAX> 0
<INCOME-CONTINUING> (92,702)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (92,702)
<EPS-PRIMARY> (.46)
<EPS-DILUTED> (.46)
</TABLE>
