U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-QSB
(Mark One)
|X| Quarterly report under 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 Exchange Act
For the transition period from _____________ to _____________
Commission file number 0-17001
Choices Entertainment Corporation
- - - --------------------------------------------------------------------------------
(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 52-1529536
- - - ------------------------------- ------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
836 W. Trenton Avenue, Morrisville, Pennsylvania 19067
- - - ------------------------------------------------- ----------
(Address of Principal Executive Offices) (Zip code)
Issuer's Telephone Number, Including Area Code (215) 428-1000
- - - --------------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year, if Changed Since last
Report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or15 (d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes |X| No |_|
State the number of shares outstanding of the issuer's Common Stock, as of
May 12, 1997: 22,004,395
Transitional Small Business Disclosure Format (check one):
Yes |_| No |X|
<PAGE>
Part I: FINANCIAL INFORMATION
Item 1. Financial Statements
CHOICES ENTERTAINMENT CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
---------------------- ----------------------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 54,586 $ 66,739
Accounts receivable 26,304 12,790
Merchandise inventories 149,486 181,280
Prepaid expenses 9,040 41,683
Other deferred costs 20,661 30,453
---------------------- ----------------------
Total current assets 260,077 332,945
Videocassette rental inventory, net 693,327 704,616
Equipment, net (Note 2) 102,301 110,403
Intangible assets, net 168,394 172,603
Other assets 72,441 74,203
---------------------- ----------------------
$ 1,296,540 $ 1,394,770
====================== ======================
LIABILITIES AND STOCKHOLDERS' DEFICIT
- - - --------------------------------------------
Current liabilities:
Notes payable $ 1,070,467 $ 1,004,000
Accounts payable 806,293 699,838
Accrued merger and acquisition expenses 370,357 425,299
Accrued professional fees 243,998 268,199
Deferred revenue 16,552 27,797
Accrual for lease cancellation and litigation reserves 1,250 1,250
Accrued salaries 68,362 55,734
Other accrued expenses 214,035 239,200
---------------------- ----------------------
Total current liabilities 2,791,314 2,721,317
---------------------- ----------------------
Stockholders' deficit:
Preferred stock, par value $.01 per share:
Authorized 5,000 shares: 37.4 shares issued
and outstanding in 1997 and 1996
Common stock, par value $.01 per share:
Authorized 50,000,000 shares: issued and
outstanding 22,004,395 shares in 1997 and 1996 220,044 220,044
Additional paid-in-capital 20,519,203 20,519,203
Accumulated deficit (22,234,021) (22,065,794)
---------------------- ----------------------
Total stockholders' deficit (1,494,774) (1,326,547)
---------------------- ----------------------
$ 1,296,540 $ 1,394,770
====================== ======================
See accompanying notes to financial statements.
</TABLE>
<PAGE>
CHOICES ENTERTAINMENT CORPORATION
STATEMENTS OF LOSS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
------------------------------------
Revenues: 1997 1996
------------------------- --------------------
<S> <C> <C>
Movie rentals $ 1,011,315 $ 1,107,481
Merchandise sales 244,908 251,624
------------------------- --------------------
1,256,223 1,359,105
------------------------- --------------------
Operating costs and expenses:
Cost of goods sold 183,367 224,795
Cost of movie rentals 105,865
Store payroll 246,044 252,854
Store rents 230,440 228,853
Other store operating expenses 110,641 111,098
Selling and administrative expenses 148,817 137,513
Professional and consulting expenses 87,992 40,200
Loss on disposal of videocassette
rental inventory 45,644 52,557
Merger and acquisition expenses
Depreciation and amortization 248,579 298,157
------------------------- --------------------
1,407,389 1,346,027
------------------------- --------------------
Other expenses:
Interest expense, net 17,061 14,279
------------------------- --------------------
Net loss $ (168,227) $ (1,201)
========================= ====================
Net loss per share of common stock
(Note 3) $ (0.01) $ (0.00)
========================= ====================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
CHOICES ENTERTAINMENT CORPORATION
STATEMENTOF STOCKHOLDERS' DEFICIT
For the Three Months Ended March 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
Preferred Common Stock Additional
Stock ------------ Paid-in Accumulated
Shares Shares Amount Capital Deficit Total
------ ------ ------ ------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 37.4 22,004,395 $220,044 $20,519,203 $(22,065,794) $(1,326,547)
Net loss for the three months
ended March 31, 1997 (168,227) (168,227)
------ -------------- ------------ --------------- ---------------- ---------------
37.4 22,004,395 $220,044 $20,519,203 $(22,234,021) $(1,494,774)
====== ============== ============ =============== ================ ===============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
CHOICES ENTERTAINMENT CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months
Ended
March 31,
---------
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (168,227) $ (1,201)
--------------- ---------------
Adjustments to reconcile net loss
to net cash provided by (used in) operating activities:
Depreciation and amortization 248,579 288,365
Cost of rental films sold 86,027 100,005
Loss on disposal of rental films 45,644 52,557
Videocassette and inventory reserves 4,844 5,847
Amortization and write-off of other deferred costs, net 9,792
Change in assets and liabilities:
(Increase) Decrease in accounts receivable (13,514) 2,085
Decrease in merchandise inventories 31,794 1,008
Decrease in prepaid expenses 32,643 9,935
Decrease in other assets 1,762
Increase in accounts payable 89,860 3,649
Decrease in deferred revenue (11,245)
Decrease in accrued merger and acquisition
expenses (33,992) (5,121)
Decrease in accrued professional fees (24,201) (35,325)
Increase in accrued salaries 12,627 16,472
Decrease in accrual for lease cancellation and
litigation reserves (3,750)
Increase (decrease) in other accrued expenses (25,166) 10,734
--------------- ---------------
Total adjustments 462,259 456,253
--------------- ---------------
Net cash provided by (used in) operating activities 294,033 455,052
--------------- ---------------
Cash flows from investing activities:
Purchase of equipment, net (5,997) (2,206)
Purchase of videocassette rental films (345,706) (408,606)
--------------- ---------------
Net cash used in investing activities (351,703) (410,812)
--------------- ---------------
Cash flows from financing activities:
Proceeds from notes payable 49,000
Repayment of notes payable (3,483)
---------------
Net cash provided by financing activities 45,517
---------------
Net increase (decrease) in cash (12,153) 44,240
Cash at beginning of period 66,739 86,391
--------------- ---------------
Cash at end of period $ 54,586 $ 130,631
=============== ================
Supplementary disclosure of cash flow information:
Cash paid during the year for interest $ 3,187 $ 2,833
=============== ================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
CHOICES ENTERTAINMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Basis of Presentation And Significant Accounting Policies
The financial information included herein for the three-month periods
ended March 31, 1997 and 1996 and as of March 31,1997 are unaudited. In
addition, the financial information does not include all disclosures required
under generally accepted accounting principles because certain note information
has been omitted; however, such information reflects all adjustments which are,
in the opinion of management, necessary for a fair statement of the results of
the interim periods and such adjustments are of a normal recurring nature. The
results of operations for the three-month period ended March 31, 1997 are not
necessarily indicative of the results to be expected for the full year.
Note 2 - Equipment
Equipment at March 31, 1997 is primarily comprised of furnishings,
leaseholds, and computers related to the Company's retail stores.
Note 3 - Loss Per Common Share
Loss per common share for the three-month period ended March 31, 1997
and 1996 was computed by dividing the net loss by the weighted average number of
common shares outstanding during the period.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------
1997 1996
------------------------- -----------------------------
<S> <C> <C>
Number of shares used in calculations 22,004,000 22,004,000
</TABLE>
Note 4 - Liquidity
The financial statements have been presented on the basis that the
Company is a going concern, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. The Company has
incurred net losses in each year of its existence, aggregating $22,234,021 from
inception through March 31, 1997, including a net loss of $168,227 for the three
months ended March 31, 1997.
The Company is currently operating in a severely distressed financial
condition. As of March 31, 1997, the Company had a net working capital
deficiency of approximately $2,531,000. The Company is currently funding its
business on a day-to-day basis from revenues generated from its nine store
operations. Because of the timing of the payment of certain obligations and an
increase in the amount of credit extended by its primary supplier of
videocassettes, the Company has reported positive cash flow from operations for
the three months ended March 31, 1997. However, as the revenues from the
Company's existing nine stores are insufficient to insure timely payment of its
obligations, the Company continues to be in immediate need of financing to fund
its short-term working capital needs.
The Company's 5% unsecured promissory notes, in the principal amount of
$680,000, provide, by their terms, that the sole remedy of the holders thereof
upon default is to convert the principal and all accrued interest owing thereon,
into shares of Series C Preferred Stock (valued at $.25 per share of Common
Stock). The notes are not presently in default in the payment of principal or
interest. However, the Board of Directors does not presently intend to make any
payment on such notes upon their maturity in September 1997, leaving the holders
thereof with the sole remedy of converting such notes into Series C Preferred
Stock. The notes are not presently convertible.
The Company is in default under the terms of three 10% promissory notes
in the aggregate principal amount of $150,000 plus accrued interest. These notes
are held by Carl Shaifer and Max Scheuerer, two members
<PAGE>
CHOICES ENTERTAINMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS - (Continued)
Note 4 - Liquidity (Continued)
of the Shareholder Committee. The aggregate principal amount owing by the
Company on said promissory notes was reduced to $150,000 from $180,000 as a
result of a $30,000 payment made by the Company during 1995, to Mr. Scheuerer,
the holder of two such notes in the then total principal amount of $150,000.
This payment was made following the filing of a lawsuit against the Company by
Mr. Scheuerer in which a judgment was sought in the principal amount of $150,000
plus accrued interest of $15,548. The lawsuit was withdrawn following said
$30,000 payment without prejudice to its being reinstated if the balance owing
on said notes was not paid in full prior to March 15, 1996. No further payments
were made on such notes and Mr. Scheuerer filed a new lawsuit on September 18,
seeking a judgment in the amount of $146,298, representing principal and
interest owing to Mr. Scheuerer by the Company on said notes (plus future
interest, costs and any other appropriate damages). Since that time, the Company
has made payments to Mr. Scheuerer totaling $6,989 and subsequently entered into
a settlement agreement with Mr. Scheuerer, providing for $3,000 monthly payments
to him with the unpaid balance to be paid at closing of the proposed sale of
substantially all of the Company's assets and business to West Coast
Entertainment Corporation. Notwithstanding the settlement agreement, Mr.
Scheuerer has proceeded with the litigation, and the Company has made no monthly
payments. If the West Coast Transaction is not consummated, the Company would be
unable to satisfy the balance owing.
Additionally, the Company is in default under the terms of a 10%
promissory note in the principal amount of $30,000, which note is held by Harold
E. Hamburg, a member of the Shareholder Committee. The Company has paid all
interest due to date on said note.
The Company is also delinquent and presently unable to satisfy various
other liabilities, including amounts owing to vendors and landlords, as well as
substantial professional fees owing in connection with, among other things, its
now discontinued acquisition program and with respect to ongoing litigation.
(See PART II, Item 1.)
In connection with its now discontinued acquisition program, the
Company incurred substantial professional fees. Of the amount billed, $353,799
remains unpaid to law firm retained in that connection . Previously, in 1994, JD
Store Equipment, Inc. ("JD Store Equipment") agreed that, in the event its
merger with the Company (the "JD Merger") was not consummated, JD Store
Equipment would pay to the Company legal fees billed to the Company by the above
law firm. That law firm resigned as counsel to the Company shortly after JD
Store Equipment notified the Company that it was terminating the JD Merger.
Subsequently, the Company made a demand for payment upon JD Store Equipment for
all fees and disbursements in the amount of $793,281 billed to it by the law
firm, of which $439,482 has to date been paid by the Company. To avoid the
uncertainties associated with litigation and with collecting any judgment that
may be obtained, the Company attempted to reach a settlement with JD Store
Equipment, pursuant to which, among other things, JD Store Equipment would
assume any obligation of the Company for the above professional fees which have
been billed but not paid to such firm, and the Company would release JD Store
Equipment from any obligation to pay the $793,281 of legal fees billed to the
Company. As part of such settlement, the Company would be released by the law
firm. There are no ongoing discussions at present regarding such a settlement
and there is no assurance that any such settlement will be concluded.
On April 9, 1996, a lawsuit was filed against the Company and certain
others, including the members of the then Board of Directors, in the Superior
Court of California, by certain individuals who allegedly purchased or purchased
and sold securities of the Company, entitled Gary N. Gibbs et al. v. Choices
Entertainment Corporation et al.,. in which plaintiffs seek monetary damages
against the Company and other defendants in the amount of $303,470, plus
attorney's fees, costs of suit and such other relief as the Court deems just.
Discovery is proceeding and the Company intends to contest the lawsuit
vigorously. However, if the Company is unsuccessful in defending the lawsuit,
the Company would not be able to satisfy an award of damages in the amount
claimed. Furthermore, even if the Company is successful in defending this
lawsuit, the cost alone in professional fees will be substantial.
As previously reported, the Company has entered into an Asset Purchase
Agreement (the "Purchase Agreement") with West Coast Entertainment Corporation,
a Delaware corporation ("West Coast") , dated December 16, 1996, as amended,
providing for the sale, transfer and assignment of substantially all of the
<PAGE>
CHOICES ENTERTAINMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS - (Continued)
Note 4 - Liquidity (Continued)
Company's assets and business to West Coast (the "West Coast Transaction"). At
the time of the signing of the Purchase Agreement, and in anticipation of the
sale of assets, West Coast loaned the Company $150,000. Additionally, in
connection with the Purchase Agreement, West Coast loaned the Company $20,000 on
March 3, 1997 and $29,000 on March 19, 1997. All three of these loans are
evidenced by 12% promissory notes, which are required to be paid at the closing
of the West Coast Transaction or, if applicable at the closing of the sale of
the assets of the Company's Newtown, Pennsylvania store (the "Newtown Store")
or, in any event, on demand at any tine from and after May 31, 1997, as provided
for under the Purchase Agreement, as amended on April 23, 1997 (See Note 5). All
three notes are secured by a security interest in all of the assets of the
Newtown Store. The proceeds of the notes were used to pay certain costs
previously incurred.
If an event occurs which entitles West Coast to receive a breakup fee
under the Purchase Agreement, West Coast has been granted an option to purchase
all of the Company's assets relating to the Newtown Store for the purchase price
of $250,000 payable in cash.
Under the Purchase Agreement, consummation of the West Coast
Transaction remains contingent upon a number of conditions, the satisfaction of
which cannot be assured, including, among others, obtaining all necessary
consents and West Coast obtaining financing in an amount sufficient to
consummate the West Coast Transaction and certain additional acquisitions. If
the West Coast Transaction is successfully consummated, as to which no
assurances can be given, the Company intends to use a substantial portion of the
proceeds to reduce a portion of its debt, including all amounts owing on the10%
promissory notes discussed above, held by Messrs. Shaifer, Scheuerer and
Hamburg, but exclusive of $680,000 (plus accrued interest) owing on its 5%
promissory notes (discussed above) and exclusive of $353,000 of professional
fees billed in connection with its discontinued acquisition program (also
discussed above). Thereafter, assuming that sufficient cash proceeds remain, as
to which no assurance can be given, the Company's Board of Directors will
consider various alternatives including (without limitation) seeking and
considering other business opportunities that may be presented to the Company or
making a partial distribution of the net cash proceeds to the Company's
stockholders. However, as noted above, following a closing of the West Coast
Transaction, certain liabilities will remain which, if paid, and, in addition,
certain claims against the Company will exist which, if successfully asserted,
could result in there being no cash proceeds with which to seek further business
opportunities or to make any cash distribution to stockholders. Available
proceeds following a closing will also be reduced by related transaction
expenses and taxes, and by certain continuing costs, including professional
fees, as well as by the $243,000 required to be escrowed pursuant to the terms
of the Purchase Agreement with West Coast. Moreover, because the Company
continues to operate at a net loss, the longer it takes to consummate the West
Coast Transaction, the greater the Company's net loss, thereby reducing the
proceeds available at closing.
Absent consummation of the West Coast Transaction, the Company's future
viability is doubtful, given its inability to secure needed capital, to extend
further the due dates of liabilities, or to otherwise conclude or settle
existing liabilities and claims on a satisfactory basis, and, possibly, to
conclude existing litigation on a successful basis. Furthermore in such event,
the Company would be required to repay all amounts loaned to it by West Coast,
which loans are secured by the assets of the Company's Newtown Store, the
Company's most profitable and valuable store. In the event the Company is not
successful in consummating the West Coast Transaction, as to which no assurance
can be given, the Company's Board of Directors believes, due to the Company's
severely distressed financial condition, and the expectation that its financial
condition will continue to deteriorate, that the Company will be ultimately
forced to seek protection under the bankruptcy laws. Because the decision to
file for bankruptcy is likely to be based upon the actions of third parties,
primarily the landlords for the Company's stores and certain major creditors of
the Company, it is not possible to predict at what point the Company would be
forced to do so. In the event the Company is forced to file for bankruptcy, the
Company's ability to conduct its business would likely be severely hampered and
it is unlikely that the stockholders would receive any value.
<PAGE>
CHOICES ENTERTAINMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS - (Continued)
Note 5 - Subsequent Events
On April 23, 1997, the Company and West Coast amended the Purchase
Agreement to extend the termination date thereunder from a date no later than
April 30, 1997 to a date no later than May 31, 1997.
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation
The following is Management's discussion and analysis of certain
significant factors which have affected the Company's financial condition,
changes in financial condition, and results of operations. It also includes a
discussion of the Company's liquidity and capital resources at March 31, 1997,
and later dated information, where practicable. This discussion should be read
together with the Company's Financial Statements and the Notes thereto,
beginning on Page 2.
Financial Condition, Liquidity and Capital Resources
The Company is currently operating in a severely distressed financial
condition. As of March 31, 1997, the Company had a net working capital
deficiency of approximately $2,531,000. The Company is currently funding its
business on a day-to-day basis from revenues generated from its nine store
operations. Because of the timing of the payment of certain obligations, the
Company has reported positive cash flow from operations for the three months
ended March 31, 1997. However, as the revenues from the Company's existing nine
stores are insufficient to insure timely payment of its obligations, the Company
continues to be in immediate need of financing to fund its short-term working
capital needs.
The Company's 5% unsecured promissory notes in the principal amount of
$680,000, provide, by their terms, that the sole remedy of the holders thereof
upon default is to convert the principal and all accrued interest owing thereon,
into shares of Series C Preferred Stock (valued at $.25 per share of Common
Stock). The notes are not presently in default in the payment of principal or
interest. However, the Board of Directors does not presently intend to make any
payment on such notes upon their maturity in September 1997, leaving the holders
thereof with the sole remedy of converting such notes into Series C Preferred
Stock. The notes are not presently convertible.
The Company is in default under the terms of three 10% promissory notes
in the aggregate principal amount of $150,000 plus accrued interest. These notes
are held by Carl Shaifer and Max Scheuerer, two members of the Shareholder
Committee ( See Part II Item 1. Legal Proceedings). The aggregate principal
amount owing by the Company on said promissory notes was reduced to $120,000
from $150,000 as a result of a $30,000 payment made by the Company during 1995
to Mr. Scheuerer, the holder of two such notes in the then principal amount of
$150,000. This payment was made following the filing of a lawsuit against the
Company by Mr. Scheuerer seeking collection of said notes. The lawsuit was
withdrawn following said $30,000 payment without prejudice to its being
reinstated if the balance owing on the notes was not paid in full prior to March
15, 1996. No further payments were made on such notes and, on September 18,
1996, Mr. Scheuerer filed a new lawsuit ( see Part II Item 1. Legal
Proceedings), seeking a judgment in the amount of $146,298, (plus future
interest, costs and any other appropriate damages), which amount allegedly
represents $120,000 of principal and $26,298 of interest then owed by the
Company to Mr. Scheuerer under the two 10% promissory notes. Since that time,
the Company has made payments to Mr. Scheuerer totaling $6,989, and subsequently
entered into a settlement agreement with Mr. Scheuerer, providing for $3,000
monthly payments to Mr. Scheuerer, with the unpaid balance to be paid upon the
closing of the proposed sale of substantially all of the Company's assets and
business to West Coast Entertainment Corporation. Notwithstanding the settlement
agreement, Mr. Scheuerer has proceeded with the litigation, and the Company has
made no monthly payments to Mr. Scheuerer.
Additionally, the Company is in default under the terms of a 10%
promissory note in the principal amount of $30,000, which note is held by Harold
E. Hamburg, a member of the Shareholder Committee. The Company has paid all
interest due to date on said note.
The Company is also delinquent and presently unable to satisfy various
other liabilities, including amounts owing to vendors and landlords, as well as
substantial professional fees owing in connection with, among other things, its
now discontinued acquisition program and with respect to ongoing litigation.
In connection with its now discontinued acquisition program, the
Company incurred substantial professional fees. Of the amount billed, $353,799
remains unpaid to law firm retained in that connection . Previously, in 1994, JD
Store Equipment, Inc. ("JD Store Equipment") agreed that, in the event its
merger with the Company (the "JD Merger") was not consummated, JD Store
Equipment would pay to the Company legal fees billed to the Company by the above
law firm. That law firm resigned as counsel to the Company shortly after JD
Store Equipment notified the Company that it was terminating the JD Merger.
Subsequently, the Company made a
<PAGE>
demand for payment upon JD Store Equipment for all fees and disbursements in the
amount of $793,281 billed to it by the law firm, of which $439,482 has to date
been paid by the Company. To avoid the uncertainties associated with litigation
and with collecting any judgment that may be obtained, the Company attempted to
reach a settlement with JD Store Equipment, pursuant to which, among other
things, JD Store Equipment would assume any obligation of the Company for the
above professional fees which have been billed but not paid to such firm, and
the Company would release JD Store Equipment from any obligation to pay the
$793,281 of legal fees billed to the Company. As part of such settlement, the
Company would be released by the law firm. There are no ongoing discussions at
present regarding such a settlement and there is no assurance that any such
settlement will be concluded.
On April 9, 1996, a lawsuit was filed against the Company and certain
others, including the members of the then Board of Directors, in the Superior
Court of California, by certain individuals who allegedly purchased or purchased
and sold securities of the Company, entitled Gary N. Gibbs et al. v. Choices
Entertainment Corporation et al.,. in which plaintiffs seek monetary damages
against the Company and other defendants in the amount of $303,470, plus
attorney's fees, costs of suit and such other relief as the Court deems just.
Discovery is proceeding and the Company intends to contest the lawsuit
vigorously. However, if the Company is unsuccessful in defending the lawsuit,
the Company would not be able to satisfy an award of damages in the amount
claimed. Furthermore, even if the Company is successful in defending this
lawsuit, the cost alone in professional fees will be substantial.
As previously reported, the Company has entered into an Asset Purchase
Agreement (the " Purchase Agreement") with West Coast Entertainment Corporation,
a Delaware corporation ("West Coast") , dated December 16, 1996, as amended,
providing for the sale, transfer and assignment of substantially all of the
Company's assets and business to West Coast (the "West Coast Transaction"). At
the time of the signing of the Purchase Agreement, and in anticipation of the
sale of assets, West Coast loaned the Company $150,000. Additionally, in
connection with the Purchase Agreement, West Coast loaned the Company $20,000 on
March 3, 1997 and $29,000 on March 19,1997. All three of these loans are
evidenced by 12 % promissory notes, which are required to be paid at the closing
of the West Coast Transaction or, if applicable, at the closing of the sale of
the assets of the Company's Newtown, Pennsylvania Store (the "Newtown Store")
or, in any event, on demand at any time from and after May 31, 1997, as provided
for by the Purchase Agreement, as amended on April 23, 1997. All three notes are
secured by a security interest in all of the assets of the Newtown Store. The
proceeds of the notes were used to pay certain costs previously incurred.
If an event occurs which entitles West Coast to receive a breakup fee
under the Purchase Agreement, West Coast has been granted an option to purchase
all of the Company's assets relating to the Newtown Store for the purchase price
of $250,000 payable in cash.
Under the Purchase Agreement, consummation of the West Coast
Transaction remains contingent upon a number of conditions, the satisfaction of
which cannot be assured, including, among others, obtaining all necessary
consents and West Coast obtaining financing in an amount sufficient to
consummate the West Coast Transaction and certain additional acquisitions. If
the West Coast Transaction is successfully consummated, as to which no
assurances can be given, the Company intends to use a substantial portion of the
proceeds to reduce a portion of its debt, including all amounts owing on the10%
promissory notes discussed above, held by Messrs. Shaifer, Scheuerer and
Hamburg, but exclusive of $680,000 (plus accrued interest) owing on its 5%
promissory notes (discussed above) and exclusive of $353,000 of professional
fees billed in connection with its discontinued acquisition program (also
discussed above). Thereafter, assuming that sufficient cash proceeds remain, as
to which no assurance can be given, the Company's Board of Directors will
consider various alternatives including (without limitation) seeking and
considering other business opportunities that may be presented to the Company or
making a partial distribution of the net cash proceeds to the Company's
stockholders. However, as noted above, following a closing of the West Coast
Transaction, certain liabilities will remain which, if paid, and, in addition,
certain claims against the Company will exist which, if successfully asserted,
could result in there being no cash proceeds with which to seek further business
opportunities or to make any cash distribution to stockholders. Available
proceeds following a closing will also be reduced by related transaction
expenses and taxes, and by certain continuing costs, including professional
fees, as well as by the $243,000 required to be escrowed pursuant to the terms
of the Purchase Agreement with West Coast. Moreover, because the Company
continues to operate at a net loss, the longer it takes to consummate the West
Coast Transaction, the greater the Company's net loss, thereby reducing the
proceeds available at closing.
<PAGE>
Absent consummation of the West Coast Transaction, the Company's future
viability is doubtful, given its inability to secure needed capital, to extend
further the due dates of liabilities, or to otherwise conclude or settle
existing liabilities and claims on a satisfactory basis, and, possibly, to
conclude existing litigation on a successful basis. Furthermore in such event,
the Company would be required to repay all amounts loaned to it by West Coast,
which loans are secured by the assets of the Company's Newtown Store, the
Company's most profitable and valuable store. In the event the Company is not
successful in consummating the West Coast Transaction, as to which no assurance
can be given, the Company's Board of Directors believes, due to the Company's
severely distressed financial condition, and the expectation that its financial
condition will continue to deteriorate, that the Company will be ultimately
forced to seek protection under the bankruptcy laws. Because the decision to
file for bankruptcy is likely to be based upon the actions of third parties,
primarily the landlords for the Company's stores and certain major creditors of
the Company, it is not possible to predict at what point the Company would be
forced to do so. In the event the Company is forced to file for bankruptcy, the
Company's ability to conduct its business would likely be severely hampered and
it is unlikely that the stockholders would receive any value.
This Quarterly Report on Form 10-QSB contains forward looking
information with respect to, among other things, plans, future events or future
performance of the Company, the occurrence of which involve certain risks and
uncertainties that could cause actual results or future events to differ
materially from those expressed in any forward looking statements. These risks
and uncertainties include, but are not limited to, the risks and uncertainties
associated with consummation of the West Coast Transaction, adverse litigation,
the effects of competition, the ability to make timely payment to vendors, the
inability to satisfy obligations to certain landlords and creditors, the risk of
being unable to finance videocassette inventory acquisitions due to its severely
distressed financial condition, and those risks and uncertainties detailed in
the Company's filings with the Securities and Exchange Commission. Where any
forward looking statement includes a statement of the assumptions or bases
underlying such forward looking statement, the Company cautions that, while such
assumptions or bases are believed to be reasonable and are made in good faith,
assumed facts or bases almost always vary from actual results, and the
differences between assumed facts or bases and actual results can be material,
depending upon the circumstances. Where, in any forward looking statement, the
Company expresses an expectation or belief as to plans or future results or
events, such expectation or belief is expressed in good faith and believed to
have a reasonable basis, but there can be no assurance that the statement of
expectation or belief will result or be achieved or accomplished. The words
"believe," "expect" and "anticipate" and similar expressions identify forward
looking statements.
Capital Expenditures
During the three-month period ended March 31, 1997, the Company's
capital expenditures, relating to the purchase of videocassette rental films and
furniture and fixtures, were approximately $346,000 and $6,000, respectively,
compared to $409,000 for the purchase of videocassette rental films and $2,000
for the purchase of furniture and fixtures during the same period in 1996. The
Company does not anticipate a significant increase in capital expenditures for
the remainder of the current year other than the replenishment of videocassette
rental films during the normal course of business.
Material Changes in Financial Condition
Assets:
Total assets decreased by approximately $98,000 between December 31,
1996 and March 31, 1997, primarily due to decreases in prepaid expenses,
merchandise inventory and cash used to fund the Company's operations, and to the
amortization of intangible assets and other deferred costs. The decrease in
merchandise inventory is primarily due to the Company operating nine stores
during the 1997 period when compared to ten stores in operation during the 1996
period.
Liabilities:
Total liabilities increased by approximately $70,000 between December
31, 1996 and March 31, 1997, primarily due to the increases in accrued expenses
and accounts payable as a result of the timing of payment of certain
obligations, and to the increase in notes payable (See Part 1, Item 1. Note 3.)
<PAGE>
Stockholders' Deficit:
Between December 31, 1996 and March 31, 1997, the increase in
stockholders' deficit was due to the loss of approximately $168,000 for the
three-month period ended March 31, 1997.
Material Changes in Results of Operations
Rental revenues decreased approximately $96,000, or 9%, during the
comparative three-month period ended March 31, 1997. The decrease is primarily
due to the Company operating nine stores during the 1997 period compared to ten
stores in operation during the 1996 period, to less favorable rental-weather
conditions, and to a lesser extent, competition during the 1997 period. Same
store rental revenue increased approximately $14,000, or 1%, during the 1997
period.
Merchandise sales decreased approximately $7,000, or 3%, during the
comparative three-month period ended March 31, 1997. The decrease is primarily
due to the Company operating nine stores during the 1997 period compared to ten
stores in operation during the 1996 period.
Cost of goods sold decreased approximately $41,000, or 15% as a
percentage of merchandise sales, during the three-month comparative period. The
decrease, as a percentage of merchandise sales, is primarily related to higher
margins on rental films sold during 1997 when compared to 1996. Also included in
merchandise revenue during the three-month period ended 1997 is approximately
$18,000 of customer membership revenue which has no corresponding cost of sales.
Cost of movie rentals was approximately $106,000 during the three-month
comparative period primarily due to the usage of a pay per transaction
arrangement with a supplier of videocassette rental films.
Store payroll decreased approximately $7,000 during the three-month
comparative period . The decrease is primarily related to there being only nine
stores in operation during 1997 compared to ten stores in operation during the
1996 comparative periods, and to the Company's continuing efforts to reduce
operating costs in its stores. Store rents increased approximately $2,000 during
the three comparative period. Other store operating expenses remained relatively
constant during the three-month comparative period.
Selling and administrative expenses increased approximately $11,000, or
8% during the 1997 comparative period primarily due to costs related to the West
Coast Transaction.
Professional and consulting fee expenses increased approximately
$48,000 during the 1997 comparative period primarily due to costs associated
with certain litigation (See Part II Item 1. Legal Proceedings) and to costs
associated with the West Coast Transaction.
Loss on disposal of videocassette rental inventory decreased
approximately $7,000, but remained relatively constant as percentage of rental
revenue during the 1997 comparative period.
Depreciation and amortization expense decreased approximately $50,000,
or 2% during the 1997 comparative period, primarily due to having only nine
stores in operation during 1997 compared to ten stores in operation during the
1996 period.. Approximately $20,000 of the decrease related to a reduction in
depreciation expense for property and equipment and approximately $30,000 of the
decrease related to depreciation of videocassette rental films during the period
ended March 31, 1997.
Interest expense increased approximately $3,000 during the 1997
comparative period primarily due to the interest expense relating to the
increase in notes payable outstanding at March 31, 1997 when compared to the
same period in 1996.
As a result of the foregoing, the Company incurred a net loss of
approximately $168,000 during the three-month period ended March 31, 1997.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company has recently been involved in certain legal proceedings
concerning control of the Company's Board of Directors. The following is a
description of these proceedings and certain other material legal proceedings,
which are pending:
Shareholder Committee Litigation. On July 26, 1996, the Company filed a
lawsuit in the United States District Court for the District of Columbia (the
"Washington Proceedings"), entitled Choices Entertainment Corporation v. Carl
Shaifer et al., Civil Action No. 1:96-CV-01753, seeking declaratory and
injunctive relief against the following group of stockholders: Carl Shaifer,
Joseph DeSaye, Max Scheuerer, Maureen and Lawrence Feeney, William and Evelyn
Goatley, P.L. Anderson, Jr. , Harold E. Hamburg, David F. Beckman, Mark and
Barbara Raifman and Frank Harvey (collectively, the "Shareholder Committee") for
alleged violations of the federal securities laws. The Shareholder Committee had
previously filed a Solicitation Statement ( the "Solicitation Statement") with
the Securities and Exchange Commission on June 28, 1996, in connection with the
Shareholder Committee's solicitation of written consents from other shareholders
for the purpose of removing and replacing the then Board of Directors of the
Company without the holding of a meeting. The Company believes that the
Solicitation Statement contains material misleading statements and omissions of
material facts, including the failure to disclose serious conflicts of interests
of the Shareholder Committee and of certain of its director nominees to the
Board, that the Shareholder Committee had failed to file a Schedule 13D in
accordance with the requirements of the Securities Exchange Act of 1934, and
that any consents obtained by the Shareholder Committee had been obtained in
violation of the federal securities laws and were invalid.
On July 29, 1996, the Shareholder Committee delivered written consents
to the Company, which the Shareholder Committee asserted were sufficient to
remove and replace the Company's then Board of Directors with the nominees of
the Shareholder Committee without the holding of a meeting, and such nominees
attempted to assert control and to terminate the employment of existing
management. The Company did not recognize the action purported to have been
taken by the Shareholder Committee, having concluded that the Shareholder
Committee had not delivered sufficient consents to remove and replace the
Company's then Board and, in any event, that such consents were otherwise
invalid as having been obtained in violation of the federal securities laws.
On August 2, 1996, a lawsuit was filed in the Court of Common Pleas of
Bucks County, Pennsylvania, against the then existing Directors of the Company
by the director nominees to the Board of the Shareholder Committee, Carl
Shaifer, Joseph DeSaye and Max Scheuerer, as well as on behalf of the Company,
entitled Choices Entertainment Corporation et al., v. Ronald W. Martignoni et
al., No. 96005737-18-5. The lawsuit requested that the Court grant a preliminary
injunction requiring that the defendants cease acting as corporate officers or
directors and otherwise relinquish control of the Company. On August 9, 1996,
the lawsuit was discontinued by plaintiffs.
On August 16, 1996, the Shareholder Committee's nominees, Carl Shaifer,
Joseph DeSaye and Max Scheuerer, filed a lawsuit in the Delaware Court of
Chancery for New Castle County (the "Delaware Proceedings"), C.A. No. 15170,
entitled Carl Shaifer, et al. v. Ronald W. Martignoni, et al., against the
Company and the then existing Board of Directors, seeking: (i) a declaration
that the Board had been duly and validly removed and that plaintiffs were
validly elected as the Company's Board, (ii) an order directing the holding of
an annual meeting of stockholders on a date, to be fixed by the Court, not more
than 30 days from August 16, 1996 (the date of the filing of the complaint),
(iii) costs and expenses, including attorneys fees, and (iv) such other relief
as the Court deemed just and proper.
On September 4, 1996, after two summary hearings, and prior to the
filing of an answer by defendants in the Delaware Proceedings, the Delaware
Court of Chancery, without ruling on the merits, ordered, inter alia: (i) that
the annual meeting of stockholders be held on December 20, 1996, as previously
announced by the Company, (ii) that the then existing Board, consisting of
Ronald W. Martignoni, John A. Boylan and Fred E. Portner, constituted the
Company's Board of Directors, until the earlier of the election of directors at
the meeting or the resolution of plaintiffs claims in the lawsuit, and that
Joseph DeSaye, except with respect to certain matters, be permitted to attend
Board meetings, and (iii) that, until the earlier of the election of directors
at the annual meeting or the resolution of plaintiffs claims in the lawsuit, the
Company could not issue any voting securities in certain
<PAGE>
specified transactions except upon Court order and that the Company could not,
except upon five business days notice, take any "action out of the ordinary
course, " as defined in the order. The order also provides that the restrictions
contained therein could be waived by written agreement of the parties and that
the order may be modified by the Court. On September 6, 1996, defendants filed
an answer to the complaint in the Delaware Proceedings, denying plaintiffs
allegations with regard to all claims.
On September 12, 1996, counsel for the Company and the Shareholder
Committee notified the Court in the Washington Proceedings that they were
engaged in settlement discussions and requested postponement of the hearing
previously scheduled for September 13, 1996, which postponement was granted.
The annual meeting was held, in accordance with the Chancery Court
order, on December 20, 1996, at which a new Board of Directors was elected.
On February 10, 1997, the parties filed a stipulation of dismissal
without prejudice in the Washington Proceedings, and on February 12, 1997, the
parties filed a stipulation of dismissal without prejudice in the Delaware
Proceedings.
Scheuerer Litigation. On September 18, 1996, a lawsuit was filed
against the Company in the Court of Common Pleas of Bucks County, Pennsylvania,
captioned Max Scheuerer v. Choices Entertainment Corporation, Civil Action No.
96006871, in which plaintiff, Max Scheuerer, a member of the Shareholder
Committee, is seeking a judgment in the amount of $146,298 (plus future
interest, costs and any other appropriate damages), which amount allegedly
represents $120,000 of principal and $26,298 of interest owed by the Company to
plaintiff under two 10% promissory notes. The Company has entered into a
settlement agreement with Mr. Scheuerer, providing for $3,000 monthly payments
to Mr. Scheuerer with the unpaid balance to be paid upon the closing of the
proposed sale of substantially all of the Company's assets and business to West
Coast Entertainment Corporation. Notwithstanding the settlement agreement, Mr.
Scheuerer has proceeded with the litigation, and the Company has made no monthly
payments to Mr. Scheuerer. (See Part I Item 1. Management's Discussion and
Analysis or Plan of Operation).
Gibbs Litigation. On April 9, 1996, a lawsuit was filed against the
Company in the Superior Court of California, entitled Gary N. Gibbs et al. v.
Choices Entertainment Corporation et al., No. BC147815, by certain individuals
who allegedly purchased or purchased and sold securities of the Company. Also
named as defendants in the lawsuit were the members of the then Board of
Directors, a former director and certain others. It is alleged that the Company
made false and misleading statements and omitted to state certain material facts
in public communications and in reports filed with the Securities and Exchange
Commission with regard to a possible merger with JD Store Equipment, Inc. ("JD
Store"), which was terminated by JD Store in September 1995, and with regard to
the Company's related acquisition program. On July 12, 1996, Demurers to the
Complaint filed on behalf of the Company and the other defendants were
sustained. On July 29, 1996, a Second Amended Complaint was filed, in which
plaintiffs seek monetary damages against the Company and the other defendants in
the amount of $303,470, plus attorney's fees, costs of suit and such other
relief as the court deems just. The plaintiffs are principally the same
individuals who filed the prior Complaint, which contains substantially the same
allegations as now set forth in the Second Amended Complaint. On August 28,
1996, the Company filed an answer to the complaint, denying plaintiffs
allegations with regard to all claims. On October 22, 1996 the Company also
filed a motion for summary judgment, which was denied on November 26, 1996.
Discovery is proceeding. The Company intends to contest the lawsuit vigorously.
Item 3. Defaults Upon Senior Securities.
The Company is in default under the terms of three 10% promissory notes
in the aggregate principal amount of $150,000 plus accrued interest. These notes
are held by Carl Shaifer and Max Scheuerer, two members of the Shareholder
Committee ( See Part II Item 1. Legal Proceedings). The aggregate principal
amount owing by the Company to Mr. Scheuerer on said promissory notes was
reduced to $120,000 from $150,000 as a result of a $30,000 payment made by the
Company, to Mr. Scheuerer on November 30, 1995,following the filing of a lawsuit
against the Company by Mr. Scheuerer seeking collection of said notes. The
lawsuit was withdrawn following said $30,000 payment without prejudice to its
being reinstated if the balance owing on the notes was not paid in full prior to
March 15, 1996. No further payments were made on such notes and, on September
18, 1996, Mr. Scheuerer filed a new lawsuit ( see Part II Item 1. Legal
Proceedings), seeking a judgment in the amount of
<PAGE>
$146,298, (plus future interest, costs and any other appropriate damages), which
amount allegedly represents $120,000 of principal and $26,298 of interest then
owed by the Company to Mr. Scheuerer under the two 10% promissory notes. Since
that time, the Company has made payments to Mr. Scheuerer totaling $6,989, and
subsequently entered into a settlement agreement with Mr. Scheuerer, providing
for $3,000 montly payments to Mr. Scheuerer, with the unpaid balance to be paid
upon the closing of the proposed sale of substantially all of the Company's
assets and business to West Coast Entertainment Corporation. Nothwithstanding
the settlement agreement, Mr. Scheuerer has proceeded with the litigation, and
the Company has made no monthly payments to Mr. Scheuerer.
Additionally, the Company is in default under the terms of a 10%
promissory note in the principal amount of $30,000, which note is held by Harold
E. Hamburg, a member of the Shareholder Committee. The Company has paid all
interest due to date on said note.
Item 4. Submission of Matters to a Vote of Security-Holders.
A special Meeting of Stockholders was held on March 12, 1997, to
consider and vote upon a proposal to approve the sale, transfer and assignment
of substantially all of the Company's assets and business to West Coast
Entertainment Corporation ("West Coast") (the "West Coast Transaction"). The
proposal was approved by the following combined vote of the Company's Common and
Preferred Stock voting together as a single class:
For Against Abstain
---------------- --------------- -----------------
12,439,223 (1) 2,361,808 13,850
- - - ----------
(1) Represents 53% of the combined number of votes attributable to the
outstanding shares of the Company's Common and Preferred Stock.
Under the Purchase Agreement, consummation of the West Coast
Transaction remains contingent upon a number of other conditions, the
satisfaction of which cannot be assured, including, among others, obtaining all
necessary consents and West Coast obtaining financing in an amount sufficient to
enable it to consummate the West Coast Transaction and certain additional
acquisitions.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The exhibits listed in the Index to Exhibits appearing on Page E-1 are
included as part of this report.
(b) Reports on Form 8-K
None
<PAGE>
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.
CHOICES ENTERTAINMENT CORPORATION
Date: May 12, 1997 By: /s/ Ronald W. Martignoni
------------------------------
Ronald W. Martignoni
Chief Executive Officer
Date: May 12, 1997 By: /s/ Lorraine E. Cannon
------------------------------
Lorraine E. Cannon
Chief Financial Officer
<PAGE>
INDEX TO EXHIBITS
Exhibit
No. Description of Exhibit
--- ----------------------
3 (a) Certificate of Incorporation, as amended (1)
(b) Certificate of Designations of Series C Preferred Stock, as
amended (2)
(c) By-Laws, as amended (3)
4 (a) Form of Certificate Evidencing Shares of Common Stock (4)
(b) Form of 5% Promissory Note (5)
10(a) Non-Employee Director Stock Option Agreement between Registrant
and Fred E. Portner (6)
10(b) Non-Employee Director Stock Option Agreement between Registrant
and James D. Sink (6)
27(a) Financial Data Schedule (6)
================================================================================
(1) Filed as an Exhibit to Registrant's Registration Statement on Form S-8
(File No. 33-87016) and incorporated herein by reference.
(2) Filed as an Exhibit to Registrant's Annual Report on Form 10-KSB, for
the year ended December 31,1996 and incorporated herein by reference.
(3) Filed as an Exhibit to Registrant's Annual Report on Form 10-K for the
year ended December 31, 1992 and incorporated herein by reference.
(4) Filed as an Exhibit to Registrant's Registration Statement on Form S-1,
inclusive of Post-Effective Amendment No.1 thereto (File No.:
33-198983) and incorporated herein by reference.
(5) Filed as an Exhibit to Registrant's Quarterly Report on Form 10-QSB for
the quarter ended September 30, 1995 and incorporated herein by
reference.
(6) Filed herewith.
E-1
Exhibit 10(a)
THIS OPTION HAS BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY AND MAY BE
TRANSFERRED ONLY IN COMPLIANCE WITH BOTH THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), AND THE RESTRICTIONS CONTAINED HEREIN. THIS OPTION HAS NOT BEEN
REGISTERED UNDER THE ACT.
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (hereinafter the "Agreement"), is entered into
under seal as of this 13th day of February, 1997 by and between CHOICES
ENTERTAINMENT CORPORATION, a Delaware Corporation (hereinafter the
"Corporation"), and Fred E. Portner, a resident of the Commonwealth of Virginia
(hereinafter the "Optionee").
R E C I T A L S
WHEREAS, the Corporation now desires to provide for the grant to the
Optionee of an option to purchase certain shares of the Common Stock of the
Corporation, upon certain stated terms and conditions.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements contained herein, and for other good and valuable
consideration both the receipt and legal sufficiency of which are hereby
acknowledged, the parties hereby specifically agree under seal as follows:
1. Grant of Option. In exchange for good and valuable consideration and
Ten Dollars ($10.00) paid in hand by the Optionee to the Corporation, the
Corporation hereby grants to the Optionee, subject to the provisions hereof, the
right, privilege and option to purchase up to, but not exceeding, fifty-thousand
(50,000) shares of the Common Stock of the Corporation, par value One Cent
($.01) per share (hereinafter the "Option"), at a per share exercise price of
$0.05.
2. Manner of Exercise. Subject at all times to the provisions of the
Corporation's Certificate of Incorporation, as amended, the Option granted
pursuant to this Agreement may be exercised by the Optionee at any time during
the period of time commencing on August 13, 1997, and terminating at 5:00 p.m.,
prevailing New York time, on February 13, 2002 (hereinafter the "Expiration
Date"). Said Option may be exercised from time to time prior to said Expiration
Date, but in no instance for less than Ten Thousand (10,000) shares of the
Common Stock of the Corporation at any one (1) time (unless a lesser number of
shares shall then be the maximum number subject to exercise at that time and, if
such is the case, the Optionee must exercise in toto, and not in part, all such
shares subject to exercise at that time). It is expressly
<PAGE>
understood that any and all Options not exercised prior to the Expiration Date
shall expire immediately and automatically thereon and become null and void
without any further act or deed whatsoever at that time.
3. Exercise of Option. The Option granted by this Agreement, to the extent
the same is exercisable in accordance with the provisions set forth in Section 2
hereof, may be exercised only by delivering to the Secretary of the Corporation
written notice of exercise in the form of the Notice of Exercise, attached
hereto as Exhibit A and incorporated by reference herein, together with payment
in the form of cash, check, bank draft or money order payable to the Order of
Corporation in an amount equal to the total exercise price as set forth in
Section 1 hereof (hereinafter the "Exercise Price") for that number of shares
purchased pursuant to said Notice of Exercise and a written statement that the
shares are being purchased for the Optionee's own account, for investment only,
and not with a view to distribution. This statement will not be required in the
event that the offering of the securities pursuant to this Agreement is then
registered under the federal Securities Act of 1933, as amended (hereinafter the
"Act"), and any and all applicable similar state securities laws (hereinafter
the "State Acts"). Within thirty (30) days after delivery of any Notice of
Exercise as set forth hereinabove, the Corporation shall cause certificates for
the number of shares of the Common Stock of the Corporation with respect to
which such Option is exercised to be issued in the name of the Optionee.
4. Option Stock. Any shares issued upon the exercise of the Option granted
hereby shall be either authorized but unissued or reacquired shares of the
Corporation's common stock, par value One Cent ($.01) per share (any such shares
issued pursuant to such exercise, hereinafter the "Option Stock").
5. Option Transfer Restrictions. The Option granted pursuant to this
Agreement may not be transferred, assigned, pledged, sold, donated, hypothecated
or otherwise disposed of in any way whatsoever, shall not be subject to
attachment or similar process, and may be exercised, subject to the restrictions
contained herein, only by the Optionee. Upon any attempt to transfer the Option
granted pursuant thereto, or to assign, pledge, hypothecate, sell, donate or
otherwise dispose of the same in any manner whatsoever, not in strict accordance
with the provisions hereof, or upon the levy of any execution, attachment, or
similar process upon such option, the Option shall immediately and automatically
become null and void and without any force or effect whatsoever.
6. Optionee Not a Stockholder. The Optionee shall not be deemed for any
purpose to be a stockholder of the Corporation with respect to any shares as to
which the Option granted hereunder has not been exercised in strict accordance
hereof, with payment of the Exercise Price and issuance of certificates made as
provided herein.
<PAGE>
7. Optionee's Representations & Warranties; Acknowledgement
of Certain Facts.
(a) The Optionee acknowledges that any and all securities to be
acquired pursuant to this Agreement have not been registered under either the
Act or the State Acts. Accordingly, the Optionee represents and warrants that
the Option granted hereby and any Option Stock acquired pursuant hereto will be
acquired for its own account and without a view to, the offer, offer for sale,
or any sale in connection with, the distribution of either such Option or the
Option Stock represented by such Option. The Optionee further represents and
warrants that it will hold such Option Stock indefinitely unless subsequently
registered under the Act and the State Acts or unless exemption from such
registration is available and an opinion of counsel for the Corporation, in form
and substance satisfactory to the Corporation, is obtained to that effect.
Consequently, all certificates representing shares of Option Stock issued upon
the exercise of the Option, or part thereof, shall bear a conspicuous legend in
substantially the following form:
"The securities represented by this certificate have not been
registered under the Federal Securities Act of 1933 (the "Act") or
applicable state securities laws (the "State Acts") and shall not be sold,
pledged, hypothecated, donated, or otherwise transferred (whether or not
for consideration) by the holder except upon the issuance to the
Corporation of a favorable opinion of its counsel and/or the submission to
the Corporation of such other evidence as may be satisfactory to counsel
for the Corporation, to the effect that any such transfer shall not be in
violation of the Act and the State Acts."
(b) The Optionee recognizes that the securities to be acquired
pursuant to this Agreement are highly speculative and involve a high degree of
risk. The Optionee further recognizes that the Option granted hereby is not
transferable except as specifically set forth herein and that the
transferability of shares of the Option Stock is significantly restricted. The
Optionee acknowledges that it has sufficient financial means to be able to
sustain the loss of the amount necessary to exercise the Option or part thereof,
should it choose to do so. The Optionee expressly recognizes and specifically
acknowledges that the percentage of the Corporation's equity represented by this
Option is subject to substantial dilution in any one of a variety of means,
including, but not limited to, by way of a future issuance of stock, stock
split, reverse stock split, stock dividend or other distribution,
reclassification of outstanding shares, recapitalization or otherwise.
(c) The parties agree that if the Corporation shall be advised by
its legal counsel that the issuance of securities or transfer of the Option
pursuant to this Agreement is not permitted under the Act or the State Acts, the
Corporation may, in its
<PAGE>
discretion, defer either the delivery of any Option Stock to the Optionee or the
transfer of the Option until such time as the same would be permitted by the Act
and the State Acts, including by effecting registration of the same. The
Optionee shall have no right to demand or force the Corporation to effect such
registration.
(d) The Optionee hereby acknowledges that the Corporation has
provided it with the most recent financial statements of the Corporation, all
prepared by the independent certified public accountant engaged by the
Corporation, and further acknowledges that the Corporation has provided it with
an opportunity to ask questions of and to receive answers from a person
authorized to act on behalf of the Corporation concerning any aspect of the
Corporation's present or future financial or business status and prospects. At
reasonable times prior to the exercise of the Option, or part thereof, the
Optionee may request and the Corporation shall thereafter again provide the
Optionee with a balance sheet, a profit and loss statement, and a statement of
changes in capital of the Corporation for the preceding year, all prepared by
the independent certified public accountant then engaged by the Corporation, and
furthermore, shall again provide the Optionee with an opportunity to ask
questions of and to receive answers from any person authorized to act on behalf
of the Corporation concerning any aspect of the Corporation's present and future
financial or business status.
(e) The Optionee represents and warrants that it is knowledgeable in
business affairs and is a sophisticated investor with significant investment
experience and has had the opportunity to discuss the suitability of both the
purchase of this Option and the acquisition of the shares of the Option Stock
with both its legal counsel and financial accountant.
(f) The Optionee acknowledges that the exercise of the Option
granted by this Agreement may, under certain circumstances, be restricted or
prohibited by, and any shares of the Corporation's Common Stock may be issued
only in accordance with, the Corporation's Certificate of Incorporation, as
amended, including Article TENTH thereof.
8. Further Assurances. The parties hereto hereby agree to do such further
acts and things, and to execute and deliver such additional conveyances,
assignments, agreements and instruments, as either may at any time reasonably
request in order to better assure and confirm unto each party their respective
rights, powers and remedies conferred hereunder.
9. Specific Performance. The parties hereto hereby expressly recognize and
acknowledge that extensive and irreparable damage would result in the event that
this Agreement is not specifically enforced. Therefore, their respective rights
and obligations hereunder shall be enforceable in a court of equity by a decree
of specific performance and appropriate injunctive relief
<PAGE>
may be applied for and granted in connection therewith. Such remedies and any
and all other remedies provided for in this Agreement shall, however, be
cumulative and not exclusive and shall be in addition to any other remedies
which any party may have under this Agreement or otherwise.
10. Notices. Any notice, payment, demand or any other
communication required or permitted to be given hereunder shall be
either in writing and mailed, telegraphed or delivered by hand to
the applicable party or parties at the address(es) indicated below:
If to the Corporation:
Choices Entertainment Corporation
836 W. Trenton Avenue
Morrisville, PA 19067
Attn: Ronald W. Martignoni, President
If to the Optionee:
Fred E. Portner
121 Montgomery Place
Alexandria, VA 22314
or, as to each party at such other address(es) as may be designated from time to
time by such party or parties by like notice to the other parties, complying
with this section. All such notices, payments, demands or other communications
shall be deemed validly given and legally effective when: (a) deposited in the
United States postal system, by either certified or registered mail, postage
prepaid thereon and return receipt requested (in the case of notice via mail);
(b) handed over, delivered, or otherwise deposited with the telegraph company
for transmission (in the case of telegraphic notice); or (c) placed in the hands
of a competent adult authorized to accept the same (in the case of notice via
hand delivery).
11. Severability. If any term or provision of this Agreement is held or
deemed to be invalid or unenforceable, in whole or in part, by a court of
competent jurisdiction, this Agreement shall be ineffective only to the extent
of such invalidity or unenforceability without rendering invalid or
unenforceable the remaining terms and provisions of this Agreement.
12. Entire Agreement; Amendment. This Agreement constitutes the entire
agreement of the parties with regard to the specific subject matter hereof and
supersedes all prior written and/or oral understandings between the parties. As
the final written expression of all of the agreements and understandings among
the parties hereto, this Agreement is an exhaustive and complete expression of
the parties' intent and therefore may be modified only by a writing signed by
all of the parties.
<PAGE>
13. Waiver. Any waiver by either party of a breach of any provision of
this Agreement shall not operate as or be construed to be a waiver of any other
breach of such provision or of any breach of any other provision of this
Agreement. The failure of a party to insist upon strict adherence to any term of
this Agreement on one or more occasions shall neither be considered a waiver nor
deprive that Party of any right thereafter to insist upon strict adherence to
that term or any other term of this Agreement. Any waiver must be in writing and
signed by the Party to be charged therewith.
14. Binding Effect. This Agreement shall be binding upon, and inure to the
benefit of, the heirs, personal representatives, legal successors and assigns of
the respective parties hereto. Neither party shall assign this Agreement without
the written consent of the others and any attempted assignment without said
consent shall be null, void and without any effect whatsoever ab initio.
15. Construction. This Agreement shall be governed, enforced, performed
and construed in accordance with the laws of the State of Delaware (excepting
those conflicts of laws provisions which would serve to defeat application of
Delaware law).
16. Counterparts. Provided that all parties hereto execute a copy of this
Agreement, this Agreement may be executed in counterparts, each of which shall
be deemed an original and all of which together shall constitute one and the
same instrument.
17. Headings. The headings contained herein are included solely for ease
of reference and in no way shall limit, expand or otherwise affect either the
substance or construction of the terms and conditions of this Agreement or the
intent of the Parties hereto.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
under seal as of the day and year first above written.
WITNESS/ATTEST: CORPORATION:
CHOICES ENTERTAINMENT CORPORATION
By:/s/Mark Wiltshire By:/s/ Ronald W. Martignoni
---------------------------- -------------------------------
Ronald W. Martignoni
(Assistant) Secretary Chief Executive Officer
OPTIONEE:
/s/ Fred E. Portner (SEAL)
---------------------------- -------------------------------
<PAGE>
EXHIBIT A
NOTICE OF EXERCISE
TO: Secretary
Choices Entertainment Corporation
___________________, 19___
RE: Exercise of Stock Option.
The undersigned, pursuant to the provisions set forth in that certain
_________________, 19___ Stock Option Agreement (hereinafter the "Agreement"),
hereby exercises his option under said Agreement and subscribes for and
purchases _________________________________ (___________) shares of the Common
Stock, par value One Cent ($.01) per share, of Choices Entertainment Corporation
(hereinafter the "Corporation"), and makes payment herewith in full therefore by
the present delivery of its check, drawn in the amount of _____________
__________________________________ Dollars and ____________ Cents
($____________), representing the aggregate exercise price for the shares hereby
purchased, as provided for in the Agreement.
1. In connection herewith, the undersigned hereby expressly
represents, warrants and covenants under seal as follows:
(i) That the shares of Common Stock obtained by the
undersigned pursuant to this Notice of Exercise
(hereinafter collectively the "Shares") are being
acquired by the undersigned for his own account
with the present intention of holding such Shares
for purposes of investment, and that he has no
intention of selling such securities in a public
distribution or otherwise in violation of either
the Federal securities laws or any applicable State
securities laws.
(ii) That the Shares will be held by the undersigned
indefinitely unless subsequently registered under
the Federal Securities Act of 1933, as amended
(hereinafter the "Act"), and any and all applicable
similar state securities acts (hereinafter the
"State Acts"), or unless an exemption from such
registration is available and an opinion of counsel
which (to the Corporation's reasonable
satisfaction) is knowledgeable in securities law
matters is obtained to that effect and delivered to
the Corporation.
<PAGE>
(iii) That the undersigned has made such investigations of the
Corporation and has received all information and data that the
undersigned has requested which he considers necessary in
order to reach an informed decision as to the advisability of
purchasing the Shares.
(iv) That the undersigned is knowledgeable in business affairs and
is a sophisticated investor with significant investment
experience and has had the opportunity to discuss the
suitability of the acquisition of the shares with both his
legal counsel and financial accountant.
2. Also in connection herewith, the undersigned specifically
acknowledges under seal as follows:
(i) That the Corporation has provided the undersigned with the
most recent Financial Statements of the Corporation, including
but not limited to, a balance sheet, a profit and loss
statement and a statement of changes in financial condition,
all as at the end of the most recent fiscal year and prepared
by the independent Certified Public Accountant engaged by the
Corporation.
(ii) That the Corporation has provided the undersigned with an
opportunity to ask questions of and to receive answers from a
person authorized to act on behalf of the Corporation
concerning any aspect of the Corporation's financial or
business status.
(iii) That, if the Shares have not been registered under either the
Act or the State Acts, the Shares cannot be resold unless
subsequently registered under the Act and the State Acts
unless an exemption from such registration is available and an
opinion of counsel which (to the Corporation's reasonable
satisfaction) is knowledgeable in securities law matters is
obtained to that effect and delivered to the Corporation.
(iv) That, the Shares issued, directly or indirectly, pursuant to
this Notice of Exercise have not been registered under the Act
and the State Acts, and the stock certificates of the
Corporation that will evidence such Shares will be imprinted
with a conspicuous legend in substantially the following form:
The securities represented by this certificate have not been
registered under the federal Securities Act of 1933, as
amended (the "Act"), or
<PAGE>
applicable state securities laws (the "State Acts"), and
shall not be sold, pledged, hypothecated, donated or
otherwise transferred (whether or not for consideration)
unless subsequently registered under the Act and all
applicable State Acts, or unless an exemption from such
registration is available and an opinion of counsel, such
counsel to be satisfactory to the Corporation, is provided
to that effect.
IN WITNESS WHEREOF, the undersigned has executed, sealed and delivered
this Notice of Exercise this ____ day of ___________, 19__.
WITNESS:
- - - ------------------------------ ------------------------------
Exhibit 10(b)
THIS OPTION HAS BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY
AND MAY BE TRANSFERRED ONLY IN COMPLIANCE WITH BOTH THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND THE
RESTRICTIONS CONTAINED HEREIN. THIS OPTION HAS NOT BEEN
REGISTERED UNDER THE ACT.
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (hereinafter the "Agreement"), is entered into
under seal as of this 13th day of February, 1997 by and between CHOICES
ENTERTAINMENT CORPORATION, a Delaware Corporation (hereinafter the
"Corporation"), and James D. Sink, a resident of the Commonwealth of
Pennsylvania (hereinafter the "Optionee").
R E C I T A L S
WHEREAS, the Corporation now desires to provide for the grant to the
Optionee of an option to purchase certain shares of the Common Stock of the
Corporation, upon certain stated terms and conditions.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements contained herein, and for other good and valuable
consideration both the receipt and legal sufficiency of which are hereby
acknowledged, the parties hereby specifically agree under seal as follows:
1. Grant of Option. In exchange for good and valuable consideration and
Ten Dollars ($10.00) paid in hand by the Optionee to the Corporation, the
Corporation hereby grants to the Optionee, subject to the provisions hereof, the
right, privilege and option to purchase up to, but not exceeding, two hundred
thousand (200,000) shares of the Common Stock of the Corporation, par value One
Cent ($.01) per share (hereinafter the "Option"), at a per share exercise price
of $0.05.
2. Manner of Exercise. Subject at all times to the provisions of the
Corporation's Certificate of Incorporation, as amended, the Option granted
pursuant to this Agreement may be exercised by the Optionee at any time during
the period of time commencing on August 13, 1997, and terminating at 5:00 p.m.,
prevailing New York time, on February 13, 2002 (hereinafter the "Expiration
Date"). Said Option may be exercised from time to time prior to said Expiration
Date, but in no instance for less than Ten Thousand (10,000) shares of the
Common Stock of the Corporation at any one (1) time (unless a lesser number of
shares shall then be the maximum number subject to exercise at that time and, if
such is the case, the Optionee must exercise in toto, and not in part, all such
shares subject to exercise at that time). It is expressly
<PAGE>
understood that any and all Options not exercised prior to the Expiration Date
shall expire immediately and automatically thereon and become null and void
without any further act or deed whatsoever at that time.
3. Exercise of Option. The Option granted by this Agreement, to the extent
the same is exercisable in accordance with the provisions set forth in Section 2
hereof, may be exercised only by delivering to the Secretary of the Corporation
written notice of exercise in the form of the Notice of Exercise, attached
hereto as Exhibit A and incorporated by reference herein, together with payment
in the form of cash, check, bank draft or money order payable to the Order of
Corporation in an amount equal to the total exercise price as set forth in
Section 1 hereof (hereinafter the "Exercise Price") for that number of shares
purchased pursuant to said Notice of Exercise and a written statement that the
shares are being purchased for the Optionee's own account, for investment only,
and not with a view to distribution. This statement will not be required in the
event that the offering of the securities pursuant to this Agreement is then
registered under the federal Securities Act of 1933, as amended (hereinafter the
"Act"), and any and all applicable similar state securities laws (hereinafter
the "State Acts"). Within thirty (30) days after delivery of any Notice of
Exercise as set forth hereinabove, the Corporation shall cause certificates for
the number of shares of the Common Stock of the Corporation with respect to
which such Option is exercised to be issued in the name of the Optionee.
4. Option Stock. Any shares issued upon the exercise of the Option granted
hereby shall be either authorized but unissued or reacquired shares of the
Corporation's common stock, par value One Cent ($.01) per share (any such shares
issued pursuant to such exercise, hereinafter the "Option Stock").
5. Option Transfer Restrictions. The Option granted pursuant to this
Agreement may not be transferred, assigned, pledged, sold, donated, hypothecated
or otherwise disposed of in any way whatsoever, shall not be subject to
attachment or similar process, and may be exercised, subject to the restrictions
contained herein, only by the Optionee. Upon any attempt to transfer the Option
granted pursuant thereto, or to assign, pledge, hypothecate, sell, donate or
otherwise dispose of the same in any manner whatsoever, not in strict accordance
with the provisions hereof, or upon the levy of any execution, attachment, or
similar process upon such option, the Option shall immediately and automatically
become null and void and without any force or effect whatsoever.
6. Optionee Not a Stockholder. The Optionee shall not be deemed for any
purpose to be a stockholder of the Corporation with respect to any shares as to
which the Option granted hereunder has not been exercised in strict accordance
hereof, with payment of the Exercise Price and issuance of certificates made as
provided herein.
<PAGE>
7. Optionee's Representations & Warranties; Acknowledgement of Certain
Facts.
(a) The Optionee acknowledges that any and all securities to be
acquired pursuant to this Agreement have not been registered under either the
Act or the State Acts. Accordingly, the Optionee represents and warrants that
the Option granted hereby and any Option Stock acquired pursuant hereto will be
acquired for its own account and without a view to, the offer, offer for sale,
or any sale in connection with, the distribution of either such Option or the
Option Stock represented by such Option. The Optionee further represents and
warrants that it will hold such Option Stock indefinitely unless subsequently
registered under the Act and the State Acts or unless exemption from such
registration is available and an opinion of counsel for the Corporation, in form
and substance satisfactory to the Corporation, is obtained to that effect.
Consequently, all certificates representing shares of Option Stock issued upon
the exercise of the Option, or part thereof, shall bear a conspicuous legend in
substantially the following form:
"The securities represented by this certificate have not been
registered under the Federal Securities Act of 1933 (the "Act") or
applicable state securities laws (the "State Acts") and shall not be sold,
pledged, hypothecated, donated, or otherwise transferred (whether or not
for consideration) by the holder except upon the issuance to the
Corporation of a favorable opinion of its counsel and/or the submission to
the Corporation of such other evidence as may be satisfactory to counsel
for the Corporation, to the effect that any such transfer shall not be in
violation of the Act and the State Acts."
(b) The Optionee recognizes that the securities to be acquired
pursuant to this Agreement are highly speculative and involve a high degree of
risk. The Optionee further recognizes that the Option granted hereby is not
transferable except as specifically set forth herein and that the
transferability of shares of the Option Stock is significantly restricted. The
Optionee acknowledges that it has sufficient financial means to be able to
sustain the loss of the amount necessary to exercise the Option or part thereof,
should it choose to do so. The Optionee expressly recognizes and specifically
acknowledges that the percentage of the Corporation's equity represented by this
Option is subject to substantial dilution in any one of a variety of means,
including, but not limited to, by way of a future issuance of stock, stock
split, reverse stock split, stock dividend or other distribution,
reclassification of outstanding shares, recapitalization or otherwise.
(c) The parties agree that if the Corporation shall be advised by
its legal counsel that the issuance of securities or transfer of the Option
pursuant to this Agreement is not permitted under the Act or the State Acts, the
Corporation may, in its
<PAGE>
discretion, defer either the delivery of any Option Stock to the Optionee or the
transfer of the Option until such time as the same would be permitted by the Act
and the State Acts, including by effecting registration of the same. The
Optionee shall have no right to demand or force the Corporation to effect such
registration.
(d) The Optionee hereby acknowledges that the Corporation has
provided it with the most recent financial statements of the Corporation, all
prepared by the independent certified public accountant engaged by the
Corporation, and further acknowledges that the Corporation has provided it with
an opportunity to ask questions of and to receive answers from a person
authorized to act on behalf of the Corporation concerning any aspect of the
Corporation's present or future financial or business status and prospects. At
reasonable times prior to the exercise of the Option, or part thereof, the
Optionee may request and the Corporation shall thereafter again provide the
Optionee with a balance sheet, a profit and loss statement, and a statement of
changes in capital of the Corporation for the preceding year, all prepared by
the independent certified public accountant then engaged by the Corporation, and
furthermore, shall again provide the Optionee with an opportunity to ask
questions of and to receive answers from any person authorized to act on behalf
of the Corporation concerning any aspect of the Corporation's present and future
financial or business status.
(e) The Optionee represents and warrants that it is knowledgeable in
business affairs and is a sophisticated investor with significant investment
experience and has had the opportunity to discuss the suitability of both the
purchase of this Option and the acquisition of the shares of the Option Stock
with both its legal counsel and financial accountant.
(f) The Optionee acknowledges that the exercise of the Option
granted by this Agreement may, under certain circumstances, be restricted or
prohibited by, and any shares of the Corporation's Common Stock may be issued
only in accordance with, the Corporation's Certificate of Incorporation, as
amended, including Article TENTH thereof.
8. Further Assurances. The parties hereto hereby agree to do such further
acts and things, and to execute and deliver such additional conveyances,
assignments, agreements and instruments, as either may at any time reasonably
request in order to better assure and confirm unto each party their respective
rights, powers and remedies conferred hereunder.
9. Specific Performance. The parties hereto hereby expressly recognize and
acknowledge that extensive and irreparable damage would result in the event that
this Agreement is not specifically enforced. Therefore, their respective rights
and obligations hereunder shall be enforceable in a court of equity by a decree
of specific performance and appropriate injunctive relief
<PAGE>
may be applied for and granted in connection therewith. Such remedies and any
and all other remedies provided for in this Agreement shall, however, be
cumulative and not exclusive and shall be in addition to any other remedies
which any party may have under this Agreement or otherwise.
10. Notices. Any notice, payment, demand or any other communication
required or permitted to be given hereunder shall be either in writing and
mailed, telegraphed or delivered by hand to the applicable party or parties at
the address(es) indicated below:
If to the Corporation:
Choices Entertainment Corporation
836 W. Trenton Avenue
Morrisville, PA 19067
Attn: Ronald W. Martignoni, President
If to the Optionee:
James D. Sink
220 Curwen Road
Rosemont, PA 19010
or, as to each party at such other address(es) as may be designated from time to
time by such party or parties by like notice to the other parties, complying
with this section. All such notices, payments, demands or other communications
shall be deemed validly given and legally effective when: (a) deposited in the
United States postal system, by either certified or registered mail, postage
prepaid thereon and return receipt requested (in the case of notice via mail);
(b) handed over, delivered, or otherwise deposited with the telegraph company
for transmission (in the case of telegraphic notice); or (c) placed in the hands
of a competent adult authorized to accept the same (in the case of notice via
hand delivery).
11. Severability. If any term or provision of this Agreement is held or
deemed to be invalid or unenforceable, in whole or in part, by a court of
competent jurisdiction, this Agreement shall be ineffective only to the extent
of such invalidity or unenforceability without rendering invalid or
unenforceable the remaining terms and provisions of this Agreement.
12. Entire Agreement; Amendment. This Agreement constitutes the entire
agreement of the parties with regard to the specific subject matter hereof and
supersedes all prior written and/or oral understandings between the parties. As
the final written expression of all of the agreements and understandings among
the parties hereto, this Agreement is an exhaustive and complete expression of
the parties' intent and therefore may be modified only by a writing signed by
all of the parties.
<PAGE>
13. Waiver. Any waiver by either party of a breach of any provision of
this Agreement shall not operate as or be construed to be a waiver of any other
breach of such provision or of any breach of any other provision of this
Agreement. The failure of a party to insist upon strict adherence to any term of
this Agreement on one or more occasions shall neither be considered a waiver nor
deprive that Party of any right thereafter to insist upon strict adherence to
that term or any other term of this Agreement. Any waiver must be in writing and
signed by the Party to be charged therewith.
14. Binding Effect. This Agreement shall be binding upon, and inure to the
benefit of, the heirs, personal representatives, legal successors and assigns of
the respective parties hereto. Neither party shall assign this Agreement without
the written consent of the others and any attempted assignment without said
consent shall be null, void and without any effect whatsoever ab initio.
15. Construction. This Agreement shall be governed, enforced, performed
and construed in accordance with the laws of the State of Delaware (excepting
those conflicts of laws provisions which would serve to defeat application of
Delaware law).
16. Counterparts. Provided that all parties hereto execute a copy of this
Agreement, this Agreement may be executed in counterparts, each of which shall
be deemed an original and all of which together shall constitute one and the
same instrument.
17. Headings. The headings contained herein are included solely for ease
of reference and in no way shall limit, expand or otherwise affect either the
substance or construction of the terms and conditions of this Agreement or the
intent of the Parties hereto.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
under seal as of the day and year first above written.
WITNESS/ATTEST: CORPORATION:
CHOICES ENTERTAINMENT CORPORATION
By:/s/Mark Wiltshire By:/s/ Ronald W. Martignoni
---------------------------- -------------------------------
Ronald W. Martignoni
(Assistant) Secretary Chief Executive Officer
OPTIONEE:
/s/ James D. Sink (SEAL)
---------------------------- -------------------------------
<PAGE>
EXHIBIT A
NOTICE OF EXERCISE
TO: Secretary
Choices Entertainment Corporation
___________________, 19___
RE: Exercise of Stock Option.
The undersigned, pursuant to the provisions set forth in that certain
_________________, 19___ Stock Option Agreement (hereinafter the "Agreement"),
hereby exercises his option under said Agreement and subscribes for and
purchases _________________________________ (___________) shares of the Common
Stock, par value One Cent ($.01) per share, of Choices Entertainment Corporation
(hereinafter the "Corporation"), and makes payment herewith in full therefore by
the present delivery of its check, drawn in the amount of _____________
__________________________________ Dollars and ____________ Cents
($____________), representing the aggregate exercise price for the shares hereby
purchased, as provided for in the Agreement.
1. In connection herewith, the undersigned hereby expressly
represents, warrants and covenants under seal as follows:
(i) That the shares of Common Stock obtained by the
undersigned pursuant to this Notice of Exercise
(hereinafter collectively the "Shares") are being
acquired by the undersigned for his own account
with the present intention of holding such Shares
for purposes of investment, and that he has no
intention of selling such securities in a public
distribution or otherwise in violation of either
the Federal securities laws or any applicable State
securities laws.
(ii) That the Shares will be held by the undersigned
indefinitely unless subsequently registered under
the Federal Securities Act of 1933, as amended
(hereinafter the "Act"), and any and all applicable
similar state securities acts (hereinafter the
"State Acts"), or unless an exemption from such
registration is available and an opinion of counsel
which (to the Corporation's reasonable
satisfaction) is knowledgeable in securities law
matters is obtained to that effect and delivered to
the Corporation.
<PAGE>
(iii) That the undersigned has made such investigations of the
Corporation and has received all information and data that the
undersigned has requested which he considers necessary in
order to reach an informed decision as to the advisability of
purchasing the Shares.
(iv) That the undersigned is knowledgeable in business affairs and
is a sophisticated investor with significant investment
experience and has had the opportunity to discuss the
suitability of the acquisition of the shares with both his
legal counsel and financial accountant.
2. Also in connection herewith, the undersigned specifically
acknowledges under seal as follows:
(i) That the Corporation has provided the undersigned
with the most recent Financial Statements of the
Corporation, including but not limited to, a
balance sheet, a profit and loss statement and a
statement of changes in financial condition, all as
at the end of the most recent fiscal year and
prepared by the independent Certified Public
Accountant engaged by the Corporation.
(ii) That the Corporation has provided the undersigned with an
opportunity to ask questions of and to receive answers from a
person authorized to act on behalf of the Corporation
concerning any aspect of the Corporation's financial or
business status.
(iii) That, if the Shares have not been registered under either the
Act or the State Acts, the Shares cannot be resold unless
subsequently registered under the Act and the State Acts
unless an exemption from such registration is available and an
opinion of counsel which (to the Corporation's reasonable
satisfaction) is knowledgeable in securities law matters is
obtained to that effect and delivered to the Corporation.
(iv) That, the Shares issued, directly or indirectly, pursuant to
this Notice of Exercise have not been registered under the Act
and the State Acts, and the stock certificates of the
Corporation that will evidence such Shares will be imprinted
with a conspicuous legend in substantially the following form:
The securities represented by this
certificate have not been registered under
the federal Securities Act of 1933, as
amended (the "Act"), or
<PAGE>
applicable state securities laws (the "State Acts"), and
shall not be sold, pledged, hypothecated, donated or
otherwise transferred (whether or not for consideration)
unless subsequently registered under the Act and all
applicable State Acts, or unless an exemption from such
registration is available and an opinion of counsel, such
counsel to be satisfactory to the Corporation, is provided
to that effect.
IN WITNESS WHEREOF, the undersigned has executed, sealed and delivered
this Notice of Exercise this ____ day of ___________, 19__.
WITNESS:
- - - ------------------------------ ------------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of Choices Entertainment Corporation 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> 54,586
<SECURITIES> 0
<RECEIVABLES> 26,304
<ALLOWANCES> 0
<INVENTORY> 149,486
<CURRENT-ASSETS> 260,077
<PP&E> 4,807,422
<DEPRECIATION> 4,011,794
<TOTAL-ASSETS> 1,296,540
<CURRENT-LIABILITIES> 2,791,314
<BONDS> 0
0
0
<COMMON> 220,044
<OTHER-SE> (1,714,818)
<TOTAL-LIABILITY-AND-EQUITY> 1,296,540
<SALES> 1,256,223
<TOTAL-REVENUES> 1,256,223
<CGS> 289,232
<TOTAL-COSTS> 289,232
<OTHER-EXPENSES> 1,118,157
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,061
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (168,227)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
